Attached files
file | filename |
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EX-32 - SECTION 1350 CERTIFICATIONS - PRICE T ROWE GROUP INC | trow-ex32_q22017.htm |
EX-31.2 - RULE 13A-14(A) CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER - PRICE T ROWE GROUP INC | trow-ex31i2_q22017.htm |
EX-31.1 - RULE 13A-14(A) CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER - PRICE T ROWE GROUP INC | trow-ex31i1_q22017.htm |
EX-15 - LETTER FROM KPMG LLP - PRICE T ROWE GROUP INC | trow-ex15_q22017x10q.htm |
10-Q - 10-Q - PRICE T ROWE GROUP INC | a10q-q22017.htm |
1
NEWS RELEASE
T. ROWE PRICE GROUP REPORTS SECOND QUARTER 2017 RESULTS
Assets Under Management Increase to $903.6 Billion
BALTIMORE (July 25, 2017) - T. Rowe Price Group, Inc. (NASDAQ-GS: TROW) today reported its second
quarter of 2017 results, including net revenues of $1.2 billion, net income of $373.9 million, and diluted
earnings per common share of $1.50. On a comparable basis, net revenues were $1.0 billion, net income was
$203.3 million, and diluted earnings per common share was $.79 in the second quarter of 2016. The 2016
results included the nonrecurring operating charge of $166.2 million related to the Dell appraisal rights matter,
which reduced net income by $100.7 million, or $.39 in diluted earnings per common share. A summary of the
impact the matter has had on the firm's periodic financial results is summarized in a table at the back of this
release. Adjusted diluted earnings per share for the second quarter of 2017 is up 15.3% compared to the 2016
quarter.
Financial Highlights
The table below presents financial results on a U.S. GAAP basis as well as a non-GAAP basis that adjusts for
the impact of the Dell appraisal rights matter, the firm's consolidated sponsored investment portfolios, and
other non-operating income. The firm believes the non-GAAP financial measures below provide relevant and
meaningful information to investors about its core operating results.
Three months ended Six months ended
(in millions, except per-share data) 6/30/2016
(1)
6/30/2017
%
change 6/30/2016
(1)
6/30/2017
%
change
U.S. GAAP Basis
Investment advisory fees $ 920.6 $ 1,043.9 13.4 % $ 1,791.4 $ 2,035.0 13.6 %
Net revenues $ 1,044.7 $ 1,171.6 12.1 % $ 2,038.8 $ 2,285.2 12.1 %
Operating expenses $ 761.2 $ 664.0 (12.8 )% $ 1,344.4 $ 1,255.9 (6.6 )%
Net operating income $ 283.5 $ 507.6 79.0 % $ 694.4 $ 1,029.3 48.2 %
Non-operating income $ 41.5 $ 112.0 169.9 % $ 126.6 $ 227.0 79.3 %
Net income attributable to T. Rowe Price Group $ 203.3 $ 373.9 83.9 % $ 507.4 $ 759.8 49.7 %
Diluted earnings per common share $ .79 $ 1.50 89.9 % $ 1.97 $ 3.04 54.3 %
Weighted average common shares outstanding
assuming dilution 252.6
243.0
(3.8 )% 252.2
244.2
(3.2 )%
Adjusted(2)
Operating expenses $ 593.3
(3)
$ 662.3
(3)
11.6 % $ 1,175.2
(5)
$ 1,302.4
(5)
10.8 %
Net income attributable to T. Rowe Price Group $ 285.6 (4) $ 317.9 (4) 11.3 % $ 545.7 (6) $ 615.1 (6) 12.7 %
Diluted earnings per common share $ 1.11 $ 1.28 15.3 % $ 2.12 $ 2.46 16.0 %
Assets under Management (in billions)
Average assets under management $ 772.7 $ 885.9 14.6 % $ 750.4 $ 865.6 15.4 %
Ending assets under management $ 776.6 $ 903.6 16.4 % $ 776.6 $ 903.6 16.4 %
(1)Prior year amounts have been adjusted to reflect the impact of implementing new stock-based compensation accounting guidance in the third quarter of
2016.
(2) See the reconciliation to the comparable U.S. GAAP measures at the end of this earnings release.
2
Assets Under Management
Assets under management increased $42.0 billion in the second quarter of 2017 to $903.6 billion at June 30,
2017. The firm's net cash inflows were $3.7 billion in the second quarter of 2017. There were $7.6 billion of
client transfers from the mutual funds to other portfolios. The components of the change in assets under
management are shown in the table below.
Three months ended 6/30/2017 Six months ended 6/30/2017
(in billions)
Sponsored
U.S. mutual
funds
Other
investment
portfolios Total
Sponsored
U.S. mutual
funds
Other
investment
portfolios Total
Assets under management at
beginning of period $ 548.3
$ 313.3
$ 861.6
$ 514.2
$ 296.6
$ 810.8
Net cash flows before client
transfers 1.9
1.8
3.7
4.4
—
4.4
Client transfers from mutual funds
to other portfolios (7.6 ) 7.6
—
(7.9 ) 7.9
—
Net cash flows after client transfers (5.7 ) 9.4 3.7 (3.5 ) 7.9 4.4
Net market appreciation and
income, net of distributions not
reinvested 23.9
14.4
38.3
55.8
32.6
88.4
Change during the period 18.2 23.8 42.0 52.3 40.5 92.8
Assets under management at June
30, 2017 $ 566.5
$ 337.1
$ 903.6
$ 566.5
$ 337.1
$ 903.6
The firm's net cash flows were in the following asset classes:
(in billions)
Three months
ended 6/30/2017
Six months
ended 6/30/2017
Stock and blended asset $ (1.4 ) $ (5.3 )
Bond, money market, and stable value 5.1 9.7
Total net cash flows 3.7 4.4
Net cash flows into the firm's target date retirement portfolios were $3.1 billion in the second quarter of 2017
and $5.4 billion in the first half of 2017.
The firm's assets under management by asset class and in the firm's retirement date portfolios are as follows:
As of
(in billions) 12/31/2016 3/31/2017 6/30/2017
Equity $ 450.6 $ 482.9 $ 508.9
Fixed income 121.2 123.5 125.4
Asset allocation 239.0 255.2 269.3
Total assets under management $ 810.8 $ 861.6 $ 903.6
Target date retirement portfolios $ 189.2 $ 202.6 $ 213.8
Investors domiciled outside the United States accounted for about 5% of the firm's assets under management
at December 31, 2016, and June 30, 2017.
3
Capital Management
T. Rowe Price remains debt-free with ample liquidity, including cash and sponsored portfolio investment
holdings as follows:
(in millions) 12/31/2016 6/30/2017
Cash and cash equivalents $ 1,204.9 $ 1,542.2
Discretionary investments in sponsored investment portfolios 700.6 678.7
Total discretionary investments 1,905.5 2,220.9
Redeemable seed capital investments in sponsored investment portfolios 1,263.8 1,169.1
Investments in sponsored investment portfolios to hedge supplemental
savings plan liability —
172.3
Total cash and sponsored investment holdings $ 3,169.3 $ 3,562.3
The firm's common shares outstanding decreased since the end of 2016 as it expended $447.0 million during
the first half of 2017 to repurchase 6.5 million shares, or 2.6%, of its outstanding common shares, including
$130.7 million to repurchase 1.9 million shares during the second quarter of 2017. The firm invested
$82.6 million during the first half of 2017 in capitalized facilities and technology and expects capital
expenditures for 2017 to be up to $200 million, of which about two-thirds is planned for technology initiatives.
These expenditures are expected to continue to be funded from operating resources.
Investment Performance
The percentage of T. Rowe Price mutual funds (across share classes) that outperformed their comparable
Lipper averages on a total return basis and that are in the top Lipper quartile for the one-, three-, five-, and 10-
years ended June 30, 2017, were:
1 year 3 years 5 years 10 years
Outperformed Lipper averages
All funds 68% 81% 83% 85%
Asset allocation funds 90% 96% 95% 93%
Top Lipper quartile
All funds 44% 56% 58% 61%
Asset allocation funds 66% 67% 84% 79%
In addition, 88% of the rated Price Funds' assets under management ended the quarter with an overall rating
of four or five stars from Morningstar. The performance of the firm's institutional strategies against their
benchmarks remains very competitive especially over longer time periods.
4
Financial Results
Investment advisory revenues earned in the current quarter from the T. Rowe Price mutual funds distributed in
the U.S. were $754.3 million, an increase of 12.7% from the comparable 2016 quarter. Average U.S. mutual
fund assets under management increased 13.8% to $560.2 billion.
Investment advisory revenues earned in the current quarter from other investment portfolios were
$289.6 million, an increase of 15.1% from the comparable 2016 quarter. Average assets under management
for these portfolios increased 16.1% to $325.7 billion.
The firm has reduced the management fees of certain of its mutual funds and other investment portfolios since
mid-2016. These reductions were a factor in why investment advisory revenue grew slower than average
assets under management during 2017. The firm regularly assesses the competitiveness of its fees and will
continue to make adjustments as deemed appropriate.
Operating expenses were $664.0 million in the current quarter. Excluding the $166.2 million charge related to
the Dell matter recognized in the second quarter of 2016, operating expenses have increased 11.6% from the
2016 quarter. The firm currently expects that its operating expenses, excluding the impact of the Dell matter,
will grow about 10% in 2017 versus 2016. The firm could elect to modify the pace of spending on its planned
initiatives should markets rise or decline significantly.
Compensation and related costs were $403.8 million in the current quarter, an increase of 8.8% over the
second quarter of 2016, due primarily to additional headcount, an increase in the interim accrual of the annual
bonus, and higher benefits. Benefits expenses rose primarily due to increased market valuations on its
supplemental savings plan liability, which resulted in additional compensation expense. These increases were
offset in part by higher labor capitalization related to internally developed software as the firm continues to
invest in its technology capabilities. Average staff size increased by 6.8% from the second quarter of 2016, and
the firm employed 6,651 associates at June 30, 2017.
Advertising and promotion costs were $18.6 million in the current quarter, compared with $14.9 million in the
2016 quarter. The firm currently expects advertising and promotion costs for 2017 to grow up to 10% over
2016 as the firm executes on a number of strategic initiatives.
Occupancy and facility costs, together with depreciation expense, were $83.1 million in the current quarter, an
increase of 11.4% compared to the second quarter of 2016. The increase is due primarily to higher facility
costs as well as the added costs to update and enhance technology capabilities, including related maintenance
programs.
Other operating expenses were $122.1 million in the current quarter, an increase of 23.5% from the
comparable 2016 quarter, as operational and regulatory business demands continue to grow.
5
Net non-operating income was $112.0 million in the current quarter, an increase of $70.5 million from the
second quarter of 2016. The components and variances are included in the table below:
Three months ended
6/30/2016 6/30/2017 $ change
Net realized gains on dispositions of sponsored fund
investments $ —
$ 30.3
$ 30.3
Ordinary dividend distributions from sponsored fund investments 1.8 3.5 1.7
Unrealized gains on sponsored fund investments 7.5 32.0 24.5
Net investment income on consolidated sponsored investment
portfolios(1) 26.4
39.4
13.0
Other investment income 6.0 5.6 (.4 )
Other non-operating expenses, including foreign currency gains
and losses (.2 ) 1.2
1.4
Net non-operating income $ 41.5 $ 112.0 $ 70.5
(1) A table detailing the impact the consolidated sponsored investment portfolios have had on the firm's consolidated statements of income is included at the
end of this earnings release.
Nearly all of the $30.3 million in net realized gains and $23.6 million of the $32.0 million in unrealized gains on
sponsored funds recognized during the second quarter of 2017 resulted from the firm's decision to
economically hedge the market exposure associated with its supplemental savings plan liability.
The firm's effective tax rate for the second quarter of 2017 was 37.1%. The firm currently estimates its effective
tax rate for 2017 will be about 37.4%.
Management Commentary
William J. Stromberg, the company’s president and chief executive officer, commented: “U.S. stocks rose
broadly in the second quarter of 2017 with many major indexes reaching all-time highs. International stocks
outperformed U.S. shares, aided by strengthening currencies relative to the U.S. dollar. Fixed income returns
were also positive with healthy credit conditions in the U.S. and abroad.
"Our assets under management grew by five percent in the second quarter of 2017, boosted by strong market
returns, healthy alpha generation, and solid net inflows. Positive net flows continued into our international
equity, fixed income, and asset allocation strategies, partially offset by modest outflows from U.S. equity.
“Overall we are encouraged by increasing levels of client activity and by execution of our strategy. Our relative
investment performance remains strong, investor interest continues to grow globally, and we are making good
progress with our investments in product, distribution, and technology. Some highlights of activity that reflect
ways we are meeting the needs of our clients and distribution partners include:
• New Investment Products—Recently launched portfolios include the Retirement Income 2020 Fund (a
new managed-payout fund) and the U.S. High Yield Fund (stemming from the acquisition of the
6
Henderson High Yield Opportunities Fund). We have also filed preliminary registration statements for
the Multi-Strategy Total Return Fund and Capital Appreciation & Income Fund, both of which we
expect to launch later this year.
• Recent Vehicle Launches Gaining Traction—The T. Rowe Price ActivePlus Portfolios, retail separately
managed accounts, and model portfolios are each attracting clients and assets.
• Expanding Distribution Reach—Our mutual funds are now available on Fidelity Investments’
FundsNetwork® and their Institutional No Transaction Fee (iNTF) Program, further expanding their
availability to retail investors and advisors with no transaction fees. This agreement follows the recent
addition of our mutual funds to Charles Schwab’s Mutual Fund OneSource® service with no
transaction fee.
• Client Experience Enhancements—A new relationship management team servicing high-value
individual investors in our direct channel is bolstering client engagement, and helping attract and retain
assets. Likewise, our agile approach to innovating and developing improved client digital experiences
is also seeing initial success.
"With the progress we are making on our strategic priorities and the outstanding work of our associates, we
are confident we are on the right track to enhance our competitiveness and grow and diversify our business. In
this our 80th year, we remain committed to our guiding principle of always doing what is right for our clients.
Over time, we believe that this approach will enable us to remain a premier asset manager and create
attractive long-term value for our stockholders.”
Other Matters
The financial results presented in this release are unaudited. The firm expects that it will file its Form 10-Q
Quarterly Report for the second quarter of 2017 with the U.S. Securities and Exchange Commission later
today. The Form 10-Q will include additional information on the firm's unaudited financial results at June 30,
2017.
Certain statements in this earnings release may represent “forward-looking information,” including information
relating to anticipated changes in revenues, net income and earnings per common share, anticipated changes
in the amount and composition of assets under management, anticipated expense levels, estimated tax rates,
and expectations regarding financial results, future transactions, new products and services, investments,
capital expenditures, dividends, stock repurchases, and other market conditions. For a discussion concerning
risks and other factors that could affect future results, see the firm's 2016 Form 10-K and June 30, 2017 Form
10-Q filed later today.
7
Founded in 1937, Baltimore-based T. Rowe Price (troweprice.com) is a global investment management
organization that provides a broad array of mutual funds, subadvisory services, and separate account
management for individual and institutional investors, retirement plans, and financial intermediaries. The
organization also offers a variety of sophisticated investment planning and guidance tools. T. Rowe Price's
disciplined, risk-aware investment approach focuses on diversification, style consistency, and fundamental
research.
CONTACTS:
Public Relations
Brian Lewbart
410-345-2242
brian_lewbart@troweprice.com
Investor Relations
Teresa Whitaker
410-345-6586
teresa_whitaker@troweprice.com
8
Unaudited Consolidated Statements of Income
(in millions, except per share amounts)
Three months ended Six months ended
Revenues 6/30/2016 6/30/2017 6/30/2016 6/30/2017
Investment advisory fees $ 920.6 $ 1,043.9 $ 1,791.4 $ 2,035.0
Administrative fees 88.5 91.3 177.9 178.6
Distribution and servicing fees 35.6 36.4 69.5 71.6
Net revenues 1,044.7 1,171.6 2,038.8 2,285.2
Operating expenses
Compensation and related costs 371.0 403.8 726.2 801.2
Advertising and promotion 14.9 18.6 38.0 44.2
Distribution and servicing costs 35.6 36.4 69.5 71.6
Depreciation and amortization of property and equipment 33.8 36.3 66.0 71.9
Occupancy and facility costs 40.8 46.8 82.2 92.2
Other operating expenses 98.9 122.1 196.3 224.8
Nonrecurring charge (insurance recoveries) related to Dell appraisal rights
matter 166.2
—
166.2
(50.0 )
Total operating expenses 761.2 664.0 1,344.4 1,255.9
Net operating income 283.5 507.6 694.4 1,029.3
Non-operating income
Net investment income on investments 15.3 71.4 76.6 136.2
Net investment income on consolidated sponsored investment portfolios 26.4 39.4 50.2 88.3
Other income (.2 ) 1.2 (.2 ) 2.5
Total non-operating income 41.5 112.0 126.6 227.0
Income before income taxes 325.0 619.6 821.0 1,256.3
Provision for income taxes 113.8 229.6 296.5 465.9
Net income 211.2 390.0 524.5 790.4
Less: net income attributable to redeemable non-controlling interests 7.9 16.1 17.1 30.6
Net income attributable to T. Rowe Price Group 203.3 373.9 507.4 759.8
Less: net income allocated to outstanding restricted stock and stock unit
holders 4.0
8.5
9.8
17.2
Net income allocated to T. Rowe Price Group common stockholders $ 199.3 $ 365.4 $ 497.6 $ 742.6
Earnings per share on common stock of T. Rowe Price Group
Basic $ .81 $ 1.52 $ 2.02 $ 3.08
Diluted $ .79 $ 1.50 $ 1.97 $ 3.04
Weighted-average common shares
Outstanding 246.9 239.8 246.8 240.9
Outstanding assuming dilution 252.6 243.0 252.2 244.2
Dividends declared per share $ .54 $ .57 $ 1.08 $ 1.14
Impact of consolidated sponsored investment portfolios on consolidated
statements of income (in millions)
Three months ended Six months ended
6/30/2016 6/30/2017 6/30/2016 6/30/2017
Operating expenses reflected in net operating income $ (3.5 ) $ (2.7 ) $ (6.1 ) $ (5.3 )
Net investment income reflected in non-operating income 26.4 39.4 50.2 88.3
Impact on income before taxes $ 22.9 $ 36.7 $ 44.1 $ 83.0
Income attributable to T. Rowe Price Group's interest $ 15.0 $ 20.6 $ 17.1 $ 52.4
Income attributable to redeemable non-controlling interests 7.9 16.1 27.0 30.6
$ 22.9 $ 36.7 $ 44.1 $ 83.0
9
Investment Advisory Revenues (in millions) Three months ended Six months ended
6/30/2016 6/30/2017 6/30/2016 6/30/2017
Sponsored U.S. mutual funds
Stock and blended asset $ 551.1 $ 628.6 $ 1,070.6 $ 1,222.7
Bond and money market 118.0 125.7 230.6 247.4
669.1 754.3 1,301.2 1,470.1
Other investment portfolios
Stock and blended asset 210.3 240.3 408.2 468.2
Bond, money market, and stable value 41.2 49.3 82.0 96.7
251.5 289.6 490.2 564.9
Total $ 920.6 $ 1,043.9 $ 1,791.4 $ 2,035.0
Assets Under Management (in billions) Average during
Three months ended Six months ended As of
6/30/2016 6/30/2017 6/30/2016 6/30/2017 12/31/2016 6/30/2017
Sponsored U.S. mutual funds
Stock and blended asset $ 383.6 $ 440.1 $ 372.4 $ 430.6 $ 401.3 $ 445.5
Bond and money market 108.5 120.1 106.4 117.8 112.9 121.0
492.1 560.2 478.8 548.4 514.2 566.5
Other investment portfolios
Stock and blended asset 209.9 244.7 203.2 238.0 220.8 254.0
Bond, money market, and stable value 70.7 81.0 68.4 79.2 75.8 83.1
280.6 325.7 271.6 317.2 296.6 337.1
Total $ 772.7 $ 885.9 $ 750.4 $ 865.6 $ 810.8 $ 903.6
Unaudited Condensed Consolidated
Cash Flows Information
(in millions) Six months ended
6/30/2016 6/30/2017
Cash flow
attributable to
T. Rowe
Price Group
Cash flow
attributable to
consolidated
sponsored
investment
portfolios, net
of eliminations
As
reported on
statement
of cash
flows
Cash flow
attributable to
T. Rowe
Price Group
Cash flow
attributable to
consolidated
sponsored
investment
portfolios, net
of eliminations
As
reported on
statement
of cash
flows
Cash provided by (used in) operating
activities, including ($74) of stock-based
compensation expense and $150 related
to the Dell appraisal rights matter
attributable to T. Rowe Price Group in
2017 $ 662.2
$ (676.4 ) $ (14.2 ) $ 876.1
$ (736.9 ) $ 139.2
Cash provided by (used in) investing
activities, including ($83) for additions to
property and equipment and $294 of
proceeds from the sale of available-for-
sale investments attributable to T. Rowe
Price Group in 2017 (103.1 ) 265.1
162.0
114.1
23.5
137.6
Cash provided by (used in) financing
activities, including T. Rowe Price Group
common stock repurchases of $(447)
and dividends paid of $(280) in 2017 (456.2 ) 540.0
83.8
(652.9 ) 717.7
64.8
Effect of exchange rate changes on cash
and cash equivalents —
(21.3 ) (21.3 ) —
3.8
3.8
Net change in cash and cash
equivalents during period $ 102.9
$ 107.4
$ 210.3
$ 337.3
$ 8.1
$ 345.4
10
Unaudited Condensed Consolidated Balance Sheet Information (in millions) As of
12/31/2016 6/30/2017
Cash and cash equivalents $ 1,204.9 $ 1,542.2
Accounts receivable and accrued revenue 455.1 488.7
Investments 1,257.5 1,333.7
Assets of consolidated sponsored investment portfolios 1,680.5 1,604.0
Property and equipment, net 615.1 624.3
Goodwill 665.7 665.7
Other assets 346.2 274.0
Total assets 6,225.0 6,532.6
Total liabilities, includes $65.6 at December 31, 2016, and $55.4 at June 30, 2017, from consolidated
sponsored investment portfolios 529.2
736.4
Redeemable non-controlling interests 687.2 627.6
Stockholders' equity, 240.3 common shares outstanding at June 30, 2017, includes net unrealized
holding gains of $10.1 at June 30, 2017 $ 5,008.6
$ 5,168.6
Cash, Cash Equivalents, and Investments Information (in millions)
Interest Held by T. Rowe Price Group
Cash and
discretionary
investments
in sponsored
portfolios
Investments
in sponsored
portfolios to
hedge
supplemental
savings plan
Seed capital
investments
in sponsored
portfolios
Investment
in UTI and
other
investments Total
Redeemable
non-
controlling
interests
As reported
on
consolidated
balance
sheet
6/30/2017
Cash and cash
equivalents $ 1,542.2
$ —
$ —
$ —
$ 1,542.2
$ —
$ 1,542.2
Investments 675.6 172.3 251.2 234.6 1,333.7 — 1,333.7
Net assets of
consolidated sponsored
investment portfolios 3.1
—
917.9
—
921.0
627.6
1,548.6
$ 2,220.9 $ 172.3 $ 1,169.1 $ 234.6 $ 3,796.9 $ 627.6 $ 4,424.5
Quarterly Financial Impact of Dell Appraisal Rights Matter (in millions)
Three months ended
Pre-tax
operating
expense
Pre-tax
operating
cash flow
June 30, 2016 $ 166.2 $ (164.0 )
September 30, 2016 — (.9 )
December 31, 2016 (100.0 ) (1.3 )
Total - 2016 66.2 (166.2 )
March 31, 2017 (50.0 ) 140.0
June 30, 2017 — 10.0
Total impact of Dell appraisal rights matter $ 16.2 $ (16.2 )
11
Non-GAAP Information and Reconciliation
The firm believes the non-GAAP financial measures below provide relevant and meaningful information to investors
about its core operating results. These measures have been established in order to increase transparency for the
purpose of evaluating the firm's core business, for comparing current results with prior period results, and to enable
more appropriate comparison with industry peers. However, non-GAAP financial measures should not be considered
as a substitute for financial measures calculated in accordance with U.S. GAAP and may be calculated differently by
other companies. The following schedule (in millions, except for per-share amounts) reconciles U.S. GAAP financial
measures to non-GAAP measures for the three- and six-month period ended June 30, 2016 and 2017.
Three months ended Six months ended
6/30/2016 6/30/2017 6/30/2016 6/30/2017
Operating expenses, GAAP basis $ 761.2 $ 664.0 $ 1,344.4 $ 1,255.9
Non-GAAP adjustments:
Expenses of consolidated sponsored investment portfolios, net of
elimination of its related management fee(1) (1.7 ) (1.7 ) (3.0 ) (3.5 )
Insurance recoveries (nonrecurring charge) related to Dell appraisal
rights matter (3) (166.2 ) —
(166.2 ) 50.0
Adjusted operating expenses $ 593.3 $ 662.3 $ 1,175.2 $ 1,302.4
Net income attributable to T. Rowe Price Group, GAAP basis $ 203.3 $ 373.9 $ 507.4 $ 759.8
Non-GAAP adjustments:
Net income of consolidated sponsored investment portfolios, net of
redeemable non-controlling interests(1) (15.0 ) (20.6 ) (27.0 ) (52.4 )
Non-operating income, excluding impact of consolidated sponsored
investment portfolios(2) (15.1 ) (72.6 ) (76.4 ) (138.7 )
Nonrecurring charge (insurance recoveries) related to Dell appraisal
rights matter (3) 166.2
—
166.2
(50.0 )
Income tax impacts of non-GAAP adjustments (4) (53.8 ) 37.2 (24.5 ) 96.4
Adjusted net income attributable to T. Rowe Price Group $ 285.6 $ 317.9 $ 545.7 $ 615.1
Diluted earnings per common share, GAAP basis $ .79 $ 1.50 $ 1.97 $ 3.04
Non-GAAP adjustments:
Consolidated sponsored investment portfolios (1) (.04 ) (.05 ) (.07 ) (.13 )
Non-operating income, excluding impact of consolidated sponsored
investment portfolios(2) (.03 ) (.17 ) (.17 ) (.33 )
Nonrecurring charge (insurance recoveries) related to Dell appraisal
rights matter (3) .39
—
.39
(.12 )
Adjusted diluted earnings per common share(5) $ 1.11 $ 1.28 $ 2.12 $ 2.46
(1) The non-GAAP adjustments add back the management fees that the firm earns from the consolidated sponsored investment
portfolios and subtract the investment income and operating expenses of these portfolios that have been included in the firm's
U.S. GAAP consolidated statements of income. Management believes the consolidated sponsored investment portfolios may
impact the reader's ability to understand the firm's core operating results. The following table details the calculation of net income
of consolidated sponsored investment portfolios, net of redeemable non-controlling interests, for the three- and six-month period
ended June 30, 2016 and 2017:
12
Three months ended Six months ended
6/30/2016 6/30/2017 6/30/2016 6/30/2017
Net investment income of consolidated sponsored portfolios $ 26.4 $ 39.4 $ 50.2 $ 88.3
Operating expenses of consolidated sponsored portfolios (3.5 ) (2.7 ) (6.1 ) (5.3 )
Net income of consolidated sponsored portfolios 22.9 36.7 44.1 83.0
Less: net income attributable to redeemable non-controlling interests 7.9 16.1 17.1 30.6
T. Rowe Price's portion of net income $ 15.0 $ 20.6 $ 27.0 $ 52.4
(2) This non-GAAP adjustment removes the non-operating income that remains after backing out the portion related to the
consolidated sponsored investment portfolios. Management believes excluding non-operating income helps the reader's ability to
understand the firm's core operating results and increases comparability to prior years. Additionally, management does not
emphasize the impact of non-operating income when managing the firm and evaluating its performance. The following table
details the calculation of other non-operating income for the three- and six-month period ended June 30, 2016 and 2017:
Three months ended Six months ended
6/30/2016 6/30/2017 6/30/2016 6/30/2017
Total non-operating income $ 41.5 $ 112.0 $ 126.6 $ 227.0
Less: net investment income of consolidated sponsored portfolios 26.4 39.4 50.2 88.3
Total other non-operating income $ 15.1 $ 72.6 $ 76.4 $ 138.7
(3) In the second quarter of 2016, the firm recognized a nonrecurring charge of $166.2 million related to the firm's decision to
compensate certain clients in regard to the Dell appraisal rights matter. In the first quarter of 2017, the firm recognized insurance
recoveries of $50 million as a reduction in operating expenses from claims that were filed in relation to the matter. Management
believes it is useful to readers of the firm's consolidated statements of income to adjust for these non-recurring insurance
recoveries in arriving at adjusted operating expenses and net income attributable to T. Rowe Price Group, Inc. and diluted
earnings per share, as this will aid with comparability to prior periods and analyzing the firm's core business results.
(4) These were calculated using the effective tax rate applicable to the related items.
(5) This non-GAAP measure was calculated by applying the two-class method to adjusted net income attributable to T. Rowe Price
Group, Inc. divided by the weighted-average common shares outstanding assuming dilution.