Item 8. Financial Statements and Supplementary Data.

	Page
Index to Financial Statements:
Consolidated Balance Sheets at December 31, 2016 and 2017	46
Consolidated Statements of Income for each of the years in the three-year period ended December 31, 2017	47
Consolidated Statements of Comprehensive Income for each of the years in the three-year period ended December 31, 2017	48
Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2017	49
Consolidated Statements of Stockholders' Equity for each of the years in the three-year period ended December 31, 2017	50
Summary of Significant Accounting Policies	52
Notes to Consolidated Financial Statements, including Supplementary Quarterly Financial Data	57
Report of Independent Registered Public Accounting Firm	74

Page 45

CONSOLIDATED BALANCE SHEETS

(in millions, except share data)

	12/31/2016				12/31/2017
ASSETS
Cash and cash equivalents	$	1,204.9			$	1,902.7
Accounts receivable and accrued revenue	455.1				556.7
Investments	1,257.5				1,477.3
Assets of consolidated T. Rowe Price investment products ($1,446.1 million at December 31, 2016, and $1,839.6 million at December 31, 2017, related to variable interest entities)	1,680.5				2,048.4
Property and equipment, net	615.1				652.0
Goodwill	665.7				665.7
Other assets	346.2				231.9
Total assets	$	6,225.0			$	7,534.7
LIABILITIES
Accounts payable and accrued expenses	$	180.8			$	215.5
Liabilities of consolidated T. Rowe Price investment products ($56.8 million at December 31, 2016, and $39.5 million at December 31, 2017, related to variable interest entities)	65.6				55.9
Accrued compensation and related costs	92.6				108.5
Supplemental savings plan liability	150.9				269.3
Income taxes payable	39.3				68.3
Total liabilities	529.2				717.5
Commitments and contingent liabilities
Redeemable non-controlling interests	687.2				992.8
STOCKHOLDERS’ EQUITY
Preferred stock, undesignated, $.20 par value— authorized and unissued 20,000,000 shares	—				—
Common stock, $.20 par value—authorized 750,000,000; issued 244,784,000 shares at December 31, 2016, and 245,111,000 at December 31, 2017	49.0				49.0
Additional capital in excess of par value	654.5				846.1
Retained earnings	4,293.6				4,932.9
Accumulated other comprehensive income (loss)	11.5				(3.6		)
Total permanent stockholders' equity	5,008.6				5,824.4
Total liabilities, redeemable non-controlling interests and permanent stockholders’ equity	$	6,225.0			$	7,534.7

The accompanying summary of significant accounting policies and notes to consolidated financial statements are an integral part of these statements.

Page 46

CONSOLIDATED STATEMENTS OF INCOME

(in millions, except earnings per share)

	2015				2016				2017
Revenues
Investment advisory fees	$	3,687.3			$	3,728.7			$	4,287.7
Administrative fees	361.8				352.5				358.3
Distribution and servicing fees	151.5				141.7				147.0
Net revenues	4,200.6				4,222.9				4,793.0
Operating expenses
Compensation and related costs	1,443.6				1,494.0				1,664.9
Advertising and promotion	79.7				79.9				92.0
Distribution and servicing costs	151.5				141.7				147.0
Depreciation and amortization of property and equipment	126.3				133.4				143.6
Occupancy and facility costs	159.2				172.8				194.9
Other operating expenses	341.4				401.5				491.8
Nonrecurring charge (insurance recoveries) related to Dell appraisal rights matter	—				66.2				(50.0		)
Total operating expenses	2,301.7				2,489.5				2,684.2
Net operating income	1,898.9				1,733.4				2,108.8
Non-operating income
Net investment income on investments not consolidated	105.3				108.0				198.3
Net investment income on consolidated T. Rowe Price investment products	1.5				121.1				193.9
Other income (expense)	(3.3		)		(2.0		)		4.1
Total non-operating income	103.5				227.1				396.3
Income before income taxes	2,002.4				1,960.5				2,505.1
Provision for income taxes	779.4				706.5				923.9
Net income	$	1,223.0			$	1,254.0			$	1,581.2
Less: net income attributable to redeemable non-controlling interests	—				39.0				83.4
Net income attributable to T. Rowe Price Group	$	1,223.0			$	1,215.0			$	1,497.8
Earnings per share on common stock of T. Rowe Price Group
Basic	$	4.74			$	4.85			$	6.07
Diluted	$	4.63			$	4.75			$	5.97

The accompanying summary of significant accounting policies and notes to consolidated financial statements are an integral part of these statements.

Page 47

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)

	2015				2016				2017
Net income	$	1,223.0			$	1,254.0			$	1,581.2
Other comprehensive income (loss)
Net unrealized holding gains (losses) on available-for-sale investments	(4.5		)		(1.0		)		37.4
Reclassification of (gains) and losses in accumulated other comprehensive income to non-operating investment income:
Capital gain distributions	(20.8		)		(6.0		)		(3.5		)
Net gains realized on dispositions determined using average cost	(56.5		)		(53.0		)		(83.1		)
Net unrealized gains recognized upon the transfer to trading investments	—				—				(23.6		)
Other-than-temporary impairments	4.8				—				—
Total reclassification adjustments	(72.5		)		(59.0		)		(110.2		)
Total net unrealized holding losses recognized in other comprehensive income	(77.0		)		(60.0		)		(72.8		)
Currency translation adjustments
Consolidated T. Rowe Price investment products—variable interest entities	(4.9		)		(9.5		)		66.4
Reclassification losses (gains) recognized in non-operating investment income upon deconsolidation of certain T. Rowe Price investment products	5.8				(2.2		)		(.1		)
Total currency translation adjustments of consolidated T. Rowe Price investment products—variable interest entities	.9				(11.7		)		66.3
Equity method investments	(8.1		)		(1.6		)		2.6
Total currency translation adjustments	(7.2		)		(13.3		)		68.9
Other comprehensive loss before income taxes	(84.2		)		(73.3		)		(3.9		)
Net deferred tax benefits	34.4				28.2				10.0
Total other comprehensive income (loss)	(49.8		)		(45.1		)		6.1
Total comprehensive income	1,173.2				1,208.9				1,587.3
Less: comprehensive income attributable to redeemable non-controlling interests	—				36.5				104.6
Comprehensive income attributable to T. Rowe Price Group	$	1,173.2			$	1,172.4			$	1,482.7

The accompanying summary of significant accounting policies and notes to consolidated financial statements are an integral part of these statements.

Page 48

CONSOLIDATED STATEMENTS OF CASH FLOWS(1)

(in millions)

	2015				2016				2017
Cash flows from operating activities
Net income	$	1,223.0			$	1,254.0			$	1,581.2
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Depreciation and amortization of property and equipment	126.3				133.4				143.6
Stock-based compensation expense	149.0				161.6				152.0
Realized gains on dispositions of available-for-sale T. Rowe Price investment products	(56.5		)		(53.0		)		(83.1		)
Gains recognized upon transfer of an investment in a T. Rowe Price mutual fund from available-for-sale to held as trading	—				—				(23.6		)
Net gains recognized on other investments	(5.9		)		(31.0		)		(49.7		)
Investments in T. Rowe Price mutual funds held as trading to economically hedge supplemental savings plan liability	—				—				(218.6		)
Net change in trading securities held by consolidated T. Rowe Price investment products	(7.5		)		(1,297.9		)		(1,492.9		)
Changes in accounts receivable and accrued revenue	(3.2		)		(9.3		)		(100.8		)
Changes in payables and accrued liabilities	98.2				138.6				323.4
Other changes in assets and liabilities	7.1				(125.9		)		(2.0		)
Net cash provided by (used in) operating activities	1,530.5				170.5				229.5
Cash flows from investing activities
Purchases of available-for-sale T. Rowe Price investment products	(164.8		)		(.1		)		(16.9		)
Dispositions of available-for-sale T. Rowe Price investment products	434.5				133.7				334.7
Net cash of T. Rowe Price investment products on consolidation (deconsolidation)	—				41.4				(64.2		)
Additions to property and equipment	(151.3		)		(148.3		)		(186.1		)
Other investing activity	(9.4		)		79.5				(28.5		)
Net cash provided by (used in) investing activities	109.0				106.2				39.0
Cash flows from financing activities
Repurchases of common stock	(987.8		)		(676.9		)		(458.1		)
Common share issuances under stock-based compensation plans	73.5				126.3				201.1
Dividends paid to common stock and equity-award holders	(1,059.0		)		(540.8		)		(563.1		)
Net subscriptions received from redeemable non-controlling interest holders	—				915.0				1,281.6
Net cash (used in) provided by financing activities	(1,973.3		)		(176.4		)		461.5
Effect of exchange rate changes on cash and cash equivalents of consolidated T. Rowe Price investment products	—				(2.1		)		5.3
Net change in cash and cash equivalents during period	(333.8		)		98.2				735.3
Cash and cash equivalents at beginning of year	1,506.1				1,172.3				1,270.5
Cash and cash equivalents at end of period, including $65.6 million at December 31, 2016, and $103.1 million at December 31, 2017, held by consolidated T. Rowe Price investment products	$	1,172.3			$	1,270.5			$	2,005.8

(1)See note 15 for a supplementary consolidating cash flow schedule.

The accompanying summary of significant accounting policies and notes to consolidated financial statements are an integral part of these statements.

Page 49

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(shares in thousands; dollars in millions)

	Common shares outstanding			Common stock				Additional capital in excess of par value				Retained earnings				Accumulated other comprehensive income (loss)				Total stockholders’ equity				Redeemable non-controlling interests
Balances at December 31, 2014	261,110			$	52.2			$	756.5			$	4,450.1			$	136.4			$	5,395.2			$	—
Net income	—			—				—				1,223.0				—				1,223.0				—
Other comprehensive income (loss), net of tax	—			—				—				—				(49.8		)		(49.8		)		—
Dividends declared	—			—				—				(1,059.0		)		—				(1,059.0		)		—
Common stock-based compensation plans activity
Shares issued upon option exercises	2,471			.5				84.0				—				—				84.5				—
Restricted shares issued, net of shares withheld for taxes	(180	)		—				(14.3		)		—				—				(14.3		)		—
Shares issued upon vesting of restricted stock units, net of shares withheld for taxes	236			—				(2.0		)		—				—				(2.0		)		—
Forfeiture of restricted awards	(59	)		—				—				—				—				—				—
Net tax benefits	—			—				23.2				—				—				23.2				—
Stock-based compensation expense	—			—				149.0				—				—				149.0				—
Restricted stock units issued as dividend equivalents	—			—				.2				(.2		)		—				—				—
Common shares repurchased	(13,109	)		(2.6		)		(342.0		)		(643.2		)		—				(987.8		)		—
Balances at December 31, 2015	250,469			50.1				654.6				3,970.7				86.6				4,762.0				—
Reclassification of T. Rowe Price investment products upon adoption of new accounting guidance on January 1, 2016	—			—				—				32.5				(32.5		)		—				672.7
Cumulative effect adjustment upon adoption of new stock-based compensation guidance on January 1, 2016	—			—				12.9				(9.0		)		—				3.9				—
Balances at January 1, 2016	250,469			50.1				667.5				3,994.2				54.1				4,765.9				672.7
Net income	—			—				—				1,215.0				—				1,215.0				39.0
Other comprehensive income (loss), net of tax	—			—				—				—				(42.6		)		(42.6		)		(2.5		)
Dividends declared	—			—				—				(541.2		)		—				(541.2		)		—
Common stock-based compensation plans activity
Shares issued upon option exercises	4,140			.8				148.7				—				—				149.5				—
Restricted shares issued, net of shares withheld for taxes	(178	)		—				(14.0		)		—				—				(14.0		)		—
Shares issued upon vesting of restricted stock units, net of shares withheld for taxes	409			.1				(8.8		)		—				—				(8.7		)		—
Forfeiture of restricted awards	(61	)		—				—				—				—				—				—
Stock-based compensation expense	—			—				161.6				—				—				161.6				—
Restricted stock units issued as dividend equivalents	—			—				.1				(.1		)		—				—				—
Common shares repurchased	(9,995	)		(2.0		)		(300.6		)		(374.3		)		—				(676.9		)		—
Net subscriptions into T. Rowe Price investment products	—			—				—				—				—				—				945.3
Net deconsolidations of T. Rowe Price investment products	—			—				—				—				—				—				(967.3		)
Balances at December 31, 2016	244,784			$	49.0			$	654.5			$	4,293.6			$	11.5			$	5,008.6			$	687.2

The accompanying summary of significant accounting policies and notes to consolidated financial statements are an integral part of these statements.

Page 50

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(shares in thousands; dollars in millions)

	Common shares outstanding			Common stock				Additional capital in excess of par value				Retained earnings				Accumulated other comprehensive income (loss)				Total stockholders’ equity				Redeemable non-controlling interests
Balances at December 31, 2016	244,784			$	49.0			$	654.5			$	4,293.6			$	11.5			$	5,008.6			$	687.2
Net income	—			—				—				1,497.8				—				1,497.8				83.4
Other comprehensive income (loss), net of tax	—			—				—				—				(15.1		)		(15.1		)		21.2
Dividends declared	—			—				—				(562.6		)		—				(562.6		)		—
Common stock-based compensation plans activity
Shares issued upon option exercises	6,339			1.2				251.0				—				—				252.2				—
Restricted shares withheld for taxes, net of shares issued	(170	)		—				(19.2		)		—				—				(19.2		)		—
Shares issued upon vesting of restricted stock units, net of shares withheld for taxes	789			.1				(31.3		)		—				—				(31.2		)		—
Forfeiture of restricted awards	(19	)		—				—				—				—				—				—
Stock-based compensation expense	—			—				152.0				—				—				152.0				—
Restricted stock units issued as dividend equivalents	—			—				.2				(.2		)		—				—				—
Common shares repurchased	(6,612	)		(1.3		)		(161.1		)		(295.7		)		—				(458.1		)		—
Net subscriptions into T. Rowe Price investment products	—			—				—				—				—				—				1,243.7
Net deconsolidations of T. Rowe Price investment products	—			—				—				—				—				—				(1,042.7		)
Balances at December 31, 2017	245,111			$	49.0			$	846.1			$	4,932.9			$	(3.6	)		$	5,824.4			$	992.8

The accompanying summary of significant accounting policies and notes to consolidated financial statements are an integral part of these statements.

Page 51

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.

T. Rowe Price Group, Inc. derives its consolidated revenues and net income primarily from investment advisory services that its subsidiaries provide to individual and institutional investors in the T. Rowe Price U.S. mutual funds and other investment products, including separately managed accounts, subadvised funds, and other T. Rowe Price products. We also provide our investment advisory clients with related administrative services, including distribution, mutual fund transfer agent, accounting and shareholder services; participant recordkeeping and transfer agent services for defined contribution retirement plans; brokerage, and trust services.

Investment advisory revenues depend largely on the total value and composition of assets under our management. Accordingly, fluctuations in financial markets and in the composition of assets under management impact our revenues and results of operations.

BASIS OF PREPARATION.

These consolidated financial statements have been prepared by our management in accordance with accounting principles generally accepted in the United States. These principles require that we make certain estimates and assumptions. Actual results may vary from our estimates.

In 2017, we recognized in our income tax provision a non-recurring charge of $71.1 million to reflect the estimated effect of the U.S. tax law changes enacted on December 22, 2017. The charge is a reasonable estimate based on current interpretation of the tax law changes and includes $18.9 million for the remeasurement of our deferred tax assets and liabilities, and a $52.2 million tax liability for the mandatory deemed repatriation of foreign sourced net earnings. We will continue to evaluate the impact of the tax law changes on our estimates and expectations due to changes in our interpretations of the law, assumptions used in applying the law, and additional guidance concerning the law that may be issued. We will report any applicable adjustments to these estimates in 2018 after our estimates are finalized. Refer to Note 7 for more information on the impact of tax reform on our 2017 financial statements and effective tax rate.

NEWLY ISSUED BUT NOT YET ADOPTED ACCOUNTING GUIDANCE.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09 — Revenue from Contracts with Customers, and subsequently has issued several related accounting standard updates clarifying several aspects of ASU 2014-09, including technical corrections and improvements (ASC 606). The standard update provides a single, comprehensive revenue recognition model for all contracts with customers to improve comparability within industries, across industries, and across capital markets. It contains principles to apply to determine the measurement of revenue and the timing of when it is recognized. We will adopt the new standard on its effective date, January 1, 2018, using the retrospective approach with adjustments to each prior period. We concluded that the new standards do not materially change the timing of revenue recognition. However, the presentation of certain revenue related expenses totaling about $60 million in 2016 and 2017 will change from being recognized net against the related revenues to being reported within operating expenses. Additionally, we plan to enhance disclosures in accordance with the standard's disclosure requirements in 2018.

In January 2016, the FASB issued Accounting Standards Update No. 2016-01 — Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This standard update addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments and requires a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. We will adopt the new standard on its effective date, January 1, 2018. Upon adoption, we will reclassify net unrealized holding gains recognized on investments in T. Rowe Price products totaling $7.9 million from accumulated other comprehensive income to retained earnings. After January 1, 2018, the change in the fair value of investments in T. Rowe Price investment products previously accounted for as available-for-sale investments will be recognized in our consolidated income statement rather than our consolidated statement of comprehensive income. The impact upon implementation of the standard on our investments without a readily determinable fair value is not material.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 — Leases (Topic 842). The standard update seeks to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The standards update is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact this standard will have on our financial position and results of operations.

Page 52

We have considered all other newly issued accounting guidance that is applicable to our operations and the preparation of our consolidated financial statements, including guidance which we have not yet adopted. We do not believe that any such guidance will have a material effect on our financial position or results of operation.

CONSOLIDATION.

Our consolidated financial statements include the accounts of all subsidiaries and T. Rowe Price investment products in which we have a controlling interest. We are generally deemed to have a controlling interest when we own the majority of a voting interest entity (VOE) or are deemed to be the primary beneficiary of a variable interest entity (VIE). We perform an analysis of our investments to determine if the investment entity is a VOE or VIE. Our analysis involves judgment and considers several factors, including an entity’s legal organization, capital structure, the rights of the equity investment holders, our ownership interest in the entity, and our contractual involvement with the entity. We continually review and reconsider our VOE or VIE conclusions upon the occurrence of certain events, such as changes to our ownership interest, changes to an entity’s legal structure, or amendments to governing documents. Upon consolidation of T. Rowe Price investment products, we retain the specialized investment company accounting principles of the underlying funds. All material accounts and transactions between consolidated entities are eliminated in consolidation.

Variable interest entities

VIEs are entities that, by design: (i) lack sufficient equity to permit the entity to finance its activities independently or (ii) have equity holders that do not have the power to direct the activities of the entity that most significantly impact the entity’s economic performance, the obligation to absorb the entity’s losses, or the rights to receive the entity’s residual returns. We consolidate a VIE when we are the primary beneficiary, which is the party that has both (i) the power to direct the activities of the VIE that most significantly impact its economic performance and (ii) the obligation to absorb losses of the entity or the right to receive benefits from the VIE that could potentially be significant. Our Luxembourg-based SICAV funds and other T. Rowe Price investment products regulated outside the U.S. were determined to be VIEs.

Along with VIEs that we consolidate, we also hold variable interests in other VIEs, including several investment partnerships that are not consolidated because we are not the primary beneficiary.

Redeemable non-controlling interests

We recognize redeemable non-controlling interests for the portion of the net assets of our consolidated T. Rowe Price investment products held by unrelated third-party investors as their interest is convertible to cash and other assets at their option. As such, we reflect redeemable non-controlling interests as temporary equity in our consolidated balance sheets.

Investments in T. Rowe Price money market mutual funds

We do not consider our investments in T. Rowe Price money market mutual funds when performing our consolidation analysis as the guidance provides a scope exception for interests in entities that are required to comply with, or operate in accordance with, requirements similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds.

CASH EQUIVALENTS.

Cash equivalents consist primarily of short-term, highly liquid investments in T. Rowe Price money market mutual funds. The cost of these funds is equivalent to fair value.

INVESTMENTS.

T. Rowe Price investment products that are accounted for as available-for-sale investments have been made for both general corporate investment purposes and to provide seed capital for newly formed products. These investments are carried at fair value using the quoted closing net asset value (NAV) per share of each fund as of the balance sheet date. Changes in net unrealized holding gains or losses on these investments are recognized in other comprehensive income.

We review the carrying amount of each investment on a quarterly basis and recognize an impairment charge in non-operating investment income whenever an unrealized loss is considered other than temporary. In determining whether a holding is other-than-temporarily impaired, we consider various factors, including the duration of time it has existed, the severity of the impairment, any subsequent changes in value, and our intent and ability to hold the investment for a period of time sufficient for an anticipated recovery in fair value. Subject to the other considerations noted above, we believe a holding with an unrealized loss that has persisted daily throughout the six months between quarter-ends is generally presumed to have an other-than-temporary impairment. We may also recognize an other-than-temporary impairment if particular circumstances of the underlying investment do not warrant our belief that a near-term recovery is possible.

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Equity method investments consist of investments in entities, including T. Rowe Price investment products, for which we have the ability to exercise significant influence over the operating and financial policies of the investee. The carrying values of these investments are adjusted to reflect our proportionate share of the investee's net income or loss, any unrealized gain or loss resulting from the translation of foreign-denominated financial statements into U.S. dollars, and dividends received. Our proportionate share of income or loss is included in non-operating income in our consolidated statements of income. As permitted under existing accounting guidance, we adopted a policy by which we recognize our share of UTI Asset Management Company Limited’s (UTI) earnings on a quarter lag as current financial information is not available in a timely manner. The basis difference between our carrying value and our proportionate share of UTI’s book value is primarily related to consideration paid in excess of the stepped-up basis of assets and liabilities on the date of purchase.

Cost method investments consist of investments in entities for which we do not exercise significant influence over the operating and financial policies of the investee. We evaluate our equity and cost method investments for impairment when events or changes in circumstances indicate that the carrying value of the investment exceeds its fair value, and the decline in fair value is other than temporary.

T. Rowe Price investment products held as trading include seed and discretionary investments in mutual funds and separately managed account products that are carried at fair value. These investments are valued in accordance with the valuation and pricing policy used to value our assets under management and as further described in the Revenue Recognition section below.

Investments held by consolidated T. Rowe Price investment products are considered trading securities that are carried at fair value with corresponding changes in the investments’ fair values reflected in non-operating income in our consolidated statements of income. These investments are valued in accordance with the valuation and pricing policy used to value our assets under management and further described in the Revenue Recognition section below.

CONCENTRATION OF RISK.

Concentration of credit risk in accounts receivable is believed to be minimal in that our clients generally have substantial assets, including those in the investment portfolios that we manage for them.

Our investments held as trading expose us to market risk, that is, the potential future loss of value that would result from a decline in the fair value of each investment or its underlying net assets. The underlying holdings of our assets under management are also subject to market risk, which may arise from changes in equity prices, credit ratings, foreign currency exchange rates, and interest rates.

PROPERTY AND EQUIPMENT.

Property and equipment is stated at cost net of accumulated depreciation and amortization computed using the straight-line method. Provisions for depreciation and amortization are based on the following weighted-average estimated useful lives: computer and communications software and equipment, 3 years; buildings and improvements, 32 years; leasehold improvements, 8 years; furniture and other equipment, 7 years; and leased land, 99 years.

GOODWILL.

We evaluate the carrying amount of goodwill in our consolidated balance sheets for possible impairment on an annual basis in the third quarter of each year using a fair value approach. Our evaluations have indicated that no impairment exists.

We internally conduct, manage, and report our operations as one investment advisory business. We do not have distinct operating segments or components that separately constitute a business. Accordingly, we attribute goodwill to a single reportable business segment and reporting unit—our investment advisory business.

REVENUE RECOGNITION.

Fees for investment advisory services, which are based on a percentage of assets under management, and related administrative services that we provide to investment advisory clients, including the T. Rowe Price U.S. mutual funds and other investment products, are recognized in the period that our services are provided.

Our assets under management are valued in accordance with a valuation and pricing policy that defines the valuation and pricing processes for each major type of investment held in T. Rowe Price U.S. mutual funds and other investment products. Fair values used in our processes are primarily determined from quoted market prices; prices furnished by dealers who make

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markets in such securities; or from data provided by an independent pricing service that considers yield or price of investments of comparable quality, coupon, maturity, and type. Investments for which market prices are not readily available are not a material portion of our total assets under management.

Distribution and servicing fees earned from 12b-1 plans of the Advisor Class, R Class, and Variable Annuity II Class shares of certain T. Rowe Price U.S. mutual funds are recognized in the period that they are earned, which is the same period that the related products recognize their expense. These fees are offset entirely by the distribution and servicing costs paid to third-party financial intermediaries that source the assets of these share classes.

We provide all services to the T. Rowe Price U.S. mutual funds under contracts that are subject to periodic review and approval by the funds’ Boards. Regulations require that the funds’ shareholders also approve material changes to investment advisory contracts.

Taxes billed to our clients based on our fees for services rendered are not included in revenues.

ADVERTISING.

Costs of advertising are expensed the first time that the advertising takes place.

STOCK-BASED COMPENSATION.

We maintain three stockholder-approved employee long-term incentive plans (2012 Long-Term Incentive Plan, 2004 Stock Incentive Plan, and 2001 Stock Incentive Plan, collectively the LTI Plans) and two stockholder-approved non-employee director plans (2007 Non-Employee Director Equity Plan and 2017 Non-Employee Director Equity Plan, collectively the Director Plans). We believe that our stock-based compensation programs align the interests of our employees and directors with those of our common stockholders. As of December 31, 2017, a total of 18,445,397 shares were available for future grant under the 2012 Long-Term Incentive Plan and the 2017 Non-Employee Director Equity Plan (2017 Plan).

Under our LTI Plans, we have issued restricted shares and restricted stock units to employees that settle in shares of our common stock after vesting. Vesting of these awards is based on the individual continuing to render service over an average 5.0 year graded schedule. All restricted shareholders and restricted stock unitholders receive non-forfeitable cash dividends and cash dividend equivalents, respectively, on our dividend payable date. We are also authorized to grant qualified incentive and nonqualified fixed stock options with a maximum term of 10 years. We have not granted options to employees since 2015.

We grant performance-based restricted stock units to certain executive officers in which the number of restricted stock units ultimately retained is determined based on achievement of certain performance thresholds. The number of restricted stock units retained is also subject to the same time-based vesting requirement as the other restricted stock units described above. Cash dividend equivalents are accrued and paid to the holders of performance-based restricted stock units only after the performance period has lapsed and the performance thresholds have been met.

Under the Director Plans, we may grant options with a maximum term of 10 years, restricted shares, and restricted stock units to non-employee directors. Under the 2017 Plan, awards generally vest over one year and, in the case of restricted stock units, are settled upon the non-employee directors’ departure from the Board. For restricted shares, cash dividends are accrued and paid on only after the award vests. Restricted stock unit holders receive dividend equivalents in the form of unvested stock units that vest over the same period as the underlying award. We did not grant options to non-employee directors in 2017.

We recognize the grant-date fair value of these awards as compensation expense ratably over the awards' requisite service period. Compensation expense recognized for performance-based restricted shares and units includes an estimate regarding the probability of the performance thresholds being met. Both time-based and performance-based units are valued on the grant-date using the closing market price of our common stock. The expense recognized prior to 2016 includes an estimate of awards that will be forfeited. Upon implementation of the new stock-based compensation accounting guidance in 2016, we elected to account for forfeitures as they occur.

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We used the following inputs to the Black-Scholes option-pricing model to estimate the fair value of each option granted in 2015 and 2016.

	Weighted-average
	2015				2016
Grant-date fair value per option awarded	$	17.35			$	10.62
Assumptions used:
Expected life in years	7.0				6.8
Expected volatility	27		%		20		%
Dividend yield	2.4		%		2.5		%
Risk-free interest rate	1.9		%		1.6		%

Our expected life assumptions are based on the vesting period for each option grant and our historical experience with respect to the average holding period from vesting to option exercise. The assumptions for expected volatility are based on historical experience for the same periods as our expected lives. Dividend yields are based on recent historical experience and future expectations. Risk-free interest rates are set using grant-date U.S. Treasury yield curves for the same periods as our expected lives.

EARNINGS PER SHARE.

We compute our basic and diluted earnings per share under the two-class method, which considers our outstanding restricted shares and stock units, on which we pay non-forfeitable dividends as if they were a separate class of stock.

COMPREHENSIVE INCOME.

The components of comprehensive income are presented in a separate statement following our consolidated statements of income and include net income, the change in net unrealized security holding gains (losses), and the change in our currency translation adjustments. The currency translation adjustments result from translating our proportionate share of the financial statements of UTI, our equity method investment, and certain consolidated T. Rowe Price investment products into U.S. dollars. Assets and liabilities are translated into U.S. dollars using year-end exchange rates, and revenues and expenses are translated using weighted-average exchange rates for the period.

The changes in accumulated balances of each component of other comprehensive income, the deferred tax impacts of each component, and information about significant items reclassified out of accumulated other comprehensive income are presented in the notes to the financial statements. The notes also indicate the line item of our consolidated statements of income to which the significant reclassifications were recognized.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1	– CASH EQUIVALENTS.

Cash equivalent investments in the T. Rowe Price money market mutual funds aggregate $1,052.3 million at December 31, 2016, and $1,726.4 million at December 31, 2017. Dividends earned on these investments totaled $.2 million in 2015, $.3 million in 2016, and $9.1 million in 2017.

NOTE 2	– INFORMATION ABOUT RECEIVABLES, REVENUES, AND SERVICES.

Accounts receivable from T. Rowe Price investment products, including the T. Rowe Price U.S. mutual funds, for advisory fees and advisory-related administrative services aggregate $303.1 million at December 31, 2016, and $365.3 million at December 31, 2017.

Revenues from advisory services provided under agreements with the T. Rowe Price U.S. mutual funds and other investment products include:

(in millions)	2015				2016				2017
T. Rowe Price U.S. mutual funds
Stock and blended asset	$	2,241.9			$	2,228.1			$	2,570.9
Bond and money market	426.0				477.3				501.0
	2,667.9				2,705.4				3,071.9
Other investment products
Stock and blended asset	862.2				850.3				1,009.4
Bond, money market, and stable value	157.2				173.0				206.4
	1,019.4				1,023.3				1,215.8
Total	$	3,687.3			$	3,728.7			$	4,287.7

Other investment products include advisory revenues of $367.8 million, $386.0 million, and $478.2 million for the year ended December 31, 2015, 2016, and 2017, respectively, that were earned on other T. Rowe Price products.

During 2015 and 2016, we voluntarily waived $47.6 million and $10.5 million, respectively, in money market related fees, including advisory fees and fund expenses in order to maintain a positive yield for investors. Money market related fee waivers were immaterial in 2017.

The following table summarizes the assets under management on which we earned advisory fees.

(in billions)	Average during												As of December 31,
	2015				2016				2017				2016				2017
T. Rowe Price U.S. mutual funds
Stock and blended asset	$	387.8			$	386.1			$	447.5			$	401.3			$	480.5
Bond and money market	105.8				109.4				121.0				112.9				125.8
	493.6				495.5				568.5				514.2				606.3
Other investment products
Stock and blended asset	210.3				211.1				256.4				220.8				291.9
Bond, money market, and stable value	64.0				71.6				84.1				75.8				92.9
	274.3				282.7				340.5				296.6				384.8
Total	$	767.9			$	778.2			$	909.0			$	810.8			$	991.1

Investors that we serve are primarily domiciled in the U.S.; investment advisory clients outside the U.S. account for 4.7% and 5.8% of our assets under management at December 31, 2016 and 2017, respectively.

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The following table summarizes the other fees we earned from the T. Rowe Price U.S. mutual funds.

(in millions)	2015				2016				2017
Administrative fees	$	292.8			$	277.3			$	283.1
Distribution and servicing fees	$	151.5			$	141.7			$	147.0

NOTE 3 – INVESTMENTS.

The carrying values of investments we do not consolidate at December 31 are as follows:

(in millions)	2016				2017
T. Rowe Price investment products held as available-for-sale	$	709.0			$	597.1
Equity method investments
T. Rowe Price investment products	252.3				277.4
26% interest in UTI Asset Management Company Limited (India)	140.9				155.8
Investment partnerships	5.3				4.8
Trading investments
T. Rowe Price investment products designated as an economic hedge of supplemental savings plan liability	—				268.2
T. Rowe Price investment products	75.4				95.0
Cost method investments	73.6				78.0
U.S. Treasury note	1.0				1.0
Total	$	1,257.5			$	1,477.3

At the end of the second quarter of 2017, we made the decision to economically hedge the market exposure associated with our supplemental savings plan liability with certain T. Rowe Price investment products. In order to fund the hedge portfolio, we used the proceeds from the sale of certain T. Rowe Price investment products held as available-for-sale as well as designated a T. Rowe Price U.S. mutual fund that was held as available-for-sale.

During the last three years, certain T. Rowe Price investment products in which we provided initial seed capital at the time of formation were deconsolidated, as we no longer had a controlling interest. Depending on our ownership interest, we are now reporting our residual interests in these T. Rowe Price investment products as either equity method or available-for-sale investments. Additionally, during 2016 and 2017, certain T. Rowe Price investment products that were being accounted for as equity method investments were consolidated, as we regained a controlling interest. The net impact of these changes on our consolidated balance sheets and income statements as of the dates the portfolios were deconsolidated or reconsolidated is detailed below.

(in millions)	2015				2016				2017
Net increase (decrease) in assets of consolidated T. Rowe Price investment products	$	(20.3	)		$	(1,342.8	)		$	(1,397.2	)
Net increase (decrease) in liabilities of consolidated T. Rowe Price investment products	$	—			$	(37.3	)		$	(153.1	)
Net increase (decrease) in redeemable non-controlling interests	$	—			$	(967.3	)		$	(1,042.6	)
Gains (losses) recognized upon deconsolidation	$	(5.8	)		$	2.2			$	.1

The losses and gains recognized upon deconsolidation were the result of reclassifying currency translation adjustments accumulated on certain T. Rowe Price investment products with non-USD functional currencies from accumulated other comprehensive income to non-operating income.

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T. ROWE PRICE INVESTMENT PRODUCTS - AVAILABLE-FOR-SALE

These investments include:

	Aggregate cost				Unrealized holding								Aggregate fair value
(in millions)		gains				losses
December 31, 2016
Stock and blended asset funds	$	162.9			$	88.0			$	(1.9	)		$	249.0
Bond funds	463.3				1.7				(5.0		)		460.0
Total	$	626.2			$	89.7			$	(6.9	)		$	709.0
December 31, 2017
Stock and blended asset funds	$	106.7			$	14.1			$	—			$	120.8
Bond funds	480.5				.3				(4.5		)		476.3
Total	$	587.2			$	14.4			$	(4.5	)		$	597.1

The following table details the number of holdings, the unrealized holding losses, and the aggregate fair value of T. Rowe Price investment products held as available-for-sale with unrealized losses categorized by the length of time they have been in a continuous unrealized loss position:

(in millions)	Number of holdings			Unrealized holding losses				Aggregate fair value
December 31, 2016
Less than 12 months	8			$	(4.2	)		$	328.1
12 months or more	2			(2.7		)		169.5
Total	10			$	(6.9	)		$	497.6
December 31, 2017
Less than 12 months	2			$	(.4	)		$	213.2
12 months or more	2			(4.1		)		191.5
Total	4			$	(4.5	)		$	404.7

In addition to the duration of the impairments, we reviewed the severity of the impairment as well as our intent and ability to hold the investments for a period of time sufficient for an anticipated recovery in fair value. Accordingly, impairment of these investment holdings was considered temporary at December 31, 2016 and 2017.

Dividends, excluding capital gain distributions, earned on these investments totaled $18.1 million in 2015, $8.7 million in 2016, and $8.2 million in 2017.

VARIABLE INTEREST ENTITIES.

Our investments at December 31, 2016 and 2017, include interests in variable interest entities that we do not consolidate as we are not deemed the primary beneficiary. Our maximum risk of loss related to our involvement with these entities is as follows:

(in millions)	2016				2017
Investment carrying values	$	149.2			$	129.2
Unfunded capital commitments	46.4				38.8
Uncollected investment advisory and administrative fees	5.9				7.7
	$	201.5			$	175.7

The unfunded capital commitments totaling $46.4 million and $38.8 million at December 31, 2016 and 2017, respectively, relate primarily to investment partnerships in which we have an existing investment. In addition to such amounts, a percentage of prior distributions may be called under certain circumstances.

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NOTE 4 – FAIR VALUE MEASUREMENTS.

We determine the fair value of our cash equivalents and certain investments using the following broad levels of inputs as defined by related accounting standards:

Level 1 – quoted prices in active markets for identical securities.

Level 2 – observable inputs other than Level 1 quoted prices including, but not limited to, quoted prices for similar securities, interest rates, prepayment speeds, and credit risk. These inputs are based on market data obtained from independent sources.

Level 3 – unobservable inputs reflecting our own assumptions based on the best information available. We do not value any investments using Level 3 inputs.

These levels are not necessarily an indication of the risk or liquidity associated with our investments. There have been no transfers between the levels. The following table summarizes our investments that are recognized in our consolidated balance sheets using fair value measurements determined based on the differing levels of inputs.

(in millions)	Level 1				Level 2
December 31, 2016
Cash equivalents	$	1,052.3			$	—
T. Rowe Price investment products held as available-for-sale	709.0				—
T. Rowe Price investment products held as trading	60.3				15.1
Total	$	1,821.6			$	15.1
December 31, 2017
Cash equivalents	$	1,726.4			$	—
T. Rowe Price investment products held as available-for-sale	597.1				—
T. Rowe Price investment products held as trading	345.8				17.4
Total	$	2,669.3			$	17.4

NOTE 5 – CONSOLIDATED T. ROWE PRICE INVESTMENT PRODUCTS.

The T. Rowe Price investment products that we consolidate in our consolidated financial statements are generally those products we provided initial seed capital at the time of their formation and have a controlling interest. Our T. Rowe Price U.S. mutual funds are considered voting interest entities, while those regulated outside the U.S. are considered variable interest entities.

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The following table details the net assets of the consolidated T. Rowe Price investment products:

	December 31, 2016												December 31, 2017
(in millions)	Voting interest entities				Variable interest entities				Total				Voting interest entities				Variable interest entities				Total
Cash and cash equivalents(1)	$	10.3			$	55.3			$	65.6			$	7.1			$	96.0			$	103.1
Investments(2)	219.3				1,340.6				1,559.9				188.8				1,725.7				1,914.5
Other assets	4.8				50.2				55.0				12.9				17.9				30.8
Total assets	234.4				1,446.1				1,680.5				208.8				1,839.6				2,048.4
Liabilities	8.8				56.8				65.6				16.4				39.5				55.9
Net assets	$	225.6			$	1,389.3			$	1,614.9			$	192.4			$	1,800.1			$	1,992.5
Attributable to T. Rowe Price Group	$	156.1			$	771.6			$	927.7			$	131.6			$	868.1			$	999.7
Attributable to redeemable non-controlling interests	69.5				617.7				687.2				60.8				932.0				992.8
	$	225.6			$	1,389.3			$	1,614.9			$	192.4			$	1,800.1			$	1,992.5

(1)Cash and cash equivalents includes $8.8 million and $6.2 million at December 31, 2016 and 2017, respectively, of investments in T. Rowe Price money market mutual funds.

(2)Investments include $4.2 million and $15.0 million at December 31, 2016 and 2017, respectively, of T. Rowe Price investment products.

Although we can redeem our net interest in these T. Rowe Price investment products at any time, we cannot directly access or sell the assets held by these products to obtain cash for general operations. Additionally, the assets of these investment products are not available to our general creditors.

Since third-party investors in these investment products have no recourse to our credit, our overall risk related to the net assets of consolidated T. Rowe Price investment products is limited to valuation changes associated with our net interest. We, however, are required to recognize the valuation changes associated with all underlying investments held by these products in our consolidated statements of income and disclose the portion attributable to third-party investors as net income attributable to redeemable non-controlling interests.

The operating results of the consolidated T. Rowe Price investment products, are reflected in our consolidated statements of income as follows:

	2016												2017
(in millions)	Voting interest entities				Variable interest entities				Total				Voting interest entities				Variable interest entities				Total
Operating expenses reflected in net operating income	$	(1.6	)		$	(11.4	)		$	(13.0	)		$	(1.1	)		$	(11.2	)		$	(12.3	)
Net investment income reflected in non-operating income	22.5				98.6				121.1				18.8				175.1				193.9
Impact on income before taxes	$	20.9			$	87.2			$	108.1			$	17.7			$	163.9			$	181.6
Net income attributable to T. Rowe Price Group	$	15.0			$	54.1			$	69.1			$	13.3			$	84.9			$	98.2
Net income attributable to redeemable non-controlling interests	5.9				33.1				39.0				4.4				79.0				83.4
	$	20.9			$	87.2			$	108.1			$	17.7			$	163.9			$	181.6

The operating expenses of these consolidated products are reflected in other operating expenses. In preparing our consolidated financial statements, we eliminated operating expenses of $6.5 million and $5.6 million in 2016 and 2017, respectively, against the investment advisory and administrative fees earned from these products. The net investment income reflected in non-operating income includes dividend and interest income and realized and unrealized gains and losses on the underlying securities held by the consolidated T. Rowe Price investment products.

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The table below details the impact of these consolidated investment products on the individual lines of our consolidated statements of cash flows as follows:

	2016												2017
(in millions)	Voting interest entities				Variable interest entities				Total				Voting interest entities				Variable interest entities				Total
Net cash provided by (used in) operating activities	$	(80.1	)		$	(1,086.5	)		$	(1,166.6	)		$	(33.0	)		$	(1,282.3	)		$	(1,315.3	)
Net cash provided by (used in) investing activities	21.6				19.8				41.4				(9.0		)		(55.2		)		(64.2		)
Net cash provided by (used in) financing activities	68.8				1,124.1				1,192.9				38.8				1,372.9				1,411.7
Effect of exchange rate changes on cash and cash equivalents of consolidated T. Rowe Price investment products	—				(2.1		)		(2.1		)		—				5.3				5.3
Net change in cash and cash equivalents during period	10.3				55.3				65.6				(3.2		)		40.7				37.5
Cash and cash equivalents at beginning of year	—				—				—				10.3				55.3				65.6
Cash and cash equivalents at end of year	$	10.3			$	55.3			$	65.6			$	7.1			$	96.0			$	103.1

The net cash provided by financing activities during 2016 and 2017, includes $277.9 million and $130.1 million, respectively, of net subscriptions we made into the consolidated T. Rowe Price investment products, net of dividends received. These cash flows were eliminated in consolidation.

FAIR VALUE MEASUREMENTS.

We determine the fair value of investments held by consolidated T. Rowe Price investment products using the following broad levels of inputs as defined by related accounting standards:

Level 1 – quoted prices in active markets for identical securities.

Level 2 – observable inputs other than Level 1 quoted prices including, but not limited to, quoted prices for similar securities, interest rates, prepayment speeds, and credit risk. These inputs are based on market data obtained from independent sources.

Level 3 – unobservable inputs reflecting our own assumptions based on the best information available. The value of investments using Level 3 inputs is insignificant.

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These levels are not necessarily an indication of the risk or liquidity associated with these investment holdings. There have been no material transfers between the levels during 2016 and 2017. The following table summarizes the investment holdings held by our consolidated T. Rowe Price investment products using fair value measurements determined based on the differing levels of inputs.

(in millions)	Level 1				Level 2
December 31, 2016
Assets
Cash equivalents	$	8.8			$	.8
Equity securities	281.8				325.3
Fixed income securities	—				918.1
Other investments	.4				34.3
	$	291.0			$	1,278.5
Liabilities	$	(.6	)		$	(13.6	)
December 31, 2017
Assets
Cash equivalents	$	6.2			$	.7
Equity securities	536.0				667.5
Fixed income securities	—				687.4
Other investments	1.3				22.3
	$	543.5			$	1,377.9
Liabilities	$	(.1	)		$	(13.7	)

NOTE 6 – PROPERTY AND EQUIPMENT.

Property and equipment at December 31 consists of:

(in millions)	2016				2017
Computer and communications software and equipment	$	704.0			$	824.4
Buildings and improvements	422.0				442.5
Leasehold improvements	108.2				121.0
Furniture and other equipment	158.3				168.9
Land	40.3				37.4
Leased land	2.7				2.7
	1,435.5				1,596.9
Less accumulated depreciation and amortization	820.4				944.9
Total	$	615.1			$	652.0

Compensation and related costs attributable to the development of computer software for internal use totaling $22.3 million in 2015, $28.9 million in 2016, and $62.3 million in 2017 have been capitalized.

We occupy certain office facilities and lease computer and other equipment under noncancelable operating leases. Related rental expense was $31.1 million in 2015, $32.8 million in 2016, and $36.0 million in 2017. Future minimum payments under these leases aggregate $37.8 million in 2018, $37.2 million in 2019, $32.9 million in 2020, $29.6 million in 2021, $24.6 million in 2022, and $100.5 million in later years.

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NOTE 7	– INCOME TAXES.

The provision for income taxes consists of:

(in millions)	2015				2016				2017
Current income taxes
U.S. federal	$	669.5			$	573.7			$	708.1
State and local	134.3				105.8				131.0
Foreign	18.9				13.5				13.1
Deferred income taxes (tax benefits)	(43.3		)		13.5				71.7
Total	$	779.4			$	706.5			$	923.9

Our income tax provision for 2017 includes a non-recurring charge of $71.1 million to reflect the effect of the U.S. tax law changes enacted on December 22, 2017. The recognized charge is our reasonable estimate based on current interpretation of the tax law changes and includes $18.9 million for the remeasurement of our deferred tax assets and liabilities, and a $52.2 million U.S. federal and state tax charge for the mandatory deemed repatriation of foreign sourced net earnings. The federal tax portion will be payable over the next 8 years. We will continue to evaluate the impact of the tax law changes on our estimates and expectations due to changes in our interpretations of the law, assumptions used in applying the law, and additional guidance concerning the law that may be issued. We will report any applicable adjustments to these estimates in 2018 after our estimates are finalized.

Deferred income taxes and benefits arise from temporary differences between taxable income for financial statement and income tax return purposes. The deferred income taxes (tax benefits) recognized as part of our provision for income taxes is related to:

(in millions)	2015				2016				2017
Property and equipment	$	(2.3	)		$	3.2			$	(3.9	)
Stock-based compensation	(14.6		)		1.3				72.4
Accrued compensation	(.9		)		(1.7		)		1.2
Supplemental savings plan liability	(27.4		)		(30.9		)		(8.3		)
Other-than-temporary impairments of available-for-sale investments	(.4		)		10.0				7.3
Unrealized holding gains recognized in non-operating income	(2.4		)		31.6				10.7
Other	4.7				—				(7.7		)
Total deferred income taxes (tax benefits)	$	(43.3	)		$	13.5			$	71.7

The following table reconciles the statutory federal income tax rate to our effective income tax rate.

	2015			2016			2017
Statutory U.S. federal income tax rate	35.0	%		35.0	%		35.0	%
Impact of U.S. tax reform	—			—			2.9
State income taxes for current year, net of federal income tax benefits(1)	4.3			3.8			3.9
Net income attributable to redeemable non-controlling interests	—			(.7	)		(1.3	)
Net excess tax benefits from stock-based compensation plans activity	—			(1.7	)		(3.0	)
Other items	(.4	)		(.4	)		(.6	)
Effective income tax rate	38.9	%		36.0	%		36.9	%

(1)In 2017, state income benefits totaling (.4)% are reflected in the total benefits for net income attributable to redeemable non-controlling interests and stock-based compensation plans activity. The amounts were not material in 2015 and 2016.

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The net deferred tax assets recognized in our consolidated balance sheets in other assets as of December 31 relate to the following:

(in millions)	2016				2017
Deferred tax liabilities
Property and equipment	$	(39.2	)		$	(35.3	)
Net unrealized holding gains recognized in income	(43.2		)		(53.9		)
Net unrealized holding gains on investments held as available-for-sale	(33.4		)		(3.1		)
Other	(27.5		)		(18.9		)
	(143.3		)		(111.2		)
Deferred tax assets
Stock-based compensation	165.1				92.7
Asset impairments	16.1				8.8
Accrued compensation	5.6				4.4
Supplemental savings plan	58.3				66.6
Currency translation adjustment	23.0				2.2
Other	7.7				6.8
	275.8				181.5
Net deferred tax asset	$	132.5			$	70.3

We have not recognized a state deferred tax liability for unremitted earnings of our foreign subsidiaries as T. Rowe Price intends to indefinitely reinvest these earnings outside the U.S. The unremitted earnings of these subsidiaries are estimated to be approximately $604 million at December 31, 2017. If these earnings were distributed to the U.S. in the form of dividends or otherwise, or if any of the entities were sold or otherwise transferred, we would be subject to state and local income taxes. Determination of the amount of the unrecognized deferred state liability related to these earnings is not practicable.

Other assets include tax refund receivables of $8.1 million at December 31, 2016, and $43.2 million at December 31, 2017.

Cash outflows from operating activities include net income taxes paid of $778.6 million in 2015, $680.6 million in 2016, and $857.7 million in 2017.

Additional income tax benefit arising from stock-based compensation plans activity totaling $23.2 million in 2015, $31.6 million in 2016, and $75.5 million in 2017 reduced the amount of income taxes that would have otherwise been payable. The income tax benefits for 2016 and 2017 were recognized in the income tax provision compared with additional paid in capital in 2015.

The following table summarizes the changes in our unrecognized tax benefits.

(in millions)	2015				2016				2017
Balance at beginning of year	$	5.6			$	5.8			$	6.2
Changes in tax positions related to
Current year	.7				.6				1.5
Prior years	1.8				—				.1
Expired statute of limitations	(2.3		)		(.2		)		(.2		)
Balance at end of year	$	5.8			$	6.2			$	7.6

If recognized, these tax benefits would affect our effective tax rate; however, we do not expect that unrecognized tax benefits for tax positions taken with respect to 2017 and prior years will significantly change in 2018. The U.S. has concluded examinations related to federal tax obligations through the year 2015. A net interest payable related to our unrecognized tax benefits of $1.2 million at December 31, 2016, and $1.5 million at December 31, 2017, are recognized in our consolidated balance sheets. Our accounting policy with respect to interest and penalties arising from income tax settlements is to recognize them as part of our provision for income taxes. Interest recognized as part of our provision for income taxes was not material.

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NOTE 8	– STOCKHOLDERS' EQUITY.

SHARE REPURCHASES.

The Board of Directors has authorized the future repurchase of up to 15,183,779 common shares as of December 31, 2017.

DIVIDENDS.

Regular cash dividends declared per share were $2.08 in 2015, $2.16 in 2016, and $2.28 in 2017. A $2.00 per share special dividend was also declared and paid during 2015.

RESTRICTED CAPITAL.

Our consolidated stockholders' equity at December 31, 2017, includes about $142 million that is restricted as to use by various regulations and agreements arising in the ordinary course of our business.

NOTE 9	– STOCK-BASED COMPENSATION.

SHARES AUTHORIZED FOR STOCK-BASED COMPENSATION PROGRAMS.

At December 31, 2017, a total of 39,301,717 shares of unissued common stock were authorized for issuance under our stock-based compensation plans. Additionally, a total of 2,693,679 shares are authorized for issuance under a plan whereby substantially all employees may acquire common stock through payroll deductions at prevailing market prices.

STOCK OPTIONS.

The following table summarizes the status of, and changes in, our stock options during 2017.

	Options			Weighted- average exercise price				Weighted-average remaining contractual term in years
Outstanding at December 31, 2016	24,364,322			$	61.90
Exercised	(8,977,164	)		$	53.04
Forfeited	(126,404	)		$	75.16
Expired	(39,631	)		$	76.06
Outstanding at December 31, 2017	15,221,123			$	66.98			5.1
Exercisable at December 31, 2017	11,140,190			$	63.79			4.5

Compensation and related costs includes a charge for stock option-based compensation expense of $63.7 million in 2015, $44.9 million in 2016, and $28.1 million in 2017.

The total intrinsic value of options exercised was $108.1 million in 2015, $150.5 million in 2016, and $293.0 million in 2017. At December 31, 2017, the aggregate intrinsic value of in-the-money options outstanding was $577.6 million, including $458.3 million related to options exercisable.

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RESTRICTED SHARES AND STOCK UNITS.

The following table summarizes the status of, and changes in, our nonvested restricted shares and restricted stock units during 2017.

	Restricted shares			Restricted stock units			Weighted- average fair value
Nonvested at December 31, 2016	931,508			4,634,461			$	72.19
Time-based grants	17,022			2,026,176			$	100.24
Performance-based grants	—			114,454			$	101.79
Vested (value at vest date was $164.5 million)	(455,958	)		(1,111,857	)		$	71.77
Forfeited	(19,457	)		(106,323	)		$	72.32
Nonvested at December 31, 2017	473,115			5,556,911			$	82.37

Nonvested at December 31, 2017, includes 7,200 performance-based restricted shares and 407,808 performance-based restricted stock units. These nonvested performance-based restricted shares and units include 7,200 shares and 293,354 units for which the performance period has lapsed and the performance threshold has been met.

Compensation and related costs includes expenses for restricted shares and restricted stock units of $85.3 million in 2015, $116.7 million in 2016, and $124.0 million in 2017.

At December 31, 2017, non-employee directors held 78,286 vested stock units that will convert to common shares upon their separation from the Board.

FUTURE STOCK-BASED COMPENSATION EXPENSE.

The following table presents the compensation expense (in millions) to be recognized over the remaining vesting periods of the stock-based awards outstanding at December 31, 2017. Estimated future compensation expense will change to reflect future grants changes in the probability of performance thresholds being met, and adjustments for actual forfeitures.

First quarter 2018	$	47.3
Second quarter 2018	46.7
Third quarter 2018	46.0
Fourth quarter 2018	40.3
Total 2018	180.3
2019 through 2023	176.1
Total	$	356.4

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NOTE 10	– EARNINGS PER SHARE CALCULATIONS.

The following table presents the reconciliation of net income attributable to T. Rowe Price Group to net income allocated to our common stockholders and the weighted-average shares that are used in calculating the basic and diluted earnings per share on our common stock. Weighted-average common shares outstanding assuming dilution reflect the potential dilution, determined using the treasury stock method, that could occur if outstanding stock options were exercised and non-participating stock awards vested.

(in millions)	2015				2016				2017
Net income attributable to T. Rowe Price Group	$	1,223.0			$	1,215.0			$	1,497.8
Less: net income allocated to outstanding restricted stock and stock unit holders	16.1				25.5				33.9
Net income allocated to common stockholders	$	1,206.9			$	1,189.5			$	1,463.9
Weighted-average common shares
Outstanding	254.6				245.5				241.2
Outstanding assuming dilution	260.9				250.3				245.1

The following table shows the weighted-average outstanding stock options that are excluded from the calculation of diluted earnings per common share as the inclusion of such shares would be anti-dilutive.

(in millions)	2015			2016			2017
Weighted-average outstanding stock options excluded	6.4			9.9			5.0

NOTE 11	– OTHER COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME.

The following table presents the impact of the components of other comprehensive income or loss on deferred tax benefits (income taxes).

(in millions)	2015				2016				2017
Net deferred tax benefits (income taxes) on:
Net unrealized holding gains or losses	$	5.1			$	.6			$	(14.6	)
Reclassification adjustments recognized in the provision for income taxes:
Capital gain distributions	7.9				2.4				1.4
Net gains realized on dispositions	20.7				20.9				32.5
Net gains recognized upon transfer to trading investments	—				—				9.2
Other-than-temporary impairments	(1.9		)		—				—
Net deferred tax benefits (income taxes) on net unrealized holding gains or losses	31.8				23.9				28.5
Currency translation adjustments	3.8				3.5				(18.5		)
Reclassification adjustment recognized in the provision for income taxes upon deconsolidation of T. Rowe Price investment product	(1.2		)		.8				—
Total deferred tax benefits (income taxes) on currency translation adjustments	2.6				4.3				(18.5		)
Total net deferred tax benefits (income taxes)	$	34.4			$	28.2			$	10.0

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The changes in each component of accumulated other comprehensive income (loss), including reclassification are presented below.

						Currency translation adjustments
(in millions)		Net unrealized holding gains				Equity method investments				Consolidated T. Rowe Price investment products - variable interest entities				Total currency translation adjustments				Total
Balances at December 31, 2014		$	165.5			$	(25.7	)		$	(3.4	)		$	(29.1	)		$	136.4
Other comprehensive income (loss) before reclassifications and income taxes		(4.5		)		(8.1		)		(4.9		)		(13.0		)		(17.5		)
Reclassification adjustments recognized in non-operating income		(72.5		)		—				5.8				5.8				(66.7		)
		(77.0		)		(8.1		)		.9				(7.2		)		(84.2		)
Net deferred tax benefits (income taxes)		31.8				2.9				(.3		)		2.6				34.4
Other comprehensive income (loss)		(45.2		)		(5.2		)		.6				(4.6		)		(49.8		)
Balances at December 31, 2015		120.3				(30.9		)		(2.8		)		(33.7		)		86.6
Reclassification of accumulated other comprehensive income to retained earnings upon adoption of the new consolidation accounting guidance		(32.0		)		(.5		)		—				(.5		)		(32.5		)
Balance at January 1, 2016		88.3				(31.4		)		(2.8		)		(34.2		)		54.1
Other comprehensive income (loss) before reclassifications and income taxes		(7.0		)		(1.6		)		(7.0		)		(8.6		)		(15.6		)
Reclassification adjustments recognized in non-operating income		(53.0		)		—				(2.2		)		(2.2		)		(55.2		)
		(60.0		)		(1.6		)		(9.2		)		(10.8		)		(70.8		)
Net deferred tax benefits (income taxes)		23.9				.7				3.6				4.3				28.2
Other comprehensive income (loss)		(36.1		)		(.9		)		(5.6		)		(6.5		)		(42.6		)
Balances at December 31, 2016		52.2				(32.3		)		(8.4		)		(40.7		)		11.5
Other comprehensive income (loss) before reclassifications and income taxes		37.4				2.6				45.2				47.8				85.2
Reclassification adjustments recognized in non-operating income		(110.2		)		—				(.1		)		(.1		)		(110.3		)
		(72.8		)		2.6				45.1				47.7				(25.1		)
Net deferred tax benefits (income taxes)		28.5				(.9		)		(17.6		)		(18.5		)		10.0
Other comprehensive income (loss)		(44.3		)		1.7				27.5				29.2				(15.1		)
Balances at December 31, 2017		$	7.9			$	(30.6	)		$	19.1			$	(11.5	)		$	(3.6	)

NOTE 12 – DELL APPRAISAL RIGHTS MATTER.

In 2016, we paid $166.2 million to compensate certain T. Rowe Price mutual funds, trusts, separately managed accounts, and subadvised clients (collectively, Clients) for the denial of their appraisal rights by the Delaware Chancery Court (Court) in connection with the 2013 leveraged buyout of Dell, Inc. (Dell).

The Court ruled on May 11, 2016, that the Clients could not pursue an appraisal of any shares they held that were voted in favor of the Dell merger. The appraisal statute governing the transaction required the record holder to vote against or abstain from voting on the transaction in order to assert appraisal rights. After previously voting against prior transaction proposals, the voting instructions submitted on behalf of the Clients in connection with voting on the final proposed transaction were incorrectly submitted in favor of the transaction. On May 31, 2016, the Court determined that the fair value of Dell at the time of the merger was $17.62 per share, as opposed to the $13.75 price offered in the transaction. As a result, any shareholder perfecting appraisal rights is entitled to a payment at $17.62 per share plus statutory interest from the date the Dell transaction closed subject to possible appeal of the Court’s decision. The compensation to Clients was intended to make them whole for the voting discrepancy that resulted in the denial of their appraisal rights.

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On December 30, 2016, we entered into a settlement agreement for $100.0 million with our insurance carrier for insurance proceeds related to this matter. We recognized the proceeds as a reduction to the $166.2 million nonrecurring charge that we recognized earlier in 2016 and received the proceeds in January 2017. We received an additional $50 million in insurance proceeds from other insurance carriers in early 2017 and recognized a related reduction in operating expenses.

In accordance with the compensation payment, the Clients agreed that in the event the findings made by the Court regarding the fair value of Dell or the amount of interest to be applied were modified by a final, non-appealable judgment, T. Rowe Price and the Clients would make an appropriate adjustment between themselves, calculated in a manner that is consistent with the methodology used to compensate Clients. In December 2016, several parties, including Dell and the successful appraisal petitioners, filed appeals to the Delaware Supreme Court to challenge the Court’s valuation ruling. On December 14, 2017, the Delaware Supreme Court reversed the Court's judgment and remanded the case for further proceedings. It is not clear how the Court will eventually rule and what the ultimate valuation will be, although the Supreme Court’s opinion suggests that the deal price of $13.75 may be the ultimate outcome.

Once the Court enters a final, non-appealable judgment, Clients will be required to repay any overpayment using the methodology used to calculate the original payment. We estimate that the first $15.2 million reclaimed from our Clients would be paid back to T. Rowe Price Group. We would then be required to repay any additional reclaimed funds to our insurers in a specific order.

NOTE 13 – COMMITMENTS AND CONTINGENCIES.

On February 14, 2017, T. Rowe Price Group, Inc., T. Rowe Price Associates, Inc., T. Rowe Price Trust Company, current and former members of the management committee, and trustees of the T. Rowe Price U.S. Retirement Program were named as defendants in a lawsuit filed in the United States District Court for the District of Maryland. The lawsuit alleges breaches of ERISA’s fiduciary duty and prohibited transaction provisions on behalf of a class of all participants and beneficiaries of the T. Rowe Price 401(k) Plan from February 14, 2011, to the time of judgment. The plaintiffs are seeking certification of the complaint as a class action. T. Rowe Price believes the claims are without merit and is vigorously defending the action. This matter is in the early stages of litigation and we cannot predict the eventual outcome or whether it will have a material negative impact on our financial results, or estimate the possible loss or range of loss that may arise from any negative outcome.

On April 27, 2016, certain shareholders in the T. Rowe Price Blue Chip Growth Fund, T. Rowe Price Capital Appreciation Fund, T. Rowe Price Equity Income Fund, T. Rowe Price Growth Stock Fund, T. Rowe Price International Stock Fund, T. Rowe Price High Yield Fund, T. Rowe Price New Income Fund and T. Rowe Price Small Cap Stock Fund (the “Funds”) filed a Section 36(b) complaint under the caption Zoidis v. T. Rowe Price Assoc., Inc., against T. Rowe Price Associates, Inc. (“T. Rowe Price”) in the United States District Court for the Northern District of California. The complaint alleges that the management fees for the identified funds are excessive because T. Rowe Price charges lower advisory fees to subadvised clients with funds in the same strategy. The complaint seeks to recover the allegedly excessive advisory fees received by T. Rowe Price in the year preceding the start of the lawsuit, along with investments’ returns and profits. In the alternative, the complaint seeks the rescission of each fund’s investment management agreement and restitution of any allegedly excessive management fees. T. Rowe Price believes the claims are without merit and is vigorously defending the action. This matter is in the early stages of litigation and we cannot predict the eventual outcome or whether it will have a material negative impact on our financial results, or estimate the possible loss or range of loss that may arise from any negative outcome.

In addition to the matters discussed above, various claims against us arise in the ordinary course of business, including employment-related claims. In the opinion of management, after consultation with counsel, the likelihood of an adverse determination in one or more of these pending ordinary course of business claims that would have a material adverse effect on our financial position or results of operations is remote.

NOTE 14	– OTHER DISCLOSURES.

RETIREMENT PLANS.

Compensation and related costs includes expense recognized for our defined contribution retirement plans of $74.9 million in 2015, $80.7 million in 2016, and $89.4 million in 2017.

SUPPLEMENTAL SAVINGS PLAN.

The Supplemental Savings Plan provides certain senior officers the opportunity to defer receipt of up to 100% of their cash incentive compensation earned for a respective calendar year during which services are provided. The amounts deferred are

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adjusted in accordance with the hypothetical investments chosen by the officer from a list of mutual funds. The officer can initially defer these amounts for a period of two to 15 years. For 2015, 2016 and 2017, senior officers elected to defer $72.8 million, $83.4 million, and $95.5 million, respectively.

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NOTE 15 – SUPPLEMENTARY CONSOLIDATING CASH FLOW STATEMENT.

The following table summarizes the cash flows that are attributable to T. Rowe Price Group, our consolidated T. Rowe Price investment products, and the related eliminations required in preparing the statement.

	2016																2017
(in millions)	Cash flow attributable to T. Rowe Price Group				Cash flow attributable to consolidated T. Rowe Price investment products				Eliminations				As reported				Cash flow attributable to T. Rowe Price Group				Cash flow attributable to consolidated T. Rowe Price investment products				Eliminations				As reported
Cash flows from operating activities
Net income	$	1,215.0			$	108.1			$	(69.1	)		$	1,254.0			$	1,497.8			$	181.6			$	(98.2	)		$	1,581.2
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Depreciation and amortization of property and equipment	133.4				—				—				133.4				143.6				—				—				143.6
Stock-based compensation expense	161.6				—				—				161.6				152.0				—				—				152.0
Realized gains on dispositions of available-for-sale T. Rowe Price investment products	(53.0		)		—				—				(53.0		)		(83.1		)		—				—				(83.1		)
Gains recognized upon transfer of an available-for-sale T. Rowe Price investment products to T. Rowe Price investment products held as trading	—				—				—				—				(23.6		)		—				—				(23.6		)
Net gains recognized on investments	(100.1		)		—				69.1				(31.0		)		(147.9		)		—				98.2				(49.7		)
Investments in T. Rowe Price mutual funds held as trading to economically hedge supplemental savings plan liability	—				—				—				—				(218.6		)		—				—				(218.6		)
Net change in trading securities held by consolidated T. Rowe Price investment products	—				(1,297.9		)		—				(1,297.9		)		—				(1,492.9		)		—				(1,492.9		)
Changes in accounts receivable and accrued revenue	(9.3		)		—				—				(9.3		)		(100.8		)		—				—				(100.8		)
Changes in payables and accrued liabilities	101.5				37.1				—				138.6				169.1				154.3				—				323.4
Other changes in assets and liabilities	(105.4		)		(13.9		)		(6.6		)		(125.9		)		163.3				(158.3		)		(7.0		)		(2.0		)
Net cash provided by (used in) operating activities	1,343.7				(1,166.6		)		(6.6		)		170.5				1,551.8				(1,315.3		)		(7.0		)		229.5
Net cash provided by (used in) investing activities	(219.7		)		41.4				284.5				106.2				(33.9		)		(64.2		)		137.1				39.0
Net cash used in financing activities attributable to T. Rowe Price Group	(1,091.4		)		—				—				(1,091.4		)		(820.1		)		—				—				(820.1		)
Net subscriptions received from redeemable non-controlling interest holders	—				1,192.9				(277.9		)		915.0				—				1,411.7				(130.1		)		1,281.6
Net cash provided by (used in) financing activities	(1,091.4		)		1,192.9				(277.9		)		(176.4		)		(820.1		)		1,411.7				(130.1		)		461.5
Effect of exchange rate changes on cash and cash equivalents of consolidated T. Rowe Price investment products	—				(2.1		)		—				(2.1		)		—				5.3				—				5.3
Net change in cash and cash equivalents during period	32.6				65.6				—				98.2				697.8				37.5				—				735.3
Cash and cash equivalents at beginning of year	1,172.3				—				—				1,172.3				1,204.9				65.6				—				1,270.5
Cash and cash equivalents at end of period	$	1,204.9			$	65.6			$	—			$	1,270.5			$	1,902.7			$	103.1			$	—			$	2,005.8

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NOTE 16	– SUPPLEMENTARY QUARTERLY FINANCIAL DATA (Unaudited).

	Net revenues				Net income(2)			Net income attributable to T. Rowe Price Group(2)				Basic earnings on common stock(1)				Diluted earnings on common stock(1),(2)
	(in millions)											(per share)
2016
1st quarter	$	994.1			$	313.3		$	304.1			$	1.21			$	1.18
2nd quarter	$	1,044.7			$	211.2		$	203.3			$	.81			$	.79
3rd quarter	$	1,092.9			$	362.7		$	327.8			$	1.30			$	1.28
4th quarter	$	1,091.2			$	366.8		$	379.8			$	1.53			$	1.50
2017
1st quarter	$	1,113.6			$	400.4		$	385.9			$	1.56			$	1.54
2nd quarter	$	1,171.6			$	390.0		$	373.9			$	1.52			$	1.50
3rd quarter	$	1,221.7			$	404.2		$	390.9			$	1.59			$	1.56
4th quarter	$	1,286.1			$	386.6		$	347.1			$	1.40			$	1.37

(1)The sums of quarterly earnings per share may not equal annual earnings per share because the computations are done independently.

(2)The second quarter of 2016 includes a nonrecurring operating charge of $166.2 million, or $.39 in diluted earnings per share, related to our decision to compensate certain clients in regard to the Dell appraisal rights matter. In the fourth quarter of 2016, we recognized an offset to this charge for a related insurance recovery of $100 million, or $.24 in diluted earnings per share. During the first quarter of 2017, we recognized an additional $50 million in insurance recoveries, or $.12 in diluted earnings per share relating to the Dell matter. For more details related to the Dell appraisal rights matter, see Note 12 to the consolidated financial statements. During the fourth quarter of 2017, we recognized a nonrecurring charge of $71.1 million related to the U.S. tax law changes that were enacted on December 22, 2017. See Note 7 to the consolidated financial statements for further details.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and board of directors

T. Rowe Price Group, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of T. Rowe Price Group, Inc. and subsidiaries (the “Company”) as of December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 16, 2018, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ KPMG LLP

We have served as the Company’s auditor since 2001.

Baltimore, Maryland

February 16, 2018

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