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 June 30, 2017
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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 (Do not check if a smaller reporting company)
 
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 June 30, 2017 , the most recent practicable date, the number of Common Shares outstanding was 406,891,732 .

1

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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2

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
June 30, 2017
 
December 31, 2016
ASSETS
 
 
 
Cash and cash equivalents
1,646.1

 
1,328.0

Unsettled fund receivables
1,017.9

 
672.9

Accounts receivable
533.3

 
544.2

Investments
642.6

 
795.3

Assets of consolidated investment products (CIP):
 
 
 
Cash and cash equivalents of CIP
328.1

 
742.2

Accounts receivable and other assets of CIP
104.1

 
106.2

Investments of CIP
4,917.0

 
5,116.1

Assets held for policyholders
10,716.7

 
8,224.2

Prepaid assets
118.3

 
116.9

Other assets
75.7

 
95.0

Property, equipment and software, net
482.2

 
464.7

Intangible assets, net
1,397.0

 
1,399.4

Goodwill
6,269.5

 
6,129.2

Total assets
28,248.5

 
25,734.3

LIABILITIES
 
 
 
Accrued compensation and benefits
475.1

 
654.3

Accounts payable and accrued expenses
788.3

 
812.4

Liabilities of CIP:
 
 
 
Debt of CIP
3,929.5

 
4,403.1

Other liabilities of CIP
393.2

 
673.4

Policyholder payables
10,716.7

 
8,224.2

Unsettled fund payables
1,002.1

 
659.3

Long-term debt
2,074.8

 
2,102.4

Deferred tax liabilities, net
366.5

 
309.7

Total liabilities
19,746.2

 
17,838.8

Commitments and contingencies (See Note 11)


 


TEMPORARY EQUITY
 
 
 
Redeemable noncontrolling interests in consolidated entities
328.3

 
283.7

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 June 30, 2017 and December 31, 2016)
98.1

 
98.1

Additional paid-in-capital
6,206.2

 
6,227.4

Treasury shares
(2,788.9
)
 
(2,845.8
)
Retained earnings
5,051.3

 
4,833.4

Accumulated other comprehensive income/(loss), net of tax
(594.2
)
 
(809.3
)
Total equity attributable to Invesco Ltd.
7,972.5

 
7,503.8

Equity attributable to nonredeemable noncontrolling interests in consolidated entities
201.5

 
108.0

Total permanent equity
8,174.0

 
7,611.8

Total liabilities, temporary and permanent equity
28,248.5

 
25,734.3

See accompanying notes.

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Invesco Ltd.
Condensed Consolidated Statements of Income
(Unaudited)

 
Three months ended June 30,
 
Six months ended June 30,
$ in millions, except per share data
2017
 
2016
 
2017
 
2016
Operating revenues:
 
 
 
 
 
 
 
Investment management fees
1,010.4

 
946.7

 
1,965.6

 
1,860.3

Service and distribution fees
211.3

 
203.4

 
417.7

 
401.1

Performance fees
16.7

 
8.9

 
28.0

 
23.4

Other
16.0

 
30.4

 
35.7

 
53.3

Total operating revenues
1,254.4

 
1,189.4

 
2,447.0

 
2,338.1

Operating expenses:
 
 
 
 
 
 
 
Third-party distribution, service and advisory
365.9

 
348.4

 
715.2

 
695.6

Employee compensation
365.6

 
350.3

 
762.4

 
694.7

Marketing
29.1

 
28.3

 
53.5

 
53.2

Property, office and technology
89.0

 
82.3

 
174.5

 
162.2

General and administrative
85.9

 
78.6

 
163.9

 
156.5

Total operating expenses
935.5

 
887.9

 
1,869.5

 
1,762.2

Operating income
318.9

 
301.5

 
577.5

 
575.9

Other income/(expense):
 
 
 
 
 
 
 
Equity in earnings of unconsolidated affiliates
10.5

 
4.6

 
28.2

 
(7.6
)
Interest and dividend income
1.6

 
2.5

 
4.5

 
6.1

Interest expense
(23.6
)
 
(22.1
)
 
(47.6
)
 
(46.0
)
Other gains and losses, net
2.5

 
(4.2
)
 
8.7

 
(8.9
)
Other income/(expense) of CIP, net
32.3

 
37.9

 
60.8

 
30.4

Income before income taxes
342.2

 
320.2

 
632.1

 
549.9

Income tax provision
(92.6
)
 
(83.7
)
 
(168.3
)
 
(155.6
)
Net income
249.6

 
236.5

 
463.8

 
394.3

Net (income)/loss attributable to noncontrolling interests in consolidated entities
(10.0
)
 
(11.0
)
 
(12.2
)
 
(7.8
)
Net income attributable to Invesco Ltd.
239.6

 
225.5

 
451.6

 
386.5

Earnings per share:
 
 
 
 
 
 
 
-basic

$0.58

 

$0.54

 

$1.10

 

$0.92

-diluted

$0.58

 

$0.54

 

$1.10

 

$0.92

Dividends declared per share

$0.29

 

$0.28

 

$0.57

 

$0.55


See accompanying notes.


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Invesco Ltd .
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
 
Three months ended June 30,
 
Six months ended June 30,
$ in millions
2017
 
2016
 
2017
 
2016
Net income
249.6

 
236.5

 
463.8

 
394.3

Other comprehensive income/(loss), net of tax:
 
 
 
 
 
 
 
Currency translation differences on investments in foreign subsidiaries
147.4

 
(166.6
)
 
210.0

 
(69.4
)
Actuarial (loss)/gain related to employee benefit plans
—

 
—

 
(0.4
)
 
(0.4
)
Reclassification of prior service cost/(credit) into employee compensation expense
—

 
(1.8
)
 
—

 
(3.4
)
Reclassification of actuarial (gain)/loss into employee compensation expense
0.5

 
0.5

 
1.1

 
0.8

Share of other comprehensive income/(loss) of equity method investments
0.9

 
0.9

 
1.2

 
0.6

Unrealized gains/(losses) on available-for-sale investments
0.9

 
(0.6
)
 
4.0

 
1.7

Reclassification of net (gains)/losses realized on available-for-sale investments included in other gains and losses, net
(0.2
)
 
(0.1
)
 
(0.8
)
 
(0.3
)
Other comprehensive income/(loss)
149.5

 
(167.7
)
 
215.1

 
(70.4
)
Total comprehensive income/(loss)
399.1

 
68.8

 
678.9

 
323.9

Comprehensive loss/(income) attributable to noncontrolling interests in consolidated entities
(10.0
)
 
(8.5
)
 
(12.2
)
 
(5.3
)
Comprehensive income/(loss) attributable to Invesco Ltd.
389.1

 
60.3

 
666.7

 
318.6

See accompanying notes.



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Invesco Ltd.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Six months ended June 30,
$ in millions
2017
 
2016
Operating activities:
 
 
 
Net income
463.8

 
394.3

Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
 
 
 
Amortization and depreciation
52.5

 
49.9

Share-based compensation expense
92.5

 
79.1

Other (gains)/losses, net
(8.7
)
 
8.9

Other (gains)/losses of CIP, net
(38.1
)
 
(0.4
)
Equity in earnings of unconsolidated affiliates
(28.2
)
 
7.6

Dividends from unconsolidated affiliates
1.2

 
0.9

Changes in operating assets and liabilities:
 
 
 
(Increase)/decrease in cash held by CIP
407.0

 
(8.9
)
(Purchase)/sale of investments by CIP, net
(245.8
)
 
(118.5
)
(Purchase)/sale of trading investments, net
174.5

 
(14.7
)
(Increase)/decrease in receivables
(2,324.5
)
 
(1,823.9
)
Increase/(decrease) in payables
2,235.4

 
1,639.3

Net cash provided by/(used in) operating activities
781.6

 
213.6

Investing activities:
 
 
 
Purchase of property, equipment and software
(59.9
)
 
(65.3
)
Purchase of available-for-sale investments
(7.7
)
 
(4.1
)
Sale of available-for-sale investments
57.6

 
5.7

Purchase of investments by CIP
(3,080.5
)
 
(1,220.1
)
Sale of investments by CIP
3,145.8

 
908.4

Purchase of other investments
(87.6
)
 
(61.6
)
Sale of other investments
63.3

 
53.3

Returns of capital and distributions from unconsolidated partnership investments
37.3

 
22.8

Purchase of business
—

 
(121.9
)
Net cash provided by/(used in) investing activities
68.3

 
(482.8
)
Financing activities:
 
 
 
Purchases of treasury shares
(57.3
)
 
(244.0
)
Dividends paid
(233.7
)
 
(230.6
)
Excess tax benefits from share-based compensation
—

 
(3.1
)
Third-party capital invested into CIP
299.7

 
141.1

Third-party capital distributed by CIP
(62.9
)
 
(44.8
)
Borrowings of debt by CIP
1,459.3

 
387.3

Repayments of debt by CIP
(1,957.1
)
 
(75.9
)
Net borrowings/(repayments) under credit facility
(28.7
)
 
—

Payment of contingent consideration
(7.2
)
 
(6.2
)
Net cash provided by/(used in) financing activities
(587.9
)
 
(76.2
)
Increase/(decrease) in cash and cash equivalents
262.0

 
(345.4
)
Foreign exchange movement on cash and cash equivalents
56.1

 
(59.8
)
Cash and cash equivalents, beginning of period
1,328.0

 
1,851.4

Cash and cash equivalents, end of period
1,646.1

 
1,446.2

Supplemental Cash Flow Information:
 
 
 
Interest paid
(43.1
)
 
(33.3
)
Interest received
2.0

 
3.3

Taxes paid
(126.3
)
 
(98.6
)
See accompanying notes.

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Table of Contents     

    

                                    

Invesco Ltd.
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
 
Equity Attributable to Invesco Ltd.
 
 
 
 
 
 
$ in millions
Co mmon  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, 2017
98.1

 
6,227.4

 
(2,845.8
)
 
4,833.4

 
(809.3
)
 
7,503.8

 
108.0

 
7,611.8

 
283.7

Net income
—

 
—

 
—

 
451.6

 
—

 
451.6

 
(4.4
)
 
447.2

 
16.6

Other comprehensive income
—

 
—

 
—

 
—

 
215.1

 
215.1

 
—

 
215.1

 
—

Change in noncontrolling interests in consolidated entities, net
—

 
—

 
—

 
—

 
—

 
—

 
97.9

 
97.9

 
28.0

Dividends
—

 
—

 
—

 
(233.7
)
 
—

 
(233.7
)
 
—

 
(233.7
)
 
—

Employee share plans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Share-based compensation
—

 
92.5

 
—

 
—

 
—

 
92.5

 
—

 
92.5

 
—

Vested shares
—

 
(113.8
)
 
113.8

 
—

 
—

 
—

 
—

 
—

 
—

Other share awards
—

 
0.1

 
0.4

 
—

 
—

 
0.5

 
—

 
0.5

 
—

Purchase of shares
—

 
—

 
(57.3
)
 
—

 
—

 
(57.3
)
 
—

 
(57.3
)
 
—

June 30, 2017
98.1

 
6,206.2

 
(2,788.9
)
 
5,051.3

 
(594.2
)
 
7,972.5

 
201.5

 
8,174.0

 
328.3


See accompanying notes.

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Invesco Ltd.
Consolidated Statements of Changes in Equity (continued)
(Unaudited)
 
Equity Attributable to Invesco Ltd.
 
 
 
 
 
 
$ in millions
Co mmon  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, 2016
98.1

 
6,197.7

 
(2,404.1
)
 
4,439.6

 
(446.0
)
 
7,885.3

 
810.4

 
8,695.7

 
167.3

Adjustment for adoption of ASU 2015-02
—

 
—

 
—

 
—

 
—

 
—

 
(733.5
)
 
(733.5
)
 
226.6

January 1, 2016, as adjusted
98.1

 
6,197.7

 
(2,404.1
)
 
4,439.6

 
(446.0
)
 
7,885.3

 
76.9

 
7,962.2

 
393.9

Net income
—

 
—

 
—

 
386.5

 
—

 
386.5

 
(2.3
)
 
384.2

 
10.1

Other comprehensive income
—

 
—

 
—

 
—

 
(67.9
)
 
(67.9
)
 
—

 
(67.9
)
 
(2.5
)
Change in noncontrolling interests in consolidated entities, net
—

 
—

 
—

 
—

 
—

 
—

 
(0.4
)
 
(0.4
)
 
(88.9
)
Dividends
—

 
—

 
—

 
(230.6
)
 
—

 
(230.6
)
 
—

 
(230.6
)
 
—

Employee share plans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Share-based compensation
—

 
79.1

 
—

 
—

 
—

 
79.1

 
—

 
79.1

 
—

Vested shares
—

 
(94.5
)
 
94.5

 
—

 
—

 
—

 
—

 
—

 
—

Other share awards
—

 
0.2

 
0.4

 
—

 
—

 
0.6

 
—

 
0.6

 
—

Tax impact of share-based payment
—

 
(3.1
)
 
—

 
—

 
—

 
(3.1
)
 
—

 
(3.1
)
 
—

Purchase of shares
—

 
(30.0
)
 
(364.0
)
 
—

 
—

 
(394.0
)
 
—

 
(394.0
)
 
—

June 30, 2016
98.1

 
6,149.4

 
(2,673.2
)
 
4,595.5

 
(513.9
)
 
7,655.9

 
74.2

 
7,730.1

 
312.6


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, 2016 (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 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.
Money Market Fee Waivers
The company is currently voluntarily providing yield support waivers of its management fees on certain money market funds to ensure that they maintain a minimum level of daily net investment income. During the three and six months ended June 30, 2017 , yield support waivers resulted in a reduction of investment management and service and distribution fees of approximately $1.1 million and $3.0 million , respectively. During the three and six months ended June 30, 2017 , approximately 72% and 66% , respectively, of yield support waivers are offset by a reduction in third party distribution, service and advisory expenses, resulting in a net waiver of $0.3 million and $1.0 million for the three and six months ended June 30, 2017 , respectively. The company has provided yield support waivers in prior periods and may increase or decrease the level of fee waivers in future periods.
Accounting Pronouncements Recently Adopted and Pending Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2014-09, “Revenue from Contracts with Customers” (ASU 2014-09) which revises revenue recognition criteria and expands disclosure requirements. This new guidance will be effective for interim and annual reporting periods beginning after December 15, 2017. The company will implement this new accounting standard on January 1, 2018. However, a decision on the adoption method has not been made as of the date of this Report. There are certain elements of this new accounting guidance that are still being interpreted. For example, the AICPA Asset Management Task Force is assessing ten implementation topics and, as of this reporting date, only four of the ten topics have been finalized. The underlying premise of the new guidance requires the employment of a five step model to determine the amount of revenue that reflects the consideration to which the company expects to be entitled for the transfer of services to customers and the timing of recognition. In addition, ASU 2014-09 also requires certain costs to obtain and fulfill contracts with customers to be capitalized, if they meet certain criteria. Capitalized contract costs are subject to amortization and periodic impairment testing. A key part of management’s implementation efforts is the detailed review of the terms and conditions of a sample of revenue contracts covering a broad range of products across geographic locations. This review is complete. The company does not anticipate a significant change in the timing of revenue recognition for management and service fee revenues. Performance fees (including carried interest) are under evaluation; the timing of recognition will be driven by the terms of each performance fee arrangement. We continue to assess the impact of the rule changes on required disclosures, the accounting for costs associated with revenue contracts, and gross versus net revenue presentation. The above findings are based on our work performed to date. Further impacts may be identified as we continue our assessment and as additional guidance (including interpretive guidance) is issued.

In March 2016, the FASB issued Accounting Standards Update 2016-09, “Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting” (ASU 2016-09). The standard is intended to simplify aspects of the accounting for share-based payment transactions, including income tax impacts, classification on the statement of cash

9


    

                                    

flows, and forfeitures. The company adopted ASU 2016-09 on January 1, 2017. One of the impacts of the new rules is that excess tax benefits and tax deficiencies related to vested awards are no longer recorded in additional paid-in-capital but rather as an income tax expense or benefit. This provision requires a prospective approach to adoption. In the three and six months ended June 30, 2017 , the recognition of excess tax benefits reduced our income tax provision by $0.9 million and $2.2 million , respectively.

Another change resulting from the adoption of ASU 2016-09 relates to the presentation of excess tax benefits and tax deficiencies in the Condensed Consolidated Statements of Cash Flows. The standard requires that excess tax benefits and tax deficiencies be shown as operating cash flows within the Condensed Consolidated Statements of Cash Flows; previously, the company reported these cash flow activities as financing cash flows. The company elected to use a prospective approach to adoption related to this provision and in the six months ended June 30, 2017 , $2.2 million cash inflows were included within the increase/(decrease) in payables as an operating cash flow in the Condensed Consolidated Statements of Cash Flows. ASU 2016-09 requires that employee taxes paid when shares are withheld for tax withholding purposes be reported as a financing activity in the Condensed Consolidated Statements of Cash Flows. The company has retrospectively adopted this change and included $57.3 million in financing activities for the six months ended June 30, 2017 ( six months ended June 30, 2016 : $39.0 million ). Additionally, the new rules allow companies to elect to continue to account for forfeitures using an estimate or instead to elect to account for forfeitures as they occur. The company elected to continue to account for forfeitures using an estimate. The company anticipates fluctuations in its effective tax rate as a result of the excess tax benefits or tax deficiencies being recorded to the income tax provision, particularly in the first quarter of each year when annual share awards vest.

In October 2016, the FASB issued Accounting Standards Update 2016-17, “Consolidation: Interests Held through Related Parties That Are under Common Control” (ASU 2016-17). The standard addresses how a reporting entity determines if it satisfies the characteristics of a primary beneficiary of a variable interest entity (VIE) and which party within a group is considered the primary beneficiary. The company adopted ASU 2016-17 on January 1, 2017 and determined that this guidance did not materially change the company's consolidation conclusions.

In February 2017, the FASB issued Accounting Standards Update 2017-05, “Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets: Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets” (ASU 2017-05). The standard clarifies the scope of accounting for gains and losses from the derecognition of nonfinancial assets and adds guidance for partial sales of nonfinancial assets. ASU 2017-05 is effective for fiscal years and interim periods within those years beginning after December 15, 2017 and must be adopted at the same time as ASU 2014-09. The amendments allow either a retrospective or modified retrospective approach to adoption, and early adoption is permitted. The company is currently evaluating the impact of this standard.

In March 2017, the FASB issued Accounting Standard Update 2017-07, “Compensation-Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (ASU 2017-07). The amendments require that an employer disaggregate the service cost component from the other components of net benefit cost. The amendments also provide guidance on how to present the service cost component and the other components of net benefit cost in the income statement and allow that only the service cost component of net benefit cost is eligible for capitalization. ASU 2017-07 is effective for fiscal years and interim periods within those years beginning after December 15, 2017. The amendments require primarily a retrospective approach to adoption. The application of the new rules will result in the reclassification of pension related costs within the Consolidated Statements of Income and no impact to the results of operations.








10


    

                                    

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 12 , "Consolidated Investment Products."
 
 
 
June 30, 2017
 
December 31, 2016
$ in millions
Footnote Reference
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Cash and cash equivalents
 
 
1,646.1

 
1,646.1

 
1,328.0

 
1,328.0

Available-for-sale investments
3
 
108.3

 
108.3

 
154.0

 
154.0

Trading investments
3
 
228.5

 
228.5

 
329.6

 
329.6

Foreign time deposits  *
3
 
22.3

 
22.3

 
26.9

 
26.9

Assets held for policyholders
 
 
10,716.7

 
10,716.7

 
8,224.2

 
8,224.2

Policyholder payables *
 
 
(10,716.7
)
 
(10,716.7
)
 
(8,224.2
)
 
(8,224.2
)
Put option contracts

 
4.3

 
4.3

 
21.8

 
21.8

UIT-related financial instruments sold, not yet purchased
 
 
(1.1
)
 
(1.1
)
 
(6.0
)
 
(6.0
)
Contingent consideration liability
 
 
(69.2
)
 
(69.2
)
 
(78.2
)
 
(78.2
)
Long-term debt *
4
 
(2,074.8
)
 
(2,265.3
)
 
(2,102.4
)
 
(2,206.5
)
____________
*
These financial instruments are not measured at fair value on a recurring basis. See the indicated footnotes or 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.
A three-level valuation hierarchy exists for disclosure of fair value measurements based upon the transparency of inputs into the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
•
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.
An asset or liability's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
There are three types of valuation approaches: a market approach, which uses observable prices and other relevant information that is generated by market transactions involving identical or comparable assets or liabilities; an income approach, which uses valuation techniques to convert future amounts to a single, discounted present value amount; and a cost approach, which is based on the amount that currently would be required to replace the service capacity of an asset.
The following is a description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy.
Cash equivalents
Cash investments in money market funds are valued under the market approach through the use of quoted market prices in an active market, which is the net asset value (NAV) of the underlying funds, and are classified within level 1 of the valuation hierarchy.
Available-for-sale investments
Seed money is valued under the market approach through the use of quoted market prices available in an active market and is classified within level 1 of the valuation hierarchy; there is no modeling or additional information needed to arrive at the fair values of these investments. At June 30, 2017 and December 31, 2016 , investments in collateralized loan obligations (CLOs) were valued using pricing information obtained by an independent third-party pricing source. Other debt securities are valued using a cost valuation technique due to the lack of available cash flow and market data and are accordingly classified within level 3 of the valuation hierarchy.

11


    

                                    

Trading investments
• Investments related to deferred compensation plans
Investments related to deferred compensation plans are valued under the market approach through the use of quoted prices in an active market and are classified within level 1 of the valuation hierarchy.
• Seed money
Seed money is valued under the market approach through the use of quoted market prices available in an active market and is classified within level 1 of the valuation hierarchy; there is no modeling or additional information needed to arrive at the fair values of these investments.
• Other equity securities
Other equity securities consist of investments in publicly-traded equity securities. These securities are valued under the market approach through the use of quoted prices on an exchange. To the extent these securities are actively traded, valuation adjustments are not applied and they are categorized within level 1 of the valuation hierarchy; otherwise, they are categorized in level 2.
• UIT-related equity and debt securities
The company invests in Unit Investment Trust (UIT)-related equity and debt securities consisting of investments in corporate equities, UITs, and municipal securities. Each is discussed more fully below.
Corporate equities
The company temporarily holds investments in corporate equities for purposes of creating a UIT. Corporate equities are valued under the market approach through use of quoted prices on an exchange. To the extent these securities are actively traded, valuation adjustments are not applied and they are categorized within level 1 of the valuation hierarchy; otherwise, they are categorized in level 2.
UITs
The company may hold units of its sponsored UITs at period-end for sale in the primary market or secondary market. Equity UITs are valued under the market approach through use of quoted prices on an exchange. Fixed income UITs are valued using recently executed transaction prices, market price quotations (where observable), bond spreads, or credit default swap spreads. The spread data used is for the same maturities as the underlying bonds. If the spread data does not reference the issuers, then data that references comparable issuers is used. When observable price quotations are not available, fair value is determined based on cash flow models with yield curves, bond or single name credit default spreads, and recovery rates based on collateral value as key inputs. Depending on the nature of the inputs, these investments are categorized as level 1, 2, or 3.
Put option contracts
The company has purchased put option contracts to hedge economically foreign currency risk on the translation of a portion of its
Pound Sterling-denominated earnings and Euro-denominated earnings into U.S. Dollars (purchases of $3.9 million and $8.1 million in the three and six months ended June 30, 2017 , respectively; three and six months ended June 30, 2016: zero and $7.0 million , respectively). These were the only contracts entered into during the period to hedge economically foreign currency risk on the translation of a portion of the Pound Sterling-denominated earnings and provide coverage through December 31, 2018 . The contracts entered into during 2016 to hedge economically foreign currency risk on the translation of a portion of the Euro-denominated earnings provide coverage through December 27, 2017 .

The economic hedge is predominantly triggered upon the impact of a significant decline in the respective Pound Sterling/U.S. Dollar foreign exchange rate or Euro/U.S. Dollar foreign exchange rate. Open put option contracts are marked-to-market through earnings, which are recorded in the company's Condensed Consolidated Statements of Income in other gains and losses, net. These derivative contracts are valued using option valuation models and are included in other assets in the company's Condensed Consolidated Balance Sheets. The significant inputs in these models (volatility, forward points and swap curves) are readily available in public markets or can be derived from observable market transactions for substantially the full terms of the contracts and are classified within level 2 of the valuation hierarchy. The company recognized a net loss of $9.2 million and $17.4 million in the three and six months ended June 30, 2017 , respectively ( three and six months ended June 30, 2016 : $6.6 million and $9.1 million net gain, respectively) related to the change in market value of these put option contracts.


12


    

                                    

Deferred compensation-related total return swap
In addition to holding trading investments, in 2017 the company purchased a total return swap (TRS) to hedge economically certain of these deferred compensation liabilities. The notional value of the total return swap at June 30, 2017 was $106.2 million and its market value was $0.1 million . The market value of the TRS was determined under the market approach using quoted prices of the underlying investments. The TRS is classified as level 2 of the valuation hierarchy. During the three months ended June 30, 2017, market valuation gains of $2.5 million were recognized in other gains and losses, net.

Assets held for policyholders
Assets held for policyholders are measured at fair value under the market approach based on the quoted prices of the underlying funds in an active market and are classified within level 1 of the valuation hierarchy. The policyholder payables are indexed to the value of the assets held for policyholders and are therefore not included in the tables below.
Contingent Consideration Liability
During 2015 , the company acquired certain investment management contracts from Deutsche Bank. Indefinite-lived intangible assets were valued at $119.3 million . This transaction was a non-cash investing activity during that period. The purchase price was comprised solely of contingent consideration payable in future periods, and is linked to future revenues generated from the contracts.  The contingent consideration liability was recorded at fair value as of the date of acquisition using a discounted cash flow model, and is categorized within level 3 of the valuation hierarchy. Anticipated future cash flows were determined using forecasted assets under management (AUM) levels and discounted back to the valuation date. The company reassesses significant unobservable inputs during each reporting period. At June 30, 2017 inputs used in the model included assumed growth rates in AUM ranging from 0.69% to 4.4% (weighted average growth rate of 2.19% ) and a discount rate of 3.69% . 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 a decrease in the discount rate would increase the fair value of the contingent consideration liability while a decrease in forecasted AUM and an increase in the discount rate would decrease the liability.

13


    

                                    

The following table presents, for each of the hierarchy levels described above, the carrying value of the company's assets and liabilities, including major security type for equity and debt securities, which are measured at fair value on the company's Condensed Consolidated Balance Sheet as of June 30, 2017 :
 
As of June 30, 2017
$ 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
795.1

 
795.1

 
—

 
—

Investments:*
 
 
 
 
 
 
 
Available-for-sale:
 
 
 
 
 
 
 
Seed money
88.1

 
88.1

 
—

 
—

CLOs
10.4

 
—

 
10.4

 
—

Other debt securities
9.8

 
—

 
—

 
9.8

Trading investments:
 
 
 
 
 
 
 
Investments related to deferred compensation plans
86.3

 
86.3

 
—

 
—

Seed money
121.5

 
121.5

 
—

 
—

Other equity securities
19.5

 
19.5

 
—

 
—

UIT-related equity and debt securities:
 
 
 
 
 
 
 
UITs
1.2

 
1.2

 
—

 
—

Assets held for policyholders
10,716.7

 
10,716.7

 
—

 
—

Put option contracts
4.3

 
—

 
4.3

 
—

Total
11,852.9

 
11,828.4

 
14.7

 
9.8

Liabilities:
 
 
 
 
 
 
 
UIT-related financial instruments sold, not yet purchased:
 
 
 
 
 
 
 
Exchange traded funds
(1.1
)
 
(1.1
)
 
—

 
—

Contingent consideration liability
(69.2
)
 
—

 
—

 
(69.2
)
Total
(70.3
)
 
(1.1
)
 
—

 
(69.2
)
____________
*
Foreign time deposits of $22.3 million are excluded from this table. Equity method and other investments of $277.4 million and $6.1 million , respectively, are also excluded from this table. These investments are not measured at fair value, in accordance with applicable accounting standards.

14


    

                                    

The following table presents, for each of the hierarchy levels described above, the carrying value of the company's assets and liabilities, including major security type for equity and debt securities, which are measured at fair value on the company's Condensed Consolidated Balance Sheet as of December 31, 2016 :
 
As of December 31, 2016
$ 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
476.2

 
476.2

 
—

 
—

Investments:*
 
 
 
 
 
 
 
Available-for-sale:
 
 
 
 
 
 
 
Seed money
127.9

 
127.9

 
—

 
—

CLOs
12.9

 
—

 
—

 
12.9

Other debt securities
13.2

 
—

 
—

 
13.2

Trading investments:
 
 
 
 
 
 
 
Investments related to deferred compensation plans
170.5

 
170.5

 
—

 
—

Seed Money
121.9

 
121.9

 
—

 
—

Other equity securities
30.4

 
30.4

 
—

 
—

UIT-related equity and debt securities:
 
 
 
 
 
 
 
Corporate equities
1.2

 
1.2

 
—

 
—

UITs
5.6

 
5.6

 
—

 
—

Assets held for policyholders
8,224.2

 
8,224.2

 
—

 
—

Put option contracts
21.8

 
—

 
21.8

 
—

Total
9,205.8

 
9,157.9

 
21.8

 
26.1

Liabilities:
 
 
 
 
 
 
 
UIT-related financial instruments sold, not yet purchased:
 
 
 
 
 
 
 
Exchange traded funds
(5.2
)
 
(5.2
)
 
—

 
—

US treasury securities
(0.8
)
 
(0.8
)
 
—

 
—

Contingent consideration liability
(78.2
)
 
—

 
—

 
(78.2
)
Total
(84.2
)
 
(6.0
)
 
—

 
(78.2
)
____________
*
Foreign time deposits of $26.9 million are excluded from this table. Equity method and other investments of $279.0 million and $5.8 million , respectively, are also excluded from this table. These investments are not measured at fair value, in accordance with applicable accounting standards.

15


    

                                    

The following table shows a reconciliation of the beginning and ending fair value measurements for level 3 assets and liabilities during the three and six months ended June 30, 2017 and June 30, 2016 , which are valued using significant unobservable inputs:
 
Three months ended June 30, 2017
 
Six months ended June 30, 2017
$ in millions
Contingent Consideration Liability
 
Other Debt Securities
 
Contingent Consideration Liability
 
CLOs
 
Other Debt Securities
Beginning balance
(74.1
)
 
12.9

 
(78.2
)
 
12.9

 
13.2

Purchases/acquisitions
—

 
—

 
—

 
—

 
7.3

Net unrealized gains and losses included in other gains and losses, net*
1.3

 
(2.2
)
 
1.8

 
—

 
(2.2
)
Disposition/settlements
3.6

 
(0.9
)
 
7.2

 
—

 
(8.5
)
Transfer from level 3 to level 2
—

 
—

 
—

 
(12.9
)
 
—

Ending balance
(69.2
)
 
9.8

 
(69.2
)
 
—

 
9.8


 
Three months ended June 30, 2016
 
Six months ended June 30, 2016
$ in millions
Contingent Consideration Liability
 
CLOs
 
Other Debt Securities
 
Contingent Consideration Liability
 
CLOs
 
Other Debt Securities
Beginning balance
(77.2
)
 
11.8

 
4.3

 
(83.9
)
 
1.4

 
5.9

Adjustment for adoption of ASU 2015-02
—

 
—

 
—

 
—

 
11.5

 
—

Beginning balance, as adjusted
(77.2
)
 
11.8

 
4.3

 
(83.9
)
 
12.9

 
5.9

Returns of capital
—

 
(0.8
)
 
(1.0
)
 
—

 
(1.3
)
 
(2.6
)
Net unrealized gains and losses included in other gains and losses, net*
(15.1
)
 
—

 
—

 
(11.6
)
 
—

 
—

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

 
0.5

 
—

 
—

 
(0.1
)
 
—

Disposition/settlements
3.0

 
—

 
—

 
6.2

 
—

 
—

Ending balance
(89.3
)
 
11.5

 
3.3

 
(89.3
)
 
11.5

 
3.3

_______________
*
These unrealized gains and losses are attributable to balances still held at the respective period ends.
3 .   INVESTMENTS
The disclosures below include details of the company's investments. Investments held by CIP are detailed in Note 12 , "Consolidated Investment Products."
$ in millions
June 30, 2017
 
December 31, 2016
Available-for-sale investments:
 
 
 
Seed money
88.1

 
127.9

CLOs
10.4

 
12.9

Other debt securities
9.8

 
13.2

Trading investments:
 
 
 
Investments related to deferred compensation plans
86.3

 
170.5

Seed money
121.5

 
121.9

Other equity securities
19.5

 
30.4

     UIT-related equity and debt securities
1.2

 
6.8

Equity method investments
277.4

 
279.0

Foreign time deposits
22.3

 
26.9

Other
6.1

 
5.8

Total investments
642.6

 
795.3


16


    

                                    

Available for sale 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 June 30, 2017
 
For the six months ended June 30, 2017
$ in millions
Proceeds from Sales
 
Gross Realized Gains
 
Gross Realized Losses
 
Proceeds from Sales
 
Gross Realized Gains
 
Gross Realized Losses
Seed money
12.3

 
—

 
(0.7
)
 
46.5

 
0.9

 
(1.3
)
CLOs
0.6

 
0.1

 
—

 
2.6

 
0.4

 
—

Other debt securities
0.9

 
0.8

 
—

 
8.5

 
0.8

 
—

 
13.8

 
0.9

 
(0.7
)
 
57.6

 
2.1

 
(1.3
)
 
For the three months ended June 30, 2016
 
For the six months ended June 30, 2016
$ in millions
Proceeds from Sales
 
Gross Realized Gains
 
Gross Realized Losses
 
Proceeds from Sales
 
Gross Realized Gains
 
Gross Realized Losses
Seed money
0.6

 
0.1

 
—

 
1.8

 
0.4

 
—

CLOs
0.8

 
—

 
—

 
1.3

 
—

 
—

Other debt securities
1.0

 
—

 
—

 
2.6

 
—

 
—

 
2.4

 
0.1

 
—

 
5.7

 
0.4

 
—

Upon the sale of available-for-sale securities, net realized gains of $0.2 million and $0.8 million were transferred from accumulated other comprehensive income/(loss) into the Condensed Consolidated Statements of Income during the three and six months ended June 30, 2017 , respectvely ( three and six months ended June 30, 2016 : $0.1 million and $0.4 million , respectively). The specific identification method is used to determine the realized gain or loss on securities sold or otherwise disposed.

Gross unrealized holding gains and losses recognized in other accumulated other comprehensive income/(loss) from available-for-sale investments are presented in the table below:
 
June 30, 2017
 
December 31, 2016
$ in millions
Cost
 
Gross Unrealized Holding Gains
 
Gross Unrealized Holding Losses
 
Fair Value
 
Cost
 
Gross Unrealized Holding Gains
 
Gross Unrealized Holding Losses
 
Fair Value
Seed money
82.7

 
7.2

 
(1.8
)
 
88.1

 
127.2

 
6.8

 
(6.1
)
 
127.9

CLOs
7.3

 
3.1

 
—

 
10.4

 
9.2

 
3.7

 
—

 
12.9

Other debt securities
9.8

 
—

 
—

 
9.8

 
13.2

 
—

 
—

 
13.2

 
99.8

 
10.3

 
(1.8
)
 
108.3

 
149.6

 
10.5

 
(6.1
)
 
154.0

At June 30, 2017 , 87 seed money funds ( December 31, 2016 : 103 seed money funds) had incurred gross unrealized holding losses. The following table provides a breakdown of the unrealized losses.
 
June 30, 2017
 
December 31, 2016
$ in millions
Fair Value
 
Gross Unrealized Losses
 
Fair Value
 
Gross Unrealized Losses
Less than 12 months
17.4

 
(0.4
)
 
1.9

 
(0.2
)
12 months or greater
37.9

 
(1.4
)
 
56.4

 
(5.9
)
Total
55.3

 
(1.8
)
 
58.3

 
(6.1
)
The company has reviewed investment securities for other-than-temporary impairment (OTTI) in accordance with its accounting policy and has recognized $3.2 million of other-than-temporary impairment charges on available-for-sale investments during the six months ended June 30, 2017 ( six months ended June 30, 2016 : none ). In contemplation of OTTI, the company conducts a review of the financial condition and near-term prospects of the underlying securities as well as the severity and duration of any declines in fair value. No OTTI is recorded for seeded funds which are expected to recover their value over time and for which the company has the intent and ability to hold the securities until this recovery occurs. For CLO

17


    

                                    

investments, the company reviewed the estimated future cashflows of each CLO. If the present value of the estimated future cashflows is lower than the carrying value of the investment and there is an adverse change in estimated cashflows, the impairment is considered to be other than temporary. During the six months ended June 30, 2017 and 2016 , no other-than-temporary impairment related to credit related factors was recognized.
Available-for-sale debt securities as of June 30, 2017 by maturity, are set out below:
 
Available-for-Sale (Fair Value)
Less than one year
10.1

One to five years
0.2

Five to ten years
9.9

Greater than ten years
—

Total available-for-sale
20.2


Trading investments
The portion of trading gains and losses for the three and six months ended June 30, 2017 , that relates to trading securities still held at June 30, 2017 , was a $5.4 million net gain and $10.2 million net gain , respectively ( three and six months ended June 30, 2016 : $3.3 million net gain and $1.6 million net gain , respectively).

4 .  LONG-TERM DEBT
The disclosures below include details of the company's debt. Debt of CIP is detailed in Note 12 , “Consolidated Investment Products.”
 
June 30, 2017
 
December 31, 2016
$ in millions
Carrying Value**
 
Fair Value
 
Carrying Value**
 
Fair Value
  Floating rate credit facility expiring August 7, 2020
—

 
—

 
28.7

 
28.7

Unsecured Senior Notes*:
 
 
 
 
 
 
 
$600 million 3.125% - due November 30, 2022
596.6

 
618.1

 
596.3

 
604.7

$600 million 4.000% - due January 30, 2024
593.6

 
637.9

 
593.2

 
625.3

$500 million 3.750% - due January 15, 2026
494.8

 
523.7

 
494.5

 
506.4

$400 million 5.375% - due November 30, 2043
389.8

 
485.6

 
389.7

 
441.4

Long-term debt
2,074.8

 
2,265.3

 
2,102.4

 
2,206.5

____________
*
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.
**
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.

The issuer of the senior notes is an indirect 100% owned finance subsidiary of the Parent, and the Parent fully and unconditionally guarantees the securities. The requirement of certain subsidiaries of the Parent to maintain minimum levels of capital and other similar provisions of applicable law may have the effect of limiting withdrawals of capital, repayment of intercompany loans and payment of dividends by such entities.
The fair market value of the company's senior notes was determined by market quotes provided by Bloomberg, which is considered a level 2 valuation input. In the absence of an active market, the company relies upon the average price quoted by brokers for determining the fair market value of the debt.
At June 30, 2017 , the company's outstanding senior notes of $2,074.8 million mature in periods greater than five years from the balance sheet date. The floating rate credit facility will expire in less than five years .

18


    

                                    

At June 30, 2017 , the outstanding balance on the $1.25 billion credit facility was zero ( December 31, 2016 : $28.7 million ). The credit facility will bear interest at (i) LIBOR for specified borrowing periods or (ii) a floating base rate (based upon the highest of (a) the Bank of America prime rate, (b) the Federal Funds rate plus 0.50% and (c) LIBOR for an interest period of one month plus 1.00% ), plus, in either case, an applicable incremental margin determined with reference to the higher of the available credit ratings of the company or its indirect subsidiary Invesco Finance PLC. Based on credit ratings as of June 30, 2017 of the company, the applicable incremental margin for LIBOR-based loans was 0.875% and for base rate loans was 0.00% . In addition, the company is required to pay the lenders a facility fee on the aggregate commitments of the lenders (whether or not used) at a rate per annum which is based on the higher of the available credit ratings of the company or its indirect subsidiary Invesco Finance PLC. Based on credit ratings as of June 30, 2017 , the annual facility fee was equal to 0.125% .
The credit agreement governing the credit facility contains customary restrictive covenants on the company and its subsidiaries. Restrictive covenants in the credit agreement include, but are not limited to: prohibitions on creating, incurring or assuming any liens; entering into merger arrangements; selling, leasing, transferring or otherwise disposing of assets; making a material change in the nature of the business; making a significant accounting policy change in certain situations; entering into transactions with affiliates; and incurring indebtedness through the subsidiaries (other than the borrower, Invesco Finance PLC). Many of these restrictions are subject to certain minimum thresholds and exceptions. Financial covenants under the credit agreement include: (i) the quarterly maintenance of a debt/EBITDA leverage ratio, as defined in the credit agreement, of not greater than 3.25 :1.00, (ii) a coverage ratio (EBITDA, as defined in the credit agreement/interest payable for the four consecutive fiscal quarters ended before the date of determination) of not less than 4.00 :1.00.
The credit agreement governing the credit facility also contains customary provisions regarding events of default which could result in an acceleration or increase in amounts due, including (subject to certain materiality thresholds and grace periods) payment default, failure to comply with covenants, material inaccuracy of representation or warranty, bankruptcy or insolvency proceedings, change of control, certain judgments, ERISA matters, cross-default to other debt agreements, governmental action prohibiting or restricting the company or its subsidiaries in a manner that has a material adverse effect and failure of certain guaranty obligations. The company is in compliance with all regulatory minimum net capital requirements.
The lenders (and their respective affiliates) may have provided, and may in the future provide, investment banking, cash management, underwriting, lending, commercial banking, leasing, foreign exchange, trust or other advisory services to the company and its subsidiaries and affiliates. These parties may have received, and may in the future receive, customary compensation for these services.
The company maintains approximately $10.3 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
June 30, 2017
 
December 31, 2016

Common shares issued
490.4

 
490.4

Less: Treasury shares for which dividend and voting rights do not apply
(83.5
)
 
(86.6
)
Common shares outstanding
406.9

 
403.8

Total treasury shares at June 30, 2017 were 92.8 million ( December 31, 2016 : 95.9 million ), including 9.3 million unvested restricted stock awards ( December 31, 2016 : 9.3 million ) for which dividend and voting rights apply. The market price of common shares at June 30, 2017 was $35.19 per share. The total market value of the company's 92.8 million treasury shares was $3.3 billion at June 30, 2017 .


19


    

                                    

6 .   OTHER COMPREHENSIVE INCOME/(LOSS)
The components of accumulated other comprehensive income/(loss) were as follows:
 
For the three months ended June 30, 2017
$ 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
147.4

 
—

 
—

 
—

 
147.4

Reclassification of actuarial (gain)/loss into employee compensation expense
—

 
0.5

 
—

 
—

 
0.5

Share of other comprehensive income/(loss) of equity method investments
—

 
—

 
0.9

 
—

 
0.9

Unrealized gains/(losses) on available-for-sale investments, net of tax
—

 
—

 
—

 
0.9

 
0.9

Reclassification of net (gains)/losses realized on available-for-sale investments included in other gains and losses, net
—

 
—

 
—

 
(0.2
)
 
(0.2
)
Other comprehensive income/(loss), net of tax
147.4

 
0.5

 
0.9

 
0.7

 
149.5

 
 
 
 
 
 
 
 
 
 
Beginning balance
(617.3
)
 
(139.0
)
 
5.1

 
7.5

 
(743.7
)
Other comprehensive income/(loss), net of tax
147.4

 
0.5

 
0.9

 
0.7

 
149.5

Ending balance
(469.9
)
 
(138.5
)
 
6.0

 
8.2

 
(594.2
)

 
For the six months ended June 30, 2017
$ 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
210.0

 
—

 
—

 
—

 
210.0

Actuarial (loss)/gain related to employee benefit plans, net of tax
—

 
(0.4
)
 
—

 
—

 
(0.4
)
Reclassification of actuarial (gain)/loss into employee compensation expense
—

 
1.1

 
—

 
—

 
1.1

Share of other comprehensive income/(loss) of equity method investments
—

 
—

 
1.2

 
—

 
1.2

Unrealized gains/(losses) on available-for-sale investments
—

 
—

 
—

 
4.0

 
4.0

Reclassification of net (gains)/losses realized on available-for-sale investments included in other gains and losses, net
—

 
—

 
—

 
(0.8
)
 
(0.8
)
Other comprehensive income/(loss), net of tax
210.0

 
0.7

 
1.2

 
3.2

 
215.1

 
 
 
 
 
 
 
 
 
 
Beginning balance
(679.9
)
 
(139.2
)
 
4.8

 
5.0

 
(809.3
)
Other comprehensive income/(loss), net of tax
210.0

 
0.7

 
1.2

 
3.2

 
215.1

Ending balance
(469.9
)
 
(138.5
)
 
6.0

 
8.2

 
(594.2
)






20


    

                                    

 
For the three months ended June 30, 2016
$ 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
(166.6
)
 
—

 
—

 
—

 
(166.6
)
Reclassification of prior service cost/(credit) into employee compensation expense
—

 
(1.8
)
 
—

 
—

 
(1.8
)
Reclassification of actuarial (gain)/loss into employee compensation expense
—

 
0.5

 
—

 
—

 
0.5

Share of other comprehensive income/(loss) of equity method investments
—

 
—

 
0.9

 
—

 
0.9

Unrealized gains/(losses) on available-for-sale investments
—

 
—

 
—

 
(0.6
)
 
(0.6
)
Reclassification of net (gains)/losses realized on available-for-sale investments included in other gains and losses, net
—

 
—

 
—

 
(0.1
)
 
(0.1
)
Other comprehensive income/(loss)
(166.6
)
 
(1.3
)
 
0.9

 
(0.7
)
 
(167.7
)
 
 
 
 
 
 
 
 
 
 
Beginning balance
(268.6
)
 
(87.3
)
 
5.6

 
1.6

 
(348.7
)
Other comprehensive income/(loss)
(166.6
)
 
(1.3
)
 
0.9

 
(0.7
)
 
(167.7
)
Other comprehensive (income)/loss attributable to noncontrolling interests
2.5

 
—

 
—

 
—

 
2.5

Ending balance
(432.7
)
 
(88.6
)
 
6.5

 
0.9

 
(513.9
)

 
For the six months ended June 30, 2016
$ 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
(69.4
)
 
—

 
—

 
—

 
(69.4
)
Actuarial (loss)/gain related to employee benefit plans
—

 
(0.4
)
 
—

 
—

 
(0.4
)
Reclassification of prior service cost/(credit) into employee compensation expense
—

 
(3.4
)
 
—

 
—

 
(3.4
)
Reclassification of actuarial (gain)/loss into employee compensation expense
—

 
0.8

 
—

 
—

 
0.8

Share of other comprehensive income/(loss) of equity method investments
—

 
—

 
0.6

 
—

 
0.6

Unrealized gains/(losses) on available-for-sale investments
—

 
—

 
—

 
1.7

 
1.7

Reclassification of net (gains)/losses realized on available-for-sale investments included in other gains and losses, net
—

 
—

 
—

 
(0.3
)
 
(0.3
)
Other comprehensive income/(loss)
(69.4
)
 
(3.0
)
 
0.6

 
1.4

 
(70.4
)
 
 
 
 
 
 
 
 
 
 
Beginning balance
(365.8
)
 
(85.6
)
 
5.9

 
(0.5
)
 
(446.0
)
Other comprehensive income/(loss)
(69.4
)
 
(3.0
)
 
0.6

 
1.4

 
(70.4
)
Other comprehensive (income)/loss attributable to noncontrolling interests
2.5

 
—

 
—

 
—

 
2.5

Ending balance
(432.7
)
 
(88.6
)
 
6.5

 
0.9

 
(513.9
)

Net Investment Hedge

During the second quarter of 2016, 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 June 30, 2017 , £130.0 million ( $168.9 million ) of intercompany debt was designated as a net investment hedge.  For the six months ended June 30, 2017 , the Company recognized foreign currency losses of $8.3 million resulting from the net investment hedge within currency translation differences on investments in foreign subsidiaries in other comprehensive income. No hedge ineffectiveness was recognized in income.

21


    

                                    


7 .   SHARE-BASED COMPENSATION
The company recognized total expenses of $92.5 million and $79.1 million related to equity-settled share-based payment transactions in the six months ended June 30, 2017 and 2016 , respectively.
Share Awards
Movements on share awards during the periods ended June 30 , are detailed below:
 
For the six months ended June 30, 2017
 
For the six months ended June 30, 2016
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
12.1

 
0.8

 
31.22

 
10.4

 
0.6

Granted during the period
5.1

 
0.3

 
32.18

 
6.3

 
0.4

Forfeited during the period
(0.3
)
 
—

 
31.50

 
(0.1
)
 
—

Vested and distributed during the period
(4.7
)
 
(0.2
)
 
31.34

 
(4.1
)
 
(0.2
)
Unvested at the end of the period
12.2

 
0.9

 
31.57

 
12.5

 
0.8


The total fair value of shares that vested during the six months ended June 30, 2017 was $155.1 million ( six months ended June 30, 2016 : $118.1 million ). The weighted average grant date fair value of the U.S. Dollar share awards that were granted during the six months ended June 30, 2017 was $32.18 ( six months ended June 30, 2016 : $27.39 ).
At June 30, 2017 , there was $343.1 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 2.73 years .

8 .   RETIREMENT BENEFIT PLANS
Defined Contribution Plans
The total amounts charged to the Condensed Consolidated Statements of Income for the three and six months ended June 30, 2017 of $15.8 million and $32.7 million , respectively ( three and six months ended June 30, 2016 : $15.2 million and $30.4 million , respectively) represent contributions paid or payable to the defined contribution plans by the company at rates specified in the rules of the plans. As of June 30, 2017 , accrued contributions of $15.9 million ( December 31, 2016 : $23.1 million ) for the current year will be paid to the plans.
Defined Benefit Plans
The company maintains legacy defined benefit pension plans for qualifying employees of its subsidiaries in the U.K., Ireland, Germany and Taiwan. The postretirement medical plan was terminated effective December 31, 2016. The components of net periodic benefit cost in respect of these defined benefit plans are as follows:
 
For the three months ended June 30,
 
For the six months ended June 30,
$ in millions
2017
 
2016
 
2017
 
2016
Service cost
1.2

 
1.4

 
2.4

 
2.8

Interest cost
4.1

 
4.4

 
8.2

 
8.8

Expected return on plan assets
(5.4
)
 
(5.7
)
 
(10.8
)
 
(11.4
)
Amortization of net actuarial (gain)/loss
0.7

 
0.5

 
1.3

 
1.0

Net periodic benefit cost/(benefit)
0.6

 
0.6

 
1.1

 
1.2

The estimated contributions expected to be paid to the plans during 2017 are $11.2 million . Payments made to the plans during the six months ended June 30, 2017 were $5.6 million .

22


    

                                    

9 .   TAXATION
At June 30, 2017 , the total amount of gross unrecognized tax benefits was $10.8 million as compared to the December 31, 2016 total of $10.5 million .
10 .   EARNINGS PER SHARE
The calculation of earnings per share is as follows:
 
For the three months ended June 30,
 
For the six months ended June 30,
In millions, except per share data
2017
 
2016
 
2017
 
2016
Net income

$249.6

 

$236.5

 

$463.8

 

$394.3

Net (income)/loss attributable to noncontrolling interests in consolidated entities
(10.0
)
 
(11.0
)
 
(12.2
)
 
(7.8
)
Net income attributable to Invesco Ltd.
239.6

 
225.5

 
451.6

 
386.5

Less: Allocation of earnings to restricted shares
(7.2
)
 
(6.7
)
 
(13.6
)
 
(10.9
)
Net income attributable to common shareholders

$232.4

 

$218.8

 

$438.0

 

$375.6

 
 
 
 
 
 
 
 
Invesco Ltd:
 
 
 
 
 
 
 
Weighted average shares outstanding - basic
409.9

 
418.9

 
408.8

 
418.8

Dilutive effect of non-participating share-based awards
0.4

 
0.2

 
0.4

 
0.3

Weighted average shares outstanding - diluted
410.3

 
419.1

 
409.2

 
419.1

 
 
 
 
 
 
 
 
Common shareholders:
 
 
 
 
 
 
 
Weighted average shares outstanding - basic
409.9

 
418.9

 
408.8

 
418.8

Less: Weighted average restricted shares
(12.4
)
 
(12.5
)
 
(12.3
)
 
(11.8
)
Weighted average common shares outstanding - basic
397.5

 
406.4

 
396.5

 
407.0

Dilutive effect of non-participating share-based awards
0.4

 
0.2

 
0.4

 
0.3

Weighted average common shares outstanding - diluted
397.9

 
406.6

 
396.9

 
407.3

 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
Basic earnings per share

$0.58

 

$0.54

 

$1.10

 

$0.92

Diluted earnings per share

$0.58

 

$0.54

 

$1.10

 

$0.92

See Note 7 , “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 zero and 0.3 million shares of performance-vested awards and no time-vested awards excluded from the computation of diluted earnings per share during the three and six months ended June 30 , 2017 , respectively, due to their inclusion being anti-dilutive ( three and six months ended June 30, 2016 : none ). There were 0.1 million contingently issuable shares excluded from the diluted earnings per share computation during the three and six months ended June 30, 2017 ( three and six months ended June 30, 2016 : 0.2 million ), because the necessary performance conditions for the shares to be issuable had not yet been satisfied at the end of the respective period.

23


    

                                    

11 .   COMMITMENTS AND CONTINGENCIES
Commitments and contingencies may arise in the ordinary course of business.
Off Balance Sheet Commitments
The company has transactions with various private equity, real estate and other investment entities sponsored by the company for the investment of client assets in the normal course of business. Many of the company's investment products are structured as limited partnerships. The company's investment may take the form of the general partner or a limited partner. The entities are structured such that each partner makes capital commitments that are to be drawn down over the life of the partnership as investment opportunities are identified. At June 30, 2017 , the company's undrawn capital commitments were $216.3 million ( December 31, 2016 : $204.1 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 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 June 30, 2017 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.
In a separate matter, a Canadian subsidiary of the company had previously received assessments related to prior taxation periods up to and including the year ended December 31, 2012 for goods and services tax that the Canada Revenue Agency (CRA) believes should be levied on certain fees payable. The assessments, including applicable interest, are approximately $ 6.6 million . The company has secured a letter of credit in the same amount, which has been posted with the CRA as security for payment. The company objected to and appealed the assessments, and in May 2017, the Tax Court of Canada ruled in favor of the CRA. The company filed an appeal with the Federal Court of Appeal in June 2017. Management, with advice from advisors and counsel, believes it is more likely than not that its position will prevail upon appeal, and accordingly no provision has been recorded in the Condensed Consolidated Financial Statements. However, in the event the company were not to prevail, additional taxes and interest payable in relation to taxation periods after December 31, 2012 are estimated in the amount of $6.5 million .


24


    

                                    

12 .   CONSOLIDATED INVESTMENT PRODUCTS
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. At June 30, 2017 all CIP are VIEs.
 
As of
$ in millions
June 30, 2017
 
December 31, 2016
Cash and cash equivalents of CIP
328.1

 
742.2

Accounts receivable and other assets of CIP
104.1

 
106.2

Investments of CIP
4,917.0

 
5,116.1

Less: Debt of CIP
(3,929.5
)
 
(4,403.1
)
Less: Other liabilities of CIP
(393.2
)
 
(673.4
)
Less: Retained earnings
16.2

 
19.0

Less: Accumulated other comprehensive income, net of tax
(15.0
)
 
(18.0
)
Less: Equity attributable to redeemable noncontrolling interests
(328.3
)
 
(283.7
)
Less: Equity attributable to nonredeemable noncontrolling interests
(200.6
)
 
(107.2
)
Invesco's net interests in CIP
498.8

 
498.1

The following tables reflect the impact of consolidation of investment products into the Condensed Consolidated Statements of Income for the three and six months ended June 30 , 2017 and 2016 :
 
Three months ended June 30,
$ in millions
2017
 
2016
Total operating revenues
(6.3
)
 
(5.1
)
Total operating expenses
2.2

 
7.9

Operating income
(8.5
)
 
(13.0
)
Equity in earnings of unconsolidated affiliates
(4.2
)
 
(5.1
)
Interest and dividend income
—

 
—

Other gains and losses, net
(12.5
)
 
(0.8
)
Interest and dividend income of CIP
49.9

 
46.2

Interest expense of CIP
(44.8
)
 
(33.3
)
Other gains/(losses) of CIP, net
27.2

 
25.0

Income before income taxes
7.1

 
19.0

Income tax provision
—

 
—

Net income
7.1

 
19.0

Net (income)/loss attributable to noncontrolling interests in consolidated entities
(10.0
)
 
(11.0
)
Net income attributable to Invesco Ltd.
(2.9
)
 
8.0



25


    

                                    

 
Six months ended June 30,
$ in millions
2017
 
2016
Total operating revenues
(19.5
)
 
(10.6
)
Total operating expenses
1.0

 
9.7

Operating income
(20.5
)
 
(20.3
)
Equity in earnings of unconsolidated affiliates
(2.7
)
 
(1.6
)
Interest and dividend income
—

 
(0.2
)
Other gains and losses, net
(22.6
)
 
(0.9
)
Interest and dividend income of CIP
103.7

 
90.6

Interest expense of CIP
(81.0
)
 
(60.6
)
Other gains/(losses) of CIP, net
38.1

 
0.4

Income before income taxes
15.0

 
7.4

Income tax provision
—

 
—

Net income
15.0

 
7.4

Net (income)/loss attributable to noncontrolling interests in consolidated entities
(12.2
)
 
(7.8
)
Net income attributable to Invesco Ltd.
2.8

 
(0.4
)
The company's risk with respect to each investment in CIP is limited to its equity ownership and any uncollected management and performance fees. The company has no right to the benefits from, nor does it bear the risks associated with, these investments, beyond the company's direct investments in, and management and performance fees generated from, the investment products. If the company were to liquidate, these investments would not be available to the general creditors of the company, and as a result, the company does not consider investments held by CIP to be company assets. Additionally, the collateral assets of consolidated CLOs are held solely to satisfy the obligations of the CLOs, and the investors in the consolidated CLOs have no recourse to the general credit of the company for the notes issued by the CLOs. CIP are taxed at the investor level and not at the product level; therefore, there is no tax provision reflected in the net impact of CIP.
Non-consolidated VIEs
At June 30, 2017 , the company's carrying value and maximum risk of loss with respect to VIEs in which the company is not the primary beneficiary was $237.4 million ( December 31, 2016 $234.4 million ).

26


    

                                    

Balance Sheet information - newly consolidated VIEs/VOEs
During the six months ended June 30, 2017 , the company consolidated fourteen new VIEs ( June 30, 2016 : the company consolidated five 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 six months ended June 30, 2017
 
For the six months ended June 30, 2016
$ in millions
VIEs
 
VIEs
Cash and cash equivalents of CIP
14.6

 
151.0

Accounts receivable and other assets of CIP
8.5

 
3.6

Investments of CIP
316.6

 
311.0

Total assets
339.7

 
465.6

 
 
 
 
Debt of CIP
15.1

 
414.4

Other liabilities of CIP
105.0

 
17.4

Total liabilities
120.1

 
431.8

Total equity
219.6

 
33.8

Total liabilities and equity
339.7

 
465.6

During the six months ended June 30, 2017 , the company determined that it was no longer the primary beneficiary of four VIEs and one voting rights entity (VOE) ( June 30, 2016 : the company determined that it was no longer the primary beneficiary of four 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 six months ended June 30, 2017 and 2016 from the deconsolidation of these investment products.
 
For the six months ended June 30, 2017
 
For the six months ended June 30, 2016
$ in millions
VIEs
 
VOEs
 
VIEs
Cash and cash equivalents of CIP
14.5

 
—

 
23.6

Accounts receivable and other assets of CIP
3.8

 
0.2

 
12.2

Investments of CIP
139.9

 
49.8

 
196.1

Total assets
158.2

 
50.0

 
231.9

 
 
 
 
 
 
Debt of CIP
4.2

 
—

 
—

Other liabilities of CIP
1.9

 
—

 
13.1

Total liabilities
6.1

 
—

 
13.1

Total equity
152.1

 
50.0

 
218.8

Total liabilities and equity
158.2

 
50.0

 
231.9


27


    

                                    

The following tables present the fair value hierarchy levels of certain CIP balances which are measured at fair value as of June 30, 2017 and December 31, 2016 :
 
As of June 30, 2017
$ 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
3,997.7

 
—

 
3,997.7

 
—

 
—

Bonds
289.3

 
—

 
289.3

 
—

 
—

Equity securities
176.1

 
175.0

 
1.1

 
—

 
—

Equity and fixed income mutual funds
116.0

 
116.0

 
—

 
—

 
—

Investments in other private equity funds
218.4

 
—

 
—

 
—

 
218.4

  Real estate investments
59.9

 
—

 
—

 
59.9

 
—

  Investments in fixed income fund of funds
59.6

 
—

 
—

 
—

 
59.6

Total assets at fair value
4,917.0

 
291.0

 
4,288.1

 
59.9

 
278.0

 
As of December 31, 2016
$ 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
4,397.8

 
—

 
4,397.8

 
—

 
—

Bonds
370.9

 
—

 
370.9

 
—

 
—

Equity securities
167.4

 
166.0

 
1.4

 
—

 
—

Equity and fixed income mutual funds
13.0

 
13.0

 
—

 
—

 
—

Investments in other private equity funds
68.6

 
—

 
—

 


 
68.6

Real estate investments
40.7

 
—

 
—

 
40.7

 
—

Investments in fixed income fund of funds
57.7

 
—

 
—

 
—

 
57.7

Total assets at fair value
5,116.1

 
179.0

 
4,770.1

 
40.7

 
126.3


28


    

                                    

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 June 30, 2017
 
Six months ended June 30, 2017
$ in millions
Level 3 Assets
 
Level 3 Assets
Beginning balance
54.8

 
40.7

Purchases
—

 
15.1

Sales
(5.1
)
 
(5.1
)
Gains and losses included in the Condensed Consolidated Statements of Income*
10.2

 
9.2

Ending balance
59.9

 
59.9


 
Three months ended June 30, 2016
 
Six months ended June 30, 2016
$ in millions
Level 3 Assets
 
Level 3 Assets
Beginning balance
—

 
388.6

Adjustment for adoption of ASU 2015-02
—

 
(388.6
)
Purchases
23.9

 
23.9

Gains and losses included in the Condensed Consolidated Statements of Income*
—

 
—

Ending balance
23.9

 
23.9

____________
*
Included in gains/(losses) of CIP, net in the Condensed Consolidated Statements of Income for the six months ended June 30, 2017 are $8.8 million in net unrealized gains attributable to investments still held at June 30, 2017 by CIP.
Unforeseen events might occur that would subsequently change the fair values of the investments (and therefore the debt of CLOs, since it is measured as a calculated value based upon the fair value of the assets of CLOs, but the impact of such changes would be limited to the change in the fair values of the company's investments in these products. The impact of any gains or losses resulting from valuation changes in the investments of non-CLO CIP attributable to the interests of third parties are offset by resulting changes in gains and losses attributable to noncontrolling interests in consolidated entities and therefore do not have a material effect on the financial condition, operating results (including earnings per share), liquidity or capital resources of the company's common shareholders. Similarly, any gains or losses resulting from valuation changes in the investments of CLOs attributable to the interests of third parties are offset by the calculated value of the notes issued by the CLOs (offsetting in other gains/(losses) of CIP) and therefore also do not have a material effect on the financial condition, operating results (including earnings per share), liquidity or capital resources of the company's common shareholders.
Value of consolidated CLOs
The company elected the fair value option for collateral assets held and notes issued by its consolidated CLOs to eliminate the measurement and recognition inconsistency that would otherwise arise from measuring assets and liabilities and recognizing the related gains and losses on different accounting bases. On January 1, 2015 the company adopted ASU 2014-13 and has elected the measurement alternative for the consolidated CLOs under which the notes issued by the CLOs are measured based on the fair value of the assets of the CLOs.
The collateral assets held by consolidated CLOs are primarily invested in senior secured bank loans, bonds, and equity securities. Bank loan investments of $3,973.2 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 mature at various dates between 2017 and 2025 , pay interest at LIBOR plus a spread of up to 12.5% , 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 June 30, 2017 , the unpaid principal balance exceeds the fair value of the senior secured bank loans and bonds by approximately $56.5 million ( December 31, 2016 :

29


    

                                    

the unpaid principal balance exceeded the fair value of the senior secured bank loans and bonds by approximately $96.6 million ). Approximately 0.79% of the collateral assets are in default as of June 30, 2017 ( December 31, 2016 : approximately 0.3% of the collateral assets were in default). 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 the third-party pricing source price challenge process.
In addition, the company's internal valuation committee conducts an annual due diligence review of all independent third-party pricing sources to review the provider's valuation methodology as well as ensure internal controls exist over the valuation of the CLO investments. In the event that the third-party pricing source is unable to price an investment, other relevant factors, data and information are considered, including: i) information relating to the market for the investment, including price quotations for and trading in the investment and interests in similar investments, the market environment, and investor attitudes towards the investment and interests in similar investments; ii) the characteristics of and fundamental analytical data relating to the investment, including, for senior secured corporate loans, the cost, size, current interest rate, period until next interest rate reset, maturity and base lending rate, the terms and conditions of the senior secured corporate loan and any related agreements, and the position of the senior secured corporate loan in the borrower's debt structure; iii) the nature, adequacy and value of the senior secured corporate loan's collateral, including the CLO's rights, remedies and interests with respect to the collateral; iv) for senior secured corporate loans, the creditworthiness of the borrower, based on an evaluation of its financial condition, financial statements and information about the business, cash flows, capital structure and future prospects; v) the reputation and financial condition of the agent and any intermediate participants in the senior secured corporate loan; and vi) general economic and market conditions affecting the fair value of the senior secured corporate loan.
Notes issued by consolidated CLOs mature at various dates between 2025 and 2028 and have a weighted average maturity of 9.8 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 1.15% for the more senior tranches to 8.25% 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 .
Fair value of consolidated real estate funds
The real estate investment vehicles use one or more valuation techniques (e.g. the market approach, the income approach, or the recent transaction "cost" approach) for which sufficient and reliable data is available to value investments classified within level 3. The use of the market approach generally consists of using comparable market transactions, while the use of the income approach generally consists of the net present value of estimated future cash flows, adjusted as appropriate for liquidity, credit, market and/or other risk factors.
The inputs used by the real estate funds in estimating the value of level 3 investments include the original transaction price, recent transactions in the same or similar instruments, as well as completed or pending third-party transactions in the underlying investment or comparable investments. Level 3 investments may also be adjusted to reflect illiquidity and/or non-transferability. Other inputs used include discount rates, cap rates, and income and expense assumptions. The fair value measurement of level 3 investments does not include transaction costs and acquisition fees that may be capitalized as part of the investment's cost basis.
Fair value of consolidated partnership entities
Consolidated private equity funds are generally structured as partnerships. Generally, the investment strategy of underlying holdings in these partnerships is to seek capital appreciation through direct investments in public or private companies with compelling business models or ideas or through investments in partnership investments that also invest in similar private or public companies. Various strategies may be used. Companies targeted could be distressed organizations, targets of leveraged buyouts or fledgling companies in need of venture capital. Investors generally may not redeem their investment until the partnership liquidates. Generally, the partnerships have a life that ranges from seven to twelve years unless dissolved earlier. The general partner may extend the partnership term up to a specified period of time as stated in the Partnership Agreement. Some partnerships allow the limited partners to cause an earlier termination upon the occurrence of certain events as specified in the Partnership Agreement.
For private equity partnerships, fair value is determined by reviewing each investment for the sale of additional securities of an issuer to sophisticated investors or for investee financial conditions and fundamentals. Publicly traded portfolio investments are carried at market value as determined by their most recent quoted sale, or if there is no recent sale, at their most recent bid price. For these investments held by CIP, level 1 classification indicates that fair values have been determined using unadjusted quoted prices in active markets for identical assets that the partnership has the ability to access. Level 2 classification may

30


    

                                    

indicate that fair values have been determined using quoted prices in active markets but give effect to certain lock-up restrictions surrounding the holding period of the underlying investments.
The fair value of level 3 investments held are derived from inputs that are unobservable and which reflect the limited partnerships' own determinations about the assumptions that market participants would use in pricing the investments, including assumptions about risk. These inputs are developed based on the partnership's own data, which is adjusted if information indicates that market participants would use different assumptions. The partnerships which invest directly into private equity portfolio companies (direct private equity funds) take into account various market conditions, subsequent rounds of financing, liquidity, financial condition, purchase multiples paid in other comparable third-party transactions, the price of securities of other companies comparable to the portfolio company, and operating results and other financial data of the portfolio company, as applicable.
The partnerships which invest into other private equity funds take into account information received from those underlying funds, including their reported net asset values and evidence as to their fair value approach, including consistency of their fair value application. These investments do not trade in active markets and represent illiquid long-term investments that generally require future capital commitments. The partnerships' reported share of the underlying net asset values of the underlying funds is used as a practical expedient, as allowed by ASC Topic 820, in arriving at fair value.
Quantitative Information about Level 3 Fair Value Measurements
The following table shows significant unobservable inputs used in the fair value measurement of level 3 assets at June 30, 2017 :
Assets and Liabilities
 
Fair Value at
June 30, 2017
($ in millions)
 
Valuation Technique
 
Unobservable Inputs
 
Range
Weighted Average (by fair value)
Real Estate Investments
 
$59.9
 
Discounted Cash Flow
 
Discount rate
 
7% - 33%

18.0
%
 
 
 
 
 
 
Terminal capitalization rate
 
5.3
%
5.3
%
 
 
 
 
 
 
Average rent growth rate
 
2% - 3%

2.5
%
At December 31, 2016 , $40.7 million of investments held by consolidated real estate funds were valued using recent private market transactions.
The following narrative will indicate the sensitivity of inputs illustrating the impact of significant increases to the inputs. A directionally opposite impact would apply for significant decreases in these inputs:
•
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.


31


    

                                    

The table below summarizes as of June 30, 2017 and December 31, 2016 , 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.
 
 
June 30, 2017
 
December 31, 2016
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)
 
$218.4
 
$57.4
 
4.0 years
 

$68.6

 

$41.9

 
7.0 years
Investments in fixed income fund of funds (3)
 
$59.6
 
—

 
n/a
 

$57.7

 
—

 
n/a
____________
(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.
(3)
Investment may be redeemed on a monthly basis.
For investments held by consolidated private equity funds, significant increases in discounts in isolation would result in significantly lower fair value measurements, while significant increases in revenue multiple assumptions in isolation would result in significantly higher fair value measurements. An increase in discount assumptions would result in a directionally opposite change in the assumptions for revenue multiple, resulting in lower fair value measurements.
Fair Value of Equity Securities, Bonds, and Equity/Fixed Income Mutual Funds
Equity securities are valued under the market approach through use of quoted prices on an exchange. To the extent these securities are actively traded, valuation adjustments are not applied and they are categorized within level 1 of the valuation hierarchy; otherwise, they are categorized in level 2.
Bonds are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Depending on the nature of the inputs, these investments are categorized as level 1, 2, or 3.
Equity and fixed income mutual funds are valued under the market approach through the use of quoted market prices available in an active market and are classified within level 1 of the valuation hierarchy; there is no modeling or additional information needed to arrive at the fair values of these investments.

13 . 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.
 
Three months ended June 30,
 
Six months ended June 30,
$ in millions
2017
 
2016
 
2017
 
2016
Affiliated operating revenues:
 
 
 
 
 
 
 
Investment management fees
885.4

 
820.1

 
1,717.5

 
1,617.0

Service and distribution fees
210.8

 
203.1

 
416.9

 
400.6

Performance fees
3.4

 
6.4

 
11.7

 
16.8

Other
14.2

 
24.7

 
31.0

 
46.5

Total affiliated operating revenues
1,113.8

 
1,054.3

 
2,177.1

 
2,080.9


32


    

                                    

$ in millions
June 30, 2017
 
December 31, 2016
Affiliated asset balances:
 
 
 
Cash and cash equivalents
795.1

 
476.2

Unsettled fund receivables
225.2

 
253.2

Accounts receivable
306.3

 
344.4

Investments
547.5

 
728.3

Assets held for policyholders
10,716.4

 
8,224.2

Other assets
3.4

 
2.9

Total affiliated asset balances
12,593.9

 
10,029.2

 
 
 
 
Affiliated liability balances:
 
 
 
Accrued compensation and benefits
119.9

 
76.5

Accounts payable and accrued expenses
102.0

 
94.7

Unsettled fund payables
425.0

 
318.7

Total affiliated liability balances
646.9

 
489.9

14 . BUSINESS OPTIMIZATION

Business optimization charges of $12.0 million and $36.7 million were recorded during the three and six months ended June 30, 2017 , respectively ( three and six months ended June 30, 2016 : $10.3 million and $17.1 million , respectively). Business optimization charges for the three and six months ended June 30, 2017 includes staff severance costs recorded in employee compensation of $3.9 million and $19.6 million , respectively ( three and six months ended June 30, 2016 : $4.4 million and $8.4 million , respectively), consulting and temporary labor costs of $6.9 million and $15.1 million , respectively ( three and six months ended June 30, 2016 : $5.5 million and $8.6 million , respectively) and office and technology expenses associated with a business transformation initiative of $1.2 million and $2.0 million , respectively ( three and six months ended June 30, 2016 : $0.4 million and $0.1 million , respectively). This is a continuation of efforts to transform several key business support functions to become more effective and efficient by leveraging shared service centers, outsourcing, automation of key processes and optimization of the company's office footprint. The total costs of these initiatives at completion are estimated to be $133 million , of which $31 million remains to be incurred through 2018. There were no material liabilities related to business optimization efforts outstanding at  June 30, 2017 .

15 .   SUBSEQUENT EVENTS
On July 27, 2017 , the company announced a second quarter 2017 dividend of 29.0 cents per share, payable on September 1, 2017 , to shareholders of record at the close of business on August 17, 2017 with an ex-dividend date of August 15, 2017 .





33


    

                                    

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 and the notes thereto contained elsewhere in this Report.
During the three months ended June 30, 2017 , returns from global equity markets were broadly positive resulting from positive macroeconomic indicators muted by global geopolitical uncertainty. In the U.S., equities advanced as the U.S. Federal reserve raised interest rates 0.25% despite mixed economic growth indicators. While political uncertainty introduced doubts about the outlook for fiscal expansion and tax reform, the S&P 500 Index set new all-time highs and ended the period up 2.6%. European markets were similarly helped by strong economic data and an improving economic outlook while investors weighed the impact of election results in the U.K. and France. The European Central Bank indicated the potential for a gradual slowing to economic stimulus helping to drive markets higher early in the quarter while the surprise result in the June U.K. election reversed the quarter’s gains and led the FTSE 100 to finish down 0.1% for the period. In Japan, the Bank of Japan provided a positive outlook on the state of the economy and potential for further economic growth. This language, along with improving economic data in China and broad investor optimism, helped to lead markets higher with the Nikkei 225 finishing the quarter up 6.0%.
Bond returns for the quarter were positive as continuing accommodative monetary policy and low inflation helped to drive bonds higher globally. While prices fell at the end of the quarter on a change in tone from global central banks, the U.S. Aggregate Bond Index still saw gains for the period finishing up 1.5%.


34

Table of Contents     

    

                                    

The table below summarizes returns based on price appreciation/(depreciation) of several major market indices for the three- and six-month periods ended June 30 , 2017 and 2016 :
 
Index expressed in currency
Three months ended June 30,
 
Six months ended June 30,
Equity Index
2017
 
2016
 
2017
 
2016
S&P 500
U.S. Dollar
2.6
 %
 
1.9
 %
 
8.2
%
 
2.7
 %
FTSE 100
British Pound
(0.1
)%
 
5.3
 %
 
2.4
%
 
4.2
 %
FTSE 100
U.S. Dollar
3.6
 %
 
(2.9
)%
 
7.9
%
 
(6.2
)%
Nikkei 225
Japanese Yen
6.0
 %
 
(7.1
)%
 
4.8
%
 
(18.2
)%
Nikkei 225
U.S. Dollar
5.0
 %
 
1.3
 %
 
8.8
%
 
(4.3
)%
MSCI Emerging Markets
U.S. Dollar
5.5
 %
 
(0.3
)%
 
17.2
%
 
5.0
 %
Bond Index
 
 
 
 
 
 
 
 
Barclays U.S. Aggregate Bond
U.S. Dollar
1.5
 %
 
2.2
 %
 
2.3
%
 
5.3
 %
The company's financial results are impacted by the strengthening or weakening of the U.S. Dollar against other currencies, 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. The ongoing uncertainty associated with the Brexit negotiations are likely to continue to keep the Pound Sterling at a low level against the U.S. Dollar when compared to the average exchange rates of recent years, negatively impacting our reported AUM and results in U.S. Dollars. The negotiations may also have a similar ongoing impact to the Euro. As further detailed in the Results of Operations section, foreign exchange rate movements decreased operating revenues by $72.4 million , equivalent to 3.0% of total operating revenues, during the six months ended June 30, 2017 when compared to the six months ended June 30, 2016 . The company has entered into a series of put option contracts to provide Pound Sterling/U.S. Dollar and Euro/U.S. Dollar exchange rate coverage through December 2017 (Euro) and December 2018 (Pound Sterling). Any gains derived from these hedges will help offset the impact on earnings per share resulting from declines in Sterling and Euro exchange rates.

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. The strengthening of the U.S. Dollar against the Pound Sterling during the six months ended   June 30, 2017 when compared to the respective prior periods resulted in a reduction in the net revenue yield as it reduced the weighting of higher fee earning AUM attributable to the U.K. products. This gradual change in the product mix combined with changes in foreign exchange rates results in changes in the average revenue yield derived from AUM due to differing fee rates structures and currencies.

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 geographical 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. During the six months ended June 30, 2017 , while the company experienced long-term net outflows in the U.S. and U.K. operations, our Continental Europe and Asia Pacific operations contributed strong positive long-term net flows. In addition, during the second quarter of 2017 :
•
Jemstep announced a partnership with Advisor Group, one of the nation's largest networks of independent financial advisory firms, to launch a comprehensive digital onboarding, advice and data aggregation platform, using Jemstep technologies.
•
Invesco was featured in the German publication Institutional Money magazine as the U.S. asset manager that has managed to rise from niche provider to a globally significant investment company over the course of 10 years.
•
Invesco International Growth Funds in the U.S. celebrated 25 years, a lifetime of out-performance. The fund has consistently outperformed its benchmark 100% of the time over all 80 quarterly five-year rolling periods since inception.
•
Invesco introduced an annual report on investment stewardship and proxy voting. Invesco has been incorporating environmental, social and governance (ESG) practices for more than 15 years and believes that sound ESG practices can positively impact the value we provide to clients as well as our long-term shareholder value.


35

Table of Contents     

    

                                    

•
Two investment trusts managed by Invesco Perpetual's Mark Barnett have topped the tables of Kepler Partners' new ratings system, which is designed to identify investment trusts that generate a real and dependable income without sacrificing capital. 
•
Invesco Poland was named Investor of the Year for the first time at the 2017 CEEQA Industry Awards and received the award for overall Company of the Year. The CEEQA awards are the sector’s most respected industry recognition, organized each year in association with the Financial Times to reward excellence and to showcase the achievements and opportunities of the New Europe real estate sector to the international investment arena.
•
The Invesco Perpetual UK Smaller Companies Trust was awarded the "Best UK Growth Trust" in the Money Observer Trust Awards 2017. 
•
The Invesco Real Estate team in Spain was recognized with an Inmofondos 2017 Award. This prestigious award has been granted for Invesco's intense activity in Spain during the last year, when the team has increased the assets under management to over €700 million.
•
Invesco Global Targeted Returns Fund (GTR) won the prestigious Money Management Fund Manager of the Year Awards in Australia.
•
At Asia Asset Management's 2017 Best of the Best Awards, Invesco was recognized for its leadership in the market as well as for the outstanding long-term performance of its European Equity capabilities. Andrew Lo, SMD and Head of Asia Pacific, was named CEO of the Year in Asia in the Best of the Best Regional Awards category. 
•
Invesco Taiwan won 20 awards from the 2017 Lipper Taiwan Fund Awards, TFF-Bloomberg Best Fund Award and 2016 Benchmark Fund of the Year Awards in Taiwan.

One of the company's strategic objectives is to harness the power of our global platform by improving effectiveness and efficiency by allocating our resources to the opportunities that will best benefit clients and our business. During 2017, the company has continued our efforts to transform several key business support functions to become more effective and efficient by leveraging shared service centers, outsourcing, automation of key processes and optimization of the company's office footprint. Consistent with this objective, business optimization charges of $36.7 million were recorded during the six months ended June 30, 2017 . Total costs of these initiatives at completion are estimated to be approximately $133 million , of which $31 million remains to be incurred through 2018. As at the end of the second quarter 2017 , this initiative has produced annualized run-rate expense savings of approximately $31 million , and by completion in 2018, the annualized run-rate savings is expected to be up to $50 million.

As previously announced, the company has entered into a definitive agreement to acquire Source, a leading independent specialist provider of exchange-traded funds (ETFs) based in Europe. The transaction is expected to close in the third quarter and includes approximately $18 billion in Source-managed AUM, plus approximately $7 billion of externally managed AUM (as of June 30, 2017). The acquisition brings additional talent and a broad array of funds that further expand the depth and breadth of Invesco’s active, passive and alternative capabilities and expertise, enhancing the firm’s ability to help clients achieve their investment objectives.

  
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 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). CIP includes all variable and voting interest entities, as applicable, with effect from the adoption of ASU 2015-02. 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 12 , "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 follows the AUM discussion:
•
Results of Operations ( three and six months ended June 30, 2017 compared to three and six months ended June 30, 2016 );
•
Schedule of Non-GAAP Information;
•
Balance Sheet Discussion; and
•
Liquidity and Capital Resources.
To assess the impact of CIP on the company's results of operations and balance sheet, refer to Part I, Item 1, Financial Statements, Note 12 - “Consolidated Investment Products.” The impact on the company's results of operations is illustrated by a column which shows the dollar-value change in the consolidated figures, as caused by the consolidation of CIP. For example, the impact of CIP on operating revenues for the three and six months ended June 30, 2017 was a reduction of $6.3 million and a reduction of $19.5 million , respectively. This indicates that their consolidation reduced consolidated revenues by this amount, reflecting the elimination upon their consolidation of the operating revenues earned by Invesco for managing these investment products.
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, ratios and AUM
Three months ended June 30,
 
Six months ended June 30,
U.S. GAAP Financial Measures Summary
2017
 
2016
 
2017
 
2016
Operating revenues
1,254.4

 
1,189.4

 
2,447.0

 
2,338.1

Operating income
318.9

 
301.5

 
577.5

 
575.9

Operating margin
25.4
%
 
25.3
%
 
23.6
%
 
24.6
%
Net income attributable to Invesco Ltd.
239.6

 
225.5

 
451.6

 
386.5

Diluted Earnings Per Share (EPS)
0.58

 
0.54

 
1.10

 
0.92

 
 
 
 
 
 
 
 
Non-GAAP Financial Measures Summary
 
 
 
 
 
 
 
Net revenues (1)
906.3

 
856.6

 
1,773.4

 
1,674.7

Adjusted operating income (2)
356.5

 
330.4

 
683.6

 
637.5

Adjusted operating margin (2)
39.3
%
 
38.6
%
 
38.5
%
 
38.1
%
Adjusted net income attributable to Invesco Ltd. (3)
264.5

 
233.0

 
515.0

 
437.8

Adjusted diluted EPS (3)
0.64

 
0.56

 
1.26

 
1.04

 
 
 
 
 
 
 
 
Assets Under Management
 
 
 
 
 
 
 
Ending AUM (billions)
858.3

 
779.6

 
858.3

 
779.6

Average AUM (billions)
849.2

 
784.5

 
839.5

 
766.0

_________

(1)
Net revenues is a non-GAAP financial measure. Net revenues are operating revenues plus our proportional share of the net revenues of our joint venture investments, less third-party distribution, service and advisory expenses, plus management and performance fees earned from CIP, less other revenue recorded by 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 our proportional share of the net operating income of our joint venture investments, the operating income impact of the consolidation of investment products, business combination-related adjustments, compensation expense related to market valuation changes in deferred compensation plans, and other reconciling items. See "Schedule of Non-GAAP Information," for the reconciliation of operating income to adjusted operating income.
(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 impact of CIP on net income attributable to Invesco Ltd., add back business combination-related adjustments, the net income impact of deferred compensation plans and other reconciling items. Adjustments made to net income attributable to Invesco Ltd. are tax-effected 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 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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Investment Capabilities Performance Overview
Invesco's first strategic priority is to achieve strong investment performance over the long-term for our clients. The table below presents the one-, three- and five-year performance of our actively managed investment products measured by the percentage of AUM ahead of benchmark and AUM in the top half of peer group. (1)
 
Benchmark Comparison
 
Peer Group Comparison
 
% of AUM Ahead of Benchmark
 
% of AUM In Top Half of Peer Group
 
1yr
3yr
5yr
 
1yr
3yr
5yr
Equities
 
 
 
 
 
 
 
U.S. Core
29
%
—
%
5
%
 
32
%
—
%
5
%
U.S. Growth
72
%
41
%
87
%
 
58
%
37
%
87
%
U.S. Value
58
%
58
%
87
%
 
51
%
57
%
87
%
Sector Funds
80
%
13
%
13
%
 
81
%
9
%
17
%
U.K.
11
%
100
%
100
%
 
12
%
85
%
71
%
Canadian
88
%
33
%
39
%
 
65
%
10
%
33
%
Asian
49
%
85
%
90
%
 
45
%
72
%
89
%
Continental European
65
%
99
%
100
%
 
54
%
71
%
89
%
Global
51
%
53
%
73
%
 
52
%
72
%
84
%
Global Ex U.S. and Emerging Markets
5
%
25
%
91
%
 
4
%
3
%
9
%
Fixed Income
 
 
 
 
 
 
 
Money Market
99
%
99
%
68
%
 
98
%
98
%
98
%
U.S. Fixed Income
66
%
90
%
90
%
 
72
%
87
%
83
%
Global Fixed Income
85
%
51
%
80
%
 
74
%
39
%
85
%
Stable Value
100
%
100
%
100
%
 
100
%
100
%
100
%
Other
 
 
 
 
 
 
 
Alternatives
83
%
76
%
64
%
 
74
%
86
%
49
%
Balanced
81
%
45
%
48
%
 
68
%
92
%
89
%
_____________________________
(1)
AUM measured in the one-, three-, and five-year peer group rankings represents 59%, 58%, and 56% of total Invesco AUM, respectively, and AUM measured versus benchmark on a one-, three-, and five-year basis represents 71%, 68%, and 64% of total Invesco AUM, respectively, as of June 30, 2017. Peer group rankings are sourced from a widely-used third party ranking agency in each fund's market (Lipper, Morningstar, IA, Russell, Mercer, eVestment Alliance, SITCA, Value Research) and are asset-weighted in U.S. Dollars. Rankings are as of prior quarter-end for most institutional products and preceding month-end for Australian retail funds due to their late release by third parties. Rankings for the most representative fund in each Global Investment Performance Standard (GIPS) composite are applied to all products within each GIPS composite. Excludes passive products, closed-end funds, private equity limited partnerships, non-discretionary direct real estate, unit investment trusts, fund-of-funds with component funds managed by Invesco, stable value building block funds, and Collateralized Debt Obligations (CDOs). Certain funds and products were excluded from the analysis because of limited benchmark or peer group data. Had these been available, results may have been different. These results are preliminary and subject to revision. Performance assumes the reinvestment of dividends. Past performance is not indicative of future results and may not reflect an investor's experience.


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Foreign Exchange Impact on Balance Sheet, Assets Under Management and Results of Operations
A significant portion of our business is based outside of the U.S. The strengthening or weakening of the U.S. Dollar against other currencies, primarily the Pound Sterling, Canadian Dollar, Euro and Japanese Yen will impact our assets, liabilities, AUM and reported revenues and expenses from period to period. The assets, liabilities and AUM of foreign subsidiaries are translated at period end spot foreign currency exchange rates. The income statements of foreign currency subsidiaries are translated into U.S. Dollars, the reporting currency of the company, using average foreign exchange rates.
The table below illustrates the spot foreign exchange rates used for translation of non-U.S. Dollar denominated assets, liabilities and AUM into U.S. Dollars:
Spot Foreign Exchange Rates
June 30, 2017
 
March 31, 2017
 
December 31, 2016
 
June 30, 2016
 
March 31, 2016
 
December 31, 2015
Pound Sterling ($ per £)
1.299

 
1.250

 
1.236

 
1.337

 
1.438

 
1.474

Canadian Dollar (CAD per $)
1.299

 
1.333

 
1.341

 
1.300

 
1.293

 
1.389

Japan (¥ per $)
112.375

 
111.405

 
116.600

 
102.533

 
112.355

 
120.275

Euro ($ per Euro)
1.140

 
1.069

 
1.054

 
1.111

 
1.139

 
1.086

The table below illustrates the average foreign exchange rates used for translation of non-U.S. Dollar denominated income, including revenues and expenses, into U.S. Dollars:
 
Three months ended June 30,
 
Six months ended June 30,
Average Foreign Exchange Rates
2017
 
2016
 
2017
 
2016
Pound Sterling ($ per £)
1.278

 
1.435

 
1.258

 
1.433

Canadian Dollar (CAD per $)
1.345

 
1.289

 
1.334

 
1.330

Japan (¥ per $)
111.039

 
108.014

 
112.386

 
111.569

Euro ($ per Euro)
1.099

 
1.129

 
1.082

 
1.116

A comparison of period end spot rates between June 30, 2017 and December 31, 2016 shows a strengthening of the Pound Sterling, the Euro, Canadian Dollar and Japanese Yen relative to the U.S. Dollar, which is reflected in the translation of our Pound Sterling-based, Euro-based, Canadian Dollar-based and Japanese Yen-based assets, liabilities and AUM into U.S. Dollars, respectively.
A comparison of the average foreign exchange rates used for the three and six months ended June 30, 2017 when compared to the three and six months ended June 30, 2016 shows a weakening of the Pound Sterling, the Euro, Canadian Dollar and Japanese Yen relative to the U.S. Dollar, which is reflected in the translation of our Pound Sterling-based, Euro-based, Canadian Dollar-based and Japanese Yen-based revenue and expenses into U.S. Dollars.



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Assets Under Management movements for the three and six months ended June 30, 2017 compared with the three and six months ended June 30, 2016
The following presentation and discussion of AUM includes Passive and Active AUM. Passive AUM include ETFs, UITs, leveraged fund balances upon which we do not earn a fee, and other passive mandates. Active AUM are total AUM less Passive AUM.
The AUM tables and the discussion below refer to AUM as long-term. Long-term AUM excludes institutional money market and Invesco PowerShares QQQ AUM.
Changes in AUM were as follows:
 
For the three months ended June 30,
 
2017
 
2016
$ in billions
Total AUM
 
Active
 
Passive
 
Total AUM
 
Active
 
Passive
March 31
834.8

 
680.5

 
154.3

 
771.5

 
640.4

 
131.1

Long-term inflows
42.3

 
33.7

 
8.6

 
45.8

 
33.5

 
12.3

Long-term outflows
(42.9
)
 
(33.9
)
 
(9.0
)
 
(41.3
)
 
(33.5
)
 
(7.8
)
Long-term net flows
(0.6
)
 
(0.2
)
 
(0.4
)
 
4.5

 
—

 
4.5

Net flows in Invesco PowerShares QQQ fund
0.2

 
—

 
0.2

 
(3.8
)
 
—

 
(3.8
)
Net flows in institutional money market funds
2.8

 
2.8

 
—

 
2.0

 
1.9

 
0.1

Total net flows
2.4

 
2.6

 
(0.2
)
 
2.7

 
1.9

 
0.8

Market gains and losses/reinvestment
13.0

 
10.5

 
2.5

 
10.7

 
9.2

 
1.5

Acquisitions/dispositions, net
—

 
—

 
—

 
2.4

 
2.4

 
—

Foreign currency translation
8.1

 
8.1

 
—

 
(7.7
)
 
(7.8
)
 
0.1

June 30
858.3

 
701.7

 
156.6

 
779.6

 
646.1

 
133.5

Average AUM
 
 
 
 
 
 
 
 
 
 
 
Average long-term AUM
730.9

 
624.1

 
106.8

 
681.8

 
586.7

 
95.1

Average AUM
849.2

 
692.4

 
156.8

 
784.5

 
652.8

 
131.7

Revenue yield
 
 
 
 
 
 
 
 
 
 
 
Gross revenue yield on AUM (1)
59.7

 
69.5

 
16.6

 
61.3

 
70.9

 
14.6

Gross revenue yield on AUM before performance fees (1)
58.9

 
68.5

 
16.6

 
60.9

 
70.3

 
14.6

Net revenue yield on AUM (2)
42.7

 
48.6

 
16.6

 
43.7

 
49.5

 
14.6

Net revenue yield on AUM before performance fees (2)
41.8

 
47.6

 
16.6

 
43.2

 
49.0

 
14.6


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For the six months ended June 30,
 
2017
 
2016
$ in billions
Total AUM
 
Active
 
Passive
 
Total AUM
 
Active
 
Passive
December 31
812.9

 
668.5

 
144.4

 
775.6

 
636.5

 
139.1

Long-term inflows
91.4

 
71.0

 
20.4

 
88.6

 
66.4

 
22.2

Long-term outflows
(90.2
)
 
(71.7
)
 
(18.5
)
 
(85.4
)
 
(65.9
)
 
(19.5
)
Long-term net flows
1.2

 
(0.7
)
 
1.9

 
3.2

 
0.5

 
2.7

Net flows in Invesco PowerShares QQQ fund
1.2

 
—

 
1.2

 
(6.4
)
 
—

 
(6.4
)
Net flows in institutional money market funds
(5.3
)
 
(5.3
)
 
—

 
5.8

 
6.0

 
(0.2
)
Total net flows
(2.9
)
 
(6.0
)
 
3.1

 
2.6

 
6.5

 
(3.9
)
Market gains and losses/reinvestment
36.1

 
27.1

 
9.0

 
7.7

 
6.4

 
1.3

Acquisitions/dispositions, net
—

 
—

 
—

 
(1.2
)
 
2.0

 
(3.2
)
Foreign currency translation
12.2

 
12.1

 
0.1

 
(5.1
)
 
(5.3
)
 
0.2

June 30
858.3

 
701.7

 
156.6

 
779.6

 
646.1

 
133.5

Average AUM
 
 
 
 
 
 
 
 
 
 
 
Average long-term AUM
723.6

 
616.8

 
106.8

 
665.5

 
573.3

 
92.2

Average AUM
839.5

 
685.4

 
154.1

 
766.0

 
636.7

 
129.3

Revenue yield
 
 
 
 
 
 
 
 
 
 
 
Gross revenue yield on AUM (1)
58.9

 
68.5

 
16.6

 
61.7

 
71.5

 
14.2

Gross revenue yield on AUM before performance fees (1)
58.2

 
67.7

 
16.6

 
61.1

 
70.7

 
14.2

Net revenue yield on AUM (2)
42.2

 
48.0

 
16.6

 
43.7

 
49.7

 
14.2

Net revenue yield on AUM before performance fees (2)
41.4

 
47.0

 
16.6

 
43.1

 
48.9

 
14.2


_____________________________
(1)
Gross revenue yield on AUM is equal to annualized total operating revenues divided by average AUM, excluding joint venture (JV) AUM. Our share of the average AUM in the three months ended June 30, 2017 for our JVs in China was $8.1 billion ( three months ended June 30, 2016 : $8.6 billion ). It is appropriate to exclude the average AUM of our JVs for purposes of computing gross revenue yield on AUM because the revenues resulting from these AUM are not presented in our operating revenues. Under U.S. GAAP, our share of the net income of the JVs is recorded as equity in earnings of unconsolidated affiliates on our Condensed Consolidated Statements of Income. Additionally, the numerator of the gross revenue yield measure, operating revenues, excludes the management fees earned from CIP; however, the denominator of the measure includes the AUM of these investment products. Therefore, the gross revenue yield measure is not considered representative of the company's true effective fee rate from AUM.
(2)
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.

Flows
AUM at June 30, 2017 were $858.3 billion ( June 30, 2016 : $779.6 billion ). During the three months ended June 30, 2017 , we experienced long-term net outflows of $0.6 billion . These outflows were offset by net inflows of institutional money market funds of $2.8 billion and Invesco PowerShares QQQ of $0.2 billion during the period. Long-term net outflows during the three months ended June 30, 2017 , were split between outflows from passive AUM products of $0.4 billion and from actively managed AUM products of $0.2 billion . Long-term net outflows for the period were from our institutional distribution channel of $2.0 billion , offset by net inflows from our retail distribution channel of $1.4 billion . On a client domicile basis, long-term net outflows were from the U.S., the U.K. and Asia with outflows of $2.8 billion , $1.1 billion and $0.8 billion , respectively. These were partially offset by inflows of $4.0 billion and $0.1 billion for Continental Europe and Canada, respectively, during the three months ended June 30, 2017 .
During the three months ended June 30, 2016 , we experienced long-term net inflows of $4.5 billion . We also experienced net outflows in Invesco PowerShares QQQ fund of $3.8 billion , offset by net inflows in institutional money market funds of $2.0 billion during this period. Long-term net inflows during the three months ended June 30, 2016 of $4.5 billion were entirely in passive AUM products. Net long-term inflows from our institutional channel of $ 5.0 billion were partially offset by outflows in our retail distribution channel of $0.5 billion . On a client domicile basis, long-term net inflows of $4.1 billion and $2.1 billion

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for Asia and the U.S., respectively, were partially offset by long-term net outflows of $0.9 billion , $0.6 billion , and $0.2 billion for Continental Europe, the U.K. and Canada, respectively.
Average AUM during the three months ended June 30, 2017 were $849.2 billion , compared to $784.5 billion for the three months ended June 30, 2016 .
During the six months ended June 30, 2017 , we experienced long-term net inflows of $1.2 billion . We also experienced net inflows in Invesco PowerShares QQQ fund of $1.2 billion , offset by net outflows in institutional money market funds of $5.3 billion during this period. Long-term net inflows during the six months ended June 30, 2017 included inflows of passive AUM of $1.9 billion , partially offset by outflows of active AUM of $0.7 billion . Net long-term inflows were comprised of inflows in our retail distribution channel of $3.2 billion , partially offset by outflows from our institutional channel of $2.0 billion . On a client domicile basis, long-term net inflows of $5.7 billion and $0.4 billion in Continental Europe and Asia, respectively, were partially offset by long-term net outflows of $2.9 billion , $1.9 billion and $0.1 billion in the U.S., U.K. and Canada during the six months ended June 30, 2017 .
During the six months ended June 30, 2016 , we experienced long-term net inflows of $3.2 billion . We also experienced net inflows in institutional money market funds of $5.8 billion , offset by net outflows in Invesco PowerShares QQQ fund of $6.4 billion during the six months ended June 30, 2016 . Net inflows during the six months ended June 30, 2016 included net long-term inflows of active AUM of $0.5 billion and net long-term inflows of passive AUM of $2.7 billion . Net long-term inflows for the period were comprised of inflows in our institutional channel of $6.4 billion partially offset by outflows in our retail distribution channel of $3.2 billion . On a client domicile basis, long-term net inflows of $7.7 billion were experienced in Asia offset by long-term net outflows of $2.5 billion , $1.4 billion , $0.4 billion and $0.2 billion in Continental Europe, the U.K., Canada and the U.S., respectively during the six months ended June 30, 2016 .
Average AUM during the six months ended June 30, 2017 were $839.5 billion , compared to $766.0 billion for the six months ended June 30, 2016 .
Market Returns
During the three months ended June 30, 2017 , positive market movement led to a $13.0 billion increase in AUM, with gains in our equity asset class of $10.9 billion , fixed income class of $2.0 billion and balanced asset class of $0.2 billion . During the three months ended June 30, 2016 , positive market movement led to a $10.7 billion increase in AUM, with gains in the equity asset class of $3.5 billion , fixed income class of $3.4 billion , alternatives asset class of $2.2 billion and balanced asset class of $1.6 billion .
During the six months ended June 30, 2017 , positive market movement led to a $36.1 billion increase in AUM, with gains in our equity asset class of $31.1 billion , fixed income class of $3.7 billion and balanced asset class of $1.5 billion . During the six months ended June 30, 2016 , positive market movement led to a $7.7 billion increase in AUM, with gains in the fixed income class of $5.4 billion , alternatives asset class of $3.1 billion and balanced asset class of $1.0 billion , partially offset by market losses in the equity asset class of $2.0 billion .
Foreign Exchange Rates
During the three months ended June 30, 2017 , we experienced increases in AUM of $8.1 billion due to changes in foreign exchange rates. In the three months ended June 30, 2016 , AUM decreased by $7.7 billion due to foreign exchange rate changes. See the company's disclosures regarding the changes in foreign exchange rates during the three months ended June 30, 2017 in the “Foreign Exchange Impact on Balance Sheet, Assets Under Management and Results of Operations” section above for additional information regarding the movement of foreign exchange rates.
During the six months ended June 30, 2017 , we experienced increases in AUM of $12.2 billion due to changes in foreign exchange rates. In the six months ended June 30, 2016 , AUM decreased by $5.1 billion due to foreign exchange rate changes. See the company's disclosures regarding the changes in foreign exchange rates during the six months ended June 30, 2017 in the “Foreign Exchange Impact on Balance Sheet, Assets Under Management and Results of Operations” section above for additional information regarding the movement of foreign exchange rates.
Revenue Yield
Gross revenue yield on AUM decreased   1.6 basis points to  59.7 basis points in the  three months ended   June 30, 2017 from the  three months ended   June 30, 2016 level of  61.3 basis points. Management does not consider gross revenue yield, the most comparable U.S. GAAP-based measure to net revenue yield, to be a meaningful effective fee rate measure for the reasons outlined in footnote 1 to the Changes in AUM table above.

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Net revenue yield on AUM decreased 1.0 basis point to 42.7 basis points in the  three months ended   June 30, 2017 when compared to the three months ended   June 30, 2016 yield of 43.7 basis points. Excluding performance fees, the net revenue yield decreased 1.4 basis points to 41.8 basis points in the  three months ended   June 30, 2017 ( three months ended   June 30, 2016 : 43.2 basis points). Net revenue yield on AUM decreased 1.5 basis point to 42.2 basis points in the  six months ended   June 30, 2017 when compared to the six months ended   June 30, 2016 yield of 43.7 basis points. Excluding performance fees, the net revenue yield decreased 1.7 basis points to 41.4 basis points in the  six months ended   June 30, 2017 ( six months ended   June 30, 2016 : 43.1 basis points).
As a significant proportion of our AUM is based outside of the U.S., changes in foreign exchange rates result in a change to the mix of U.S. Dollar denominated AUM with AUM denominated in other currencies. As fee rates differ across geographic locations, changes to exchange rates have an impact on the net revenue yields. The strengthening of the U.S. Dollar against the Pound Sterling during the three and six months ended  June 30, 2017 when compared to the respective prior periods resulted in a reduction in the net revenue yield as it reduced the weighting of higher fee earning AUM attributable to the U.K. products.
Additionally, changes in our AUM mix significantly impact our net revenue yield. For example, on an asset class basis, our equity and balanced AUM generally earn a higher net revenue rate than money market and fixed income AUM. Passive AUM generally earn a lower effective fee rate than active asset classes.
At  June 30, 2017 , passive AUM were $156.6 billion , representing  18.2% of total AUM at that date; whereas at June 30, 2016 , passive AUM were $133.5 billion , representing 17.1% of our total AUM at that date. In the three months ended June 30, 2017 , the net revenue yield on passive AUM was 16.6 basis points compared to 14.6 basis points in the three months ended June 30, 2016 , an increase of 2.0 basis points. In the six months ended June 30, 2017 , the net revenue yield on passive AUM was 16.6 basis points compared to 14.2 basis points in the six months ended June 30, 2016 , an increase of 2.4 basis points. The combination of average equity and average balanced AUM decreased to 51.5% in the six months ended June 30, 2017 from 51.9% of total average AUM in the six months ended   June 30, 2016 . These changes in asset class mix contributed to the decrease in net revenue yield on AUM in the three and six months ended June 30, 2017 when compared to the respective prior period.
 



44

Table of Contents     

    

                                    

Changes in our AUM by channel, asset class, and client domicile, and average AUM by asset class, are presented below:
Total AUM by Channel (1)  
As of and for the Three Months Ended June 30, 2017 and 2016 :
$ in billions
Total
 
Retail
 
Institutional
March 31, 2017
834.8

 
552.1

 
282.7

Long-term inflows
42.3

 
34.4

 
7.9

Long-term outflows
(42.9
)
 
(33.0
)
 
(9.9
)
Long-term net flows
(0.6
)
 
1.4

 
(2.0
)
Net flows in Invesco PowerShares QQQ fund
0.2

 
0.2

 
—

Net flows in institutional money market funds
2.8

 
—

 
2.8

Total net flows
2.4

 
1.6

 
0.8

Market gains and losses/reinvestment
13.0

 
12.0

 
1.0

Foreign currency translation
8.1

 
6.7

 
1.4

June 30, 2017
858.3

 
572.4

 
285.9

 
 
 
 
 
 
March 31, 2016
771.5

 
507.7

 
263.8

Long-term inflows
45.8

 
34.8

 
11.0

Long-term outflows
(41.3
)
 
(35.3
)
 
(6.0
)
Long-term net flows
4.5

 
(0.5
)
 
5.0

Net flows in Invesco PowerShares QQQ fund
(3.8
)
 
(3.8
)
 
—

Net flows in institutional money market funds
2.0

 
—

 
2.0

Total net flows
2.7

 
(4.3
)
 
7.0

Market gains and losses/reinvestment
10.7

 
7.8

 
2.9

Acquisitions/dispositions, net
2.4

 
0.4

 
2.0

Foreign currency translation
(7.7
)
 
(7.3
)
 
(0.4
)
June 30, 2016
779.6

 
504.3

 
275.3

As of and for the Six Months Ended June 30, 2017 and 2016 :
$ in billions
Total
 
Retail
 
Institutional
December 31, 2016
812.9

 
526.5

 
286.4

Long-term inflows
91.4

 
74.0

 
17.4

Long-term outflows
(90.2
)
 
(70.8
)
 
(19.4
)
Long-term net flows
1.2

 
3.2

 
(2.0
)
Net flows in Invesco PowerShares QQQ fund
1.2

 
1.2

 
—

Net flows in institutional money market funds
(5.3
)
 
—

 
(5.3
)
Total net flows
(2.9
)
 
4.4

 
(7.3
)
Market gains and losses/reinvestment
36.1

 
32.4

 
3.7

Acquisitions/dispositions, net
—

 
—

 
—

Foreign currency translation
12.2

 
9.1

 
3.1

June 30, 2017
858.3

 
572.4

 
285.9

 
 
 
 
 
 
December 31, 2015
775.6

 
514.8

 
260.8

Long-term inflows
88.6

 
67.9

 
20.7

Long-term outflows
(85.4
)
 
(71.1
)
 
(14.3
)
Long-term net flows
3.2

 
(3.2
)
 
6.4

Net flows in Invesco PowerShares QQQ fund
(6.4
)
 
(6.4
)
 
—

Net flows in institutional money market funds
5.8

 
—

 
5.8

Total net flows
2.6

 
(9.6
)
 
12.2

Market gains and losses/reinvestment
7.7

 
4.7

 
3.0

Acquisitions/dispositions, net
(1.2
)
 
0.4

 
(1.6
)
Foreign currency translation
(5.1
)
 
(6.0
)
 
0.9

June 30, 2016
779.6

 
504.3

 
275.3

____________
See accompanying notes immediately following these AUM tables.

45

Table of Contents     

    

                                    

Passive AUM by Channel (1)  
As of and for the Three Months Ended June 30, 2017 and 2016 :
$ in billions
Total
 
Retail
 
Institutional
March 31, 2017
154.3

 
138.5

 
15.8

Long-term inflows
8.6

 
8.5

 
0.1

Long-term outflows
(9.0
)
 
(8.4
)
 
(0.6
)
Long-term net flows
(0.4
)
 
0.1

 
(0.5
)
Net flows in Invesco PowerShares QQQ fund
0.2

 
0.2

 
—

Net flows in institutional money market funds
—

 
—

 
—

Total net flows
(0.2
)
 
0.3

 
(0.5
)
Market gains and losses/reinvestment
2.5

 
2.7

 
(0.2
)
Foreign currency translation
—

 
—

 
—

June 30, 2017
156.6

 
141.5

 
15.1

 
 
 
 
 
 
March 31, 2016
131.1

 
115.7

 
15.4

Long-term inflows
12.3

 
11.3

 
1.0

Long-term outflows
(7.8
)
 
(7.7
)
 
(0.1
)
Long-term net flows
4.5

 
3.6

 
0.9

Net flows in Invesco PowerShares QQQ fund
(3.8
)
 
(3.8
)
 
—

Net flows in institutional money market funds
0.1

 
—

 
0.1

Total net flows
0.8

 
(0.2
)
 
1.0

Market gains and losses/reinvestment
1.5

 
1.5

 
—

Acquisitions/dispositions, net
—

 
—

 
—

Foreign currency translation
0.1

 
—

 
0.1

June 30, 2016
133.5

 
117.0

 
16.5

As of and for the Six Months Ended June 30, 2017 and 2016 :
$ in billions
Total
 
Retail
 
Institutional
December 31, 2016
144.4

 
128.8

 
15.6

Long-term inflows
20.4

 
18.9

 
1.5

Long-term outflows
(18.5
)
 
(16.8
)
 
(1.7
)
Long-term net flows
1.9

 
2.1

 
(0.2
)
Net flows in Invesco PowerShares QQQ fund
1.2

 
1.2

 
—

Net flows in institutional money market funds
—

 
—

 
—

Total net flows
3.1

 
3.3

 
(0.2
)
Market gains and losses/reinvestment
9.0

 
9.4

 
(0.4
)
Acquisitions/dispositions, net
—

 
—

 
—

Foreign currency translation
0.1

 
—

 
0.1

June 30, 2017
156.6

 
141.5

 
15.1

 
 
 
 
 
 
December 31, 2015
139.1

 
118.7

 
20.4

Long-term inflows
22.2

 
21.2

 
1.0

Long-term outflows
(19.5
)
 
(17.9
)
 
(1.6
)
Long-term net flows
2.7

 
3.3

 
(0.6
)
Net flows in Invesco PowerShares QQQ fund
(6.4
)
 
(6.4
)
 
—

Net flows in institutional money market funds
(0.2
)
 
—

 
(0.2
)
Total net flows
(3.9
)
 
(3.1
)
 
(0.8
)
Market gains and losses/reinvestment
1.3

 
1.4

 
(0.1
)
Acquisitions/dispositions, net
(3.2
)
 
—

 
(3.2
)
Foreign currency translation
0.2

 
—

 
0.2

June 30, 2016
133.5

 
117.0

 
16.5

____________
See accompanying notes immediately following these AUM tables.


46

Table of Contents     

    

                                    

Total AUM by Asset Class (2)  
As of and for the Three Months Ended June 30, 2017 and 2016 :
$ in billions
Total
 
Equity
 
Fixed Income (3)
 
Balanced
 
Money Market (3)(5)
 
Alternatives (4)
March 31, 2017
834.8

 
381.8

 
203.8

 
48.9

 
73.1

 
127.2

Long-term inflows
42.3

 
19.0

 
10.9

 
3.6

 
1.0

 
7.8

Long-term outflows
(42.9
)
 
(24.6
)
 
(8.8
)
 
(2.1
)
 
(0.9
)
 
(6.5
)
Long-term net flows
(0.6
)
 
(5.6
)
 
2.1

 
1.5

 
0.1

 
1.3

Net flows in Invesco PowerShares QQQ fund
0.2

 
0.2

 
—

 
—

 
—

 
—

Net flows in institutional money market funds
2.8

 
—

 
—

 
—

 
2.8

 
—

Total net flows
2.4

 
(5.4
)
 
2.1

 
1.5

 
2.9

 
1.3

Market gains and losses/reinvestment
13.0

 
10.9

 
2.0

 
0.2

 
—

 
(0.1
)
Transfers/reclassifications
—

 
—

 
—

 
—

 
—

 
—

Foreign currency translation
8.1

 
3.9

 
1.0

 
1.6

 
0.1

 
1.5

June 30, 2017
858.3

 
391.2

 
208.9

 
52.2

 
76.1

 
129.9

Average AUM
849.2

 
388.8

 
207.2

 
50.8

 
73.8

 
128.6

% of total average AUM
100.0
%
 
45.8
%
 
24.4
%
 
6.0
%
 
8.7
%
 
15.1
%
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2016
771.5

 
359.5

 
187.1

 
46.8

 
68.6

 
109.5

Long-term inflows
45.8

 
20.5

 
12.0

 
3.2

 
1.0

 
9.1

Long-term outflows
(41.3
)
 
(27.0
)
 
(6.4
)
 
(3.0
)
 
(0.8
)
 
(4.1
)
Long-term net flows
4.5

 
(6.5
)
 
5.6

 
0.2

 
0.2

 
5.0

Net flows in Invesco PowerShares QQQ fund
(3.8
)
 
(3.8
)
 
—

 
—

 
—

 
—

Net flows in institutional money market funds
2.0

 
—

 
—

 
—

 
2.0

 
—

Total net flows
2.7

 
(10.3
)
 
5.6

 
0.2

 
2.2

 
5.0

Market gains and losses/reinvestment
10.7

 
3.5

 
3.4

 
1.6

 
—

 
2.2

Acquisitions/dispositions, net
2.4

 
0.4

 
1.6

 
—

 
0.4

 
—

Foreign currency translation
(7.7
)
 
(4.3
)
 
(1.4
)
 
(1.2
)
 
(0.1
)
 
(0.7
)
June 30, 2016
779.6

 
348.8

 
196.3

 
47.4

 
71.1

 
116.0

Average AUM
784.5

 
357.0

 
193.7

 
47.7

 
72.8

 
113.3

% of total average AUM
100.0
%
 
45.5
%
 
24.7
%
 
6.1
%
 
9.3
%
 
14.4
%

47

Table of Contents     

    

                                    

As of and for the Six Months Ended June 30, 2017 and 2016 :
$ in billions
Total
 
Equity
 
Fixed Income (3)
 
Balanced
 
Money Market (3)(5)
 
Alternatives (4)
December 31, 2016
812.9

 
364.1

 
201.7

 
46.8

 
78.3

 
122.0

Long-term inflows
91.4

 
40.5

 
23.6

 
6.3

 
1.8

 
19.2

Long-term outflows
(90.2
)
 
(51.1
)
 
(19.0
)
 
(4.3
)
 
(1.8
)
 
(14.0
)
Long-term net flows
1.2

 
(10.6
)
 
4.6

 
2.0

 
—

 
5.2

Net flows in Invesco PowerShares QQQ fund
1.2

 
1.2

 
—

 
—

 
—

 
—

Net flows in institutional money market funds
(5.3
)
 
—

 
—

 
—

 
(5.3
)
 
—

Total net flows
(2.9
)
 
(9.4
)
 
4.6

 
2.0

 
(5.3
)
 
5.2

Market gains and losses/reinvestment
36.1

 
31.1

 
3.7

 
1.5

 
—

 
(0.2
)
Transfers/reclassifications
—

 
—

 
(3.0
)
 
—

 
3.0

 
—

Foreign currency translation
12.2

 
5.4

 
1.9

 
1.9

 
0.1

 
2.9

June 30, 2017
858.3

 
391.2

 
208.9

 
52.2

 
76.1

 
129.9

Average AUM
839.5

 
382.8

 
204.7

 
49.5

 
75.6

 
126.9

% of total average AUM
100.0
%
 
45.6
%
 
24.4
%
 
5.9
%
 
9.0
%
 
15.1
%
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
775.6

 
370.9

 
187.9

 
48.1

 
64.6

 
104.1

Long-term inflows
88.6

 
40.9

 
21.7

 
5.2

 
2.0

 
18.8

Long-term outflows
(85.4
)
 
(51.6
)
 
(16.5
)
 
(6.6
)
 
(1.8
)
 
(8.9
)
Long-term net flows
3.2

 
(10.7
)
 
5.2

 
(1.4
)
 
0.2

 
9.9

Net flows in Invesco PowerShares QQQ fund
(6.4
)
 
(6.4
)
 
—

 
—

 
—

 
—

Net flows in institutional money market funds
5.8

 
—

 
—

 
—

 
5.8

 
—

Total net flows
2.6

 
(17.1
)
 
5.2

 
(1.4
)
 
6.0

 
9.9

Market gains and losses/reinvestment
7.7

 
(2.0
)
 
5.4

 
1.0

 
0.2

 
3.1

Acquisitions/dispositions, net
(1.2
)
 
0.4

 
(1.1
)
 
—

 
0.4

 
(0.9
)
Foreign currency translation
(5.1
)
 
(3.4
)
 
(1.1
)
 
(0.3
)
 
(0.1
)
 
(0.2
)
June 30, 2016
779.6

 
348.8

 
196.3

 
47.4

 
71.1

 
116.0

Average AUM
766.0

 
350.7

 
189.5

 
46.7

 
70.0

 
109.1

% of total average AUM
100.0
%
 
45.8
%
 
24.7
%
 
6.1
%
 
9.1
%
 
14.2
%
____________
See accompanying notes immediately following these AUM tables.


 

48

Table of Contents     

    

                                    

Passive AUM by Asset Class (2)  
As of and for the Three Months Ended June 30, 2017 and 2016 :
$ in billions
Total
 
Equity
 
Fixed Income
 
Balanced
 
Money Market
 
Alternatives (4)
March 31, 2017
154.3

 
101.2

 
45.1

 
—

 
—

 
8.0

Long-term inflows
8.6

 
5.7

 
2.5

 
—

 
—

 
0.4

Long-term outflows
(9.0
)
 
(6.4
)
 
(1.1
)
 
—

 
—

 
(1.5
)
Long-term net flows
(0.4
)
 
(0.7
)
 
1.4

 
—

 
—

 
(1.1
)
Net flows in Invesco PowerShares QQQ fund
0.2

 
0.2

 
—

 
—

 
—

 
—

Net flows in institutional money market funds
—

 
—

 
—

 
—

 
—

 
—

Total net flows
(0.2
)
 
(0.5
)
 
1.4

 
—

 
—

 
(1.1
)
Market gains and losses/reinvestment
2.5

 
2.8

 
—

 
—

 
—

 
(0.3
)
Foreign currency translation
—

 
—

 
—

 
—

 
—

 
—

June 30, 2017
156.6

 
103.5

 
46.5

 
—

 
—

 
6.6

Average AUM
156.8

 
103.5

 
46.2

 
—

 
—

 
7.1

% of total average AUM
100.0
%
 
66.0
%
 
29.5
%
 
—
%
 
—
%
 
4.5
%
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2016
131.1

 
87.1

 
35.6

 
—

 
0.1

 
8.3

Long-term inflows
12.3

 
7.7

 
3.5

 
—

 
—

 
1.1

Long-term outflows
(7.8
)
 
(6.5
)
 
(0.7
)
 
—

 
—

 
(0.6
)
Long-term net flows
4.5

 
1.2

 
2.8

 
—

 
—

 
0.5

Net flows in Invesco PowerShares QQQ fund
(3.8
)
 
(3.8
)
 
—

 
—

 
—

 
—

Net flows in institutional money market funds
0.1

 
—

 
—

 
—

 
0.1

 
—

Total net flows
0.8

 
(2.6
)
 
2.8

 
—

 
0.1

 
0.5

Market gains and losses/reinvestment
1.5

 
0.4

 
0.5

 
—

 
—

 
0.6

Acquisitions/dispositions, net
—

 
—

 
—

 
—

 
—

 
—

Foreign currency translation
0.1

 
—

 
—

 
—

 
—

 
0.1

June 30, 2016
133.5

 
84.9

 
38.9

 
—

 
0.2

 
9.5

Average AUM
131.7

 
85.4

 
37.4

 
—

 
0.1

 
8.8

% of total average AUM
100.0
%
 
64.8
%
 
28.4
%
 
—
%
 
0.1
%
 
6.7
%

49

Table of Contents     

    

                                    

As of and for the Six Months Ended June 30, 2017 and 2016 :
$ in billions
Total
 
Equity
 
Fixed Income
 
Balanced
 
Money Market
 
Alternatives (4)
December 31, 2016
144.4

 
93.5

 
41.7

 
—

 
—

 
9.2

Long-term inflows
20.4

 
12.5

 
6.8

 
—

 
—

 
1.1

Long-term outflows
(18.5
)
 
(13.1
)
 
(2.3
)
 
—

 
—

 
(3.1
)
Long-term net flows
1.9

 
(0.6
)
 
4.5

 
—

 
—

 
(2.0
)
Net flows in Invesco PowerShares QQQ fund
1.2

 
1.2

 
—

 
—

 
—

 
—

Net flows in institutional money market funds
—

 
—

 
—

 
—

 
—

 
—

Total net flows
3.1

 
0.6

 
4.5

 
—

 
—

 
(2.0
)
Market gains and losses/reinvestment
9.0

 
9.4

 
0.3

 
—

 
—

 
(0.8
)
Acquisitions/dispositions, net
—

 
—

 
—

 
—

 
—

 
—

Foreign currency translation
0.1

 
—

 
—

 
—

 
—

 
0.1

June 30, 2017
156.6

 
103.5

 
46.5

 
—

 
—

 
6.6

Average AUM
154.1

 
100.7

 
45.3

 
—

 
—

 
8.1

% of total average AUM
100.0
%
 
65.3
%
 
29.4
%
 
—
%
 
—
%
 
5.3
%
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
139.1

 
91.0

 
38.6

 
—

 
0.4

 
9.1

Long-term inflows
22.2

 
14.8

 
5.6

 
—

 
—

 
1.8

Long-term outflows
(19.5
)
 
(14.8
)
 
(3.3
)
 
—

 
—

 
(1.4
)
Long-term net flows
2.7

 
—

 
2.3

 
—

 
—

 
0.4

Net flows in Invesco PowerShares QQQ fund
(6.4
)
 
(6.4
)
 
—

 
—

 
—

 
—

Net flows in institutional money market funds
(0.2
)
 
—

 
—

 
—

 
(0.2
)
 
—

Total net flows
(3.9
)
 
(6.4
)
 
2.3

 
—

 
(0.2
)
 
0.4

Market gains and losses/reinvestment
1.3

 
0.3

 
0.7

 
—

 
—

 
0.3

Acquisitions/dispositions, net
(3.2
)
 
—

 
(2.7
)
 
—

 
—

 
(0.5
)
Foreign currency translation
0.2

 
—

 
—

 
—

 
—

 
0.2

June 30, 2016
133.5

 
84.9

 
38.9

 
—

 
0.2

 
9.5

Average AUM
129.3

 
84.1

 
36.4

 
—

 
0.2

 
8.6

% of total average AUM
100.0
%
 
65.0
%
 
28.2
%
 
—
%
 
0.2
%
 
6.7
%
____________
See accompanying notes immediately following these AUM tables.





50

Table of Contents     

    

                                    

Total AUM by Client Domicile (6)  
As of and for the Three Months Ended June 30, 2017 and 2016 :
$ in billions
Total
 
U.S.
 
Canada
 
U.K.
 
Continental Europe
 
Asia
March 31, 2017
834.8

 
550.0

 
23.9

 
101.0

 
77.6

 
82.3

Long-term inflows
42.3

 
22.5

 
1.1

 
4.0

 
9.8

 
4.9

Long-term outflows
(42.9
)
 
(25.3
)
 
(1.0
)
 
(5.1
)
 
(5.8
)
 
(5.7
)
Long-term net flows
(0.6
)
 
(2.8
)
 
0.1

 
(1.1
)
 
4.0

 
(0.8
)
Net flows in Invesco PowerShares QQQ fund
0.2

 
0.2

 
—

 
—

 
—

 
—

Net flows in institutional money market funds
2.8

 
3.6

 
—

 
(1.8
)
 
(0.1
)
 
1.1

Total net flows
2.4

 
1.0

 
0.1

 
(2.9
)
 
3.9

 
0.3

Market gains and losses/reinvestment
13.0

 
8.1

 
0.1

 
2.2

 
1.5

 
1.1

Foreign currency translation
8.1

 
0.1

 
0.7

 
3.5

 
3.6

 
0.2

June 30, 2017
858.3

 
559.2

 
24.8

 
103.8

 
86.6

 
83.9

 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2016
771.5

 
507.5

 
22.9

 
99.2

 
74.9

 
67.0

Long-term inflows
45.8

 
27.7

 
0.8

 
3.2

 
6.1

 
8.0

Long-term outflows
(41.3
)
 
(25.6
)
 
(1.0
)
 
(3.8
)
 
(7.0
)
 
(3.9
)
Long-term net flows
4.5

 
2.1

 
(0.2
)
 
(0.6
)
 
(0.9
)
 
4.1

Net flows in Invesco PowerShares QQQ fund
(3.8
)
 
(3.8
)
 
—

 
—

 
—

 
—

Net flows in institutional money market funds
2.0

 
(1.1
)
 
0.4

 
—

 
—

 
2.7

Total net flows
2.7

 
(2.8
)
 
0.2

 
(0.6
)
 
(0.9
)
 
6.8

Market gains and losses/reinvestment
10.7

 
7.9

 
0.1

 
1.7

 
0.3

 
0.7

Acquisitions/dispositions, net
2.4

 
—

 
—

 
—

 
—

 
2.4

Foreign currency translation
(7.7
)
 
(0.1
)
 
(0.1
)
 
(6.5
)
 
(1.5
)
 
0.5

June 30, 2016
779.6

 
512.5

 
23.1

 
93.8

 
72.8

 
77.4

As of and for the Six Months Ended June 30, 2017 and 2016 :
$ in billions
Total
 
U.S.
 
Canada
 
U.K.
 
Continental Europe
 
Asia
December 31, 2016
812.9

 
539.5

 
23.1

 
98.2

 
72.1

 
80.0

Long-term inflows
91.4

 
50.3

 
2.2

 
8.1

 
18.1

 
12.7

Long-term outflows
(90.2
)
 
(52.2
)
 
(2.3
)
 
(11.0
)
 
(12.4
)
 
(12.3
)
Long-term net flows
1.2

 
(1.9
)
 
(0.1
)
 
(2.9
)
 
5.7

 
0.4

Net flows in Invesco PowerShares QQQ fund
1.2

 
1.2

 
—

 
—

 
—

 
—

Net flows in institutional money market funds
(5.3
)
 
(3.6
)
 
—

 
(1.5
)
 
0.5

 
(0.7
)
Total net flows
(2.9
)
 
(4.3
)
 
(0.1
)
 
(4.4
)
 
6.2

 
(0.3
)
Market gains and losses/reinvestment
36.1

 
23.9

 
1.0

 
5.5

 
3.8

 
1.9

Acquisitions/dispositions, net
—

 
—

 
—

 
—

 
—

 
—

Foreign currency translation
12.2

 
0.1

 
0.8

 
4.5

 
4.5

 
2.3

June 30, 2017
858.3

 
559.2

 
24.8

 
103.8

 
86.6

 
83.9

 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
775.6

 
510.7

 
21.7

 
104.2

 
75.4

 
63.6

Long-term inflows
88.6

 
52.1

 
1.8

 
7.4

 
12.7

 
14.6

Long-term outflows
(85.4
)
 
(52.3
)
 
(2.2
)
 
(8.8
)
 
(15.2
)
 
(6.9
)
Long-term net flows
3.2

 
(0.2
)
 
(0.4
)
 
(1.4
)
 
(2.5
)
 
7.7

Net flows in Invesco PowerShares QQQ fund
(6.4
)
 
(6.4
)
 
—

 
—

 
—

 
—

Net flows in institutional money market funds
5.8

 
3.9

 
0.4

 
(0.8
)
 
—

 
2.3

Total net flows
2.6

 
(2.7
)
 
—

 
(2.2
)
 
(2.5
)
 
10.0

Market gains and losses/reinvestment
7.7

 
8.2

 
(0.1
)
 
0.7

 
(1.0
)
 
(0.1
)
Acquisitions/dispositions, net
(1.2
)
 
(3.6
)
 
—

 
—

 
—

 
2.4

Foreign currency translation
(5.1
)
 
(0.1
)
 
1.5

 
(8.9
)
 
0.9

 
1.5

June 30, 2016
779.6

 
512.5

 
23.1

 
93.8

 
72.8

 
77.4

____________
See accompanying notes immediately following these AUM tables.

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Passive AUM by Client Domicile (6)  
As of and for the Three Months Ended June 30, 2017 and 2016 :
$ in billions
Total
 
U.S.
 
Canada
 
U.K.
 
Continental Europe
 
Asia
March 31, 2017
154.3

 
150.2

 
0.5

 
—

 
2.0

 
1.6

Long-term inflows
8.6

 
8.2

 
0.1

 
—

 
0.3

 
—

Long-term outflows
(9.0
)
 
(8.2
)
 
—

 
—

 
(0.3
)
 
(0.5
)
Long-term net flows
(0.4
)
 
—

 
0.1

 
—

 
—

 
(0.5
)
Net flows in Invesco PowerShares QQQ fund
0.2

 
0.2

 
—

 
—

 
—

 
—

Net flows in institutional money market funds
—

 
—

 
—

 
—

 
—

 
—

Total net flows
(0.2
)
 
0.2

 
0.1

 
—

 
—

 
(0.5
)
Market gains and losses/reinvestment
2.5

 
2.4

 
—

 
—

 
0.1

 
—

Foreign currency translation
—

 
—

 
—

 
—

 
—

 
—

June 30, 2017
156.6

 
152.8

 
0.6

 
—

 
2.1

 
1.1

 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2016
131.1

 
126.7

 
0.4

 
—

 
1.8

 
2.2

Long-term inflows
12.3

 
12.1

 
0.1

 
—

 
0.1

 
—

Long-term outflows
(7.8
)
 
(7.6
)
 
—

 
—

 
(0.2
)
 
—

Long-term net flows
4.5

 
4.5

 
0.1

 
—

 
(0.1
)
 
—

Net flows in Invesco PowerShares QQQ fund
(3.8
)
 
(3.8
)
 
—

 
—

 
—

 
—

Net flows in institutional money market funds
0.1

 
—

 
—

 
—

 
—

 
0.1

Total net flows
0.8

 
0.7

 
0.1

 
—

 
(0.1
)
 
0.1

Market gains and losses/reinvestment
1.5

 
1.5

 
—

 
—

 
—

 
—

Acquisitions/dispositions, net
—

 
—

 
—

 
—

 
—

 
—

Foreign currency translation
0.1

 
—

 
—

 
—

 
—

 
0.1

June 30, 2016
133.5

 
128.9

 
0.5

 
—

 
1.7

 
2.4

As of and for the Six Months Ended June 30, 2017 and 2016 :
$ in billions
Total
 
U.S.
 
Canada
 
U.K.
 
Continental Europe
 
Asia
December 31, 2016
144.4

 
139.9

 
0.5

 
—

 
1.9

 
2.1

Long-term inflows
20.4

 
19.9

 
0.1

 
—

 
0.4

 
—

Long-term outflows
(18.5
)
 
(16.9
)
 
—

 
—

 
(0.4
)
 
(1.2
)
Long-term net flows
1.9

 
3.0

 
0.1

 
—

 
—

 
(1.2
)
Net flows in Invesco PowerShares QQQ fund
1.2

 
1.2

 
—

 
—

 
—

 
—

Net flows in institutional money market funds
—

 
—

 
—

 
—

 
—

 
—

Total net flows
3.1

 
4.2

 
0.1

 
—

 
—

 
(1.2
)
Market gains and losses/reinvestment
9.0

 
8.7

 
—

 
—

 
0.2

 
0.1

Acquisitions/dispositions, net
—

 
—

 
—

 
—

 
—

 
—

Foreign currency translation
0.1

 
—

 
—

 
—

 
—

 
0.1

June 30, 2017
156.6

 
152.8

 
0.6

 
—

 
2.1

 
1.1

 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
139.1

 
134.4

 
0.4

 
—

 
1.9

 
2.4

Long-term inflows
22.2

 
21.8

 
0.2

 
—

 
0.2

 
—

Long-term outflows
(19.5
)
 
(19.0
)
 
(0.1
)
 
—

 
(0.4
)
 
—

Long-term net flows
2.7

 
2.8

 
0.1

 
—

 
(0.2
)
 
—

Net flows in Invesco PowerShares QQQ fund
(6.4
)
 
(6.4
)
 
—

 
—

 
—

 
—

Net flows in institutional money market funds
(0.2
)
 
—

 
—

 
—

 
—

 
(0.2
)
Total net flows
(3.9
)
 
(3.6
)
 
0.1

 
—

 
(0.2
)
 
(0.2
)
Market gains and losses/reinvestment
1.3

 
1.3

 
—

 
—

 
—

 
—

Acquisitions/dispositions, net
(3.2
)
 
(3.2
)
 
—

 
—

 
—

 
—

Foreign currency translation
0.2

 
—

 
—

 
—

 
—

 
0.2

June 30, 2016
133.5

 
128.9

 
0.5

 
—

 
1.7

 
2.4


52

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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)
During January 2017, the company reclassified certain AUM previously classified in fixed income to money market totaling $3.0 billion.
(4)
There have been no significant changes to the managed objectives under the Alternatives asset class, which are disclosed in our most recent Form 10-K for the year ended December 31, 2016 .
(5) Ending Money Market AUM includes $71.7 billion in institutional money market AUM.
(6)
Client domicile disclosure groups AUM by the domicile of the underlying clients.

 


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Results of Operations for the three and six months ended June 30, 2017 compared to the three and six months ended June 30, 2016
The discussion below includes the use of non-GAAP financial measures. See “Schedule of Non-GAAP Information” for additional details and reconciliations of the most directly comparable U.S. GAAP measures to the non-GAAP measures.
Operating Revenues and Net Revenues
The main categories of revenues, and the dollar and percentage change between the periods, are as follows:
 
 
 
 
 
Variance
 
 
 
 
 
Variance
 
Three months ended June 30,
 
2017 vs 2016
 
Six months ended June 30,
 
2017 vs 2016
$ in millions
2017
 
2016
 
$ Change
 
% Change
 
2017
 
2016
 
$ Change
 
% Change
Investment management fees
1,010.4

 
946.7

 
63.7

 
6.7
 %
 
1,965.6

 
1,860.3

 
105.3

 
5.7
 %
Service and distribution fees
211.3

 
203.4

 
7.9

 
3.9
 %
 
417.7

 
401.1

 
16.6

 
4.1
 %
Performance fees
16.7

 
8.9

 
7.8

 
87.6
 %
 
28.0

 
23.4

 
4.6

 
19.7
 %
Other
16.0

 
30.4

 
(14.4
)
 
(47.4
)%
 
35.7

 
53.3

 
(17.6
)
 
(33.0
)%
Total operating revenues
1,254.4

 
1,189.4

 
65.0

 
5.5
 %
 
2,447.0

 
2,338.1

 
108.9

 
4.7
 %
Third-party distribution, service and advisory expenses
(365.9
)
 
(348.4
)
 
(17.5
)
 
5.0
 %
 
(715.2
)
 
(695.6
)
 
(19.6
)
 
2.8
 %
Proportional share of revenues, net of third-party distribution expenses, from joint venture investments
11.5

 
10.5

 
1.0

 
9.5
 %
 
22.1

 
21.6

 
0.5

 
2.3
 %
CIP
6.3

 
5.1

 
1.2

 
23.5
 %
 
19.5

 
10.6

 
8.9

 
84.0
 %
Net revenues
906.3

 
856.6

 
49.7

 
5.8
 %
 
1,773.4

 
1,674.7

 
98.7

 
5.9
 %
Net revenues are operating revenues less third-party distribution, service and advisory expenses, plus our proportional share of net revenues from joint venture arrangements, plus management and performance fees earned from, less other revenues recorded by, CIP. See "Schedule of Non-GAAP Information" for additional important disclosures regarding the use of net revenues.
The impact of foreign exchange rate movements decreased operating revenues by $36.4 million , equivalent to 2.9% of total operating revenues, during the three months ended June 30, 2017 when compared to the three months ended June 30, 2016 . The impact of foreign exchange rate movements decreased operating revenues by $72.4 million , equivalent to 3.0% of total operating revenues, during the six months ended June 30, 2017 when compared to the six months ended June 30, 2016 .
Additionally, 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 discussed in the Executive Overview, returns from most capital markets were positive in the three and six months ended June 30, 2017 .
Investment Management Fees
Investment management fees increased by $63.7 million ( 6.7% ) in the three months ended June 30, 2017 , to $1,010.4 million ( three months ended June 30, 2016 : $946.7 million ). This compares to an 8.2% increase in average AUM. The impact of foreign exchange rate movements decreased investment management fees by $35.2 million during the three months ended June 30, 2017 as compared to the three months ended June 30, 2016 . After allowing for foreign exchange movements, investment management fees increased by $98.9 million ( 10.4% ).
Investment management fees increased by $105.3 million ( 5.7% ) in the six months ended June 30, 2017 , to $1,965.6 million ( six months ended June 30, 2016 : $1,860.3 million ). This compares to a 9.6% increase in average AUM. The impact of foreign exchange rate movements decreased investment management fees by $70.9 million during the six months ended June 30, 2017 as compared to the six months ended June 30, 2016 . After allowing for foreign exchange movements, investment management fees increased by $176.2 million ( 9.5% ).
In addition to foreign exchange movements, the change in product mix of AUM results in changes in the average revenue yield derived from AUM due to differing fee rates and structures, which impacts our management fees. See the company's disclosures regarding the changes in AUM and revenue yields during the three and six months ended June 30, 2017 in the

54

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“Assets Under Management” section above for additional information regarding the impact of changes in AUM on management fee yields.
Service and Distribution Fees
In the three months ended June 30, 2017 , service and distribution fees increased by $7.9 million ( 3.9% ) to $211.3 million ( three months ended June 30, 2016 : $203.4 million ). The impact of foreign exchange rate movements decreased service and distribution fees by $0.3 million during the three months ended June 30, 2017 as compared to the three months ended June 30, 2016 . In the six months ended June 30, 2017 , service and distribution fees increased by $16.6 million ( 4.1% ) to $417.7 million ( six months ended June 30, 2016 : $401.1 million ). Foreign exchange rate movements decreased service and distribution fees by $0.1 million during the six months ended June 30, 2017 as compared to the six months ended June 30, 2016 . In both periods, the increase results from increases in AUM to which these fees apply.
Performance Fees
Of our $858.3 billion in AUM at June 30, 2017 , approximately $45.3 billion or 5.3% , could potentially earn performance fees , including carried interests and performance fees related to partnership investments and separate accounts. 
In the three months ended June 30, 2017 , performance fees increased by $7.8 million ( 87.6% ) to $16.7 million when compared to the performance fees in the three months ended June 30, 2016 of $8.9 million . The impact of foreign exchange rate movements decreased performance fees by $0.7 million during the three months ended June 30, 2017 as compared to the three months ended June 30, 2016 . Performance fees during the second quarter of 2017 primarily included $7.4 million from U.K. investment teams, $5.8 million from private equity investment teams, $2.2 million from Asian-Pacific investment teams.
In the six months ended June 30, 2017 , performance fees decreased by $4.6 million ( 19.7% ) to $28.0 million when compared to the performance fees in the six months ended June 30, 2016 of $23.4 million . The impact of foreign exchange rate movements decreased performance fees by $1.0 million during the six months ended June 30, 2017 as compared to the six months ended June 30, 2016 . Performance fees during the six months ended June 30, 2017 primarily included $6.4 million from private equity investment teams, $6.4 million from bank loan products, $8.6 million from U.K. investment teams, $3.9 million from real estate and $2.2 million from Asian-Pacific investment teams.
Other Revenues
In the three months ended June 30, 2017 , other revenues decreased by $14.4 million ( 47.4% ) to $16.0 million ( three months ended June 30, 2016 : $30.4 million ). The impact of foreign exchange rate movements decreased other revenues by $0.2 million during the three months ended June 30, 2017 as compared to the three months ended June 30, 2016 . After allowing for foreign exchange rate changes, the decrease in other revenues was $14.2 million . The decrease in other revenues during the three months ended June 30, 2017 compared to the three months ended June 30, 2016 relates primarily to decreases in real estate transaction fees of $6.7 million and UIT front end fees of $6.3 million.
In the six months ended June 30, 2017 , other revenues decreased by $17.6 million ( 33.0% ) to $35.7 million ( six months ended June 30, 2016 : $53.3 million ). The impact of foreign exchange rate movements decreased other revenues by $0.4 million during the six months ended June 30, 2017 as compared to the six months ended June 30, 2016 . After allowing for foreign exchange rate changes, the decrease in other revenues was $17.2 million . The decrease in other revenues during the six months ended June 30, 2017 compared to the six months ended June 30, 2016 relates primarily to decreases in UIT front end fees of $10.4 million and real estate transaction fees of $5.2 million.
Third-Party Distribution, Service and Advisory Expenses
Third-party distribution, service and advisory expenses increased by $17.5 million ( 5.0% ) in the three months ended June 30, 2017 to $365.9 million ( three months ended June 30, 2016 : $348.4 million ). The impact of foreign exchange rate movements decreased third-party distribution, service and advisory expenses by $7.3 million during the three months ended June 30, 2017 as compared to the three months ended June 30, 2016 . After allowing for foreign exchange rate changes, the increase in third-party distribution, service and advisory expenses was $24.8 million . Increases in third-party distribution, service and advisory expenses in the three months ended June 30, 2017 included renewal commission increases of $11.6 million, asset and sales based fee increases of $7.0 million, service fees increases of $5.4 million, increases in rebates of $3.4 million offset by a decrease in other transaction fees of $2.4 million. These increases in third-party distribution, service and advisory expenses are in line with the increases in related AUM.
Third-party distribution, service and advisory expenses increased by $19.6 million ( 2.8% ) in the six months ended June 30, 2017 to $715.2 million ( six months ended June 30, 2016 : $695.6 million ). The impact of foreign exchange rate movements

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decreased third-party distribution, service and advisory expenses by $13.3 million during the six months ended June 30, 2017 as compared to the six months ended June 30, 2016 . After allowing for foreign exchange rate changes, the increase in third-party distribution, service and advisory expenses was $32.9 million . Increases in third-party distribution, service and advisory expenses in the six months ended June 30, 2017 as compared to the same periods in 2016 reflects the changes in related AUM. Increases in asset and sales based fees of $18.5 million, service fees increases of $15.1 million and renewal commission increases of $6.7 million were partially offset by decreases in rebates of $4.5 million and other transaction fees of $3.4 million.
Proportional share of revenues, net of third-party distribution expenses, from joint venture investments
Management believes that the addition of our proportional share of revenues, net of third-party distribution expenses, from joint venture arrangements should be added to operating revenues to arrive at net revenues, as it is important to evaluate the contribution to the business that our joint venture arrangements are making. See “Schedule of Non-GAAP Information” for additional disclosures regarding the use of net revenues. The company's most significant joint venture arrangement is our 49% investment in Invesco Great Wall Fund Management Company Limited (the “Invesco Great Wall” joint venture).
Our proportional share of revenues, net of third-party distribution expenses, from joint venture investments increased by $1.0 million ( 9.5% ) to $11.5 million for the three months ended June 30, 2017 ( three months ended June 30, 2016 : $10.5 million ). The increase relates primarily to increased performance fees in 2017. Our share of the Invesco Great Wall joint venture's average AUM for the three months ended June 30, 2017 was $8.1 billion compared to $8.6 billion for the three months ended June 30, 2016 .
Our proportional share of revenues, net of third-party distribution expenses, from joint venture investments increased by $0.5 million ( 2.3% ) to $22.1 million for the six months ended June 30, 2017 ( six months ended June 30, 2016 : $21.6 million ). Our share of the Invesco Great Wall joint venture's average AUM for the six months ended June 30, 2017 was $8.2 billion compared to $8.1 billion for the six months ended June 30, 2016 .
Management, performance and other fees earned from CIP
Management believes that the consolidation of investment products may impact a reader's analysis of our underlying results of operations and could result in investor confusion or the production of information about the company by analysts or external credit rating agencies that is not reflective of the underlying results of operations and financial condition of the company. Accordingly, management believes that it is appropriate to adjust operating revenues for the impact of CIP in calculating net revenues. As management and performance fees earned by Invesco from the consolidated products are eliminated upon consolidation of the investment products, management believes that it is appropriate to add these operating revenues back in the calculation of net revenues. See “Schedule of Non-GAAP Information” for additional disclosures regarding the use of net revenues.
The elimination of management and performance fees earned from CIP was $6.3 million in the three months ended June 30, 2017 ( three months ended June 30, 2016 : $5.1 million ). The increase is primarily due to the increase in performance fees earned from CLOs.
The elimination of management and performance fees earned from CIP was $19.5 million in the six months ended June 30, 2017 ( six months ended June 30, 2016 : $10.6 million ). The increase is primarily due to the increase in performance fees earned from CLOs.
Operating Expenses
The main categories of operating expenses, and the dollar and percentage changes between periods, are as follows:
 
 
 
 
 
Variance
 
 
 
 
 
Variance
 
Three months ended June 30,
 
2017 vs 2016
 
Six months ended June 30, 2016
 
2017 vs 2016
$ in millions
2017
 
2016
 
$ Change
 
% Change
 
2017
 
2016
 
$ Change
 
% Change
Third-party distribution, service and advisory
365.9

 
348.4

 
17.5

 
5.0
%
 
715.2

 
695.6

 
19.6

 
2.8
%
Employee compensation
365.6

 
350.3

 
15.3

 
4.4
%
 
762.4

 
694.7

 
67.7

 
9.7
%
Marketing
29.1

 
28.3

 
0.8

 
2.8
%
 
53.5

 
53.2

 
0.3

 
0.6
%
Property, office and technology
89.0

 
82.3

 
6.7

 
8.1
%
 
174.5

 
162.2

 
12.3

 
7.6
%
General and administrative
85.9

 
78.6

 
7.3

 
9.3
%
 
163.9

 
156.5

 
7.4

 
4.7
%
Total operating expenses
935.5

 
887.9

 
47.6

 
5.4
%
 
1,869.5

 
1,762.2

 
107.3

 
6.1
%

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The tables below set forth these expense categories as a percentage of total operating expenses and operating revenues, which we believe provides useful information as to the relative significance of each type of expense.
$ in millions
Three months ended June 30, 2017
 
% of Total Operating Expenses
 
% of Operating Revenues
 
Three months ended June 30, 2016
 
% of Total Operating Expenses
 
% of Operating Revenues
Third-party distribution, service and advisory
365.9

 
39.1
%
 
29.2
%
 
348.4

 
39.2
%
 
29.3
%
Employee compensation
365.6

 
39.1
%
 
29.1
%
 
350.3

 
39.5
%
 
29.5
%
Marketing
29.1

 
3.1
%
 
2.3
%
 
28.3

 
3.2
%
 
2.4
%
Property, office and technology
89.0

 
9.5
%
 
7.1
%
 
82.3

 
9.3
%
 
6.9
%
General and administrative
85.9

 
9.2
%
 
6.8
%
 
78.6

 
8.9
%
 
6.6
%
Total operating expenses
935.5

 
100.0
%
 
74.6
%
 
887.9

 
100.0
%
 
74.7
%
$ in millions
Six months ended June 30, 2017
 
% of Total Operating Expenses
 
% of Operating Revenues
 
Six months ended June 30, 2016
 
% of Total Operating Expenses
 
% of Operating Revenues
Third-party distribution, service and advisory
715.2

 
38.3
%
 
29.2
%
 
695.6

 
39.5
%
 
29.8
%
Employee compensation
762.4

 
40.8
%
 
31.2
%
 
694.7

 
39.4
%
 
29.7
%
Marketing
53.5

 
2.9
%
 
2.2
%
 
53.2

 
3.0
%
 
2.3
%
Property, office and technology
174.5

 
9.3
%
 
7.1
%
 
162.2

 
9.2
%
 
6.9
%
General and administrative
163.9

 
8.8
%
 
6.7
%
 
156.5

 
8.9
%
 
6.7
%
Total operating expenses
1,869.5

 
100.0
%
 
76.4
%
 
1,762.2

 
100.0
%
 
75.4
%
During the three months ended June 30, 2017 , operating expenses increased by $47.6 million ( 5.4% ) to $935.5 million ( three months ended June 30, 2016 : $887.9 million ). The impact of foreign exchange rate movements decreased operating expenses by $21.7 million , or 2.3% of total operating expenses, during the three months ended June 30, 2017 as compared to the three months ended June 30, 2016 .
During the six months ended June 30, 2017 , operating expenses increased by $107.3 million ( 6.1% ) to $1,869.5 million ( six months ended June 30, 2016 : $1,762.2 million ). The impact of foreign exchange rate movements decreased operating expenses by $43.5 million , or 2.3% of total operating expenses, during the six months ended June 30, 2017 as compared to the six months ended June 30, 2016 .
Third-Party Distribution, Service and Advisory Expenses
Third-party distribution, service and advisory expenses are discussed above in the operating and net revenues section.
Employee Compensation
Employee compensation increased $15.3 million ( 4.4% ) to $365.6 million in the  three months ended   June 30, 2017 ( three months ended   June 30, 2016 : $350.3 million ). The impact of foreign exchange rate movements decreased employee compensation by $8.5 million during the three months ended June 30, 2017 as compared to the three months ended June 30, 2016 . After allowing for foreign exchange rate changes, the increase in employee compensation was $23.8 million .
Increases in compensation expense during the three months ended June 30, 2017 were primarily driven by an increase of $12.3 million in staff severance costs, of which $3.9 million was associated with the business optimization initiative. Increases in base salaries of $5.2 million and variable compensation of $7.1 million were partially offset by decreases of $1.1 million in sales incentives and commissions.
Employee compensation increased $67.7 million ( 9.7% ) to $762.4 million in the  six months ended   June 30, 2017 ( six months ended   June 30, 2016 : $694.7 million ). The impact of foreign exchange rate movements decreased employee compensation by $18.4 million during the six months ended June 30, 2017 as compared to the six months ended June 30, 2016 . After allowing for foreign exchange rate changes, the increase in employee compensation was $86.1 million .
Increases in compensation expense during the six months ended   June 30, 2017 were primarily driven by an increase of $28.0 million in staff severance costs, of which $19.6 million was associated with the business optimization initiative and also an increase of $18.3 million in deferred compensation costs related to accelerated vesting for multiple senior executive retirements. Increases in compensation expense as compared to the six months ended June 30, 2016 also included increases of

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$14.6 million in variable compensation, $11.6 million in base salaries driven by increased headcount and annual raises, $9.4 million in benefit costs and $4.2 million in sales incentives and commissions.
Headcount at June 30, 2017 was 6,888 ( June 30, 2016 : 6,796 ). The increase in headcount is primarily attributable to growth in our shared service centers.
Marketing
Marketing expenses increased by $0.8 million ( 2.8% ) in the three months ended June 30, 2017 to $29.1 million ( three months ended June 30, 2016 : $28.3 million ). The impact of foreign exchange rate movements decreased marketing expenses by $1.0 million during the three months ended June 30, 2017 as compared to the three months ended June 30, 2016 . After allowing for foreign exchange rate changes, the increase in marketing expenses was $1.8 million .
Marketing expenses increased by $0.3 million ( 0.6% ) in the six months ended June 30, 2017 to $53.5 million ( six months ended June 30, 2016 : $53.2 million ). The impact of foreign exchange rate movements decreased marketing expenses by $1.6 million during the six months ended June 30, 2017 as compared to the six months ended June 30, 2016 . After allowing for foreign exchange rate changes, the increase in marketing expenses was $1.9 million .
Property, Office and Technology
Property, office and technology costs increased by $6.7 million ( 8.1% ) to $89.0 million in the three months ended June 30, 2017 ( three months ended June 30, 2016 : $82.3 million ). The impact of foreign exchange rate movements decreased property, office and technology expenses by $2.1 million during the three months ended June 30, 2017 as compared to the three months ended June 30, 2016 . After allowing for foreign exchange rate movements, the increase was $8.8 million . This increase was comprised of a $6.4 million increase in technology and communications expenses primarily due to increases in outsourced administration costs of $4.7 million and increases in depreciation and maintenance of $2.0 million. Property and office costs increased $2.5 million over the comparable 2016 period, primarily due to increases in property taxes and office expenses of $1.6 million and rent expense of $0.8 million.
Property, office and technology costs increased by $12.3 million ( 7.6% ) to $174.5 million in the six months ended June 30, 2017 ( six months ended June 30, 2016 : $162.2 million ). The impact of foreign exchange rate movements decreased property, office and technology expenses by $4.4 million during the six months ended June 30, 2017 as compared to the six months ended June 30, 2016 . After allowing for foreign exchange rate movements, the increase was $16.7 million . This increase was comprised of a $11.9 million increase in technology and communications expenses primarily due to increases in outsourced administration costs of $8.4 million and increases in depreciation and maintenance of $3.9 million. Property and office costs increased $4.8 million over the comparable 2016 period, primarily due to increases in property taxes and office expenses of $2.0 million, depreciation expense of $1.1 million and rent expenses of $1.7 million.
General and Administrative
General and administrative expenses increased by $7.3 million ( 9.3% ) to $85.9 million in the three months ended June 30, 2017 ( three months ended June 30, 2016 : $78.6 million ). The impact of foreign exchange rate movements decreased general and administrative expenses by $2.8 million during the three months ended June 30, 2017 as compared to the three months ended June 30, 2016 . After allowing for foreign exchange rate movements, general and administrative costs increased $10.1 million compared to the same period in 2016 .
Increases in general and administrative expenses for the three months ended June 30, 2017 were driven by increases in consulting, audit, legal and professional services costs of $11.1 million, which were primarily associated with the business optimization initiative and Source acquisition-related costs. Also impacting general and administrative expenses was an increase in legal settlement expenses of $4.9 million related to a credit on a previous regulatory charge that was recorded during the three months ended June 30, 2016 , and a 2017 increase in fund expenses of $1.2 million. These increases were partially offset by a decrease of $5.5 million in fund launch costs incurred by CIP and a decrease of $2.2 million related to foreign currency transaction cost compared to the three months ended June 30, 2016 .
General and administrative expenses increased by $7.4 million ( 4.7% ) to $163.9 million in the six months ended June 30, 2017 ( three months ended June 30, 2016 : $156.5 million ). The impact of foreign exchange rate movements decreased general and administrative expenses by $5.8 million during the six months ended June 30, 2017 as compared to the six months ended June 30, 2016 . After allowing for foreign exchange rate movements, general and administrative costs increased $13.2 million compared to the same period in 2016 .
General and administrative expenses for the six months ended June 30, 2017 included an increase of $18.6 million in consulting, audit, legal and professional services costs, primarily related to the business optimization initiative and acquisition-

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related costs. General and administrative expenses also included an increase of $3.1 million in irrecoverable taxes and an increase of $1.3 million in fund expenses compared to the six months ended June 30, 2016 . These increases were partially offset by a decrease of $7.1 million in fund launch costs incurred by CIPs and a decrease of $1.1 million in legal settlement expense related to regulatory investigations which incurred in the six months ended June 30, 2016 .
Other Income and Expenses
The main categories of other income and expenses, and the dollar and percentage changes between periods are as follows:
 
 
 
 
 
Variance
 
 
 
 
 
Variance
 
Three months ended June 30,
 
2017 vs 2016
 
Six months ended June 30,
 
2017 vs 2016
$ in millions
2017
 
2016
 
$ Change
 
% Change
 
2017
 
2016
 
$ Change
 
% Change
Equity in earnings of unconsolidated affiliates
10.5

 
4.6

 
5.9

 
128.3
 %
 
28.2

 
(7.6
)
 
35.8

 
N/A

Interest and dividend income
1.6

 
2.5

 
(0.9
)
 
(36.0
)%
 
4.5

 
6.1

 
(1.6
)
 
(26.2
)%
Interest expense
(23.6
)
 
(22.1
)
 
(1.5
)
 
6.8
 %
 
(47.6
)
 
(46.0
)
 
(1.6
)
 
3.5
 %
Other gains and losses, net
2.5

 
(4.2
)
 
6.7

 
N/A

 
8.7

 
(8.9
)
 
17.6

 
N/A

Other income/(expense) of CIP, net
32.3

 
37.9

 
(5.6
)
 
(14.8
)%
 
60.8

 
30.4

 
30.4

 
100.0
 %
Total other income and expenses
23.3

 
18.7

 
4.6

 
24.6
 %
 
54.6

 
(26.0
)
 
80.6

 
N/A

Equity in earnings of unconsolidated affiliates
Equity in earnings of unconsolidated affiliates increased by $5.9 million to $10.5 million in the three months ended June 30, 2017 ( three months ended June 30, 2016 : $4.6 million ). The increase in equity in earnings is driven by increases of $4.1 million in earnings from our private equity investments and increases of $1.6 million in earnings from our joint venture investments in China.
Equity in earnings of unconsolidated affiliates increased by $35.8 million to $28.2 million in the six months ended June 30, 2017 ( six months ended June 30, 2016 : $7.6 million loss). The increase is primarily due to a non-cash impairment charge of $17.8 million related to the company's former 49% investment in its Indian joint venture taken in the first quarter of 2016. The increase also results from a $13.2 million increase in earnings from our investments in real estate products and an increase of $5.9 million from our private equity investments.
Other gains and losses, net
Other gains and losses, net were a gain of $2.5 million in the three months ended June 30, 2017 as compared to a net loss of $4.2 million in the three months ended June 30, 2016 . The 2017 period included realized investment gains of $5.8 million ( three months ended June 30, 2016 : $0.4 million net loss), net trading gains of $4.9 million on the appreciation of investments and the total return swap held for our deferred compensation plans ( three months ended June 30, 2016 : $3.6 million net gain), $3.8 million gains related to the mark-to-market on our trading seed money ( three months ended June 30, 2016 : $2.3 million net gain) and $0.2 million related to an acquisition-related change in the fair value of the contingent consideration liability ( three months ended June 30, 2016 : $15.1 million net loss). These gains were partially offset by net losses during the period of $9.2 million related to 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 Euro/U.S. Dollar foreign exchange rates ( three months ended June 30, 2016 : $6.6 million gain) and an investment impairment charge of $3.2 million.
Other gains and losses, net were a gain of $8.7 million in the six months ended June 30, 2017 as compared to a net loss of $8.9 million in the six months ended June 30, 2016 . The 2017 period included net trading gains of $14.9 million on the appreciation of investments and instruments held for our deferred compensation plans ( six months ended June 30, 2016 : $ 1.9 million net gain), $9.2 million related to the mark-to-market on our trading seed money ( six months ended June 30, 2016 : $0.5 million net gain), realized investment gains of $5.4 million ( six months ended June 30, 2016 : $0.2 million net loss) and $1.0 million related to an acquisition-related change in the fair value of the contingent consideration liability ( six months ended June 30, 2016 : $11.6 million net loss). These gains were partially offset by net losses during the period of $17.4 million related to 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 Euro/U.S. Dollar foreign exchange rates and $0.5 million resulting from the revaluation of intercompany foreign currency denominated loans into the various functional currencies of our subsidiaries ( six months ended June 30, 2016 : $9.1 million net gain and $6.9 million net loss, respectively). Other gains and losses in the six months ended June 30, 2017 also included an investment impairment charge of $3.2 million.

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Other income/(expense) of CIP
In the three months ended June 30, 2017 , interest and dividend income of CIP increased by $3.7 million ( 8.0% ) to $49.9 million ( three months ended June 30, 2016 : $46.2 million ). Interest expense of CIP increased by $11.5 million ( 34.5% ) to $44.8 million ( three months ended June 30, 2016 : $33.3 million ).
In the six months ended June 30, 2017 , interest and dividend income of CIP increased by $13.1 million ( 14.5% ) to $103.7 million ( six months ended June 30, 2016 : $90.6 million ). Interest expense of CIP increased by $20.4 million ( 33.7% ) to $81.0 million ( six months ended June 30, 2016 : $60.6 million ).
The increase in interest income and interest expense of CIP in 2017 is primarily due to the impact of newly consolidated CLOs and other funds during 2016 and the six months ended 2017 .
Included in other gains/(losses) of CIP, net, are realized and unrealized gains and losses on the underlying investments and debt of CIP. In the three months ended June 30, 2017 , other gains and losses of CIP were a net gain of $27.2 million , as compared to a net gain of $25.0 million in the three months ended June 30, 2016 . The net gain during the three months ended June 30, 2017 was attributable to market-driven gains of investments held by consolidated funds.
Included in other gains/(losses) of CIP, net, are realized and unrealized gains and losses on the underlying investments and debt of CIP. In the six months ended June 30, 2017 , other gains and losses of CIP were a net gain of $38.1 million , as compared to a net gain of $0.4 million in the six months ended June 30, 2016 . The net gain during the six months ended June 30, 2017 was attributable to market-driven gains of investments held by consolidated funds.
Net impact of CIP and related noncontrolling interests in consolidated entities
The net impact to net income attributable to Invesco Ltd. in each period primarily represents the changes in the value of the company's holding in its consolidated CLOs, which is reclassified into other gains/(losses) from accumulated other comprehensive income upon consolidation. The consolidation of investment products during the three months ended June 30, 2017 resulted in a net decrease in net income attributable to Invesco Ltd. of $2.9 million ( three months ended June 30, 2016 : $8.0 million increase ). The consolidation of investment products during the six months ended June 30, 2017 resulted in a net increase in net income attributable to Invesco Ltd. of $2.8 million ( six months ended June 30, 2016 ; $0.4 million decrease).
Noncontrolling interests in consolidated entities represent the profit or loss amounts attributed to third party investors in CIP. The impact of any gains or losses resulting from valuation changes in the investments of non-CLO CIP attributable to the interests of third parties are offset by resulting changes in gains and losses attributable to noncontrolling interests in consolidated entities and therefore do not have a material effect on the financial condition, operating results (including earnings per share), liquidity or capital resources of the company's common shareholders. Similarly, any gains or losses resulting from valuation changes in the investments of CLOs attributable to the interests of third parties are offset by the calculated value of the notes issued by the CLOs (offsetting in other gains/(losses) of CIP) and therefore also do not have a material effect on the financial condition, operating results (including earnings per share), liquidity or capital resources of the company's common shareholders.
Additionally, CIP represent less than 1% of the company's AUM. Therefore, the net gains or losses of CIP are not indicative of the performance of the company's aggregate AUM.
Income Tax Expense
The company's subsidiaries operate in several taxing jurisdictions around the world, each with its own statutory income tax rate. As a result, the blended average statutory tax rate will vary from year to year depending on the mix of the profits and losses of the company's subsidiaries.
Our effective tax rate increased to 27.1% for the three months ended June 30, 2017 ( three months ended June 30, 2016 : 26.1% ). The inclusion of income from non-controlling interests in consolidated entities decreased our effective tax rate by 0.8% in 2017 and decreased our rate by 1.0% in 2016 . 2017 included a 0.3% rate decrease related to excess tax benefits on share based compensation for vestings of our annual share awards. Included in the rate for 2017 were changes in our profit mix and movement from our foreign currency hedge contracts. 2016 included a 0.5% rate decrease as a result adjustments related to changes in the fair value of contingent consideration discussed above.

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Our effective tax rate decreased to 26.6% for the six months ended June 30, 2017 ( six months ended June 30, 2016 : 28.3% ). The inclusion of income from non-controlling interests in consolidated entities decreased our effective tax rate by 0.5% in 2017 and decreased our rate by 0.4% in 2016 . 2017 included a 0.4% rate decrease related to excess tax benefits on share based compensation for vestings of our annual share awards. Included in the rate decrease for 2017 were expenses related to the retirement costs and business optimization costs discussed above, changes in our profit mix and movement from our foreign currency hedge contracts. 2016 included a 0.3% rate decrease as a result of adjustments related to changes in the fair value of contingent consideration discussed above and a 0.9% rate increase as a result of the non-cash impairment charge related to the company's former 49% investment in its Indian joint venture.
Schedule of Non-GAAP Information
We are presenting the following non-GAAP performance measures: net revenues (and by calculation, net revenue yield on AUM), adjusted operating income, adjusted operating margin, adjusted net income attributable to Invesco Ltd., and adjusted diluted EPS. We believe these non-GAAP measures provide greater transparency into our business on an ongoing operations basis and allow more appropriate comparisons with industry peers. Management uses these performance measures to evaluate the business and for internal management reporting. The most directly comparable U.S. GAAP measures are operating revenues (and by calculation, gross revenue yield on AUM), operating income, operating margin, net income attributable to Invesco Ltd., and diluted EPS. Each of these measures is discussed more fully below.
These non-GAAP measures should not be considered as substitutes for any measures derived in accordance with U.S. GAAP and may not be comparable to other similarly titled measures of other companies. Additional reconciling items may be added in the future to these non-GAAP measures if deemed appropriate. The tax effect related to reconciling items have been calculated based on the tax rate attributable to the jurisdiction to which the transaction relates.
The following are reconciliations of operating revenues, operating income (and by calculation, operating margin), and net income attributable to Invesco Ltd. (and by calculation, diluted EPS) on a U.S. GAAP basis to net revenues, adjusted operating income (and by calculation, adjusted operating margin), and adjusted net income attributable to Invesco Ltd. (and by calculation, adjusted diluted EPS). Notes to the reconciliations follow the tables.
Reconciliation of Operating revenues to Net revenues:
 
Three months ended June 30,
 
Six months ended June 30,
$ in millions
2017
 
2016
 
2017
 
2016
Operating revenues, U.S. GAAP basis
1,254.4

 
1,189.4

 
2,447.0

 
2,338.1

Proportional share of revenues, net of third-party distribution expenses, from joint venture investments (1)
11.5

 
10.5

 
22.1

 
21.6

Third party distribution, service and advisory expenses  (2)
(365.9
)
 
(348.4
)
 
(715.2
)
 
(695.6
)
CIP (3)
6.3

 
5.1

 
19.5

 
10.6

Net revenues
906.3

 
856.6

 
1,773.4

 
1,674.7

Reconciliation of Operating income to Adjusted operating income:
 
Three months ended June 30,
 
Six months ended June 30,
$ in millions
2017
 
2016
 
2017
 
2016
Operating income, U.S. GAAP basis
318.9

 
301.5

 
577.5

 
575.9

Proportional share of net operating income from joint venture investments (1)
5.3

 
4.2

 
6.6

 
7.5

CIP (3)
8.5

 
13.0

 
20.5

 
20.3

Business combinations (4)
8.4

 
4.5

 
13.5

 
14.0

Compensation expense related to market valuation changes in deferred compensation plans (5)
3.4

 
1.8

 
9.1

 
1.6

Other reconciling items (6)
12.0

 
5.4

 
56.4

 
18.2

Adjusted operating income
356.5

 
330.4

 
683.6

 
637.5

 
 
 
 
 
 
 
 
Operating margin*
25.4
%
 
25.3
%
 
23.6
%
 
24.6
%
Adjusted operating margin**
39.3
%
 
38.6
%
 
38.5
%
 
38.1
%

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Reconciliation of Net income attributable to Invesco Ltd. to Adjusted net income attributable to Invesco Ltd.:
 
Three months ended June 30,
 
Six months ended June 30,
$ in millions, except per share data
2017
 
2016
 
2017
 
2016
Net income attributable to Invesco Ltd., U.S. GAAP basis
239.6

 
225.5

 
451.6

 
386.5

CIP (3)
2.9

 
(8.0
)
 
(2.8
)
 
0.4

Business combinations, net of tax (4)
10.9

 
17.9

 
19.6

 
45.2

Deferred compensation plan market valuation changes and dividend income less compensation expense, net of tax (5)
(1.1
)
 
(1.3
)
 
(4.0
)
 
(0.2
)
Other reconciling items, net of tax (6)
12.2

 
(1.1
)
 
50.6

 
5.9

Adjusted net income attributable to Invesco Ltd.
264.5

 
233.0

 
515.0

 
437.8

 
 
 
 
 
 
 
 
Average shares outstanding - diluted
410.3

 
419.1

 
409.2

 
419.1

Diluted EPS

$0.58

 

$0.54

 

$1.10

 

$0.92

Adjusted diluted EPS***

$0.64

 

$0.56

 

$1.26

 

$1.04

____________
*
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 shares outstanding. There is no difference between the calculated earnings per share amounts presented above and the calculated earnings per share amounts under the two class method.
(1)
Proportional share of net revenues and operating income from joint venture investments
The company's two joint venture investments in China are proportionately consolidated in the company's non-GAAP measures. Enhancing our operations in China is one effort that we believe could improve our competitive position over time. Accordingly, we believe that it is appropriate to evaluate the contribution of our joint venture investments to the operations of the business.
(2)
Third-party distribution, service and advisory expenses
Third-party distribution, service and advisory expenses include renewal commissions, management fee rebates and distribution costs (12b-1 and marketing support) paid to brokers and independent financial advisors, and other service and administrative fees paid to third parties. While the terms used for these types of expenses vary by geography, they are all expense items that are closely linked to the value of AUM and the revenue earned by Invesco from AUM. Since the company has been deemed to be the principal in the third-party arrangements, the company must reflect these expenses gross of operating revenues under U.S. GAAP.
Management believes that the deduction of third-party distribution, service and advisory expenses from operating revenues in the computation of net revenues (and by calculation, net revenue yield on AUM) and the related computation of adjusted operating income (and by calculation, adjusted operating margin) appropriately reflects the nature of these expenses as revenue-sharing activities, as these costs are passed through to external parties who perform functions on behalf of, and distribute, the company’s managed funds. Further, these expenses vary extensively by geography due to the differences in distribution channels. The net presentation assists in identifying the revenue contribution generated by the business, removing distortions caused by the differing distribution channel fees and allowing for a fair comparison with U.S. peer investment managers and within Invesco’s own investment units. Additionally, management evaluates net revenue yield on AUM, which is equal to net revenues divided by average AUM during the reporting period. This financial measure is an indicator of the basis point net revenues we receive for each dollar of AUM we manage and is useful when evaluating the company’s performance relative to industry competitors and within the company for capital allocation purposes.

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(3)
CIP
See Part I, Item 1, Financial Statements, Note 12 - “Consolidated Investment Products” for a detailed analysis of the impact to the company’s Condensed Consolidated Financial Statements from the consolidation of CIP. The reconciling items add back the management and performance fees earned by Invesco from the consolidated products and remove the revenues and expenses recorded by the consolidated products that have been included in the U.S. GAAP Condensed Consolidated Statements of Income.
Management believes that the consolidation of investment products may impact a reader's analysis of our underlying results of operations and could result in investor confusion or the production of information about the company by analysts or external credit rating agencies that is not reflective of the underlying results of operations and financial condition of the company. Accordingly, management believes that it is appropriate to adjust operating revenues, operating income and net income for the impact of CIP in calculating the respective net revenues, adjusted operating income and adjusted net income.
CIP Revenue:
 
Three months ended June 30,
 
Six months ended June 30,
$ in millions, except per share data
2017
 
2016
 
2017
 
2016
Management fees earned from CIP, eliminated upon consolidation
5.6

 
4.7

 
12.7

 
9.7

Performance fees earned from CIP, eliminated upon consolidation
0.7

 
0.4

 
6.8

 
0.9

CIP related adjustments in arriving at net revenues
6.3

 
5.1

 
19.5

 
10.6

(4)
Business combinations
Adjustments are comprised of amounts incurred by the company in connection with business combinations, including intangible asset amortization, changes in the fair value of the contingent consideration liability payable in future periods, business combination-related transaction costs, impairments, employee compensation expenses associated with business combinations and all related tax effects, as well as the reversal of deferred tax liabilities recorded under U.S. GAAP resulting from tax amortization of goodwill and indefinite-lived intangible assets.
While finite-lived intangible assets are amortized under U.S. GAAP, there is no amortization charge on goodwill and indefinite-lived intangibles. In certain qualifying situations, these can be amortized for tax purposes, generally over a 15-year period, as is the case in the U.S. These deferred tax liabilities represent tax benefits that are not included in the Condensed Consolidated Statements of Income absent an impairment charge or the disposal of the related business. The company receives these tax benefits but does not anticipate a sale or impairment of these assets in the foreseeable future, and therefore the deferred tax liabilities recognized under U.S. GAAP are not expected to be used either through a credit in the Condensed Consolidated Statements of Income or through settlement of tax obligations.
Management believes it is useful to investors and other users of our Condensed Consolidated Financial Statements to adjust for these business combination-related items in arriving at adjusted operating income, adjusted operating margin and adjusted diluted EPS, as this will aid comparability of our results period to period, and aid comparability with peer companies that may not have similar business combination-related charges.

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See table below for a reconciliation of business combination-related items:
 
Three months ended June 30,
 
Six months ended June 30,
$ in millions
2017
 
2016
 
2017
 
2016
Business combinations:
 
 
 
 
 
 
 
Intangible amortization expense
3.5

 
3.4

 
6.9

 
6.9

Employee compensation expense
1.6

 
0.3

 
2.7

 
5.7

Other business combination-related items
3.3

 
0.8

 
3.9

 
1.4

Adjustments to operating income
8.4

 
4.5

 
13.5

 
14.0

Changes in the fair value of contingent consideration
(1.2
)
 
15.1

 
(1.7
)
 
11.6

Other-than-temporary impairment
—

 
—

 
—

 
17.8

Taxation:
 
 
 
 
 
 
 
Taxation on amortization
(0.4
)
 
(0.3
)
 
(0.8
)
 
(0.7
)
Taxation on employee compensation expense
(0.6
)
 
(0.1
)
 
(1.0
)
 
(2.1
)
Deferred taxation
4.9

 
4.7

 
9.8

 
9.6

Taxation on other business combination-related items
(0.7
)
 
(0.3
)
 
(0.9
)
 
(0.6
)
Taxation on changes in the fair value of contingent consideration
0.5

 
(5.7
)
 
0.7

 
(4.4
)
Adjustments to net income attributable to Invesco Ltd.
10.9

 
17.9

 
19.6

 
45.2

(5)
Market movement on deferred compensation plan liabilities
Certain deferred compensation plan awards involve a return to the employee linked to the appreciation (depreciation) of specified investments, typically the funds managed by the employee. Invesco hedges economically the exposure to market movements.
Since these plans are hedged economically, management believes it is useful to reflect the offset ultimately achieved from hedging the investment market exposure in the calculation of adjusted operating income (and by calculation, adjusted operating margin) and adjusted net income attributable to Invesco Ltd. (and by calculation, adjusted diluted EPS), to produce results that will be more comparable period to period.
See below for a reconciliation of deferred compensation related items:
 
Three months ended June 30,
 
Six months ended June 30,
$ in millions
2017
 
2016
 
2017
 
2016
Market movement on deferred compensation plan liabilities:
 
 
 
 
 
 
 
Compensation expense related to market valuation changes in deferred compensation liability
3.4

 
1.8

 
9.1

 
1.6

Adjustments to operating income
3.4

 
1.8

 
9.1

 
1.6

Market valuation changes and dividend income from investments and instruments held related to deferred compensation plans in other income/(expense)
(5.1
)
 
(3.8
)
 
(15.3
)
 
(2.2
)
Taxation:
 
 
 
 
 
 
 
Taxation on deferred compensation plan market valuation changes and dividend income less compensation expense
0.6

 
0.7

 
2.2

 
0.4

Adjustments to net income attributable to Invesco Ltd.
(1.1
)
 
(1.3
)
 
(4.0
)
 
(0.2
)


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(6)
Other reconciling items
Each of these other reconciling items has been adjusted from U.S. GAAP to arrive at the company's non-GAAP financial measures for the reasons either outlined in the paragraphs above, due to the unique character and magnitude of the reconciling item, or because the item represents a continuation of a reconciling item adjusted from U.S. GAAP in a prior period.
 
Three months ended June 30,
 
Six months ended June 30,
$ in millions
2017
 
2016
 
2017
 
2016
Other non-GAAP adjustments:
 
 
 
 
 
 
 
Business optimization charges: (a)
 
 
 
 
 
 
 
Employee compensation
3.9

 
4.4

 
19.6

 
8.4

Consulting and temporary labor
6.9

 
5.5

 
15.1

 
8.6

Property, office and technology
1.2

 
0.4

 
2.0

 
0.1

Regulatory charge (b)
—

 
(4.9
)
 
—

 
1.1

Senior executive retirement and related costs (c)
—

 
—

 
19.7

 
—

Adjustments to operating income
12.0

 
5.4

 
56.4

 
18.2

Foreign exchange hedge (gain)/loss (d)
7.1

 
(8.4
)
 
21.0

 
(9.8
)
Taxation:
 
 
 
 
 
 
 
Taxation on business optimization charges (a)
(4.2
)
 
(3.2
)
 
(12.9
)
 
(5.5
)
Taxation on regulatory-related charges (b)
—

 
1.9

 
—

 
(0.4
)
Taxation on foreign exchange hedge amortization (d)
(2.7
)
 
3.2

 
(8.0
)
 
3.4

Taxation on senior executive retirement and related costs (c)
—

 
—

 
(5.9
)
 
—

Adjustments to net income attributable to Invesco Ltd.
12.2

 
(1.1
)
 
50.6

 
5.9

    
(a)
Business optimization: Operating expenses for the three and six months ended June 30, 2017 include costs associated with a business transformation initiative discussed in Part I, Item 1, Financial Statements - Note 14 , "Business Optimization."
(b)
General and administrative expense for the three and six months ended June 30, 2016 include a net settlement credit of $4.9 million and a net settlement charge of $1.1 million pertaining to regulatory actions.
(c)
Operating expenses for the six months ended June 30, 2017 reflect the cost of multiple senior executive retirements, including, among others, the former Senior Managing Director of EMEA and the Chairman of our Private Equity business, which resulted in expenses of $19.7 million related to accelerated vesting of deferred compensation and other separation costs. The number of senior executive retirements and magnitude of their retirement costs incurred in one quarter was unprecedented for Invesco. The company deemed it appropriate to adjust these costs from U.S. GAAP total compensation expenses in an effort to isolate and evaluate our level of ongoing compensation expenses and to allow for more appropriate comparisons to internal metrics and with the level of compensation expenses incurred by industry peers.  
(d)
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. Dollar foreign exchange rates. The Pound Sterling contracts provide coverage through December 31, 2018 and the Euro contracts provide coverage through December 27, 2017 . The adjustment from U.S. GAAP to non-GAAP earnings removes the impact of market volatility; therefore, the company's non-GAAP results include only the amortization of the cost of the contracts during the contract period.


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Balance Sheet Discussion
Cash and cash equivalents
Cash and cash equivalents increased by $318.1 million from $1,328.0 million at December 31, 2016 to $1,646.1 million at June 30, 2017 . See “Cash Flows Discussion” in the following section within this Management's Discussion and Analysis for additional discussion regarding the movements in cash flows during the period.
Unsettled fund receivables and payables
Unsettled fund receivables increased by $345.0 million from $672.9 million at December 31, 2016 to $1,017.9 million at June 30, 2017 , due primarily to higher transaction activity between funds and investors in late June 2017 when compared to late December 2016 in our U.K. and cross-border funds, together with UITs. In our U.K. and cross-border operations, unsettled fund receivables are created by the normal settlement periods on transactions initiated by certain clients. In the company's capacity as sponsor of UITs, the company records receivables from brokers, dealers, and clearing organizations for unsettled sell trades of securities and UITs in addition to receivables from customers for unsettled sell trades of UITs. The presentation of the unsettled fund receivables and substantially offsetting payables ( $1,002.1 million at June 30, 2017 up from $659.3 million at December 31, 2016 ) at trade date reflects the legal relationship between the underlying investor and the company.
Investments
As of  June 30, 2017 we had $642.6 million in total investments ( December 31, 2016 : $795.3 million ). Included in investments are $209.6 million of seed money investments in affiliated funds used to seed funds as we launch new products, and $86.3 million of investments related to assets held for deferred compensation plans, which are also held primarily in affiliated funds. Seed investments decreased by a net $40.2 million during the  six months ended June 30, 2017 . The decrease in the period reflects redemptions of $115.2 million of seed investments. The redemptions were offset by a non-cash increase of $52.2 million due to the deconsolidation of certain CIP in the period (restoring the company's formerly eliminated investment balances) as well as an increase of $22.8 million driven by market valuation changes, purchases, and foreign exchange movements. Investments related to deferred compensation awards decreased by a net $84.2 million during the period, primarily related to the disposition of certain investments held to hedge economically one of the company's deferred compensation plans. Such disposition occurred in conjunction with the entrance by the company into a one-year renewable total return swap to more efficiently hedge this deferred compensation plan. This transaction did not have a material impact to the company's operations or financial position.
Included in investments are $277.4 million in equity method investments in our Chinese joint venture and in certain of the company’s private equity partnerships, real estate partnerships and other co-investments ( December 31, 2016 : $279.0 million ). The decrease of $1.6 million in equity method investments was driven by a decrease in partnership investments resulting from capital returns and the consolidation of certain investments during the current period. These decreases were partially offset by current period earnings of equity method investments, capital calls into certain partnership investments and increases due to the changes in foreign exchange rates.
Assets held for policyholders and policyholder payables
One of our subsidiaries, Invesco Perpetual Life Limited, is an insurance company that was established to facilitate retirement savings plans in the U.K. The entity holds assets that are managed for its clients on its balance sheet with an equal and offsetting liability. The increase in the balance of these accounts from $8,224.2 million at December 31, 2016 to $10,716.7 million at June 30, 2017 was the result of new business net inflows and market movement of $2,014.7 million and exchange rate movements of $477.8 million.
Goodwill
Goodwill increased from $6,129.2 million at December 31, 2016 , to $6,269.5 million at June 30, 2017 . The increase is due to foreign exchange movements of $140.3 million. The company's annual goodwill impairment review is performed as of October 1 of each year.

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Liquidity and Capital Resources
Our capital structure, together with available cash balances, cash flows generated from operations, existing capacity under our credit facility and further capital market activities, if necessary, should provide us with sufficient resources to meet present and future cash needs, including operating, debt and other obligations as they come due and anticipated future capital requirements.
Our capital management priorities have evolved with the growth and success of our business and include:
• reinvestment in the business;
• moderate annual growth of dividends (as further discussed in the "Dividends" section below);
• share repurchase; and
• establishment of an approximate $1 billion cash buffer in excess of European regulatory and liquidity requirements.
These priorities are executed in a manner consistent with our desire to maintain strong, investment grade credit ratings.  As of the filing of the Report, Invesco held credit ratings of A/Stable, A2/Stable and A-/Stable from Standard & Poor’s Ratings Service (“S&P”), Moody’s Investor Services (“Moody’s”) and Fitch Ratings (“Fitch”), respectively. Our ability to continue to access the capital markets in a timely manner depends on a number of factors, including our credit ratings, the condition of the global economy, investors’ willingness to purchase our securities, interest rates, credit spreads and the valuation levels of equity markets. If we are unable to access capital markets in a timely manner, our business could be adversely impacted.

Certain of our subsidiaries are required to maintain minimum levels of capital. Such requirements may change from time-to-time as additional guidance is released based on a variety of factors, including balance sheet composition, assessment of risk exposures and governance, and review from regulators. These and other similar provisions of applicable law may have the effect of limiting withdrawals of capital, repayment of intercompany loans and payment of dividends by such entities. All of our regulated EU subsidiaries are subject to consolidated capital requirements under EU Directives, including those arising from the Capital Requirements Directive and the United Kingdom's Internal Capital Adequacy Assessment Process, and capital is maintained within this sub-group to satisfy these regulations. We meet these requirements in part by holding cash and cash equivalents. This retained cash can be used for general business purposes in the European sub-group in the countries where it is located. Due to the capital restrictions, the ability to transfer cash between certain jurisdictions may be limited. In addition, transfers of cash between international jurisdictions may have adverse tax consequences. We are in compliance with all regulatory minimum net capital requirements. As of June 30, 2017 , the company's minimum regulatory capital requirement was $731.4 million ( December 31, 2016 : $590.8 million ); the increase was driven primarily by the foreign exchange market risk capital requirement arising from holding foreign currency cash balances for the closure of the pending Source acquisition, increased business activity and strengthening of the Pound Sterling against the U.S. Dollar. The total amount of non-U.S. cash and cash equivalents was $1,393.4 million at June 30, 2017 ( December 31, 2016 : $1,168.4 million ).
In addition, the company is required to hold cash deposits with clearing organizations or to otherwise segregate cash to maintain compliance with federal and other regulations in connection with its UIT broker dealer entity. At June 30, 2017 , these cash deposits totaled $11.4 million ( December 31, 2016 : $11.4 million ).
The consolidation of $5.3 billion and $3.9 billion of total assets and long-term debt of CIP as of June 30, 2017 , respectively, did not impact the company’s liquidity and capital resources. The majority of CIP balances related to consolidated CLOs. 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 minimal direct investments in, and management and performance fees generated from, these products, which are eliminated upon consolidation. 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, if the CLOs were to liquidate, their investors would have no recourse to the general credit of the company. The company therefore does not consider this debt to be an obligation of the company. See Part I, Item 1, Financial Statements - Note 12 , “Consolidated Investment Products,” for additional details.

Cash Flows Discussion
The ability to consistently generate cash flow from operations in excess of dividend payments, share repurchases, capital expenditures, and ongoing operating expenses is one of our company's fundamental financial strengths. Operations continue to be financed from current earnings and borrowings. Our principal uses of cash, other than for operating expenses, include dividend payments, capital expenditures, acquisitions, purchase of our shares in the open market and investments in certain new investment products.

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Cash flows of CIP (discussed in Item 1, Financial Statements - Note  12 , “Consolidated Investment Products”) are reflected in Invesco's cash provided by or used in operating activities, investing activities and financing activities. Cash held by CIP is not available for general use by Invesco, nor is Invesco cash available for general use by its CIP. Accordingly, the table below presents the consolidated total cash flows of the company and separately presents the impact to the cash flows from CIP. The impact is illustrated in the tables immediately below by a column which shows the dollar-value change in the consolidated figures, as caused by the consolidation of CIP. For example, the impact of CIP on net cash provided by/(used in) operating activities for the six months ended June 30, 2017 reflects cash provided of $212.5 million ; however, this was not provided as part of the company's corporate cash balances. Excluding the impact of CIP, cash provided by operations was $569.1 million during the six months ended June 30, 2017 .
Also as illustrated in the table below, the sum of the operating, investing and financing cash flows of CIP offsets to a zero impact to the company's change in cash and cash equivalent balances from period to period. 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 for the reasons noted. The discussion that follows the table focuses on the company’s cash flows.


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Summary of Cash Flow Statement Impact of CIP
 
Six months ended June 30, 2017
 
Six months ended June 30, 2016
$ in millions
 Impact of CIP
 
Invesco Ltd. Consolidated
 
 Impact of CIP
 
Invesco Ltd. Consolidated
Operating activities:
 
 
 
 
 
 
 
Net income
15.0

 
463.8

 
7.4

 
394.3

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

 
52.5

 
—

 
49.9

Share-based compensation expense
—

 
92.5

 
—

 
79.1

Other (gains)/losses, net
22.6

 
(8.7
)
 
0.9

 
8.9

Other (gains)/losses of CIP, net
(38.1
)
 
(38.1
)
 
(0.4
)
 
(0.4
)
Equity in earnings of unconsolidated affiliates
2.7

 
(28.2
)
 
1.6

 
7.6

Dividends from unconsolidated affiliates
—

 
1.2

 
—

 
0.9

Changes in operating assets and liabilities:
 
 
 
 
 
 
 
(Increase)/decrease in cash held by CIP
407.0

 
407.0

 
(8.9
)
 
(8.9
)
(Purchase)/sale of investments by CIP, net
(245.8
)
 
(245.8
)
 
(118.5
)
 
(118.5
)
(Purchase)/sale of trading investments, net
13.5

 
174.5

 
(3.5
)
 
(14.7
)
(Increase)/decrease in receivables
(10.7
)
 
(2,324.5
)
 
(7.8
)
 
(1,823.9
)
Increase/(decrease) in payables
46.3

 
2,235.4

 
19.4

 
1,639.3

Net cash provided by/(used in) operating activities
212.5

 
781.6

 
(109.8
)
 
213.6

Investing activities:
 
 
 
 
 
 
 
Purchase of property, equipment and software
—

 
(59.9
)
 
—

 
(65.3
)
Purchase of available-for-sale investments
4.9

 
(7.7
)
 
5.0

 
(4.1
)
Sale of available-for-sale investments
(14.1
)
 
57.6

 
(4.6
)
 
5.7

Purchase of investments by CIP
(3,080.5
)
 
(3,080.5
)
 
(1,220.1
)
 
(1,220.1
)
Sale of investments by CIP
3,145.8

 
3,145.8

 
908.4

 
908.4

Purchase of other investments
49.2

 
(87.6
)
 
16.8

 
(61.6
)
Sale of other investments
—

 
63.3

 
—

 
53.3

Returns of capital and distributions from unconsolidated partnership investments
(56.8
)
 
37.3

 
(3.4
)
 
22.8

Purchase of business
—

 
—

 
—

 
(121.9
)
Net cash provided by/(used in) investing activities
48.5

 
68.3

 
(297.9
)
 
(482.8
)
Financing activities:
 
 
 
 
 
 
 
Purchases of treasury shares
—

 
(57.3
)
 
—

 
(244.0
)
Dividends paid
—

 
(233.7
)
 
—

 
(230.6
)
Excess tax benefits from share-based compensation
—

 
—

 
—

 
(3.1
)
Third-party capital invested into CIP
299.7

 
299.7

 
141.1

 
141.1

Third-party capital distributed by CIP
(62.9
)
 
(62.9
)
 
(44.8
)
 
(44.8
)
Borrowings of debt by CIP
1,459.3

 
1,459.3

 
387.3

 
387.3

Repayments of debt by CIP
(1,957.1
)
 
(1,957.1
)
 
(75.9
)
 
(75.9
)
Net borrowings/(repayments) under credit facility
—

 
(28.7
)
 
—

 
—

Payment of contingent consideration
—

 
(7.2
)
 
—

 
(6.2
)
Net cash provided by/(used in) financing activities
(261.0
)
 
(587.9
)
 
407.7

 
(76.2
)
Increase/(decrease) in cash and cash equivalents
—

 
262.0

 
—

 
(345.4
)
Foreign exchange movement on cash and cash equivalents
—

 
56.1

 
—

 
(59.8
)
Cash and cash equivalents, beginning of period
—

 
1,328.0

 
—

 
1,851.4

Cash and cash equivalents, end of period
—

 
1,646.1

 
—

 
1,446.2

Operating Activities
Operating cash flows include the receipt of investment management and other fees generated from AUM, offset by operating expenses and changes in operating assets and liabilities. Although some receipts and payments are seasonal, particularly bonus payments, in general, after allowing for the change in cash held by CIP, and trading investment activities, our operating cash flows move in the same direction as our operating income.
During the six months ended June 30, 2017 , cash provided by operating activities increased $568.0 million to $781.6 million from $213.6 million used during the six months ended June 30, 2016 . As shown in the tables above, the impact of CIP to cash provided by operating activities was $212.5 million of cash provided during the six months ended June 30, 2017 compared to $109.8 million of cash used during the six months ended June 30, 2016 . Excluding the impact of CIP, cash provided by operations was $569.1 million during the six months ended June 30, 2017 compared to $323.4 million of cash provided by operating activities during the six months ended June 30, 2016 .

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The changes in operating assets and liabilities also impact the link between cash provided by operations and net income. Excluding the impact of CIP, the changes in operating assets and liabilities generated $36.3 million of cash in the six months ended June 30, 2017 , as compared to utilizing $207.4 million in the same period in 2016 , increasing cash provided by operating activities by a net $243.7 million . The increase in cash included a $172.2 million increase in cash related to net purchases and sales of trading investments, and $50.3 million reduction in payroll payments related to annual staff bonuses, related payroll taxes, payroll taxes on annual share award vestings, and annual retirement plan contributions. The company pays the annual cash bonuses and vests deferred compensation awards in the first quarter of each year. There were no significant non-cash items that impacted the comparison between the periods of operating income to net cash provided by operations.
Investing Activities
Net cash provided by investing activities totaled $68.3 million for the six months ended June 30, 2017 ( six months ended June 30, 2016 : net cash used of $482.8 million ). As shown in the tables above, the impact of CIP on investing activities, including investment purchases, sales and returns of capital, was $48.5 million provided ( six months ended June 30, 2016 : $297.9 million used ). Excluding the impact of CIP cash flows, net cash provided by investing activities was $19.8 million ( six months ended June 30, 2016 : net cash used of $184.9 million ).
For the six months ended June 30, 2017 , excluding the impact of CIP, cash outflows include purchases of investments of available-for-sale and other investments of $149.4 million ( six months ended June 30, 2016 : $87.5 million ). These outflows were partially offset by collected proceeds of $229.1 million from sales and returns of capital of available-for-sale and other investments ( six months ended June 30, 2016 : $89.8 million ). Cash outflows from the six months ended June 30, 2016 also included $121.9 million related to a business purchase.
During the six months ended June 30, 2017 , the company had capital expenditures of $59.9 million ( six months ended June 30, 2016 : $65.3 million ). Our capital expenditures related principally in each period to technology initiatives, including enhancements to platforms from which we maintain our portfolio management systems, improvements in computer hardware and software desktop products for employees, new telecommunications products to enhance our internal information flow, and back-up business recovery systems. Also, in each period, a portion of these costs related to improvements made to the various buildings and workspaces used in our offices. These projects have been funded with proceeds from our operating cash flows.
Financing Activities
Net cash used in financing activities totaled $587.9 million for the six months ended June 30, 2017 ( six months ended June 30, 2016 : net cash used of $76.2 million ). As shown in the tables above, the impact of CIP on financing activities used cash of $261.0 million ( six months ended June 30, 2016 : cash provided of $407.7 million ). Excluding the impact of CIP, financing activities used cash of $326.9 million in the six months ended June 30, 2017 ( six months ended June 30, 2016 : cash used of $483.9 million ).
Financing cash outflows during the six months ended June 30, 2017 included $233.7 million of dividend payments for the dividends declared in January and April ( six months ended June 30, 2016 : dividends paid of $230.6 million ), the payment of $57.3 million to meet employees' withholding tax obligations on share vestings ( six months ended June 30, 2016 : $39.0 million ), a repayment of the credit facility of $28.7 million and a payment of $7.2 million of contingent consideration ( six months ended June 30, 2016 : $6.2 million ). Financing cash outflows during the six months ended June 30, 2016 also included the purchase of shares through market transactions totaling $205.0 million and excess tax benefits from share-based compensation of $3.1 million .
There were no non-CIP related financing cash inflows for the six months ended June 30, 2017 and 2016 .
Dividends
Invesco declares and pays dividends on a quarterly basis in arrears. On July 27, 2017 , the company announced a second quarter 2017 cash dividend of 29.0 cents per share to holders of common shares, which will be paid on September 1, 2017 , to shareholders of record as of August 17, 2017 with an ex-dividend date of August 15, 2017 .
The declaration, payment and amount of any future dividends will be declared by our board of directors and will depend upon, among other factors, our earnings, financial condition and capital requirements at the time such declaration and payment are considered. The board has a policy of managing dividends in a prudent fashion, with due consideration given to profit levels, overall debt levels, and historical dividend payouts.

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Share Repurchase Plan
The company did not purchase shares in the open market during the three and six months ended June 30, 2017 , ( three and six months ended June 30, 2016 : 7.4 million and 11.7 million shares at a cost of $200.0 million and $325.0 million , respectively). The company did withhold an aggregate of 0.1 million and 1.7 million shares on vesting events during the three and six months ended June 30, 2017 , respectively to meet employees' withholding tax obligations (three and six months ended June 30, 2016 : 0.1 million and 1.4 million shares, respectively). The fair value of these shares withheld at the respective withholding dates was $3.1 million and $57.3 million during the three and six months ended June 30, 2017 (three and six months ended June 30, 2016 : $1.3 million and $39.0 million ). At June 30, 2017 , approximately $1,643.0 million remains available under the share repurchase authorizations approved by the Board on October 11, 2013 and July 22, 2016.
Long-term debt
Our long-term debt at June 30, 2017 was $2,074.8 million ( December 31, 2016 : $2,102.4 million ) and was comprised of the following:
$ in millions
June 30, 2017
 
December 31, 2016
  Floating rate credit facility expiring August 7, 2020
—

 
28.7

Unsecured Senior Notes:
 
 
 
$600 million 3.125% - due November 30, 2022
596.6

 
596.3

$600 million 4.000% - due January 30, 2024
593.6

 
593.2

$500 million 3.750% - due January 15, 2026
494.8

 
494.5

$400 million 5.375% - due November 30, 2043
389.8

 
389.7

Long-term debt
2,074.8

 
2,102.4

For the six months ended June 30, 2017 , the company's weighted average cost of debt was 3.93% ( six months ended June 30, 2016 : 3.95% ).
The company's $1.25 billion unsecured credit facility is scheduled to expire on August 7, 2020. Financial covenants under the credit agreement include: (i) the quarterly maintenance of a debt/EBITDA leverage ratio, as defined in the credit agreement, of not greater than 3.25 :1.00, (ii) a coverage ratio (EBITDA, as defined in the credit agreement/interest payable for the four consecutive fiscal quarters ended before the date of determination) of not less than 4.00:1.00. As of June 30, 2017 , we were in compliance with our financial covenants. At June 30, 2017 , our leverage ratio was 1.29 :1.00 ( December 31, 2016 : 1.35:1.00), and our interest coverage ratio was 17.02 :1.00 ( December 31, 2016 : 16.69:1.00).
The June 30, 2017 coverage ratio calculations are as follows:
$ millions
Total
 
Q2 2017
 
Q1 2017
 
Q4 2016
 
Q3 2016
Net income attributable to Invesco Ltd.
919.3

 
239.6

 
212.0

 
226.5

 
241.2

Impact of CIP on net income attributable to Invesco Ltd.
(6.2
)
 
2.9

 
(5.7
)
 
(0.2
)
 
(3.2
)
Tax expense
351.0

 
92.6

 
75.7

 
92.9

 
89.8

Amortization/depreciation/impairment
103.8

 
26.2

 
26.3

 
25.7

 
25.6

Interest expense
95.0

 
23.6

 
24.0

 
23.5

 
23.9

Share-based compensation expense
173.1

 
43.3

 
49.2

 
41.3

 
39.3

Unrealized gains and losses from investments, net *
(18.7
)
 
1.8

 
(7.1
)
 
(1.6
)
 
(11.8
)
EBITDA **
1,617.3

 
430.0

 
374.4

 
408.1

 
404.8

Adjusted debt **

$2,085.1

 
 
 
 
 
 
 
 
Leverage ratio (Debt/EBITDA - maximum 3.25:1.00)
1.29

 
 
 
 
 
 
 
 
Interest coverage (EBITDA/Interest Expense - minimum 4.00:1.00)
17.02

 
 
 
 
 
 
 
 
____________
*
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.
**
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

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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  $2,074.8 million plus $10.3 million in letters of credit.
Credit and Liquidity Risk
Capital management involves the management of the company's liquidity and cash flows. The company manages its capital by reviewing annual and projected cash flow forecasts and by monitoring credit, liquidity and market risks, such as interest rate and foreign currency risks (as discussed in Part I, Item 3, “Quantitative and Qualitative Disclosures About Market Risk”), through measurement and analysis. The company is primarily exposed to credit risk through its cash and cash equivalent deposits, which are held by external firms. The company invests its cash balances in its own institutional money market products, as well as with external high credit-quality financial institutions. These arrangements create exposure to concentrations of credit risk.
Credit Risk
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. All cash and cash equivalent balances are subject to credit risk, as they represent deposits made by the company with external banks and other institutions. As of June 30, 2017 , our maximum exposure to credit risk related to our cash and cash equivalent balances is $1,646.1 million . See Item 1, Financial Statements - Note 13 , “Related Parties,” for information regarding cash and cash equivalents invested in affiliated money market funds.
The company does not utilize credit derivatives or similar instruments to mitigate the maximum exposure to credit risk. The company does not expect any counterparties to its financial instruments to fail to meet their obligations.
Liquidity Risk
Liquidity risk is the risk that the company will encounter difficulty in meeting obligations associated with its financial liabilities. The company is exposed to liquidity risk through its $2,074.8 million in long-term debt. The company actively manages liquidity risk by preparing cash flow forecasts for future periods, reviewing them regularly with senior management, maintaining a committed credit facility, scheduling significant gaps between major debt maturities and engaging external financing sources in regular dialog.
Effects of Inflation
Inflation can impact our organization primarily in two ways. First, inflationary pressures can result in increases in our cost structure, especially to the extent that large expense components such as compensation are impacted. To the degree that these expense increases are not recoverable or cannot be counterbalanced through pricing increases due to the competitive environment, our profitability could be negatively impacted. Secondly, the value of the assets that we manage may be negatively impacted when inflationary expectations result in a rising interest rate environment. Declines in the values of these AUM could lead to reduced revenues as management fees are generally calculated based upon the size of AUM.
Off Balance Sheet Commitments
See Part I, Item 1, Financial Statements - Note 11 , “Commitments and Contingencies - Off Balance Sheet Commitments,” for more information regarding undrawn capital commitments.
Contractual Obligations
We have future obligations under various contracts relating to debt and interest payments, financing and operating leases, long-term defined benefit pension and acquisition contracts. During the six months ended June 30, 2017 , there were no material changes to the company's contractual obligations.
Critical Accounting Policies and Estimates
There have been no significant changes to the accounting policies that we believe are the most critical to an understanding of our results of operations and financial condition, which are disclosed in our most recent Form 10-K for the year ended December 31, 2016 .
Recent Accounting Standards
See Part I, Item 1, Financial Statements - Note  1 , “Accounting Policies - Accounting Pronouncements Recently Adopted and Pending Accounting Pronouncements.”

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Item 3.   Quantitative and Qualitative Disclosures About Market Risk
In the normal course of its business, the company is primarily exposed to market risk in the form of AUM market price risk, securities market risk, interest rate risk, and foreign exchange rate risk. There have not been any material changes to the company's exposures to market risks during the period ended June 30, 2017 that would require an update to the disclosures provided in the most recent Form 10-K.
AUM Market Price Risk
The company's investment management revenues are comprised of fees based on the value of AUM. Declines in the market prices of equity and fixed income securities, commodities and derivatives, or other similar financial instruments held in client portfolios could cause revenues to decline because of lower investment management fees by:
•
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.
•
Causing clients to reallocate assets away from products that earn higher revenues into products that earn lower revenues.

Underperformance of client accounts relative to competing products could exacerbate these factors.
Securities Market Risk
The company has investments in managed investment products that invest in a variety of asset classes. Investments are generally made to establish a track record for a new fund or investment vehicle or to hedge economically exposure to certain deferred compensation plans. The company's exposure to market risk from financial instruments measured at fair value arises from its investments.
Interest Rate Risk
Interest rate risk relates to the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The company is exposed to interest rate risk primarily through its external debt and cash and cash equivalent investments. On June 30, 2017 , the interest rates on 100.0% of the company's borrowings were fixed for a weighted average period of 10.5 years, and the company had a zero balance on its floating rate credit facility.
Foreign Exchange Rate Risk
The company has certain investments in foreign operations, whose net assets and results of operations are exposed to foreign currency translation risk when translated into U.S. Dollars upon consolidation into Invesco Ltd. During the second quarter the company extended its hedge of approximately 75% of the Pound Sterling-based operating income through December 31, 2018 . These new put option contracts are set at a strike level of $1.250 based on the average daily foreign exchange rates for the applicable time period. See Part I, Item 1, Financial Statements - Note 2, “Fair Value of Assets and Liabilities,” for additional details.
The company is exposed to foreign exchange revaluation into the Condensed Consolidated Statements of Income on monetary assets and liabilities that are held by subsidiaries in different functional currencies than the subsidiaries' functional currencies. Net foreign exchange revaluation gains were $0.3 million in the six months ended June 30, 2017 ( six months ended June 30, 2016 : $6.5 million loss), and are included in general and administrative expenses and other gains and losses, net on the Condensed Consolidated Statements of Income. We continue to monitor our exposure to foreign exchange revaluation and have put in place net investment hedge structures discussed in Part I, Item 1, Financial Statements, Note 6 -- "Other Comprehensive Income/(Loss)."

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Item 4.   Controls and Procedures
Our management is responsible for establishing and maintaining disclosure controls and procedures that are designed to ensure that information the company is required to disclose in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in the reports that the company files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.
We have evaluated, with the participation of our chief executive officer and chief financial officer, the effectiveness of our disclosure controls and procedures as of June 30, 2017 . There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
We have evaluated any change in our internal control over financial reporting that occurred during the three months ended June 30, 2017 and have concluded that there was no change that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


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PART II. OTHER INFORMATION
Item 1.   Legal Proceedings
See Part I, Item I, Note 11 , "Commitments and Contingencies - Legal Proceedings," for information regarding legal proceedings.
Item 1A.   Risk Factors
The company has had no significant changes in its risk factors from those previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2016.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Repurchases of Equity Securities
The following table sets forth information regarding purchases of our common shares by us and any affiliated purchases during the three months ended June 30, 2017 :
Month
Total Number of Shares Purchased (1)
 
Average Price Paid Per Share
 
Total Number of Shares
Purchased as Part of
Publicly Announced Plans or Programs (2)
 
Maximum Number at end of period (or Approximate
Dollar Value) of Shares
that May Yet Be Purchased
Under the Plans
or Programs (2)  (millions)
April 1-30, 2017
34,104

 
$
30.94

 
—

 

$1,643.0

May 1-31, 2017
5,295

 
$
31.90

 
—

 

$1,643.0

June 1-30, 2017
56,222

 
$
32.92

 
—

 

$1,643.0

Total
95,621

 
 
 
—

 
 

(1)
An aggregate of 95,621 shares were surrendered to us by Invesco employees to satisfy tax withholding obligations in connection with the vesting of equity awards.
(2)
At June 30, 2017 , a balance of $1,643.0 million remains available under the share repurchase authorizations approved by the Board on October 11, 2013 and July 22, 2016.
Item 6. Exhibits
Exhibit Index
3.1
3.2
4.1
4.2
4.3
4.4
4.5

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4.6
4.7
4.8
4.9
4.10
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13

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10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31

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10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
31.1
31.2
32.1
32.2
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB
XBRL Taxonomy Extension Definition Linkbase Document
101.PRE
XBRL Taxonomy Extension Labels Linkbase Document
101.DEF
XBRL Taxonomy Extension Presentation Linkbase Document


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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
 

 
INVESCO LTD.
July 27, 2017
/s/ MARTIN L. FLANAGAN  
 
Martin L. Flanagan 
 
President and Chief Executive Officer 
 
 
July 27, 2017
/s/ LOREN M. STARR  
 
Loren M. Starr 
 
Senior Managing Director and Chief Financial Officer 

79


Exhibit 3.2

 
 
 













THIRD AMENDED AND RESTATED

B Y E — L A W S

OF

INVESCO LTD.
(effective as of May 11, 2017)








 
 




Exhibit 3.2

TABLE OF CONTENTS
 
 
 
 
 
 
 
Page
 
INTERPRETATION
 
 
 
 
 
1. Interpretation
 
 
1
 
 
 
 
 
 
BOARD OF DIRECTORS
 
 
 
 
 
2. Board of Directors
 
 
2
 
3. Powers of the Board
 
 
3
 
4. Power to Delegate to a Committee
 
 
3
 
5. Power to Appoint and Dismiss Employees
 
 
3
 
6. Power to Borrow and Charge Property
 
 
3
 
7. Exercise of Power to Purchase Shares of or Discontinue the Company
 
 
3
 
8. Board Size; Term of Directors
 
 
3
 
9. Defects in Appointment of Directors
 
 
5
 
10. Shareholder Proposals and Nominations; Proxy Access
 
 
5
 
11. Removal of Directors
 
 
14
 
12. Vacancies on the Board
 
 
14
 
13. Notice of Meetings of the Board
 
 
14
 
14. Quorum at Meetings of the Board
 
 
15
 
15. Meetings of the Board
 
 
15
 
16. Unanimous Written Resolutions
 
 
15
 
17. Contracts and Disclosure of Directors’ Interests
 
 
15
 
18. Remuneration of Directors
 
 
15
 
 
 
 
 
 
OFFICERS
 
 
 
 
 
19. Officers of the Company
 
 
15
 
20. Remuneration of Officers
 
 
16
 
21. Duties of Officers
 
 
16
 
22. Chairperson and Secretary of Meetings
 
 
16
 
23. Register of Directors and Officers
 
 
16
 
 
 
 
 
 
MINUTES
 
 
 
 
 
24. Obligations of Board to Keep Minutes
 
 
16
 
 
 
 
 
 
INDEMNITY
 
 
 
 
 
25. Indemnification and Exculpation of Directors of the Company and Others
 
 
16
 
26. Waiver of Certain Claims
 
 
17
 
MEETINGS
 
 
 
 
 
27. Notice of Annual General Meeting of Shareholders
 
 
18
 

i


Exhibit 3.2

 
 
Page
 
28. Notice of Special General Meeting
 
 
18
 
29. Accidental Omission of Notice of General Meeting
 
 
18
 
30. Short Notice
 
 
18
 
31. Postponement of Meetings
 
 
18
 
32. Quorum for General Meeting
 
 
18
 
33. Adjournment of Meetings
 
 
19
 
34. Attendance at Meetings
 
 
19
 
35. Written Resolutions
 
 
19
 
36. Attendance of Directors
 
 
19
 
37. Voting at Meetings
 
 
19
 
38. Voting by Hand or by Poll
 
 
20
 
39. Decision of Chairperson
 
 
21
 
40. Instrument of Proxy
 
 
21
 
41. Representation of Corporations at Meetings
 
 
22
 
 
 
 
 
 
VOTES OF SHAREHOLDERS
 
 
 
 
 
42. General
 
 
22
 
SHARE CAPITAL AND SHARES
 
 
 
 
 
43. Share Capital
 
 
22
 
44. Rights of Shares
 
 
22
 
45. Modification of Rights
 
 
23
 
46. Shares
 
 
24
 
47. Registered Holder of Shares
 
 
24
 
48. Death of a Joint Holder
 
 
24
 
49. Share Certificates
 
 
24
 
50. Calls on Shares
 
 
25
 
51. Forfeiture of Shares
 
 
25
 
 
 
 
 
 
INTERESTED SHAREHOLDERS
 
 
 
 
 
52. Limitations on Business Combinations
 
 
25
 
53. Certain Definitions
 
 
26
 
 
 
 
 
 
REGISTER OF SHAREHOLDERS
 
 
 
 
 
54. Contents of Register of Shareholders
 
 
27
 
55. Inspection of Register of Shareholders
 
 
27
 
56. Determination of Record Dates
 
 
27
 
 
 
 
 
 
TRANSFER OF SHARES
 
 
 
 
 
57. Instrument of Transfer
 
 
28
 
58. Restrictions on Transfer
 
 
28
 

ii


Exhibit 3.2

 
 
Page
 
 
 
 
 
 
TRANSMISSION OF SHARES
 
 
 
 
 
59. Representative of Deceased Shareholder
 
 
28
 
60. Registration on Death or Bankruptcy
 
 
28
 
 
 
 
 
 
DIVIDENDS AND OTHER DISTRIBUTIONS
 
 
 
 
 
61. Declaration of Dividends by the Board
 
 
29
 
62. Other Distributions
 
 
29
 
63. Reserve Fund
 
 
29
 
64. Deduction of Amounts Due to the Company
 
 
29
 
 
 
 
 
 
CAPITALIZATION
 
 
 
 
 
65. Issue of Bonus Shares: Capitalization of Profits
 
 
29
 
 
 
 
 
 
ACCOUNTS AND FINANCIAL STATEMENTS
 
 
 
 
 
66. Records of Account
 
 
30
 
67. Financial Year End
 
 
30
 
68. Financial Statements
 
 
30
 
AUDIT
 
 
 
 
 
69. Appointment of Auditor
 
 
30
 
70. Remuneration of Auditor
 
 
30
 
71. Report of the Auditor
 
 
30
 
NOTICES
 
 
 
 
 
72. Notices to Shareholders of the Company
 
 
30
 
73. Notices to Joint Shareholders
 
 
31
 
74. Service and Delivery of Notice
 
 
31
 
 
 
 
 
 
SEAL OF THE COMPANY
 
 
 
 
 
75. The Seal
 
 
31
 
76. Manner in which Seal is to be Affixed
 
 
31
 
 
 
 
 
 
WINDING-UP
 
 
 
 
 
77. Winding-Up/Distribution by Liquidator
 
 
31
 
 
 
 
 
 
ALTERATION OF BYE-LAWS
 
 
 
 
 
78. Alteration of Bye-Laws
 
 
31
 

iii


Exhibit 3.2

INTERPRETATION
1. Interpretation

     (1) In these Bye-Laws the following words and expressions shall have the following meanings, respectively:
         (a) “ Act ” means the Companies Act 1981 of Bermuda as amended from time to time;

         (b) “ Affiliate ” means, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with such Person. For the purposes of this definition, “control”, with respect to any Person, means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract, or otherwise;

      (c) “ Associate ” has the meaning set forth in Bye-Law 53(1) ;
 
         (d) “ Audit Committee ” means the committee appointed by the Board in accordance with these Bye-Laws;

         (e) “ Auditor ” includes any individual, partnership or other entity appointed in accordance with the Act to audit the accounts of the Company;

         (f) “ beneficially own ” has the meaning set forth in Bye-Law 53(2) ;

         (g) “ beneficially owned ” has the meaning set forth in Bye-Law 10(3) ;

         (h) “ Beneficial Owner ” has the meaning set forth in Bye-Law 53(2) ;

        (i) “ Board ” means the Board of Directors appointed or elected pursuant to these Bye-Laws and acting pursuant to the Act and these Bye-Laws;

         (j) “ Business Combination ” has the meaning set forth in Bye-Law 53(3) ;

         (k) “ Business Day ” means any day other than a Saturday, a Sunday, any day on which commercial banking institutions in Hamilton, Bermuda or Atlanta, Georgia are authorized or obligated by law to close or any day on which the New York Stock Exchange is not open for trading;

         (l) “ Cause ” means (1) willful misconduct or gross negligence which is materially injurious to the Company, (2) fraud or embezzlement or (3) a conviction of, or a plea of “guilty” or “no contest” to, a felony;
         (m) “ Chairperson ” means the person designated by the Board as the chairperson of the Board;

         (n) “ Common Shares ” has the meaning set forth in Bye-Law 43 ;

        (o) “ Company ” means the company for which these Bye-Laws are approved and confirmed;

         (p) “ Director ” means a director of the Company;

         (q) “ Exchange Act ” means the U.S. Securities Exchange Act of 1934, as amended;

         (r) “ Interested Shareholder ” has the meaning set forth in Bye-Law 53(4) ;

         (s) “ legal proceeding ” has the meaning set forth in Bye-Law 59 ;

         (t) “ legal representative ” has the meaning set forth in Bye-Law 59 .

        (u) “ Nomination and Corporate Governance Committee ” means the committee appointed by the Board in accordance with these Bye-Laws as such;

         (v) “ notice ” means written notice as further defined in these Bye-Laws unless otherwise specifically stated;

         (w) “ Officer ” means any person appointed by the Board to hold an office in the Company;

         (x) “ Person ” means an individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization or government or political subdivision thereof;

         (y) “ Preferred Shares ” has the meaning set forth in Bye-Law 44(3) ;

         (z) “ proceeding ” has the meaning set forth in Bye-Law 25(1) ;

1


Exhibit 3.2




         (aa) “ public announcement ” has the meaning set forth in Bye-Law 10(3) ;

        (bb) “ Register of Directors and Officers ” means the Register of Directors and Officers referred to in these Bye-Laws and shall be the same “register of directors and officers” required to be kept by the Company under the Act;

         (cc) “ Register of Shareholders ” means the Register of Shareholders referred to in these Bye-Laws and shall be the same “register of members” required to be kept by the Company under the Act;

         (dd) “ Resident Representative ” means any Person appointed to act as resident representative of the Company in accordance with the Act;

         (ee) “ Secretary ” means the person appointed to perform any or all of the duties of secretary of the Company and includes any deputy or assistant or acting secretary;

         (ff) “ Securities Act ” means the U.S. Securities Act of 1933, as amended;

         (gg) “ Shareholder ” shall have the same meaning as the term “Member” in the Act and means the Person registered in the Register of Shareholders as the holder of shares (sometimes referred to in these Bye-Laws as the direct holder) of the Company or, when two or more Persons are so registered as joint holders of shares, means the Person whose name stands first in the Register of Shareholders as one of such joint holders or all of such Persons as the context so requires;

         (hh) “ Undesignated Shares ” has the meaning set forth in Bye-Law 43 ;

         (ii) “ United States of America ” or “ U.S. ” means the United States of America and dependent territories or any part thereof;
         (jj) “ Voting Commitment ” has the meaning set forth in Bye-Law 8(4) .

     (2) In these Bye-Laws, where not inconsistent with the context:

        (a) words denoting the plural number include the singular number and vice versa;

         (b) words denoting the masculine gender include the feminine and neuter gender;

         (c) the words:
             (i) “may” shall be construed as permissive;

             (ii) “shall” shall be construed as imperative;

         (d) references to particular laws, rules and regulations (including references to particular Sections of, Rules under and filings pursuant to the Exchange Act), shall be deemed to refer to any applicable successor laws, rules, regulations or filings as may be enacted or promulgated from time to time; and

         (e) unless otherwise provided herein, words or expressions defined in the Act shall bear the same meaning in these Bye-Laws.

     (3) Expressions referring to writing or its cognates shall, unless the contrary intention appears, include facsimile, printing, lithography, photography, electronic mail and other modes of representing words in a visible form.

     (4) Headings used in these Bye-Laws are for convenience only and are not to be used or relied upon in the construction hereof.

BOARD OF DIRECTORS
2. Board of Directors
     The Board shall have the full power and authority provided to it by the Act and these Bye-Laws.







2


Exhibit 3.2




3. Powers of the Board

     (1) In exercising such power and authority, the Board may exercise all such powers of the Company as are not, by statute or by these Bye-Laws, required to be exercised by the Company in a general meeting subject, nevertheless, to these Bye-Laws and the provisions of any statute.

     (2) No regulation or alteration to these Bye-Laws made by the Company in a general meeting shall invalidate any prior act of the Board that would have been valid if such regulation or alteration had not been made.

     (3) The Board may procure that the Company pays all expenses incurred in promoting and incorporating the Company.

     (4) The Board may from time to time and at any time by power of attorney appoint any company, firm, person or body of persons, whether nominated directly or indirectly by the Board, to be an attorney of the Company for such purposes and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Board) and for such period and subject to such conditions as it may think fit and any such power of attorney may contain such provisions for the protection and convenience of Persons dealing with any such attorney as the Board may think fit and may also authorize any such attorney to sub-delegate all or any of the powers, authorities and discretions so vested in the attorney. Such attorney may, if so authorized by the power of attorney, execute any deed or instrument or other document on behalf of the Company under hand or under its common seal.

4. Power to Delegate to a Committee

     The Board may delegate any of its powers to a committee appointed by the Board (including the power to sub-delegate) and every such committee shall conform to such directions as the Board shall impose on them. Committees may consist of one or more Directors.

     The meetings and proceedings of any such committee shall be governed by the provisions of these Bye-Laws regulating the meetings and proceedings of the Board, so far as the same are applicable and are not superseded by directions imposed by the Board, and in that connection the Board may authorize a committee to adopt such rules for its meetings.

5. Power to Appoint and Dismiss Employees
 
     The Board may appoint, suspend or remove any Officer, employee, agent or representative of the Company and may determine their duties.

6. Power to Borrow and Charge Property
 
     The Board may exercise all of the powers of the Company to borrow money and to mortgage or charge its undertaking, property and uncalled capital, or any part thereof, and may issue debentures, debenture stock and other securities whether outright or as security for any debt, liability or obligation of the Company or any third party.

7. Exercise of Power to Purchase Shares of or Discontinue the Company

     (1) The Board may exercise all of the powers of the Company to purchase (sometimes referred to in these Bye-Laws as “repurchase”) all or any part of its own shares pursuant to the Act.

     (2) The Board may exercise all of the powers of the Company to discontinue or redomesticate the Company to a named country or jurisdiction outside Bermuda pursuant to the Act.

8. Board Size; Term of Directors

     (1) Subject to the rights of the holders of any class or series of preference shares, the Board shall consist of such number of Directors (not less than 3) as the Board may determine from time to time by resolution adopted by the affirmative vote of at least a majority of the Board then in office. Any increase in the number of Directors on the Board pursuant to this Bye-Law 8 shall be deemed to be a vacancy and may be filled in accordance with Bye-Law 12 hereof. A decrease in the number of Directors shall not shorten the term of any Director then in office.

     (2) Subject to the rights of the holders of any class or series of preference shares, Directors shall be elected, except in the case of a vacancy (as provided for in Bye-Law 11 or 12 , as the case may be), by the Shareholders in


3


Exhibit 3.2





the manner set forth in these Bye-Laws at an annual general meeting of Shareholders or any special general meeting called for such purpose and shall hold office for the term set forth in paragraph (3) of this Bye-Law 8 .

     (3)  Directors shall be elected annually for a one-year term expiring at the next annual general meeting of Shareholders. A Director shall hold office until such Director’s successor shall have been duly elected and qualified or until such Director is removed from office pursuant to Bye-Law 11 or such Director’s office is otherwise earlier vacated.

     (4) No person may be appointed, nominated or elected a Director unless such person, at the time such person is nominated and appointed or elected, would then be able to serve as a Director without conflicting in any material respect with any law or regulation applicable to the Company, as determined in good faith by the Board of Directors. In addition, to be eligible to be a nominee for election or reelection as a Director pursuant to any provision of these Bye-Laws, a person must deliver (in accordance with the time periods prescribed for delivery of notice under Bye-Law 10 ) to the Secretary at the principal executive offices of the Company a written questionnaire with respect to the background and qualification of such person and the background of any other person or entity on whose behalf the nomination is being made (which questionnaire shall be provided by the Secretary upon written request) and a written representation and agreement (in the form provided by the Secretary upon written request) that such person (i) will abide by the requirements of these Bye-Laws, (ii) is not and will not become a party to (a) any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how such person, if elected as a Director, will act or vote on any issue or question (a “Voting Commitment”) that has not been disclosed to the Company or (b) any Voting Commitment that could limit or interfere with such person’s ability to comply, if elected as a Director, with such person’s fiduciary duties under applicable law, (iii) is not and will not become a party to any agreement, arrangement or understanding with any person or entity other than the Company with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a Director that has not been disclosed therein, and (iv) in such person’s individual capacity and on behalf of any person or entity on whose behalf the nomination is being made, would be in compliance, if elected as a Director, and will comply with all applicable publicly disclosed corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines of the Company.

     (5) Subject to the rights of the holders of any class or series of preference shares, at any meeting for the election of Directors at which a quorum is present, each nominee shall be elected by the vote of the majority of the votes cast with respect to the Director, provided that if the number of nominees exceeds the number of positions available for the election of Directors, the Directors shall be elected by a plurality of the votes cast in person or by proxy at any such meeting. For purposes of this Bye-Law 8(5) , a majority of the votes cast means that the number of shares voted “for” a Director must exceed 50% of the votes cast with respect to that Director. Votes cast with respect to the election of a Director shall include only votes cast with respect to stock present in person or represented by proxy at the meeting and entitled to vote and shall exclude abstentions.

     (6) If a nominee for Director who is an incumbent Director is not elected and no successor has been elected at such meeting, the Director will promptly tender his or her resignation to the Board. The Nomination and Corporate Governance Committee shall make a recommendation to the Board as to whether to accept or reject the tendered resignation, or whether other actions should be taken. The Board shall act on the tendered resignation, taking into account the Nomination and Corporate Governance Committee’s recommendation, and publicly disclose (by a press release, a filing with the U.S. Securities and Exchange Commission or other broadly disseminated means of communication) its decision regarding the tendered resignation and the rationale behind the decision within 90 days from the date of the certification of the election results. The Nomination and Corporate Governance Committee in making its recommendation, and the Board in making its decision, may each consider any factors or other information that it considers appropriate and relevant. The Director who tenders his or her resignation shall not participate in the recommendation of the Nomination and Corporate Governance Committee or the decision of the Board with respect to his or her resignation. If such incumbent Director’s resignation is not accepted by the Board, such Director shall continue to serve until the next annual meeting and until his or her successor is duly elected, or his or her earlier resignation or removal. If a Director’s resignation is accepted by the Board pursuant to these Bye-Laws, or if a nominee for Director is not elected and the nominee is not an incumbent Director, then the Board, in its sole discretion, may fill any resulting vacancy pursuant to Bye-Law 12 or may decrease the size of the Board pursuant to this Bye-Law 8 .







4


Exhibit 3.2




9. Defects in Appointment of Directors
     All acts done by any meeting of the Board or by a committee of the Board shall, notwithstanding that it be afterwards discovered that there was some defect in the appointment of any person as a Director, or that they or any of them were disqualified, be as valid as if every such person had been duly appointed and was qualified to be a Director.

10. Shareholder Proposals and Nominations; Proxy Access

(1) Annual General Meeting

         (a) At any annual general meeting of Shareholders, nominations of persons for election to the Board of Directors of the Company may be made only (i) pursuant to the Company’s notice of meeting, (ii) by or at the direction of a majority of the Board, (iii) by any Shareholder who (A) is a Shareholder of record at the time of giving of notice provided for in these Bye-Laws, (B) is entitled to vote at the meeting and (C) complies with the notice and other procedures set forth in paragraph (1) of this Bye-Law 10 as to such nomination or (iv) by any Eligible Shareholder (as defined in paragraph (3) of this Bye-Law 10 ) who (A) is entitled to vote at the meeting and (B) complies with the notice and other procedures set forth in paragraph (3) of this Bye-Law 10 ; the preceding clauses (iii) and (iv) shall be the exclusive means for a Shareholder to make nominations before an annual general meeting of Shareholders. At any annual general meeting of Shareholders, proposals of any other business to be considered by the Shareholders may be made only (i) pursuant to the Company’s notice of meeting, (ii) by or at the direction of a majority of the Board or (iii) by any Shareholder who (A) is a Shareholder of record at the time of giving of notice provided for in these Bye-Laws, (B) is entitled to vote at the meeting and (C) complies with the procedures set forth in these Bye-Laws; the preceding clause (iii) shall be the exclusive means for a Shareholder to submit other business (other than matters properly brought under Rule 14a-8 under the Exchange Act and included in the Corporation’s notice of meeting) before an annual general meeting of Shareholders. To be properly brought before a meeting of Shareholders, business must be of a proper subject for action by Shareholders under applicable law and must not, if implemented, cause the Company to violate any applicable law or regulation, each as determined in good faith by the Board.

         (b) For nominations or other business to be properly brought before an annual general meeting by a Shareholder pursuant to these Bye-Laws, the Shareholder must have given timely notice thereof in writing to the Secretary and such other business must otherwise be a proper matter for Shareholder action. Notice shall be considered timely only if given to the Secretary of the Company not less than 90 nor more than 120 days prior to the first anniversary of the date of the preceding year’s annual general meeting of Shareholders; provided , however , that if the date of the annual general meeting is more than 30 days before or more than 60 days after such anniversary date, any notice by the Shareholder of business or the nomination of Directors for election or reelection to be brought before the annual general meeting to be timely must be so delivered not earlier than the close of business on the 120th day prior to such annual general meeting and not later than the close of business on the later of the 90th day prior to such annual general meeting and the 10th day following the day on which public announcement of the date of such meeting is first made. Notwithstanding the foregoing, in the event that the number of Directors to be elected to the Board at the applicable annual general meeting is increased and there is no public announcement by the Company naming all of the nominees for Director or specifying the size of the increased Board of Directors at least 100 days prior to the first anniversary of the preceding year’s annual general meeting, a Shareholder’s notice required by this Bye-Law 10 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Company not later than the close of business on the 10th day following the day on which such public announcement is first made by the Company.

         (c) Any Shareholder who gives notice of any such proposal shall deliver therewith, in writing: the text of the proposal to be presented and a brief statement of the reasons why such Shareholder and the beneficial owner, if any, on whose behalf the proposal is made favors the proposal; the name and address, as they appear on the Company’s books, of any such Shareholder and the name and address of any such beneficial owner; the number and class of all shares of each class of stock of the Company beneficially owned by such Shareholder and any such beneficial owner and evidence thereof reasonably satisfactory to the Secretary of the Company; a description of any material interest in the proposal of such Shareholder and any such beneficial owner (other than any interest as a Shareholder) and of all arrangements or understandings between such Shareholder and any such beneficial owner and any other Person or Persons in connection with the proposal of such business; and a representation that such






5


Exhibit 3.2





Shareholder intends to appear in person or by proxy at the annual general meeting to bring such business before the meeting.

         (d) Any Shareholder desiring to nominate any person for election as a Director, whether pursuant to paragraph (1), (2) or (3) of this Bye-Law 10 , shall deliver with such notice a statement in writing setting forth: the name of the person to be nominated; the number and class of all shares of each class of stock of the Company beneficially owned by such person; the information regarding such person required by paragraphs (d), (e) and (f) of Item 401 of Regulation S-K adopted by the U.S. Securities and Exchange Commission; all other information relating to such person that is required to be disclosed in solicitations of proxies for Directors pursuant to Regulation 14A under the Exchange Act (including such person’s signed consent to serve as a Director if elected); a certification by each Shareholder nominee that such nominee is as of the time of nomination and will be as of the time of the applicable meeting eligible to serves as a Director in accordance with this Bye-Law 10 and (in both such person’s individual capacity and on behalf of any Person for whom such person may be a representative), has complied with Bye-Law 8 and has complied and will comply with all applicable corporate governance, conflicts, confidentiality and stock ownership and trading policies of the Company; the name and address, as they appear on the Company’s books, of such Shareholder and the name and address of any such beneficial owner, if any, on whose behalf the nomination is made; the number and class of all shares of each class of stock of the Company beneficially owned by such Shareholder or any such beneficial owner; and a description of all arrangements or understandings between such Shareholder or any such beneficial owner and each nominee and any other Person or Persons (including their names) pursuant to which the nomination or nominations are to be made. The Company may require any proposed nominee, whether pursuant to paragraph (1), (2) or (3) of this Bye-Law 10 , to furnish such other information as may be reasonably required by the Company to determine the qualifications of such proposed nominee to serve as a Director or to determine whether any of the matters contemplated by clause (I) of paragraph (3) of this Bylaw 10 apply to such proposed nominee.

(2) Special General Meeting

         (a) The Chairperson, the Chief Executive Officer or the Board acting by vote of a majority of the Board may convene a special general meeting of the Company whenever in its judgment such a meeting is necessary or desirable. Subject to the next sentence and subject to the rights of the holders of any class or series of preference shares, special general meetings of the Company may only be called as provided in the preceding sentence. In addition, the Board shall, (i) on the requisition of the holders of any class or series of preference shares as may have express rights to requisition special general meetings, and (ii) on the requisition of Shareholders holding at the date of the deposit of the requisition not less than one-tenth of such of the paid-up capital of the Company as at the date of the deposit carries the right to vote in general meetings of the Company, forthwith proceed to convene a special general meeting of the Company (or the applicable class(es) of shares) and the provisions of Section 74 of the Act shall apply. Special general meetings may be held at such place as may from time to time be designated by the Board and stated in the notice of the meeting. In any special general meeting of the Company only such business shall be conducted as is set forth in the notice thereof.

         (b) Nominations of persons for election to the Board may be made at a special general meeting at which Directors are to be elected pursuant to the Company’s notice of meeting (i) by or at the direction of the Board or (ii) provided that the Board has determined that Directors shall be elected at such meeting, by any Shareholder who is a Shareholder of record at the time of giving of notice provided for in this Bye-Law, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in these Bye-Laws; the preceding clause (ii) shall be the exclusive means for a Shareholders to make nominations before any special general meeting of Shareholders. In the event the Company calls a special general meeting for the purpose of electing one or more Directors to the Board, any such Shareholder may nominate a person or persons (as the case may be) for election to such position(s) as specified in the Company’s notice of meeting, if the Shareholder’s notice containing the information specified in Bye-Laws 10(1)(d) and 8(4) shall be delivered to the Secretary at the principal executive offices of the Company not earlier than the close of business on the 120th day prior to such special general meeting and not later than the close of business on the later of the 90th day prior to such special general meeting and the 10th day following the day on which public announcement of the date of such meeting is first made and of the nominees proposed by the Board to be elected at such meeting.

(3) Inclusion of Shareholder Director Nominations in the Company’s Proxy Materials





6


Exhibit 3.2





Subject to the terms and conditions set forth in these Bye-Laws, the Company shall include in its proxy materials for an annual general meeting of Shareholders the name, together with the Required Information (as defined below), of any person nominated for election (the “Shareholder Nominee”) to the Board of Directors by a Shareholder or group of Shareholders that satisfy the requirements of this Bye-Law 10(3) and that expressly elects at the time of providing the written notice required by this Bye-Law 10(3) (a “Proxy Access Notice”) to have its nominee included in the Company’s proxy material pursuant to this Bye-Law 10(3) . For the purposes of this Bye-Law 10(3) :

(1) “Voting Stock” shall mean outstanding shares of capital stock of the Company entitled to vote generally for the election of Directors;

(2) “Constituent Holder” shall mean any Shareholder, collective investment fund included within a Qualifying Fund (as defined in paragraph (D) below) or beneficial holder whose stock ownership is counted for the purposes of qualifying as an Eligible Shareholder (as defined in paragraph (D) below);

(3) “affiliate” and “associate” shall have the meanings ascribed thereto in Rule 405 under the Securities Act; provided , however , that the term “partner” as used in the definition of “associate” shall not include any limited partner that is not involved in the management of the relevant partnership; and

(4) a Shareholder (including any Constituent Holder) shall be deemed to “own” only those outstanding shares of Voting Stock as to which the Shareholder (or such Constituent Holder) possesses both (a) the full voting and investment rights pertaining to the shares and (b) the full economic interest in (including the opportunity for profit and risk of loss on) such shares. The number of shares calculated in accordance with the foregoing clauses (a) and (b) shall be deemed not to include (and, to the extent any of the following arrangements have been entered into by affiliates of the Shareholder (or of any Constituent Holder), shall be reduced by) any shares (x) sold by such Shareholder or Constituent Holder (or any of either’s affiliates) in any transaction that has not been settled or closed, including any short sale, (y) borrowed by such Shareholder or Constituent Holder (or any of either’s affiliates) for any purposes or purchased by such Shareholder or Constituent Holder (or any of either’s affiliates) pursuant to an agreement to resell, or (z) subject to any option, warrant, forward contract, swap, contract of sale, other derivative or similar agreement entered into by or effecting such Shareholder or Constituent Holder (or any of either’s affiliates), whether any such instrument or agreement is to be settled with shares, cash or other consideration, in any such case which instrument or agreement has, or is intended to have, or if exercised by either party thereto would have, the purpose or effect of (i) reducing in any manner, presently or in the future, the full voting and investment rights pertaining to such shares, and/or (ii) hedging, offsetting or altering to any degree the full economic interest in (including the opportunity for profit and risk of loss on) such shares. A Shareholder (including any Constituent Holder) shall “own” shares held in the name of a nominee or other intermediary so long as the Shareholder (or such Constituent Holder) retains the right to instruct how the shares are voted with respect to the election of Directors and the right to direct the disposition thereof and possesses the full economic interest in the shares. A Shareholder’s (including any Constituent Holder’s) ownership of shares shall be deemed to continue during any period in which such person has (i) loaned such shares, provided that such Shareholder has the power to recall such loaned shares on not more than five (5) business days’ notice and includes in its Proxy Access Notice an agreement that it (A) will promptly recall such loaned shares upon being notified that any of its Shareholder Nominees will be included in the Company’s proxy materials and (B) will continue to hold such recalled shares through the date of the annual meeting or (ii) delegated any voting power over such shares by means of a proxy, power of attorney or other instrument or arrangement which in all such cases is revocable at any time by the Shareholder. The terms “owned,” “owning” and other variations of the word “own” shall have correlative meanings.

(A)    For purposes of this Bye-Law 10(3) , the “Required Information” that the Company will include in its proxy statement is (1) the information concerning the Shareholder Nominee and the Eligible Shareholder that the Company determines is required to be disclosed in the Company’s proxy statement by the regulations promulgated under the Exchange Act; and (2) if the Eligible Shareholder so elects, a Statement (as defined in paragraph (F) below). The Company shall also include the name of the Shareholder Nominee in its proxy card. For the avoidance of doubt, and any other provision of these Bye-Laws notwithstanding, the Company may in







7


Exhibit 3.2





its sole discretion solicit against, and include in the proxy statement its own statements or other information relating to, any Eligible Shareholder and/or Shareholder Nominee.

(B)    To be timely, a Shareholder’s Proxy Access Notice, together with all related materials provided for herein, must be delivered to the principal executive offices of the Company within the time periods applicable to Shareholder notices of nominations pursuant to paragraph (1)(b) of Bye-Law 10 . In no event shall any adjournment or postponement of an annual general meeting, the date of which has been announced by the Company, commence a new time period for the giving of a Proxy Access Notice.

(C)    The number of Shareholder Nominees (which shall include Shareholder Nominees that were submitted by all Eligible Shareholders for inclusion in the Company’s proxy materials pursuant to this Bye-Law 10(3) but either (x) are subsequently withdrawn (or withdraw) or (y) the Board of Directors decides to nominate as Board of Directors’ nominees) appearing in the Company’s proxy materials with respect to an annual general meeting of Shareholders shall not exceed the greater of (x) two (2) and (y) the largest whole number that does not exceed 20% of the number of directors in office as of the last day on which a Proxy Access Notice may be delivered in accordance with the procedures set forth in this Bye-Law 10(3) (such greater number, the “Permitted Number”); provided , however , that the Permitted Number shall be reduced by:

(1)     the number of directors in office that will be included in the Company’s proxy materials with respect to such annual general meeting for whom access to the Company’s proxy materials was previously provided pursuant to this Bye-Law 10(3) , other than any such director who at the time of such annual general meeting will have served as a director continuously, as a nominee of the Board of Directors, for at least two (2) successive annual terms; and

(2)    the number of directors in office or director candidates that in either case will be included in the Company’s proxy materials with respect to such annual general meeting as an unopposed (by the Company) nominee pursuant to an agreement, arrangement or other understanding with a Shareholder or group of Shareholders (other than any such agreement, arrangement or understanding entered into in connection with an acquisition of Voting Stock, by such Shareholder or group of Shareholders, directly from the Company), other than any such director referred to in this clause (2) who at the time of such annual general meeting will have served as a director continuously, as a nominee of the Board of Directors, for at least two (2) successive annual terms;
provided , further , that in the event the Board of Directors resolves to reduce the size of the Board of Directors effective on or prior to the date of the annual general meeting, the Permitted Number shall be calculated based on the number of directors in office as so reduced. An Eligible Shareholder submitting more than one Shareholder Nominee for inclusion in the Company’s proxy statement pursuant to this paragraph (C) of this Bye-Law 10(3) shall rank such Shareholder Nominees based on the order that the Eligible Shareholder desires such Shareholder Nominees to be selected for inclusion in the Company’s proxy statement and include such specified rank in its Proxy Access Notice. If the number of Shareholder Nominees pursuant to this paragraph (C) of this Bye-Law 10(3) for an annual general meeting of Shareholders exceeds the Permitted Number, then the highest ranking qualifying Shareholder Nominee from each Eligible Shareholder will be selected by the Company for inclusion in the proxy statement until the Permitted Number is reached, going in order of the amount (largest to smallest) of the ownership position as disclosed in each Eligible Shareholder’s Proxy Access Notice. If the Permitted Number is not reached after the highest ranking Shareholder Nominee from each Eligible Shareholder has been selected, this selection process will continue as many times as necessary, following the same order each time, until the Permitted Number is reached.
Notwithstanding anything to the contrary contained in this Bye-Law 10(3) , the Company shall not be required to include any Shareholder Nominees in its proxy materials pursuant to this Bye-Law 10(3) for any meeting of Shareholders for which the Secretary of the Company receives notice (whether or not subsequently withdrawn) that a Shareholder intends to nominate one or more persons for election to the Board of Directors pursuant to the advance notice requirements for Shareholder nominees set forth in Bye-Law 10(1) .
(D)    An “Eligible Shareholder” is one or more Shareholders of record who own and have owned, or are acting on behalf of one or more beneficial owners who own and have owned, in each case continuously for at least three (3) years as of both the date that the Proxy Access Notice is received by the Company



8


Exhibit 3.2




pursuant to this Bye-Law 10(3) , and as of the record date for determining Shareholders eligible to vote at the annual general meeting, at least three percent (3%) of the aggregate voting power of the Voting Stock (the “Proxy Access Request Required Shares”), and who continue to own the Proxy Access Request Required Shares at all times between the date such Proxy Access Notice is received by the Company and the date of the applicable annual general meeting, provided that the aggregate number of Shareholders (and, if and to the extent that a Shareholder is acting on behalf of one or more beneficial owners, of such beneficial owners) whose stock ownership is counted for the purpose of satisfying the foregoing ownership requirement shall not exceed twenty (20).

Two or more collective investment funds that are (I) part of the same family of funds or sponsored by the same adviser or (II) a “group of investment companies” as such term is defined in Section 12(d)(1)(G)(ii) of the Investment Company Act of 1940 (a “Qualifying Fund”) shall be treated as one Shareholder for the purpose of determining the aggregate number of Shareholders in this paragraph (D). For the avoidance of doubt, each fund included within a Qualifying Fund must meet the requirements set forth in this Bye-Law 10(3) , including by providing the required information and materials.

No share may be attributed to more than one group constituting an Eligible Shareholder under this Bye-Law 10(3) . For the avoidance of doubt, no Shareholder may be a member of more than one group constituting an Eligible Shareholder.

A record holder acting on behalf of one or more beneficial owners will not be counted separately as a Shareholder with respect to the shares owned by such beneficial owner(s). Each such beneficial owner will be counted separately as a Shareholder with respect to the shares owned by such beneficial owner, subject to the other provisions of this paragraph (D).

For the avoidance of doubt, Proxy Access Request Required Shares will qualify as such only if the beneficial owner of such shares as of the date of the Proxy Access Notice has individually beneficially owned such shares continuously for the three-year (3 year) period ending on that date and through the other applicable dates referred to above (in addition to the other applicable requirements being met).

(E)    On the date on which an Eligible Shareholder delivers a nomination pursuant to this Bye-Law 10(3) , such Eligible Shareholder (including each Constituent Holder) must provide the following information in writing to the Secretary of the Company with respect to such Eligible Shareholder (and each Constituent Holder):
(1)    the name and address of, and number of shares of Voting Stock owned by, such person;
(2)    one or more written statements from the record holder of the shares (and from each intermediary through which the shares are or have been held during the requisite three-year (3 year) holding period) verifying that, as of a date within seven (7) calendar days prior to the date the Proxy Access Notice is delivered to the Company, such person owns, and has owned continuously for the preceding three (3) years, the Proxy Access Request Required Shares, and such person’s agreement to provide:
(a)    within ten (10) days after the record date for the annual general meeting, written statements from the record holder and intermediaries verifying such person’s continuous ownership of the Proxy Access Request Required Shares through the record date, together with any additional information reasonably requested by the Company to verify such person’s ownership of the Proxy Access Request Required Shares; and

(b)    immediate notice to the Company if the Eligible Shareholder ceases to own any of the Proxy Access Request Required Shares prior to the date of the applicable annual general meeting of Shareholders;

(3)    the information that would be required to be submitted pursuant to paragraph (1)(d) of Bye-Law 10 for Director nominations;




9


Exhibit 3.2






(4)    a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three (3) years, and any other material relationships, between or among the Eligible Shareholder (including any Constituent Holder) and its or their respective affiliates and associates, or others acting in concert therewith, on the one hand, and each of such Eligible Shareholder’s Shareholder Nominees, and his or her respective affiliates and associates, or others acting in concert therewith, on the other hand, including without limitation all information that would be required to be disclosed pursuant to Rule 404 promulgated under Regulation S-K of the U.S. Securities and Exchange Commission if the Eligible Shareholder (including any Constituent Holder), or any affiliate or associate thereof or person acting in concert therewith, were the “registrant” for purposes of such rule and the Shareholder Nominee or any affiliate or associate thereof or person acting in concert therewith were a director or executive officer of such registrant;

(5)    a representation that the Eligible Shareholder (and each Constituent Holder):

(a)    acquired the Proxy Access Request Required Shares in the ordinary course of business and not with the intent to change or influence control of the Company, and does not presently have any such intent;

(b)     has not nominated and will not nominate for election to the Board of Directors at the annual general meeting any person other than the Shareholder Nominees being nominated pursuant to this Bye-Law 10(3) ;

(c)    has not engaged and will not engage in, and has not and will not be a “participant” in another person’s, “solicitation” within the meaning of Rule 14a-1(l) under the Exchange Act in support of the election of any individual as a director at the annual general meeting other than its Shareholder Nominees or a nominee of the Board of Directors;

(d)    will not distribute to any Shareholder any form of proxy for the annual general meeting other than the form distributed by the Company; and

(e)    will provide facts, statements and other information in all communications with the Company and its Shareholders that are and will be true and correct in all material respects and do not and will not omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, and will otherwise comply with all applicable laws, rules and regulations in connection with any actions taken pursuant to this Bye-Law 10(3) (and the other provisions of this Bye-Law 10 to the extent related to this Bye-Law 10(3)) ;

(6)    in the case of a nomination by a group of Shareholders that together is such an Eligible Shareholder, the designation by all group members of one group member that is authorized to act on behalf of all members of the nominating Shareholder group with respect to the nomination and matters related thereto, including withdrawal of the nomination; and
(7)    an undertaking that the Eligible Shareholder (and each Constituent Holder) agrees to:

(a)    assume all liability stemming from, and indemnify and hold harmless the Company and each of its directors, officers, and employees individually against any liability, loss or damages in connection with any threatened or pending action, suit or proceeding, whether legal, administrative or investigative, against the Company or any of its directors, officers or employees arising out of any legal or regulatory violation arising out of the communications of the Eligible Shareholder (and any Constituent Holder) with the Shareholders of the Company or out of the information that the Eligible Shareholder (and any Constituent Holder) provided to the Company in connection with the nomination of the Shareholder Nominee(s) or efforts to elect the Shareholder Nominee(s); and









10


Exhibit 3.2




(b)    file with the Securities and Exchange Commission any solicitation by the Eligible Shareholder of Shareholders of the Company relating to the annual general meeting at which the Shareholder Nominee will be nominated.

In addition, on the date on which an Eligible Shareholder delivers a nomination pursuant to this Bye-Law 10(3) , any Qualifying Fund whose stock ownership is counted for purposes of qualifying as an Eligible Shareholder must provide to the Secretary of the Company documentation reasonably satisfactory to the Board of Directors that demonstrates that the funds included within the Qualifying Fund satisfy the definition thereof.
 
In order to be considered timely, all information required by this paragraph (E) to be provided to the Company must be supplemented, by delivery to the Secretary of the Company, to disclose such information (1) as of the record date for the applicable annual general meeting and (2) as of the date that is no earlier than ten (10) days prior to such annual general meeting. Any supplemental information delivered pursuant to clause (1) of the preceding sentence must be delivered to the Secretary of the Company no later than ten (10) days following the record date for the applicable annual general meeting, and any supplemental information delivered pursuant to clause (2) of the preceding sentence must be delivered to the Secretary of the Company no later than the fifth day before the applicable annual general meeting. For the avoidance of doubt, the requirement to update and supplement such information shall not permit any Eligible Shareholder (or any Constituent Holder) or other person to change or add any proposed Shareholder Nominee or be deemed to cure any defects or limit the remedies (including without limitation under these Bye-Laws) available to the Company relating to any defect.

(F)    The Eligible Shareholder may provide to the Secretary of the Company, at the time the information required by this Bye-Law 10(3) is originally provided, a written statement for inclusion in the Company’s proxy statement for the annual general meeting, not to exceed five hundred (500) words, in support of the candidacy of each such Eligible Shareholder’s Shareholder Nominee (the “Statement”). Notwithstanding anything to the contrary contained in this Bye-Law 10(3) , the Company may omit from its proxy materials any information or Statement that it, in good faith, believes is materially false or misleading, omits to state any material fact, or would violate any applicable law or regulation.
(G)    On the date on which an Eligible Shareholder delivers a nomination pursuant to this Bye-Law 10(3) , each Shareholder Nominee must:
(1)    provide to the Company an executed agreement, in a form deemed satisfactory by the Board of Directors or its designee (which form shall be provided by the Company reasonably promptly upon written request of a Shareholder), that such Shareholder Nominee consents to being named in the Company’s proxy statement and form of proxy card (and will not agree to be named in any other person’s proxy statement or form of proxy card with respect to the applicable annual general meeting of the Company) as a nominee and to serving as a director of the Company if elected;
(2)    provide the information with respect to a Shareholder Nominee that would be required to be submitted pursuant to paragraph (1)(d) of Bye-Law 10 for Director nominations;
(3)    complete, sign and submit all questionnaires, representations and agreements required by these Bye-Laws or of the Company’s directors generally, including the questionnaire, representation and agreement required by paragraph (4) of Bye-Law 8 ; and

(4)    provide such additional information as necessary to permit the Board of Directors to determine if such Shareholder Nominee:

(a)    is independent under the listing standards of each principal U.S. exchange upon which the Common Shares of the Company is listed, any applicable rules of the Securities and Exchange Commission and any publicly disclosed standards used by the Board of Directors in determining and disclosing the independence of the Company’s directors;






11


Exhibit 3.2





(b)    has any direct or indirect relationship with the Company;

(c)    would, by serving on the Board of Directors, violate or cause the Company to be in violation of these Bye-Laws, the rules and listing standards of the principal U.S. exchange upon which the Common Shares of the Company is listed or any applicable law, rule or regulation; and

(d)    is or has been subject to any event specified in Item 401(f) of Regulation S-K (or successor rule) of the Securities and Exchange Commission.
In the event that any information or communications provided by the Eligible Shareholder (or any Constituent Holder) or the Shareholder Nominee to the Company or its Shareholders ceases to be true and correct in all material respects or omits a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading, each Eligible Shareholder (or any Constituent Holder) or Shareholder Nominee, as the case may be, shall promptly notify the Secretary of the Company of any defect in such previously provided information and of the information that is required to correct any such defect; it being understood for the avoidance of doubt that providing any such notification shall not be deemed to cure any such defect or limit the remedies (including without limitation under these Bye-Laws) available to the Company relating to any such defect.
(H)    Any Shareholder Nominee who is included in the Company’s proxy materials for a particular annual general meeting of Shareholders but either (1) withdraws from or becomes ineligible or unavailable for election at that annual general meeting (other than by reason of such Shareholder Nominee’s disability or other health reason), or (2) does not receive at least twenty-five (25)% of the votes cast in favor of his or her election, will be ineligible to be a Shareholder Nominee pursuant to this Bye-Law 10(3) for (x) such particular annual general meeting and (y) the next two annual general meetings.
(I)    The Company shall not be required to include, pursuant to this Bye-Law 10(3) , a Shareholder Nominee in its proxy materials for any annual general meeting of Shareholders, or, if the proxy statement already has been filed, to permit a vote with respect to the election of a Shareholder Nominee, notwithstanding that proxies in respect of such vote may have been received by the Company:
(1)    who is not independent under the listing standards of the principal U.S. exchange upon which the Common Shares of the Company is listed, any applicable rules of the U.S. Securities and Exchange Commission and any publicly disclosed standards used by the Board of Directors in determining and disclosing independence of the Company’s Directors, who does not meet the audit committee independence requirements under the rules of any stock exchange on which the Company’s Common Shares are traded and applicable securities laws , who is not a “non-employee director” for the purposes of Rule 16b-3 under the Exchange Act (or any successor rule), who is not an “outside director” for the purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (or any successor provision), in each of the foregoing cases as determined by the Board of Directors in its sole discretion;
(2)    whose service as a member of the Board of Directors would violate or cause the Company to be in violation of these Bye-Laws, the rules and listing standards of the principal U.S. exchange upon which the Common Shares of the Company is traded, or any applicable law, rule or regulation;
(3)    who is or has been, within the past three years, an employee, officer or director of, or otherwise affiliated with, a competitor, as defined in Section 8 of the Clayton Antitrust Act of 1914;
(4)    who is or has been a named subject of a pending criminal proceeding (excluding non-criminal traffic violations) or has been convicted in such a criminal proceeding within the past ten years, or who is or has been a named subject of any legal, regulatory or self-regulatory proceeding, action or settlement as a result of which the service of such Shareholder Nominee on the Board of Directors would result in any restrictions on the ability of any of the Company or its affiliates to conduct business in any jurisdiction;









12


Exhibit 3.2




(5)    who is subject to any order of the type specified in Rule 506(d) of Regulation D promulgated under the Securities Act;
(6)    who shall have provided information to the Company in respect of such nomination that was untrue in any material respect or omitted to state a material fact necessary in order to make the statement made, in light of the circumstances under which they were made, not misleading, as determined by the Board of Directors or any committee thereof, in each of the foregoing cases as determined by the Board of Directors in its sole discretion;
(7)    who otherwise breaches or fails to comply in any material respect with its obligations pursuant to this Bye-Law 10(3) or any agreement, representation or undertaking required by these Bye-Laws; or
(8)    was proposed by an Eligible Shareholder who ceases to be an Eligible Shareholder for any reason, including but not limited to not owning the Proxy Access Request Required Shares through the date of the applicable annual general meeting.
In addition, if any Constituent Holder (i) shall have provided information to the Company in respect of a nomination under this Bye-Law 10(3) that was untrue in any material respect or omitted to state a material fact necessary in order to make the statement made, in light of the circumstances under which they were made, not misleading, as determined by the Board of Directors or any committee thereof, in each of the foregoing cases as determined by the Board of Directors in its sole discretion or (ii) otherwise breaches or fails to comply in any material respect with its obligations pursuant to this Bye-Law 10(3) or any agreement, representation or undertaking required by these Bye-Laws, the Voting Stock owned by such Constituent Holder shall be excluded from the Proxy Access Request Required Shares and, if as a result the Eligible Shareholder no longer meets the requirements as such, all of the applicable Eligible Shareholder’s Shareholder Nominees shall be excluded from the Company’s proxy statement for the applicable annual general meeting of Shareholders, if such proxy statement has not been filed, and, in any case, all of such Shareholder’s Shareholder Nominees shall be ineligible to be nominated at such annual general meeting.
Notwithstanding anything contained herein to the contrary, no Shareholder Nominee shall be eligible to serve as a Shareholder Nominee in any of the next two (2) successive annual general meetings following an act or omission specified in clause (6) or (7) of this paragraph (I) by such person, in each case as determined by the Board of Directors or any committee thereof in its sole discretion. In addition, no Person who has submitted materials as a purported Eligible Shareholder (or Constituent Holder) under this Bye-Law 10(3) , or any of its affiliates or associates, shall be eligible to be an Eligible Shareholder (or Constituent Holder) in any of the next two (2) successive annual general meetings following a nomination proposed under this Bye-Law 10(3) if, in connection therewith, such purported Eligible Shareholder (or such Constituent Holder) shall have provided information to the Company in respect of such nomination that was untrue in any material respect or omitted to state a material fact necessary in order to make the statement made, in light of the circumstances under which they were made, not misleading, or shall have otherwise materially breached or failed to comply with its obligations pursuant to this Bye-Law 10(3) or any agreement, representation or undertaking required by these Bye-Laws, in each case as determined by the Board of Directors or any committee thereof in its sole discretion.      

(4)  General. As used in this Bye-Law 10 , shares “beneficially owned” shall mean all shares as to which such Person, together with such Person’s affiliates and associates (as defined in Rule 12b-2 under the Exchange Act), may be deemed to beneficially own pursuant to Rules 13d-3 and 13d-5 under the Exchange Act, as well as all shares as to which such Person, together with such Person’s affiliates and associates, has the right to become the beneficial owner pursuant to any agreement or understanding, or upon the exercise of warrants, options or rights to convert or exchange (whether such rights are exercisable immediately or only after the passage of time or the occurrence of conditions). The person presiding at the meeting shall determine whether such notice has been duly given and shall direct that proposals and nominees not be considered if such notice has not been so given. For purposes of this by-law, “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Company with the U.S. Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange








13


Exhibit 3.2




Act. In no event shall the public announcement of an adjournment or postponement of an annual meeting or a special meeting commence a new time period for the giving of a Shareholder’s notice as described above.

(5) The chairperson of the annual general meeting of Shareholders or special general meeting shall, if the facts warrant, refuse to acknowledge a proposal or nomination not made in compliance with the foregoing procedure and any such proposal or nomination not properly brought before the meeting shall not be considered.

11. Removal of Directors

     (1) Subject to the rights of the holders of any class or series of preference shares, the Shareholders may, at any annual general or special general meeting convened and held in accordance with these Bye-Laws, remove a Director before the stated expiry of his term only for Cause by the affirmative vote of at least a majority of the total combined voting power of all of the issued and outstanding shares of the Company entitled to vote on the election of Directors.

     (2) Subject to the rights of the holders of any class or series of preference shares, a vacancy on the Board created by the removal of a Director under the provisions of paragraph (1) of this Bye-Law 11 may be filled by the Shareholders at the meeting at which such Director is removed, acting by the affirmative vote of Shareholders holding at least a majority of the total combined voting power of all of the issued and outstanding shares of the Company entitled to vote on the election of Directors, and, in the absence of such election or appointment, the Board may fill the vacancy. A Director so elected or appointed shall hold office until the next annual general meeting of Shareholders.

     (3) Subject to the rights of the holders of any class or series of preference shares, the Board may, at any meeting of the Board convened and held in accordance with these Bye-Laws, remove a Director before the stated expiry of his term only for Cause by a resolution of the Board carried by the affirmative vote of at least a two-thirds majority of the Board then in office.

12. Vacancies on the Board

     (1) Subject to the rights of the holders of any class or series of preference shares, the Board shall have the power from time to time and at any time to appoint any person as a Director to fill a vacancy on the Board occurring as the result of any of the events listed in paragraph (3) of this Bye-Law 12 or from an increase in the size of the Board pursuant to Bye-Law 8 . The Board shall also have the power from time to time to fill any vacancy left unfilled at a general meeting. A Director appointed by the Board to fill a vacancy shall hold office until the next annual general meeting of Shareholders.

     (2) The Board may act notwithstanding any vacancy in its number but, if and so long as its number is reduced below the number fixed by these Bye-Laws as the quorum necessary for the transaction of business at meetings of the Board, the continuing Directors or Director may act, notwithstanding the absence of a quorum, for the purpose of (i) summoning a general meeting of the Company or (ii) preserving the assets of the Company.

     (3) The office of a Director shall be vacated if the Director:
         (a) is removed from office pursuant to these Bye-Laws or is prohibited from being a Director by law;

         (b) is or becomes bankrupt or makes any arrangement or composition with his creditors generally;

         (c) is or becomes disqualified, disabled, of unsound mind, or dies; or
         (d) resigns his or her office by notice in writing to the Company.

     (4) Notwithstanding anything contained herein to the contrary, the provisions of Bye-Law 11 , this Bye-Law 12 and all other provisions contained in these Bye-Laws related to the filling of vacancies on the Board shall be subject to any contractual or other legally binding obligation hereafter created by the Company and approved by the Board to provide any third party with the ability to nominate persons for election as Directors.

13. Notice of Meetings of the Board

     (1) The Chairperson may, and the Chairperson on the requisition of the Chief Executive Officer or a majority of the Directors then in office shall, at any time, upon two days’ notice (or such shorter notice as may be reasonable under the circumstances), summon a meeting of the Board.
 



14


Exhibit 3.2





     (2) Notice of a meeting of the Board shall be deemed to be duly given to a Director if it is sent to such Director by mail, courier service, facsimile, email or other mode of representing words in a legible form at such Director’s last known address or any other address given by such Director to the Company for this purpose.

14. Quorum at Meetings of the Board

     The quorum necessary for the transaction of business at a meeting of the Board shall be as fixed by the Board from time to time and, unless so fixed at any other level, shall be at least one-half of the total number of the Directors then in office, present in person or represented by a duly authorized representative appointed in accordance with the Act. The Directors present at a duly called meeting at which a quorum is present may continue to transact business until adjournment or termination, notwithstanding the withdrawal of enough Directors to leave less than a quorum.

15. Meetings of the Board

     (1) The Board may meet for the transaction of business, adjourn and otherwise regulate its meetings as it sees fit.

     (2) Directors may participate in any meeting of the Board by means of such telephone, electronic or other communication facilities as permit all persons participating in the meeting to communicate with each other simultaneously and instantaneously, and participation in such a meeting shall constitute presence in person at such meeting.

     (3) Unless otherwise provided in these Bye-Laws, a resolution put to the vote at a meeting of the Board shall be carried by the affirmative votes of a majority of the Directors present.

16. Unanimous Written Resolutions

     A resolution in writing signed by all of the Directors then in office, which may be in counterparts, shall be as valid as if it had been passed at a meeting of the Board duly called and constituted, such resolution to be effective on the date on which the last Director signs the resolution.

17. Contracts and Disclosure of Directors’ Interests

     (1) Any Director, or any Director’s firm, partner or any company with whom any Director is associated, may act in any capacity for, be employed by or render services to the Company and such Director or such Director’s firm, partner or company shall be entitled to remuneration as if such Director were not a Director. Nothing herein contained shall authorize a Director or Director’s firm, partner or company to act as Auditor to the Company.

     (2) A Director who is directly or indirectly interested in a contract or proposed contract or arrangement with the Company or any of its subsidiaries shall declare the nature of such interest to the Board or any duly appointed committee thereof, whether or not such declaration is required by law.

     (3) Following a declaration being made pursuant to this Bye-Law 17 , and unless disqualified by the chairperson of the relevant Board meeting or recused, a Director may vote in respect of any contract or proposed contract or arrangement in which such Director is interested and may be counted in the quorum for such meeting.

18. Remuneration of Directors

     The remuneration and benefits (if any) of the Directors shall be determined by the Board or any duly appointed committee thereof in accordance with applicable law and securities exchange rules. The Directors may also be paid or reimbursed for all travel, hotel and other expenses incurred by them in attending and returning from meetings of the Board, any committee appointed by the Board, general or special meetings of the Company or in connection with the business of the Company or their duties as Directors generally.

OFFICERS
19. Officers of the Company

     The Officers of the Company, who may or may not be Directors, may be appointed at any time by the Board or by such other persons as may be designated by the Board. Any person appointed pursuant to this Bye-Law 19 shall




15


Exhibit 3.2




hold office for such period and upon such terms as the Board or, in the case of Officers other than the Chief Executive Officer, as the Chief Executive Officer may determine and the Board (or the Chief Executive Officer unless otherwise directed by the Board) may revoke or terminate any such appointment. Any such revocation or termination shall be without prejudice to any claim for damages that such Officer may have against the Company or the Company may have against such Officer for any breach of any contract of service between him and the Company which may be involved in such revocation or termination.

20. Remuneration of Officers

     The Officers shall receive such remuneration and benefits as the Board or any duly appointed committee thereof (or, in the case of Officers who are not “executive officers” as defined under applicable Rules promulgated under the Exchange Act, as management acting under authority duly delegated by the Board) may from time to time determine in accordance with applicable law and securities exchange rules.

21. Duties of Officers

     The Officers shall have such powers and perform such duties in the management, business and affairs of the Company as may be delegated to them from time to time by the Board or, in the case of Officers other than the Chief Executive Officer, by the Chief Executive Officer (or by any other Officer or employee of the Company acting, directly or indirectly, under his direction).

22. Chairperson and Secretary of Meetings

     (1) The Chairperson shall act as chairperson at all meetings of the Shareholders and of the Board at which he or she is present. In the Chairperson’s absence, the Chief Executive Officer or any other Director or Officer designated in writing by the Chairperson, the Chief Executive Officer or a majority of the Board shall act as chairperson of the applicable meeting.

     (2) The Secretary shall act as secretary at all meetings of the Shareholders and of the Board and any committee thereof at which he or she is present. In the Secretary’s absence, a secretary shall be appointed by the chairperson of such meeting.

23. Register of Directors and Officers

     The Board shall cause to be kept in one or more books at the registered office of the Company a Register of Directors and Officers and shall enter therein the particulars required by the Act.

MINUTES

24. Obligations of Board to Keep Minutes

     (1) The Board shall cause minutes to be duly entered in books provided for the purpose:

         (a) of all elections and appointments of Officers;
 
         (b) of the names of the Directors present at each meeting of the Board and of any committee appointed by the Board; and

         (c) of all resolutions and proceedings of general meetings of the Shareholders, meetings of the Board and meetings of committees appointed by the Board.

     (2) Minutes prepared in accordance with the Act and these Bye-Laws shall be kept by the Secretary at the registered office of the Company.

INDEMNITY

25. Indemnification and Exculpation of Directors of the Company and Others

     (1) The Company shall indemnify in accordance with and to the full extent now or (if greater) hereafter permitted by Bermuda law, each person who was or is a party or is threatened to be made a party to any threatened, pending or



16


Exhibit 3.2





completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including, without limitation, an action by or in the right of the Company) (hereinafter, a “proceeding”), by reason of the fact that he or she is or was a Director or Officer (or is or was a director or officer of any subsidiary or any predecessor of the Company or any subsidiary) or is or was serving at the request of the Company (or any subsidiary of the Company or any predecessor of the Company or any subsidiary) as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (or any predecessor of any of such entities), including without limitation any service with respect to employee benefit plans maintained or sponsored by the Company (or any subsidiary of the Company or any predecessor of the Company or any subsidiary), whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, against any liability or expense actually and reasonably incurred by such person in respect thereof. For the avoidance of doubt, the indemnity provided in this Bye-Law 25 shall extend, without limitation, to any matter in which an indemnified party may be guilty of negligence, default, breach of duty or breach of trust in relation to the Company or any of its subsidiaries, but shall not extend to any matter as to which such indemnified party admits that he is guilty, or is found, by a court of competent jurisdiction in a final judgment or decree not subject to appeal, guilty, of any fraud or dishonesty in relation to the Company or any such subsidiary. In connection with the foregoing, the Company shall advance the expenses of Directors and Officers in defending any such act, suit or proceeding; provided that such advancement shall be subject to reimbursement to the extent such person shall be found not to be entitled to such advancement of expenses under Bermuda law. In addition to the foregoing, the Company shall have the power, to the extent and in the manner permitted by Bermuda law, to indemnify each of its other employees and agents against any liability or expense (including advancement of expenses) incurred in connection with any proceeding arising by reason of the fact that such person is or was an employee or agent of the Company (or is or was an employee or agent of any subsidiary or any predecessor of the Company or any subsidiary) or is or was serving at the request of the Company (or any subsidiary of the Company or any predecessor of the Company or any subsidiary) as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (or any predecessor of any of such entities), including without limitation any service with respect to employee benefit plans maintained or sponsored by the Company (or any subsidiary of the Company or any predecessor of the Company or any subsidiary).

     (2) The Board may authorize the Company to purchase and maintain insurance on behalf of any person who is or was a Director, Officer, employee or agent of the Company, or is or was serving at the request of the Company as a Director, Officer, employee or agent of another company, partnership, joint venture, trust or other enterprise, or in a fiduciary or other capacity with respect to any employee benefit plan maintained by the Company (or any subsidiary of the Company or any predecessor of the Company or any subsidiary), against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Company would have the power to indemnify him against such liability under the provisions of this Bye-Law 25 .

     (3) Directors, Officers and employees of the Company shall have no personal liability to the Company or its Shareholders for any action or failure to act to the fullest extent now or (if greater) hereafter permitted by Bermuda law.

     (4) The indemnification, expense reimbursement, exculpation and other provisions provided by this Bye-Law 25 shall not be deemed exclusive of any other rights to which the persons identified in this Bye-Law 25 may be entitled under any bye-law, agreement, vote of Shareholders or Directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office; shall continue as to a person who has ceased to be a Director, Officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person; and shall be deemed to be a contractual right of such benefited Persons.

26. Waiver of Certain Claims

     (1) Each present and future Shareholder agrees to waive any claim or right of action such Shareholder might have, whether individually or by or in the right of the Company, against any Director, Officer or employee on account of any action taken by such Director, Officer or employee, or the failure of such Director, Officer or employee to take any action, in the performance of his duties with or for the Company (including, for the avoidance of doubt, with respect to the approval or disapproval of any transaction between the Company and one or more of its Affiliates or the pursuit of corporate opportunities), in each case to the fullest extent now or (if greater) hereafter permitted by Bermuda law.






17


Exhibit 3.2





     (2) The provisions of this Bye-Law 26 shall apply to, and for the benefit of, any person acting as (or with the reasonable belief that he or she will be appointed or elected as) a Director, Officer or employee in the reasonable belief that he or she has been so appointed or elected notwithstanding any defect in such appointment or election and to any person who is no longer, but at one time was, a Director, Officer or employee.

MEETINGS

27. Notice of Annual General Meeting of Shareholders

     The annual general meeting of Shareholders shall be held in each year other than the year of incorporation at such time and place as the Chairperson or the Chief Executive Officer may determine. At least 20 days’ notice of such meeting shall be given to each Shareholder, stating the date, place and time at which the meeting is to be held, that the election of Directors will take place thereat and such additional information as may be required by the Act.

28. Notice of Special General Meeting

     Special general meetings may be called as specified in Bye-Law 10 upon not less than twenty days’ notice (or as otherwise prescribed by the Act), which notice shall state the date, time, place and such additional information as may be required by the Act or Bye-Law 10 .

29. Accidental Omission of Notice of General Meeting

     The accidental omission to give notice of a general meeting to, or the non-receipt of notice of a general meeting by, any Person entitled to receive notice shall not invalidate the proceedings at that meeting.

30. Short Notice

     Subject to any applicable requirements of the New York Stock Exchange (or any other applicable stock exchange), a general meeting of the Company shall, notwithstanding that it is called by shorter notice than that specified in these Bye-Laws, be deemed to have been properly called if it is so agreed by (i) all of the Shareholders entitled to attend and vote thereat, in the case of an annual general meeting of Shareholders or (ii) by a majority in number of the Shareholders having the right to attend and vote at the meeting, being a majority together holding not less than 95% in nominal value of the shares giving a right to attend and vote thereat, in the case of a special general meeting.

31. Postponement of Meetings

     The Chairperson or the Chief Executive Officer may, and the Secretary on instruction from the Chairperson or the Chief Executive Officer shall, postpone any general meeting called in accordance with the provisions of these Bye-Laws, provided that notice of postponement is given to each Shareholder before the time for such meeting. Fresh notice of the date, time and place for the postponed meeting shall be given to each Shareholder in accordance with the provisions of these Bye-Laws.

32. Quorum for General Meeting

     At the commencement of any general meeting of the Company, two or more Persons present in person and representing in person or by proxy more than fifty percent (50%) of the issued and outstanding shares entitled to vote at the meeting shall form a quorum for the transaction of business, provided that, if the Company shall at any time have only one Shareholder, such one Shareholder present in person or by proxy shall form a quorum for the transaction of business at any general meeting of the Company held during such time. If the holders of the number of shares necessary to constitute a quorum shall fail to attend in person or by proxy at the time and place fixed in accordance with these Bye-Laws for any annual or special general meeting, the chairperson or a majority in interest of the Shareholders present, in person or by proxy, may adjourn from time to time without notice other than announcement at the meeting until the holders of the amount of shares requisite to constitute a quorum shall attend; provided that in the case of any such meeting convened pursuant to requisition of Shareholders, the meeting shall be cancelled. At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified. The Shareholders present at a duly called meeting





18


Exhibit 3.2




at which a quorum is present may continue to transact business until adjournment, notwithstanding the withdrawal of enough Shareholders to leave less than a quorum.

33. Adjournment of Meetings

     (1) The chairperson of a general meeting may, with the consent of the majority of the Shareholders present at any general meeting at which a quorum is present (and shall if so directed), adjourn the meeting. In addition, the chairperson may adjourn the meeting to another time and place without such consent or direction if it appears to him that:

         (a) it is likely to be impracticable to hold or continue that meeting because of the number of Shareholders wishing to attend who are not present;

         (b) the unruly conduct of persons attending the meeting prevents, or is likely to prevent, the orderly continuation of the business of the meeting; or

         (c) an adjournment is otherwise in the best interests of the Company or is necessary so that the business of the meeting may be properly conducted.

     (2) Unless the meeting is adjourned to a specific date, place and time announced at the meeting being adjourned, fresh notice of the date, place and time for the resumption of the adjourned meeting shall be given to each Shareholder entitled to attend and vote thereat in accordance with the provisions of these Bye-Laws.

34. Attendance at Meetings

     (1) If a majority of the Board shall so determine, Shareholders may participate in any general meeting by means of such telephone, electronic or other communication facilities as permit all persons participating in the meeting to communicate with each other simultaneously and instantaneously, and participation in such a meeting shall constitute presence in person at such meeting.

     (2) The Board may, and at any general meeting the chairperson of such meeting may, make any arrangement and impose any requirement or restriction as may be considered appropriate to ensure the security of a general meeting including, without limitation, requirements for evidence of identity to be produced by those attending the meeting, the searching of their personal property and the restriction of items that may be taken into the meeting place. The Board is, and at any general meeting the chairperson of such meeting is, entitled to refuse entry to a person who refuses to comply with any such arrangements, requirements or restrictions.

35. Written Resolutions

     (1) Subject to paragraph (4) of this Bye-Law 35 , anything that may be done by resolution of the Company in a general meeting or by resolution of a meeting of any class of the Shareholders of the Company may, without a meeting and without any previous notice being required, be done by resolution in writing signed by all of the Shareholders who at the date of the resolution would be entitled to attend the meeting and vote on the resolution, in as many counterparts as may be necessary.

     (2) A resolution in writing made in accordance with this Bye-Law 35 is as valid as if it had been passed by the Company in a general meeting or by a meeting of the relevant class of Shareholders, as the case may be, and any reference in any Bye-Law to a meeting at which a resolution is passed or to Shareholders voting in favor of a resolution shall be construed accordingly.
 
     (3) A resolution in writing made in accordance with this Bye-Law 35 shall constitute minutes for the purposes of the Act.

36. Attendance of Directors

     The Directors of the Company shall be entitled to receive notice of and to attend any general meeting.

37. Voting at Meetings

     Subject to the provisions of the Act and except as otherwise provided under these Bye-Laws, any question proposed for the consideration of the Shareholders at any general meeting shall be decided by the affirmative votes


19


Exhibit 3.2


of a majority of the votes cast in accordance with the provisions of these Bye-Laws and, in the case of an equality of votes, the resolution shall fail.

38. Voting by Hand or by Poll

     (1) At any general meeting, a resolution put to the vote of the meeting shall be decided on a show of hands or by a count of votes received in the form of electronic records, unless (before or on the declaration of the result of the show of hands or count of votes received as electronic records or on the withdrawal of any other demand for a poll) a poll is demanded by:

         (a) the chairman of the meeting or a majority of the Board; or

         (b) at least three (3) Shareholders present in person or represented by proxy; or

         (c) any Shareholder or Shareholders present in person or represented by proxy and holding between them not less than one tenth (1/10) of the total voting rights of all the Shareholders having the right to vote at such meeting; or

         (d) any Shareholder or Shareholders present in person or represented by proxy holding shares conferring the right to vote at such meeting, being shares on which an aggregate sum has been paid up equal to not less than one tenth (1/10) of the total sum paid up on all such shares conferring such right.
 
     (2) The demand for a poll may, before the poll is taken, be withdrawn but only with the consent of the chairman and a demand so withdrawn shall not be taken to have invalidated the result of a show of hands or count of votes received as electronic records declared before the demand was made. If the demand for a poll is withdrawn, the chairman or any other Shareholder entitled may demand a poll.

     (3) Unless a poll is so demanded and the demand is not withdrawn, a declaration by the chairman that a resolution has, on a show of hands or count of votes received as electronic records, been carried or carried unanimously or by a particular majority or not carried by a particular majority or lost shall be final and conclusive, and an entry to that effect in the minute book of the Company shall be conclusive evidence of the fact without proof of the number or proportion of votes recorded for or against such resolution.

     (4) If a poll is duly demanded, the result of the poll shall be deemed to be the resolution of the meeting at which the poll is demanded.

     (5) A poll demanded on a question of adjournment shall be taken forthwith. A poll demanded on any other question shall be taken in such manner consistent with the Act as the chairman shall direct.

     (6) The demand for a poll shall not prevent the continuance of a meeting for the transaction of any business other than the question on which the poll has been demanded and it may be withdrawn at any time before the close of the meeting or the taking of the poll, whichever is the earlier.

     (7) On a poll, votes may be cast either personally or by proxy.

     (8) A Person entitled to more than one vote on a poll need not use all his votes or cast all the votes he uses in the same way.

     (9) Where a vote is taken by poll, each Person present and entitled to vote shall be furnished with a ballot paper on which such Person shall record his or her vote in such manner as shall be determined at the meeting having regard to the nature of the question on which the vote is taken, and each ballot paper shall be signed or initialed or otherwise marked so as to identify the voter and the registered holder in the case of a proxy.

     (10) At the conclusion of any poll, the ballot papers shall be examined and counted by a committee of one or more inspectors appointed by the Board or the Chief Executive Officer of the Company prior to the general meeting to act at such meeting as provided hereunder and to make a written report thereof. If no inspector (or any alternate previously designated by the Board or the Chief Executive Officer) is able to act at the meeting, the chairperson of the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. In connection with the applicable poll, the inspectors shall ascertain the number of shares outstanding and the voting power of each, determine the shares represented at the meeting and the validity of proxies and ballots, count all votes and ballots, determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors and certify their


20


Exhibit 3.2




determination of the number of shares represented at the meeting and their count of all votes and ballots. The inspectors may appoint or retain other persons to assist them in the performance of their duties. The date and time of the opening and closing of the polls during the meeting for each matter upon which the Shareholders will vote by poll at a meeting shall be announced at the meeting. No ballot, proxy or vote, nor any revocation thereof or change thereto, shall be accepted by the inspectors after the closing of the polls. In determining the validity and counting of proxies and ballots, the inspectors shall be limited to an examination of (i) the proxies, any envelopes submitted therewith, any information provided by a Shareholder who submits a proxy by telegram, cablegram or other electronic transmission from which it can be determined that the proxy was authorized by the Shareholder and (ii) the ballots and (iii) the regular books and records of the Company.

     In addition, the inspectors may also consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar Persons which represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the Shareholder holds of record. If the inspectors consider such other reliable information for such purpose, they shall, at the time they make their certification, specify the precise information considered by them, including the Person or Persons from whom they obtained the information, when the information was obtained, the means by which the information was obtained and the basis for the inspectors’ belief that such information is accurate and reliable.

39. Decision of Chairperson

     (1) At any general meeting if an amendment shall be proposed to any resolution under consideration and the chairperson of the meeting shall rule on whether the proposed amendment is out of order, the proceedings on the substantive resolution shall not be invalidated by any error in such ruling.

     (2) At any general meeting a declaration by the chairperson of the meeting that a question proposed for consideration has been carried, or carried unanimously, or by a particular majority, or lost, and an entry to that effect in a book containing the minutes of the proceedings of the Company shall be conclusive evidence of that fact.

40. Instrument of Proxy

     (1) Every Shareholder entitled to vote has the right to do so either in person or by one or more persons authorized by a proxy executed and delivered in accordance with these Bye-Laws.

     (2) A person so authorized as a proxy shall be entitled to exercise the same power on behalf of the grantor of the proxy as the grantor could exercise at a general meeting of the Company.

     (3) No proxy shall be valid after eleven months from its date, unless the proxy provides for a longer period. A proxy shall be revocable unless expressly provided therein to be irrevocable and the proxy is coupled with an interest sufficient in law to support an irrevocable power.

     (4) Subject to paragraph (3) of this Bye-Law 40 , the instrument appointing a proxy, together with such other evidence as to its due execution as the Board may from time to time require, shall be delivered at the registered office of the Company (or at such place or places as may be specified in the notice convening the meeting or in any notice of any adjournment or, in either case, in any document sent therewith) prior to the holding of the relevant meeting or adjourned meeting at which the individual named in the instrument proposes to vote and, if not so delivered, the instrument of proxy shall not be treated as valid.

     (5) Instruments of proxy shall be in such form as the Board may approve (including, without limitation, written or electronic form) and the Board may, if it thinks fit, send out with the notice of any meeting forms of instruments of proxy for use at the meeting. The instrument of proxy shall be deemed to confer authority to vote on any amendment of a resolution put to the meeting for which it is given as the proxy thinks fit. The instrument of proxy shall, unless the contrary is stated therein, be valid as well for any adjournment of the meeting as for the meeting to which it relates.

     (6) A vote given in accordance with the terms of an instrument of proxy shall be valid notwithstanding the death or unsoundness of mind of the principal subsequent to giving the proxy but before the vote or revocation of the instrument of proxy or of the authority under which it was executed.

     (7) The decision of the chairperson of any general meeting as to the validity of any appointment of a proxy shall be final.



21


Exhibit 3.2



41. Representation of Corporations at Meetings

     A corporation or other Person that is not an individual that is a Shareholder may, by written instrument, authorize any person as it thinks fit to act as its representative at any meeting of the Shareholders or for all meetings of the Shareholders or for all meetings of the Shareholders for a certain or determinable period or until revocation and such person so authorized shall be entitled to exercise the same powers on behalf of such corporation or other such Person as such corporation or other such Person could exercise if it were an individual Shareholder and such corporation or other such Person shall be deemed to be present in person as a Shareholder at any such meeting attended by its authorized representative or representatives. Notwithstanding the foregoing, the chairperson of the meeting may accept such assurances as he or she thinks fit as to the right of any person to attend and vote at general meetings on behalf of a corporation or other such Person that is a Shareholder.

VOTES OF SHAREHOLDERS

42. General

     Subject to the rights of the holders of any class or series of preference shares, at any general meeting of the Company, each Shareholder present in person shall be entitled to one vote on any question to be decided on a show of hands and each Shareholder present in person or by proxy shall be entitled on a poll to one vote for each share held by him in his name in the Register of Shareholders.

SHARE CAPITAL AND SHARES

43. Share Capital

     The authorised share capital of the Company is 1,070,000,000 divided into 1,050,000,000 common shares of par value $0.20 each (“Common Shares”) and 20,000,000 undesignated shares of par value $0.20 each, which may be issued, without any prior Shareholder approval, as Common Shares or Preference Shares (“Undesignated Shares”).

44. Rights of Shares

(1) Common Shares

     The Common Shares shall, subject to the other provisions of these Bye-Laws, entitle the holders thereof to the following rights:

         (a) as regards dividend: after making all necessary provisions, where relevant, for payment of any preferred dividend in respect of any preference shares in the Company then outstanding, the Company shall apply any profits or reserves which the Board resolves to distribute in paying such profits or reserves to the holders of the Common Shares in respect of their holding of such shares pari passu and pro rata to the number of Common Shares held by each of them;

         (b) as regards capital: on a return of assets on liquidation, reduction of capital or otherwise, the holders of the Common Shares shall be entitled to be paid the surplus assets of the Company remaining after payment of its liabilities (subject to the rights of holders of any preferred shares in the Company then in issue having preferred rights on the return of capital) in respect of their holdings of Common Shares pari passu and pro rata to the number of Common Shares held by each of them;

        (c) as regards voting in general meetings: the holders of the Common Shares shall be entitled to receive notice of, and to attend and vote at, general meetings of the Company; every holder of Common Shares present in person or by proxy shall on a poll have one vote for each Common Share held by him.

(2) Undesignated Shares

The rights attaching to the Undesignated Shares, subject to these Bye-Laws, shall be as follows:

         (a) each Undesignated Share shall have attached to it such preferred, qualified or other special rights, privileges and conditions and be subject to such restrictions, whether in regard to dividend, return of capital, redemption, conversion into Common Shares or voting or otherwise, as the Board may determine on or before its allotment;




22


Exhibit 3.2


         (b) the Board may allot the Undesignated Shares in more than one series and, if it does so, may name and designate each series in such manner as it deems appropriate to reflect the particular rights and restrictions attached to that series, which may differ in all or any respects from any other series of Undesignated Shares;

         (c) the particular rights and restrictions attached to any Undesignated Shares shall be recorded in a resolution of the Board. The Board may at any time before the allotment of any Undesignated Share by further resolution in any way amend such rights and restrictions or vary or revoke its designation. A copy of any such resolution or amending resolution for the time being in force shall be annexed as an appendix to (but shall not form part of) these Bye-Laws; and

         (d) the Board shall not attach to any Undesignated Share any rights or restrictions which would alter or abrogate any of the special rights attached to any other class of series of shares for the time being in issue without such sanction as is required for any alteration or abrogation of such rights, unless expressly authorised to do so by the rights attaching to or by the terms of issue of such other class or series.

(3) Preference Shares

     Without limiting the foregoing and subject to the Act, the Company may issue preference shares (“Preference Shares”) without any prior Shareholder approval which:

        (a) are liable to be redeemed on the happening of a specified event or events or on a given date or dates and/or;

         (b) are liable to be redeemed at the option of the Company and/or, if authorised by the Memorandum of Association of the Company, at the option of the holder.

     The terms and manner of the redemption of any redeemable shares created pursuant to this Bye-Law 44(3) shall be as the Board may by resolution determine. The terms of any redeemable preference shares may provide for the whole or any part of the amount due on redemption to be paid or satisfied otherwise than in cash, to the extent permitted by the Act.

     In addition, subject to any special rights conferred on the holders of any share or class of shares, any Preference Shares may be issued with or have attached thereto such preferred, deferred, qualified or other special rights or such restrictions, whether in regard to dividend, voting, return of capital or otherwise, as the Board may determine pursuant to Bye-Law 44(2) .

     (4) The Board may, at its discretion and without the sanction of a resolution of the Shareholders, authorise the purchase or acquisition by the Company of its own shares, of any class, at any price (whether at par or above or below par), and any shares to be so purchased or acquired may be selected in any manner whatsoever, upon such terms as the Board may in its discretion determine, provided always that such purchase or acquisition is effected in accordance with the provisions of the Act. The whole or any part of the amount payable on any such purchase may be paid or satisfied otherwise than in cash, to the extent permitted by the Act. Any shares acquired may be held as treasury shares in accordance with and subject to the Act.

45. Modification of Rights

     (1) Subject to the Act, all or any of the special rights attached to any class of shares issued may from time to time (whether or not the Company is being wound up) be altered or abrogated with the consent in writing of the holders of not less than three-quarters of the issued shares of that class or with the sanction of a resolution passed by the holders of not less than three-quarters of the issued shares of that class at a separate general meeting of the holders of such shares voting in person or by proxy. To any such separate general meeting, all the provisions of these Bye-Laws as to general meetings of the Company shall mutatis mutandis apply, but so that the necessary quorum shall be two (2) or more persons holding or representing by proxy at least three-quarters of the shares of the relevant class, that every holder of shares of the relevant class shall be entitled on a poll to one vote for every such share held by him and that any holder of shares of the relevant class present in person or by proxy may demand a poll; provided, however, that if the Company or a class of Shareholders shall have only one Shareholder, such one Shareholder present in person or by proxy shall constitute the necessary quorum.

     (2) For the purposes of this Bye-Law, unless otherwise expressly provided by the rights attached to any shares or class of shares, those rights attaching to any class of shares for the time being shall not be deemed to be altered by:

         (a) the creation or issue of further shares ranking pari passu with them;



23


Exhibit 3.2





         (b) the creation or issue for full value (as determined by the Board) of further shares ranking as regards participation in the profits or assets of the Company or otherwise in priority to them; or

         (c) the purchase or redemption by the Company of any of its own shares.

46. Shares

     (1) Subject to the provisions of these Bye-Laws, the unissued shares of the Company (whether forming part of the original capital or any increased capital) shall be at the disposal of the Board, which may offer, allot, grant options over or otherwise dispose of them to such Persons, at such times and for such consideration and upon such terms and conditions as the Board may determine.

     (2) Subject to the provisions of these Bye-Laws, any shares of the Company held by the Company as treasury shares shall be at the disposal of the Board, which may hold all or any of the shares, dispose of or transfer all or any of the shares for cash or other consideration, or cancel all or any of the shares.

     (3) The Board may in connection with the issue of any shares exercise all powers of paying commission and brokerage conferred or permitted by law. Subject to the provisions of the Act, any such commission or brokerage may be satisfied by the payment of cash or by the allotment of fully or partly paid shares or partly in one way and partly in the other.

     (4) Shares may be issued in fractional denominations and in such event the Company shall deal with such fractions to the same extent as its whole shares, so that a share in a fractional denomination shall have, in proportion to the fraction of a whole share that it represents, all the rights of a whole share, including (but without limiting the generality of the foregoing) the right to vote, to receive dividends and distributions and to participate in a winding-up.

47. Registered Holder of Shares

     (1) The Company shall be entitled to treat the registered holder of any share as the absolute owner thereof and, accordingly, shall not be bound to recognize any equitable or other claim to, or interest in, such share on the part of any other Person.

     (2) Any dividend, interest or other moneys payable in cash in respect of shares may be paid by check or draft sent through the post directed to the Shareholder at such Shareholder’s address as recorded in the Register of Shareholders or, in the case of joint holders, to such address of the holder first named in the Register of Shareholders, or (subject to applicable law) to such Person and to such address as such holder or joint holders may in writing direct. If two or more Persons are registered as joint holders of any shares, any one can give an effectual receipt for any dividend paid in respect of such shares.

48. Death of a Joint Holder

     Where two or more Persons are registered as joint holders of a share or shares then, in the event of the death of any joint holder or holders, the remaining joint holder or holders shall be absolutely entitled to such share or shares and the Company shall recognize no claim in respect of the estate of any joint holder except in the case of the last survivor of such joint holders.

49. Share Certificates
     (1) Every Shareholder shall be entitled to a certificate under the seal of the Company (or a facsimile thereof) specifying the number and, where appropriate, the class or series of shares held by such Shareholder and whether the same are fully paid up and, if not, how much has been paid thereon. The Company may determine, either generally or in a particular case, that any or all signatures on certificates may be printed thereon or affixed by mechanical means. Notwithstanding Bye-Law 76 , the Company may determine that a share certificate need not be signed on behalf of the Company or that the seal of the Company need not be attested.

     (2) The Company shall be under no obligation to complete and deliver a share certificate unless specifically called upon to do so by the Person to whom such shares have been allotted.





24


Exhibit 3.2





     (3) If any such certificate shall be proved to the satisfaction of the Company to have been worn out, lost, mislaid or destroyed, the Company may cause a new certificate to be issued and request an indemnity for the lost certificate if it sees fit.

50. Calls on Shares

     (1) The Board may from time to time make such calls as it thinks fit upon the Shareholders in respect of any monies unpaid on the shares allotted to or held by such Shareholders and, if a call is not paid on or before the day appointed for payment thereof, the Shareholder may, at the discretion of the Board, be liable to pay the Company interest on the amount of such call at such rate as the Board may determine, from the date when such call was payable up to the actual date of payment. The joint holders of a share shall be jointly and severally liable to pay all calls in respect thereof.

     (2) The Board may, on the issue of shares, differentiate between the holders as to the amount of calls to be paid and the times of payment of such calls.

     (3) Any sum that, by the terms of allotment of a share, becomes payable upon issue or at any fixed date, whether on account of the nominal value of the share or by way of premium, shall for all of the purposes of these Bye-Laws be deemed to be a call duly made and payable, on the date on which, by the terms of issue, the same becomes payable and, in case of non-payment, all of the relevant provisions of these Bye-Laws as to payment of interest, costs, charges and expenses, forfeiture or otherwise shall apply as if such sum had become payable by virtue of a call duly made and notified.

     (4) The Company may accept from any Shareholder the whole or a part of the amount remaining unpaid on any shares held by him, although no part of that amount has been called up.

51. Forfeiture of Shares

     (1) If any Shareholder fails to pay, on the day appointed for payment thereof, any call in respect of any share allotted to or held by such Shareholder, the Board may, at any time thereafter during such time as the call remains unpaid, direct the Secretary to forward to such Shareholder a notice in the form (or as near thereto as circumstances admit) set forth in Schedule A hereto.

     (2) If the requirements of such notice are not complied with, any such share may at any time thereafter before the payment of such call and the interest due in respect thereof be forfeited by a resolution of the Board to that effect, and such share shall thereupon become the property of the Company and may be disposed of as the Board shall determine.

     (3) A Shareholder whose share or shares have been forfeited as aforesaid shall, notwithstanding such forfeiture, be liable to pay to the Company all calls owing on such share or shares at the time of the forfeiture and all interest due thereon.

     (4) The Board may accept the surrender of any shares that it is in a position to forfeit on such terms and conditions as may be agreed. Subject to those terms and conditions, a surrendered share shall be treated as if it has been forfeited.

INTERESTED SHAREHOLDERS

52. Limitations on Business Combinations .

     Notwithstanding anything contained herein to the contrary, the Company shall not engage in any Business Combination with any Interested Shareholder for a period of 3 years following the time that such Shareholder became an Interested Shareholder, unless: (a) prior to such time the Board approved either the Business Combination or the transaction which resulted in the Shareholder becoming an Interested Shareholder; (b) upon consummation of the transaction which resulted in the Shareholder becoming an Interested Shareholder, the Interested Shareholder Beneficially Owned at least 85% of the total voting stock of the Company outstanding at the time the transaction commenced, excluding for purposes of determining the total voting stock outstanding (but not the outstanding voting stock Beneficially Owned by the Interested Shareholder) those shares Beneficially Owned (i) by persons who are Directors and also Officers and (ii) employee stock plans in which employee participants do



25


Exhibit 3.2



not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (c) at or subsequent to such time the Business Combination is approved by the Board and authorized at an annual general meeting or special general meeting of Shareholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock which is not Beneficially Owned by the Interested Shareholder.

53. Certain Definitions

     (1) “Associate” has the meaning ascribed to such term in Rule 12b-2 of the Exchange Act.

     (2) As used in Bye-Laws 52-53 , a Person shall be deemed the “Beneficial Owner” of and shall be deemed to “beneficially own” any securities:

         (a) which such Person or any of such Person’s Affiliates or Associates beneficially owns, directly or indirectly;

         (b) which such Person or any of such Person’s Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities), or upon the exercise of conversion rights, exchange rights, rights, warrants or options, or otherwise; provided , however , that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person’s Affiliates or Associates until such tendered securities are accepted for purchase or exchange; or (ii) the right to vote pursuant to any agreement, arrangement or understanding; provided , however , that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, any security if the agreement, arrangement or understanding to vote such security (x) arises solely from a revocable proxy or consent given to such Person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations promulgated under the Exchange Act and (y) is not also then reportable on Schedule 13D under the Exchange Act; or

         (c) which are beneficially owned, directly or indirectly, by any other Person with which such Person or any of such Person’s Affiliates or Associates has any agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities) for the purpose of acquiring, holding, voting (except to the extent contemplated by the proviso to clause (ii) of the preceding subsection (b)) or disposing of any securities of the Company.

         (d) Notwithstanding anything in this definition of Beneficial Ownership to the contrary, the phrase “then outstanding,” when used with reference to a Person’s Beneficial Ownership of securities of the Company, shall mean the number of such securities then issued and outstanding together with the number of such securities not then actually issued and outstanding which such Person would be deemed to own beneficially hereunder.

     (3) “Business combination” means any:

         (a) merger, amalgamation, scheme of arrangement or consolidation of the Company or any direct or indirect majority-owned subsidiary of the Company with (i) the Interested Shareholder, or (ii) with any other corporation, partnership, unincorporated association or other entity if the merger or consolidation is caused by the Interested Shareholder;

         (b) sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions), except proportionately as a Shareholder, to or with the Interested Shareholder, whether as part of a dissolution or otherwise, of assets of the Company or of any direct or indirect majority-owned subsidiary of the Company which assets have an aggregate market value equal to 10% or more of either the aggregate market value of all the assets of the Company determined on a consolidated basis or the aggregate market value of all the outstanding stock of the Company;

         (c) transaction which results in the issuance or transfer by the Company or by any direct or indirect majority-owned subsidiary of the Company of any stock of the Company or of such subsidiary to the Interested Shareholder, except (i) Pursuant to the exercise, exchange or conversion of securities exercisable for, exchangeable for or convertible into stock of such corporation or any such subsidiary which securities were outstanding prior to the time that the Interested Shareholder became such, (ii) pursuant to a dividend or distribution paid or made, or the exercise, exchange or conversion of securities exercisable for, exchangeable for or convertible into stock of such



26


Exhibit 3.2





corporation or any such subsidiary which security is distributed, pro rata to all holders of a class or series of stock of
such corporation subsequent to the time the Interested Shareholder became such; (iii) pursuant to an exchange offer by the Company to purchase stock made on the same terms to all holders of said stock; or (iv) any issuance or transfer of stock by the Company; provided however, that in no case under items (i)-(iv) of this subparagraph shall there be an increase in the Interested Shareholder’s proportionate share of the stock of any class or series of the Company or of the voting stock of the Company;

         (d) transaction involving the Company or any direct or indirect majority-owned subsidiary of the Company which has the effect, directly or indirectly, of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the Company or of any such subsidiary which is Beneficially Owned by the Interested Shareholder, except as a result of immaterial changes due to fractional share adjustments or as a result of any purchase or redemption of any shares of stock not caused, directly or indirectly, by the Interested Shareholder; or

         (e) receipt by the Interested Shareholder of the benefit, directly or indirectly (except proportionately as a Shareholder of such corporation), of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in subparagraphs (a)-(d) of this paragraph) provided by or through the Company or any direct or indirect majority-owned subsidiary.

     (4) “Interested Shareholder” means any Person (other than the Company and any direct or indirect majority-owned subsidiary of the Company) that (i) is the Beneficial Owner of 15% or more of the outstanding voting stock of the Company, or (ii) is an Affiliate or Associate of the Company and was the Beneficial Owner of 15% or more of the outstanding voting stock of the Company at any time within the 3-year period immediately prior to the date on which it is sought to be determined whether such Person is an Interested Shareholder, and the Affiliates and Associates of such Person; provided, however, that the term “Interested Shareholder” shall not include (x) any Person who becomes an Interested Shareholder inadvertently and (i) as soon as practicable divests itself of Beneficial Ownership of sufficient shares so that the Shareholder ceases to be an Interested Shareholder and (ii) would not, at any time within the 3-year period immediately prior to a Business Combination between the Company and such Shareholder, have been an Interested Shareholder but for the inadvertent acquisition of ownership; or (y) any Person whose Beneficial Ownership of shares in excess of the 15% limitation set forth herein is the result of action taken solely by the Company; provided that such Person shall be an Interested Shareholder if thereafter such Person acquires additional shares of voting stock of the Company, except as a result of further corporate action not caused, directly or indirectly, by such Person; provided further that no savings, profit sharing, stock bonus or employee stock ownership plan or plans established or sponsored by the Company (or any subsidiary of the Company or any predecessor of the Company or any subsidiary) and qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended, or any comparable provisions of any non-U.S. law, which holds Common Shares on behalf of participating employees and their beneficiaries with the right to instruct the trustee how to vote such Common Shares with respect to all matters submitted to Shareholders shall not be deemed to be an “Interested Shareholder.”

REGISTER OF SHAREHOLDERS

54. Contents of Register of Shareholders

     The Board shall cause to be kept in one or more books a Register of Shareholders and shall enter therein the particulars required by the Act.

55. Inspection of Register of Shareholders

     The Register of Shareholders shall be open to inspection at the registered office of the Company on every Business Day, subject to such reasonable restrictions as the Company may impose, so that not less than two hours in each Business Day be allowed for inspection. The Register of Shareholders may, after notice has been given by advertisement in an appointed newspaper to that effect, be closed for any time or times not exceeding in the whole thirty days in each year.

56. Determination of Record Dates

     Notwithstanding any other provision of these Bye-Laws, the Board may fix any date as the record date for:





27


Exhibit 3.2






     (a) determining the Shareholders entitled to receive any dividend or distribution; and

     (b) determining the Shareholders entitled to receive notice of and to vote at any general meeting of the Company.

TRANSFER OF SHARES

57. Instrument of Transfer

     (1) Subject to paragraph (4) of Bye-Law 58 , an instrument of transfer shall be in the form (or as near thereto as circumstances admit) set forth in Schedule B hereto or in such other common form as the Company may accept. Such instrument of transfer shall be signed by or on behalf of the transferor and transferee, provided that, in the case of a fully paid share, the Company may accept the instrument signed by or on behalf of the transferor alone. The transferor shall be deemed to remain the holder of such share until the same has been transferred to the transferee in the Register of Shareholders.

     (2) The Company may refuse to recognize any instrument of transfer unless it is accompanied by the certificate in respect of the shares to which it relates and by such other evidence as the Company may reasonably require to show the right of the transferor to make the transfer.

58. Restrictions on Transfer

     (1) Unless otherwise required by any applicable requirements of the New York Stock Exchange (or any other applicable stock exchange), the Company (i) may decline to approve or to register any transfer of any share if a written opinion from counsel acceptable to the Company shall not have been obtained to the effect that registration of such shares under the U.S. Securities Act of 1933, as amended, is not required and (ii) shall decline to approve or to register any transfer of any share if the transferee shall not have been approved by applicable governmental authorities if such approval is required or if not in compliance with applicable consent, authorization or permission of any governmental body or agency in Bermuda.

     (2) If the Company refuses to register a transfer of any share, the Secretary shall send, or procure that there shall be sent, within one month after the date on which the transfer was lodged with the Company, to the transferor and transferee notice of the refusal.

     (3) The registration of transfers may be suspended at such times and for such periods as the Company may from time to time determine, provided always that such registration shall not be suspended for more than 45 days in any year.

     (4) Shares may be transferred without a written instrument if transferred by an appointed agent or otherwise in accordance with the Act.

TRANSMISSION OF SHARES

59. Representative of Deceased Shareholder

     In the case of the death of a Shareholder, the survivor or survivors where the deceased Shareholder was a joint holder, and the legal personal representatives of the deceased Shareholder where the deceased Shareholder was a sole holder, shall be the only persons recognized by the Company as having any title to the deceased Shareholder’s interest in the shares. Nothing herein contained shall release the estate of a deceased joint holder from any liability in respect of any share that had been jointly held by such deceased Shareholder with other persons. Subject to the provisions of the Act, for the purpose of this Bye-Law 59 , “legal personal representative” means the executor or administrator of a deceased Shareholder or such other Person as the Company may decide as being properly authorized to deal with the shares of a deceased Shareholder.


60. Registration on Death or Bankruptcy
     Any Person becoming entitled to a share in consequence of the death or bankruptcy of any Shareholder may be registered as a Shareholder upon such evidence as the Company may deem sufficient or may elect to nominate another Person to be registered as a transferee of such share, and in such case such Person becoming entitled shall execute in favor of such nominee an instrument of transfer in the form (or as near thereto as circumstances admit)


28


Exhibit 3.2








set forth in Schedule C hereto. On the presentation thereof to the Company, accompanied by such evidence as the Company may require to prove the title of the transferor, the transferee shall be registered as a Shareholder, provided that the Company shall, in either case, have the same right to decline or suspend registration as it would have had in the case of a transfer of the share by such Shareholder before such Shareholder’s death or bankruptcy, as the case may be.

DIVIDENDS AND OTHER DISTRIBUTIONS

61. Declaration of Dividends by the Board

     (1) The Board may, subject to these Bye-Laws and in accordance with the Act, declare a dividend to be paid to the Shareholders in proportion to the number of shares held by them, and such dividend may be paid in cash or wholly or partly in specie in which case the Board may fix the value for distribution in specie of any assets. No unpaid dividend shall bear interest as against the Company.

     (2) The Company may pay dividends in proportion to the amount paid up on each share where a larger amount is paid up on some shares than on others.

62. Other Distributions

     The Board may declare and make such other distributions (in cash or in specie) to the Shareholders as may be lawfully made out of the assets of the Company. No unpaid distribution shall bear interest as against the Company.

63. Reserve Fund

     The Board may from time to time before declaring a dividend set aside, out of the surplus or profits of the Company, such sum as it thinks proper as a reserve to be used to meet contingencies or for equalizing dividends or for any other special purpose.

64. Deduction of Amounts Due to the Company

     The Board may deduct from the dividends or distributions payable to any Shareholder all monies due from such Shareholder to the Company on account of calls.

CAPITALIZATION

65. Issue of Bonus Shares: Capitalization of Profits

     (1) The Board may resolve to capitalize any part of the amount for the time being standing to the credit of any of the Company’s share premium or other reserve accounts or to the credit of the profit and loss account or otherwise available for distribution by applying such sum in paying up unissued shares to be allotted as fully paid bonus shares pro rata to the Shareholders.

     (2) The Board may from time to time resolve to capitalise all or any part of any amount for the time being standing to the credit of any reserve or fund which is available for distribution or to the credit of any share premium account and accordingly that such amount be set free for distribution amongst the Shareholders or any class of Shareholders who would be entitled thereto if distributed by way of dividend and in the same proportions, on the footing that the same be not paid in cash but be applied either in or towards paying up amounts for the time being unpaid on any shares in the Company held by such Shareholders respectively or in payment up in full of unissued shares, debentures or other obligations of the Company, to be allotted and distributed credited as fully paid amongst such Shareholders, or partly in one way and partly in the other, provided that for the purpose of this Bye-Law 65 , a share premium account may be applied only in paying up of unissued shares to be issued to such Shareholders credited as fully paid. Where any difficulty arises in regard to any distribution under this Bye-Law 65 , the Board may settle the same as it thinks expedient and, in particular, may authorise any Person to sell and transfer any fractions or may resolve that the distribution should be as nearly as may be practicable in the correct proportion but not exactly so or may ignore fractions altogether, and may determine that cash payments should be made to any Shareholders in order to adjust the rights of all parties, as may seem expedient to the Board. The Board may appoint


29


Exhibit 3.2







any person to sign on behalf of the Persons entitled to participate in the distribution any contract necessary or desirable for giving effect thereto and such appointment shall be effective and binding upon the Shareholders.


ACCOUNTS AND FINANCIAL STATEMENTS

66. Records of Account

     The Board shall cause to be kept proper records of account with respect to all transactions of the Company and in particular with respect to:

     (a) all sums of money received and expended by the Company and the matters in respect of which the receipt and expenditure relates;

     (b) all sales and purchases of goods by the Company; and

     (c) the assets and liabilities of the Company.

     Such records of account shall be kept at the registered office of the Company or, subject to the Act, at such other place as the Company may determine and shall be available for inspection by the Directors during normal business hours.

67. Financial Year End

     The financial year end of the Company may be determined by resolution of the Board and failing such resolution shall be 31st December of each year.

68. Financial Statements

     Subject to any rights to waive laying of accounts pursuant to the Act, financial statements as required by the Act shall be laid before the Shareholders at the annual general meeting of Shareholders.

AUDIT

69. Appointment of Auditor

     The Company shall appoint Auditors to hold office for such period and otherwise as in accordance with the Act. Whenever a casual vacancy occurs in the office of the Auditors, the Audit Committee may appoint Auditors to hold office until the close of the next annual general meeting. No Auditor may be a Shareholder and no Director, Officer or employee of the Company shall, during his or her continuance in office, be eligible to act as an Auditor of the Company.

70. Remuneration of Auditor

     Unless fixed by the Company in a general meeting, the remuneration of the Auditor shall be as determined by the Audit Committee.

71. Report of the Auditor

     Subject to any rights to waive laying of accounts or appointment of an Auditor pursuant to provisions of the Act, the accounts of the Company shall be audited by the Auditor at least once in every year.

NOTICES

72. Notices to Shareholders of the Company

     A notice may be given by the Company to any Shareholder either by delivering it to such Shareholder in person or by sending it to such Shareholder’s address in the Register of Shareholders or to such other address given for the

30


Exhibit 3.2

purpose. For the purposes of this Bye-Law 72 , a notice may be sent by mail, courier service, facsimile, email or other mode of representing words in a legible form.



73. Notices to Joint Shareholders

     Any notice required to be given to a Shareholder shall, with respect to any shares held jointly by two or more Persons, be given to whichever of such Persons is named first in the Register of Shareholders and notice so given shall be sufficient notice to all of the holders of such shares.

74. Service and Delivery of Notice

     Any notice shall be deemed to have been served at the time when the same would be delivered in the ordinary course of transmission (which shall be deemed to be two calendar days from deposit in the case of mail) and, in proving such service, it shall be sufficient to prove that the notice was properly addressed and prepaid, if mailed, and the time when it was mailed, delivered to the courier or transmitted by facsimile, email, or such other method, as the case may be.

SEAL OF THE COMPANY

75. The Seal

     The seal of the Company shall be in such form as the Board may from time to time determine. The Board may adopt one or more duplicate seals.

76. Manner in which Seal is to be Affixed

     Subject to Bye-Law 48 , the seal of the Company shall not be affixed to any instrument except attested by the signature of a Director and the Secretary or any two Directors, or any person appointed by the Board for the purpose, provided that any Director, Officer or Resident Representative, may affix the seal of the Company attested by such Director, Officer or Resident Representative’s signature to any authenticated copies of these Bye-Laws, the incorporating documents of the Company, the minutes of any meetings or any other documents required to be authenticated by such Director, Officer or Resident Representative. Any such signature may be printed or affixed by mechanical means on any share certificate, debenture, share or other security certificate.

WINDING-UP

77. Winding-Up/Distribution by Liquidator

     If the Company shall be wound up, the liquidator may, with the sanction of a resolution of the Shareholders, divide amongst the Shareholders in specie or in kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may, for such purpose, set such value as he deems fair upon any property to be divided as aforesaid. The liquidator may, with the like sanction, vest the whole or any part of such assets in trustees upon such trusts as the liquidator shall think fit for the benefit of the Shareholders, provided that no Shareholder shall be compelled to accept any shares or other securities or assets whereon there is any liability.

ALTERATION OF BYE-LAWS

78. Alteration of Bye-Laws

     No Bye-Law shall be rescinded, altered or amended and no new Bye-Law shall be made until the same has been approved by a resolution of the Board and by a resolution of the Shareholders; provided that (i) the approval of such resolution of the Shareholders with respect to any such rescission, alteration or amendment of, or the adoption of any Bye-Law or provision inconsistent with, Bye-Laws 8 , 10 , 11 , 12 , 35 , 44 , 52 and 53 , this Bye-Law 78 or any material defined term used in any such Bye-Laws shall require the affirmative vote of the holders of at least three-quarters of the total combined voting power of all issued and outstanding shares of the Company, and (ii) any such rescission, alteration or amendment of, or the adoption of any Bye-Law or provision inconsistent with, Bye-Law 25 or 26 or any material defined term used in such Bye-Laws shall not affect the waiver of any claim or right of action with respect to past acts or omissions.

31


Exhibit 3.2

Schedule A
(Bye-Law 51)
NOTICE OF LIABILITY TO FORFEITURE FOR NON PAYMENT OF CALL
     You have failed to pay the call of [amount of call] made on the            day of      , 20 , in respect of the [number] share(s) ([numbers in figures]) standing in your name in the Register of Shareholders of the Company, on the day of      , 20 , the day appointed for payment of such call. You are hereby notified that unless you pay such call together with interest thereon at the rate of ___% per annum computed from the said day of      , 20         , on or before the day of
     , 20    at the place of business of the Company, the share(s) will be liable to be forfeited.

Dated this            day of      , 20
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
[Signature of Secretary]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
By order of the Board
 
 
 




Exhibit 3.2



 
Schedule B
(Bye-Law 57)
TRANSFER OF A SHARE OR SHARES
     FOR VALUE RECEIVED
[amount]
[transferor]
     Hereby sell assign and transfer unto
[transferee]
     Of
[address]
[number of shares]
     shares of
[name of Company]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dated:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Transferor)
 
 
In the presence of:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                    (Witness)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Transferor)
 
 
In the presence of:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                    (Witness)
 
 
 
 
 
 
 




Exhibit 3.2


 
Schedule C
(Bye-Law 60)
TRANSFER BY A PERSON
BECOMING ENTITLED ON DEATH/BANKRUPTCY OF A SHAREHOLDER
     I/We having become entitled in consequence of the [death/bankruptcy] of [name of the Shareholder] to [number] share(s) standing in the register of Shareholders of [Company] in the name of the said [name of Shareholder] instead of being registered myself/ourselves elect to have [name of transferee] (the “Transferee”) registered as a transferee of such share(s) and I/we do hereby accordingly transfer the said share(s) to the Transferee to hold the same unto the Transferee his or her executors administrators and assigns subject to the conditions on which the same were held at the time of the execution thereof; and the Transferee does hereby agree to take the said share(s) subject to the same conditions.

WITNESS our hands this     day of           , 20

Signed by the above-named
[Person or Persons entitled]
in the presence of:

Signed by the above-named
[transferee] in the presence of:
 



Exhibit 31.1

Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Martin L. Flanagan, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Invesco Ltd.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
July 27, 2017
 
/s/  MARTIN L. FLANAGAN 
 
 
Martin L. Flanagan
 
 
President and Chief Executive Officer



Exhibit 31.2

Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Loren M. Starr, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Invesco Ltd.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
July 27, 2017
 
/s/  LOREN M. STARR 
 
 
Loren M. Starr
 
 
Senior Managing Director and Chief Financial Officer



Exhibit 32.1

CERTIFICATION OF MARTIN L. FLANAGAN
PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with Invesco Ltd.'s (the “Company”) Quarterly Report on Form 10-Q for the period ended June 30, 2017 (the “Report”), I, Martin L. Flanagan, do hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1.
the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and
2.
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.  
July 27, 2017
 
/s/  MARTIN L. FLANAGAN 
 
 
Martin L. Flanagan
 
 
President and Chief Executive Officer



Exhibit 32.2

CERTIFICATION OF LOREN M. STARR
PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with Invesco Ltd.'s (the “Company”) Quarterly Report on Form 10-Q for the period ended June 30, 2017 (the “Report”), I, Loren M. Starr, do hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1.
the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and
2.
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.  
July 27, 2017
 
/s/  LOREN M. STARR
 
 
Loren M. Starr
 
 
Senior Managing Director and Chief Financial Officer