filings.toolsItem 1. Financial Statements.
102K characters. Original on sec.gov · Markdown
Item 1. Financial Statements.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
| 9/30/2022 | 12/31/2021 | |||||||||||||
| ASSETS | ||||||||||||||
| Cash and cash equivalents | $ | 2,366.3 | $ | 1,523.1 | ||||||||||
| Accounts receivable and accrued revenue | 741.4 | 1,058.3 | ||||||||||||
| Investments | 2,480.2 | 2,975.5 | ||||||||||||
| Assets of consolidated T. Rowe Price investment products ($1,234.8 million at September 30, 2022 and $1,761.5 million at December 31, 2021, related to variable interest entities) | 1,284.3 | 1,962.8 | ||||||||||||
| Operating lease assets | 282.8 | 201.2 | ||||||||||||
| Property, equipment and software, net | 752.8 | 736.2 | ||||||||||||
| Intangible assets, net | 832.0 | 913.4 | ||||||||||||
| Goodwill | 2,652.4 | 2,693.2 | ||||||||||||
| Other assets | 601.0 | 445.3 | ||||||||||||
| Total assets | $ | 11,993.2 | $ | 12,509.0 | ||||||||||
| LIABILITIES | ||||||||||||||
| Accounts payable and accrued expenses | $ | 382.8 | $ | 431.0 | ||||||||||
| Liabilities of consolidated T. Rowe Price investment products ($41.6 million at September 30, 2022 and $36.2 million at December 31, 2021, related to variable interest entities) | 47.5 | 51.5 | ||||||||||||
| Operating lease liabilities | 320.0 | 249.2 | ||||||||||||
| Accrued compensation and related costs | 701.1 | 256.8 | ||||||||||||
| Supplemental savings plan liability | 676.9 | 882.6 | ||||||||||||
| Contingent consideration liability | 131.3 | 306.3 | ||||||||||||
| Income taxes payable | 38.3 | 77.9 | ||||||||||||
| Total liabilities | 2,297.9 | 2,255.3 | ||||||||||||
| Commitments and contingent liabilities | ||||||||||||||
| Redeemable non-controlling interests | 580.8 | 982.3 | ||||||||||||
| 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 223,920,000 shares at September 30, 2022 and 229,175,000 at December 31, 2021 | 44.8 | 45.8 | ||||||||||||
| Additional capital in excess of par value | 499.3 | 919.8 | ||||||||||||
| Retained earnings | 8,419.9 | 8,083.6 | ||||||||||||
| Accumulated other comprehensive loss | (56.5) | (26.5) | ||||||||||||
| Total stockholders’ equity attributable to T. Rowe Price Group, Inc. | 8,907.5 | 9,022.7 | ||||||||||||
| Non-controlling interests in consolidated entities | 207.0 | 248.7 | ||||||||||||
| Total stockholders’ equity | 9,114.5 | 9,271.4 | ||||||||||||
| Total liabilities, redeemable non-controlling interests, and stockholders’ equity | $ | 11,993.2 | $ | 12,509.0 |
The accompanying notes are an integral part of these statements.
Page 2
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per-share amounts)
| Three months ended | Nine months ended | ||||||||||||||||||||||
| 9/30/2022 | 9/30/2021 | 9/30/2022 | 9/30/2021 | ||||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| Investment advisory fees | $ | 1,442.0 | $ | 1,813.4 | $ | 4,600.8 | $ | 5,288.4 | |||||||||||||||
| Capital allocation-based income | 1.1 | — | (80.8) | — | |||||||||||||||||||
| Administrative, distribution, and servicing fees | 145.1 | 140.7 | 444.2 | 421.8 | |||||||||||||||||||
| Net revenues | 1,588.2 | 1,954.1 | 4,964.2 | 5,710.2 | |||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Compensation and related costs | 588.1 | 564.6 | 1,633.1 | 1,751.9 | |||||||||||||||||||
| Distribution and servicing | 69.9 | 96.0 | 231.5 | 274.3 | |||||||||||||||||||
| Advertising and promotion | 24.3 | 22.1 | 69.1 | 61.4 | |||||||||||||||||||
| Product and recordkeeping related costs | 75.6 | 70.3 | 232.3 | 154.6 | |||||||||||||||||||
| Technology, occupancy, and facility costs | 143.6 | 123.1 | 411.8 | 359.7 | |||||||||||||||||||
| General, administrative, and other | 112.1 | 81.8 | 265.8 | 260.8 | |||||||||||||||||||
| Total operating expenses | 1,013.6 | 957.9 | 2,843.6 | 2,862.7 | |||||||||||||||||||
| Net operating income | 574.6 | 996.2 | 2,120.6 | 2,847.5 | |||||||||||||||||||
| Non-operating income (loss) | |||||||||||||||||||||||
| Net gains (losses) on investments | (41.5) | 8.7 | (301.3) | 165.0 | |||||||||||||||||||
| Net gains (losses) on consolidated investment products | (41.7) | (17.1) | (247.7) | 75.7 | |||||||||||||||||||
| Other income (loss) | .4 | (3.1) | (12.2) | (6.2) | |||||||||||||||||||
| Total non-operating income (loss) | (82.8) | (11.5) | (561.2) | 234.5 | |||||||||||||||||||
| Income before income taxes | 491.8 | 984.7 | 1,559.4 | 3,082.0 | |||||||||||||||||||
| Provision for income taxes | 134.0 | 227.3 | 399.4 | 717.1 | |||||||||||||||||||
| Net income | 357.8 | 757.4 | 1,160.0 | 2,364.9 | |||||||||||||||||||
| Less: net income (loss) attributable to redeemable non-controlling interests | (26.6) | (19.8) | (131.9) | 22.6 | |||||||||||||||||||
| Net income attributable to T. Rowe Price Group | $ | 384.4 | $ | 777.2 | $ | 1,291.9 | $ | 2,342.3 | |||||||||||||||
| Earnings per share on common stock of T. Rowe Price Group | |||||||||||||||||||||||
| Basic | $ | 1.67 | $ | 3.34 | $ | 5.57 | $ | 10.04 | |||||||||||||||
| Diluted | $ | 1.66 | $ | 3.31 | $ | 5.54 | $ | 9.94 | |||||||||||||||
The accompanying notes are an integral part of these statements.
Page 3
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
| Three months ended | Nine months ended | ||||||||||||||||||||||
| 9/30/2022 | 9/30/2021 | 9/30/2022 | 9/30/2021 | ||||||||||||||||||||
| Net income | $ | 357.8 | $ | 757.4 | $ | 1,160.0 | $ | 2,364.9 | |||||||||||||||
| Other comprehensive income (loss) | |||||||||||||||||||||||
| Currency translation adjustments | |||||||||||||||||||||||
| Consolidated T. Rowe Price investment products - variable interest entities | (31.8) | (17.2) | (73.9) | (30.0) | |||||||||||||||||||
| Reclassification gains recognized in non-operating income upon deconsolidation of certain T. Rowe Price investment products | — | — | (6.9) | (2.6) | |||||||||||||||||||
| Total currency translation adjustments of consolidated T. Rowe Price investment products - variable interest entities | (31.8) | (17.2) | (80.8) | (32.6) | |||||||||||||||||||
| Equity method investments | .7 | 3.5 | (1.9) | 2.4 | |||||||||||||||||||
| Other comprehensive loss before income taxes | (31.1) | (13.7) | (82.7) | (30.2) | |||||||||||||||||||
| Net deferred tax benefits | 2.9 | .8 | 8.1 | 3.6 | |||||||||||||||||||
| Total other comprehensive loss | (28.2) | (12.9) | (74.6) | (26.6) | |||||||||||||||||||
| Total comprehensive income | 329.6 | 744.5 | 1,085.4 | 2,338.3 | |||||||||||||||||||
| Less: comprehensive income (loss) attributable to redeemable non-controlling interests | (45.7) | (32.0) | (176.5) | 2.4 | |||||||||||||||||||
| Total comprehensive income attributable to T. Rowe Price Group | $ | 375.3 | $ | 776.5 | $ | 1,261.9 | $ | 2,335.9 |
The accompanying notes are an integral part of these statements.
Page 4
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
| Nine months ended | |||||||||||
| 9/30/2022 | 9/30/2021 | ||||||||||
| Cash flows from operating activities | |||||||||||
| Net income | $ | 1,160.0 | $ | 2,364.9 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities | |||||||||||
| Depreciation and amortization of property, equipment and software | 166.0 | 151.1 | |||||||||
| Amortization of acquisition-related assets and retention arrangements | 158.4 | — | |||||||||
| Fair value remeasurement of contingent consideration liability | (125.7) | — | |||||||||
| Stock-based compensation expense | 185.7 | 166.3 | |||||||||
| Net (gains) losses recognized on investments | 384.5 | (144.4) | |||||||||
| Net redemptions in T. Rowe Price investment products used to economically hedge supplemental savings plan liability | 33.8 | 28.1 | |||||||||
| Net change in securities held by consolidated T. Rowe Price investment products | 291.0 | (5.3) | |||||||||
| Other changes | 240.9 | 530.0 | |||||||||
| Net cash provided by operating activities | 2,494.6 | 3,090.7 | |||||||||
| Cash flows from investing activities | |||||||||||
| Purchases of investment products | (47.7) | (47.3) | |||||||||
| Dispositions of investment products | 160.8 | 285.4 | |||||||||
| Net cash of T. Rowe Price investment products on deconsolidation | (8.7) | (15.6) | |||||||||
| Additions to property, equipment and software | (177.2) | (178.7) | |||||||||
| Other investing activity | 3.3 | 13.8 | |||||||||
| Net cash provided by (used in) investing activities | (69.5) | 57.6 | |||||||||
| Cash flows from financing activities | |||||||||||
| Repurchases of common stock | (727.9) | (493.1) | |||||||||
| Common share issuances under stock-based compensation plans | 13.8 | 33.3 | |||||||||
| Dividends paid to common stockholders of T. Rowe Price | (832.4) | (1,454.0) | |||||||||
| Net distributions to non-controlling interests in consolidated entities | (8.4) | — | |||||||||
| Net subscriptions (redemptions) received from redeemable non-controlling interest holders | (61.8) | 22.7 | |||||||||
| Net cash used in financing activities | (1,616.7) | (1,891.1) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents of consolidated T. Rowe Price investment products | 11.8 | (3.6) | |||||||||
| Net change in cash and cash equivalents during period | 820.2 | 1,253.6 | |||||||||
| Cash and cash equivalents at beginning of period, including $101.1 million at December 31, 2021, and $104.8 million at December 31, 2020, held by consolidated T. Rowe Price investment products | 1,624.2 | 2,256.5 | |||||||||
| Cash and cash equivalents at end of period, including $78.1 million at September 30, 2022, and $91.6 million at September 30, 2021, held by consolidated T. Rowe Price investment products | $ | 2,444.4 | $ | 3,510.1 |
The accompanying notes are an integral part of these statements.
Page 5
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(shares in thousands; dollars in millions)
| Three months ended 9/30/2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common shares outstanding | Common stock | Additional capital in excess of par value | Retained earnings | AOCI**(1)** | Total stockholders’ equity attributable to T. Rowe Price Group, Inc. | Non-controlling interests in consolidated entities | Total stockholders’ equity | Redeemable non-controlling interests | |||||||||||||||||||||||||||||||||||||||||||||
| Balances at June 30, 2022 | 225,715 | $ | 45.1 | $ | 654.6 | $ | 8,311.9 | $ | (47.4) | $ | 8,964.2 | $ | 208.8 | $ | 9,173.0 | $ | 564.6 | ||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | 384.4 | — | 384.4 | .1 | 384.5 | (26.6) | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | (9.1) | (9.1) | — | (9.1) | (19.1) | ||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared ($1.20 per share) | — | — | — | (276.4) | — | (276.4) | — | (276.4) | — | ||||||||||||||||||||||||||||||||||||||||||||
| Shares issued upon option exercises | 135 | — | 6.4 | — | — | 6.4 | — | 6.4 | — | ||||||||||||||||||||||||||||||||||||||||||||
| Net shares issued upon vesting of restricted stock units | 11 | — | (.3) | — | — | (.3) | — | (.3) | — | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | 62.8 | — | — | 62.8 | — | 62.8 | — | ||||||||||||||||||||||||||||||||||||||||||||
| Common shares repurchased | (1,941) | (.3) | (224.2) | — | — | (224.5) | — | (224.5) | — | ||||||||||||||||||||||||||||||||||||||||||||
| Net distributions to non-controlling interests in consolidated entities | — | — | — | — | — | — | (1.9) | (1.9) | — | ||||||||||||||||||||||||||||||||||||||||||||
| Net subscriptions from T. Rowe Price investment products | — | — | — | — | — | — | — | — | 19.2 | ||||||||||||||||||||||||||||||||||||||||||||
| Net consolidations of T. Rowe Price investment products | — | — | — | — | — | — | — | — | 42.7 | ||||||||||||||||||||||||||||||||||||||||||||
| Balances at September 30, 2022 | 223,920 | $ | 44.8 | $ | 499.3 | $ | 8,419.9 | $ | (56.5) | $ | 8,907.5 | $ | 207.0 | $ | 9,114.5 | $ | 580.8 | ||||||||||||||||||||||||||||||||||||
| Three months ended 9/30/2021 | |||||||||||||||||||||||||||||||||||||||||
| Common shares outstanding | Common stock | Additional capital in excess of par value | Retained earnings | AOCI**(1)** | Total stockholders’ equity | Redeemable non-controlling interests | |||||||||||||||||||||||||||||||||||
| Balances at June 30, 2021 | 226,925 | $ | 45.4 | $ | 673.7 | $ | 7,202.6 | $ | (28.7) | $ | 7,893.0 | $ | 880.4 | ||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | 777.2 | — | 777.2 | (19.8) | ||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | (.7) | (.7) | (12.2) | ||||||||||||||||||||||||||||||||||
| Dividends declared ($1.08 per share) | — | — | — | (250.7) | — | (250.7) | — | ||||||||||||||||||||||||||||||||||
| Shares issued upon option exercises | 321 | — | 9.0 | — | — | 9.0 | — | ||||||||||||||||||||||||||||||||||
| Net shares issued upon vesting of restricted stock units | 5 | — | (.5) | — | — | (.5) | — | ||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | 52.3 | — | — | 52.3 | — | ||||||||||||||||||||||||||||||||||
| Restricted stock units issued as dividend equivalents | — | — | .4 | (.2) | — | .2 | — | ||||||||||||||||||||||||||||||||||
| Common shares repurchased | (1,034) | (.2) | (80.3) | (137.2) | — | (217.7) | — | ||||||||||||||||||||||||||||||||||
| Net redemptions from T. Rowe Price investment products | — | — | — | — | — | — | (292.8) | ||||||||||||||||||||||||||||||||||
| Net consolidations of T. Rowe Price investment products | — | — | — | — | — | — | 531.0 | ||||||||||||||||||||||||||||||||||
| Balances at September 30, 2021 | 226,217 | $ | 45.2 | $ | 654.6 | $ | 7,591.7 | $ | (29.4) | $ | 8,262.1 | $ | 1,086.6 |
(1) Accumulated other comprehensive income
The accompanying notes are an integral part of these statements.
Page 6
| Nine months ended 9/30/2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common shares outstanding | Common stock | Additional capital in excess of par value | Retained earnings | AOCI**(1)** | Total stockholders’ equity attributable to T. Rowe Price Group, Inc. | Non-controlling interests in consolidated entities | Total stockholders’ equity | Redeemable non-controlling interests | |||||||||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2021 | 229,175 | $ | 45.8 | $ | 919.8 | $ | 8,083.6 | $ | (26.5) | $ | 9,022.7 | $ | 248.7 | $ | 9,271.4 | $ | 982.3 | ||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | 1,291.9 | — | 1,291.9 | (33.3) | 1,258.6 | (131.9) | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | (30.0) | (30.0) | — | (30.0) | (44.6) | ||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared ($3.60 per share) | — | — | — | (832.7) | — | (832.7) | — | (832.7) | — | ||||||||||||||||||||||||||||||||||||||||||||
| Shares issued upon option exercises | 372 | .1 | 17.7 | — | — | 17.8 | — | 17.8 | — | ||||||||||||||||||||||||||||||||||||||||||||
| Net shares issued upon vesting of restricted stock units | 72 | — | (3.9) | — | — | (3.9) | — | (3.9) | — | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | 185.7 | — | — | 185.7 | — | 185.7 | — | ||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock units issued as dividend equivalents | 9 | — | .2 | (.2) | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Common shares repurchased | (5,708) | (1.1) | (620.2) | (122.7) | — | (744.0) | — | (744.0) | — | ||||||||||||||||||||||||||||||||||||||||||||
| Net distributions to non-controlling interests in consolidated entities | — | — | — | — | — | — | (8.4) | (8.4) | — | ||||||||||||||||||||||||||||||||||||||||||||
| Net redemptions from T. Rowe Price investment products | — | — | — | — | — | — | — | — | (49.6) | ||||||||||||||||||||||||||||||||||||||||||||
| Net deconsolidations of T. Rowe Price investment products | — | — | — | — | — | — | — | — | (175.4) | ||||||||||||||||||||||||||||||||||||||||||||
| Balances at September 30, 2022 | 223,920 | $ | 44.8 | $ | 499.3 | $ | 8,419.9 | $ | (56.5) | $ | 8,907.5 | $ | 207.0 | $ | 9,114.5 | $ | — | $ | 580.8 | ||||||||||||||||||||||||||||||||||
| Nine months ended 9/30/2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common shares outstanding | Common stock | Additional capital in excess of par value | Retained earnings | AOCI**(1)** | Total stockholders’ equity | Redeemable non-controlling interests | |||||||||||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2020 | 227,965 | $ | 45.6 | $ | 654.6 | $ | 7,029.8 | $ | (23.0) | $ | 7,707.0 | $ | 1,561.7 | ||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 2,342.3 | — | 2,342.3 | 22.6 | ||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | (6.4) | (6.4) | (20.2) | ||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared ($3.24 per share) | — | — | — | (754.8) | — | (754.8) | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Special cash dividend declared ($3.00 per share) | — | — | — | (699.5) | — | (699.5) | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued upon option exercises | 1,083 | .2 | 38.6 | — | — | 38.8 | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Restricted shares issued, net of shares withheld for taxes | 4 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Net shares issued upon vesting of restricted stock units | 54 | — | (4.8) | — | — | (4.8) | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | 166.2 | — | — | 166.2 | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock units issued as dividend equivalents | — | — | .6 | (.7) | — | (.1) | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Common shares repurchased | (2,889) | (.6) | (200.6) | (325.4) | — | (526.6) | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Net subscriptions into T. Rowe Price investment products | — | — | — | — | — | — | 6.1 | ||||||||||||||||||||||||||||||||||||||||||||||
| Net deconsolidations of T. Rowe Price investment products | — | — | — | — | — | — | (483.6) | ||||||||||||||||||||||||||||||||||||||||||||||
| Balances at September 30, 2021 | 226,217 | $ | 45.2 | $ | 654.6 | $ | 7,591.7 | $ | (29.4) | $ | 8,262.1 | $ | 1,086.6 |
(1) Accumulated other comprehensive income
The accompanying notes are an integral part of these statements.
Page 7
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – THE COMPANY AND BASIS OF PREPARATION.
T. Rowe Price Group, Inc. (“T. Rowe Price”, “us”, or “we”) 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 (“U.S. mutual funds”), subadvised funds, separately managed accounts, collective investment trusts, and other
affiliated products. The other affiliated products include: open-ended investment products offered to investors outside the U.S., products offered through variable annuity life insurance plans in the U.S., affiliated private investment funds, and collateralized loan obligations. We also provide certain 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; trust services; and non-discretionary advisory services through model delivery. Additionally, we also derive revenue from our interests in general partners of certain affiliated private investment funds that are entitled to a disproportionate allocation of income through capital allocation-based arrangements.
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.
On December 29, 2021, we completed our acquisition of Oak Hill Advisors, L.P., a leading alternative credit manager, and other entities that had common ownership (collectively, OHA). We acquired 100% of the equity interests of Oak Hill Advisors, L.P., 100% of the equity interests in entities that make co-investments in certain affiliated private investment funds (the "co-investment entities") and a majority of the equity interests in entities that have interests in general partners of affiliated private investment funds and are entitled to a disproportionate allocation of income (the "carried interest entities"). As of September 30, 2022, OHA had $56 billion of capital under management (which includes net asset value, portfolio value and/or unfunded capital).
BASIS OF PRESENTATION.
These unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. These principles require the use of estimates and reflect all adjustments that are, in the opinion of management, necessary for a fair statement of our results for the interim periods presented. All such adjustments are of a normal recurring nature. Actual results may vary from our estimates.
The unaudited interim financial information contained in these unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements contained in our 2021 Annual Report.
U.S. INFLATION REDUCTION LEGISLATION.
On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022 ("IRA"). The IRA establishes new tax provisions and various incentives and tax credits. Among other things, the IRA created a 15% minimum tax on adjusted book income effective for taxable years beginning after December 31, 2022 as well as an excise tax of 1% on stock repurchases, net of stock issuances, for publicly traded companies effective for net stock repurchases made after December 31, 2022. We are currently assessing what impact, if any, the IRA’s provisions will have on our financial position and results of operations, but we do not believe the impact will be material.
NEWLY ISSUED BUT NOT YET ADOPTED ACCOUNTING GUIDANCE.
We have considered all newly issued accounting guidance that is applicable to our operations and the preparation of our unaudited condensed consolidated statements, including those we have not yet adopted. We do not believe that any such guidance has or will have a material effect on our financial position or results of operations.
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NOTE 2 – INFORMATION ABOUT RECEIVABLES, REVENUES, AND SERVICES.
Revenues earned under agreements with clients include:
| Three months ended 9/30/2022 | Three months ended 9/30/2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Administrative, distribution, and servicing fees | Administrative, distribution, and servicing fees | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | Investment advisory fees | Administrative fees | Distribution and servicing fees | Capital allocation-based income | Net revenues | Investment advisory fees | Administrative fees | Distribution and servicing fees | Net revenues | ||||||||||||||||||||||||||||||||||||||||||||
| U.S. mutual funds | $ | 841.7 | $ | 86.5 | $ | 22.0 | $ | — | $ | 950.2 | $ | 1,125.5 | $ | 82.6 | $ | 30.9 | $ | 1,239.0 | |||||||||||||||||||||||||||||||||||
| Subadvised funds, separate accounts, collective investment trusts, and other investment products | 600.3 | 5.0 | — | 1.1 | 606.4 | 687.9 | — | — | 687.9 | ||||||||||||||||||||||||||||||||||||||||||||
| Other clients(1) | — | 31.6 | — | — | 31.6 | — | 27.2 | — | 27.2 | ||||||||||||||||||||||||||||||||||||||||||||
| $ | 1,442.0 | $ | 123.1 | $ | 22.0 | $ | 1.1 | $ | 1,588.2 | $ | 1,813.4 | $ | 109.8 | $ | 30.9 | $ | 1,954.1 | ||||||||||||||||||||||||||||||||||||
| Nine months ended 9/30/2022 | Nine months ended 9/30/2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Administrative, distribution, and servicing fees | Administrative, distribution, and servicing fees | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | Investment advisory fees | Administrative fees | Distribution and servicing fees | Capital allocation-based income | Net revenues | Investment advisory fees | Administrative fees | Distribution and servicing fees | Net revenues | ||||||||||||||||||||||||||||||||||||||||||||
| U.S. mutual funds | $ | 2,694.4 | $ | 265.1 | $ | 71.5 | $ | — | $ | 3,031.0 | $ | 3,273.2 | $ | 243.1 | $ | 90.0 | $ | 3,606.3 | |||||||||||||||||||||||||||||||||||
| Subadvised funds, separate accounts, collective investment trusts, and other investment products | 1,906.4 | 12.5 | — | (80.8) | 1,838.1 | 2,015.2 | — | — | 2,015.2 | ||||||||||||||||||||||||||||||||||||||||||||
| Other clients(1) | — | 95.1 | — | — | 95.1 | — | 88.7 | — | 88.7 | ||||||||||||||||||||||||||||||||||||||||||||
| $ | 4,600.8 | $ | 372.7 | $ | 71.5 | $ | (80.8) | $ | 4,964.2 | $ | 5,288.4 | $ | 331.8 | $ | 90.0 | $ | 5,710.2 |
(1) Other clients primarily include individuals, defined contribution plans, college savings plans, and institutions related to our non-discretionary advisory services.
Total net revenues earned from our related parties aggregate $1,311.2 million and $1,599.5 million for the three months ended September 30, 2022 and 2021, respectively. For the nine months ended September 30, 2022 and 2021, net revenues from related parties aggregate $4,069.7 million and $4,653.7 million, respectively. Accounts receivable from these products aggregate to $490.2 million at September 30, 2022 and $577.9 million at December 31, 2021.
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The following table details the investment advisory revenues earned from clients by their underlying asset class.
| Three months ended | Nine months ended | ||||||||||||||||||||||
| (in millions) | 9/30/2022 | 9/30/2021 | 9/30/2022 | 9/30/2021 | |||||||||||||||||||
| U.S. mutual funds | |||||||||||||||||||||||
| Equity | $ | 580.1 | $ | 813.0 | $ | 1,876.5 | $ | 2,310.8 | |||||||||||||||
| Fixed income, including money market | 66.2 | 64.8 | 198.9 | 183.7 | |||||||||||||||||||
| Multi-asset | 195.4 | 247.7 | 619.0 | 778.7 | |||||||||||||||||||
| 841.7 | 1,125.5 | 2,694.4 | 3,273.2 | ||||||||||||||||||||
| Subadvised funds, separate accounts, collective investment trusts, and other investment products | |||||||||||||||||||||||
| Equity | 316.9 | 458.8 | 1,047.5 | 1,329.0 | |||||||||||||||||||
| Fixed income, including money market | 41.4 | 41.3 | 125.2 | 119.6 | |||||||||||||||||||
| Multi-asset | 171.8 | 187.8 | 530.3 | 566.6 | |||||||||||||||||||
| Alternatives | 70.2 | — | 203.4 | — | |||||||||||||||||||
| 600.3 | 687.9 | 1,906.4 | 2,015.2 | ||||||||||||||||||||
| Total | $ | 1,442.0 | $ | 1,813.4 | $ | 4,600.8 | $ | 5,288.4 |
The following table summarizes the assets under management on which we earn investment advisory revenues.
| Average during | |||||||||||||||||||||||||||||||||||
| Three months ended | Nine months ended | As of | |||||||||||||||||||||||||||||||||
| (in billions) | 9/30/2022 | 9/30/2021 | 9/30/2022 | 9/30/2021 | 9/30/2022 | 12/31/2021 | |||||||||||||||||||||||||||||
| U.S. mutual funds | |||||||||||||||||||||||||||||||||||
| Equity | $ | 405.8 | $ | 559.8 | $ | 441.0 | $ | 534.0 | $ | 365.2 | $ | 553.9 | |||||||||||||||||||||||
| Fixed income, including money market | 79.4 | 88.4 | 82.7 | 85.6 | 74.5 | 85.3 | |||||||||||||||||||||||||||||
| Multi-asset | 192.4 | 232.8 | 204.8 | 228.5 | 174.8 | 232.2 | |||||||||||||||||||||||||||||
| 677.6 | 881.0 | 728.5 | 848.1 | 614.5 | 871.4 | ||||||||||||||||||||||||||||||
| Subadvised funds, separate accounts, collective investment trusts, and other investment products | |||||||||||||||||||||||||||||||||||
| Equity | 319.1 | 445.7 | 352.0 | 427.3 | 282.6 | 438.8 | |||||||||||||||||||||||||||||
| Fixed income, including money market | 93.6 | 94.3 | 92.4 | 92.1 | 90.9 | 90.4 | |||||||||||||||||||||||||||||
| Multi-asset | 214.3 | 227.7 | 221.8 | 213.8 | 199.3 | 245.5 | |||||||||||||||||||||||||||||
| Alternatives | 42.9 | — | 42.4 | — | 42.7 | 41.7 | |||||||||||||||||||||||||||||
| 669.9 | 767.7 | 708.6 | 733.2 | 615.5 | 816.4 | ||||||||||||||||||||||||||||||
| Total | $ | 1,347.5 | $ | 1,648.7 | $ | 1,437.1 | $ | 1,581.3 | $ | 1,230.0 | $ | 1,687.8 |
Investors that we serve are primarily domiciled in the U.S.; investment advisory clients outside the U.S. account for 9.0%, 9.4%, and 9.9% of our assets under management at September 30, 2022, June 30, 2022, and December 31, 2021, respectively.
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NOTE 3 – INVESTMENTS.
The carrying values of our investments that are not part of the consolidated T. Rowe Price investment products are as follows:
| (in millions) | 9/30/2022 | 12/31/2021 | |||||||||
| Investments held at fair value | |||||||||||
| T. Rowe Price investment products | |||||||||||
| Discretionary investments | $ | 241.4 | $ | 518.7 | |||||||
| Seed capital | 177.1 | 264.8 | |||||||||
| Supplemental savings plan liability economic hedges | 669.5 | 881.5 | |||||||||
| Investment partnerships and other investments | 91.8 | 108.9 | |||||||||
| Investments in affiliated collateralized loan obligations | 6.4 | 10.8 | |||||||||
| Equity method investments | |||||||||||
| T. Rowe Price investment products | |||||||||||
| Discretionary investments | 192.5 | — | |||||||||
| Seed capital | 154.9 | 141.7 | |||||||||
| Investments in affiliated private investment funds - carried interest | 508.3 | 609.8 | |||||||||
| Investments in affiliated private investment funds - seed/co-investment | 168.1 | 151.3 | |||||||||
| 23% Investment in UTI Asset Management Company Limited (India) | 165.6 | 165.4 | |||||||||
| Other investment partnerships and investments | 2.4 | 2.5 | |||||||||
| Held to maturity | |||||||||||
| Investments in affiliated collateralized loan obligations | 100.2 | 119.1 | |||||||||
| Certificates of deposit | 1.0 | — | |||||||||
| U.S. Treasury note | 1.0 | 1.0 | |||||||||
| Total | $ | 2,480.2 | $ | 2,975.5 |
The investment partnerships are carried at fair value using net asset value (“NAV”) per share as a practical expedient. Our interests in these partnerships are generally not redeemable and are subject to significant transferability restrictions. The underlying investments of these partnerships have contractual terms through 2029, though we may receive distributions of liquidating assets over a longer term. The investment strategies of these partnerships include growth equity, buyout, venture capital, and real estate.
During the three- and nine- months ended September 30, 2022, net losses on investments included $35.3 million and $258.7 million, respectively, of net unrealized losses related to investments held at fair value that were still held at September 30, 2022. During the three months ended September 30, 2021, net losses on investments included $4.6 million of net unrealized losses related to investments held at fair value that were still held at September 30, 2021. During the nine months ended September 30, 2021, net gains on investments included $83.7 million of net unrealized gains related to investments held at fair value that were still held at September 30, 2021.
During the nine months ended September 30, 2022 and 2021, 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 an equity method investment or an investment held at fair value. Additionally, during the nine months ended September 30, 2022 and September 30, 2021, certain T. Rowe Price investment products were consolidated, as we regained a controlling interest. The net impact of these changes on our unaudited condensed consolidated balance sheets and statements of income as of the dates the portfolios were deconsolidated or reconsolidated is detailed below.
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| Three months ended | Nine months ended | ||||||||||||||||||||||
| (in millions) | 9/30/2022 | 9/30/2021 | 9/30/2022 | 9/30/2021 | |||||||||||||||||||
| Net increase (decrease) in assets of consolidated T. Rowe Price investment products | $ | 24.2 | $ | 589.7 | $ | (289.6) | $ | (727.6) | |||||||||||||||
| Net increase (decrease) in liabilities of consolidated T. Rowe Price investment products | $ | — | $ | 7.1 | $ | (15.0) | $ | (17.1) | |||||||||||||||
| Net increase (decrease) in redeemable non-controlling interests | $ | 42.9 | $ | 531.0 | $ | (175.2) | $ | (483.6) | |||||||||||||||
| Gains recognized upon deconsolidation | $ | — | $ | — | $ | 6.8 | $ | 2.6 |
The 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.
INVESTMENTS IN AFFILIATED COLLATERALIZED LOAN OBLIGATIONS.
There is debt associated with our long-term investments in affiliated collateralized loan obligations (“CLOs”). As of September 30, 2022 and December 31, 2021, the debt is carried at $94.6 million and $113.5 million, and is reported in accounts payable and accrued expenses in our unaudited condensed consolidated balance sheets. The debt includes outstanding repurchase agreements of €66.8 million (equivalent to $65.4 million at September 30, 2022 and $75.9 million at December 31, 2021 at the respective EUR spot rates) and collateralized by the CLO investments. The debt also includes outstanding note facilities of €35.6 million (equivalent to $29.2 million at September 30, 2022 and $36.9 million at December 31, 2021 at the respective EUR spot rates) and are collateralized by first priority security interests in the assets of the consolidated OHA entity that is party to the notes. The debt bears interest at rates based on EURIBOR plus the initial margin, which equals all-in rates ranging from 1.75% to 2.00% as of September 30, 2022. The debt matures on various dates through 2032 or if the investments are paid back in full or cancelled.
VARIABLE INTEREST ENTITIES.
Our investments at September 30, 2022 and December 31, 2021 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) | 9/30/2022 | 12/31/2021 | |||||||||
| Investment carrying values | $ | 804.0 | $ | 943.3 | |||||||
| Unfunded capital commitments | 87.9 | 94.2 | |||||||||
| Accounts receivable | 86.7 | 145.1 | |||||||||
| $ | 978.6 | $ | 1,182.6 |
The unfunded capital commitments totaling $87.9 million at September 30, 2022 and $94.2 million at December 31, 2021 relate primarily to the affiliated private investment funds and the 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.
INVESTMENTS IN AFFILIATED PARTNERS.
During 2021, as part of the OHA acquisition, we acquired a majority of the equity interests in entities that have interests in general partners of affiliated private investment funds and are entitled to a disproportionate allocation of income. These entities are considered variable interest entities and are consolidated as T. Rowe Price was determined to be the primary beneficiary.
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The total assets, liabilities and non-controlling interests of these consolidated variable interest entities are as follows:
| (in millions) | 9/30/2022 | 12/31/2021 | ||||||||||||
| Assets | $ | 550.4 | $ | 692.7 | ||||||||||
| Liabilities | $ | 1.1 | $ | 56.4 | ||||||||||
| Non-controlling interest | $ | 207.0 | $ | 248.7 |
NOTE 4 – FAIR VALUE MEASUREMENTS.
We determine the fair value of our cash equivalents and investments held at fair value 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 inputs into the determination of fair value require significant management judgment or estimation. Investments in this category generally include investments for which there is not an actively-traded market.
These levels are not necessarily an indication of the risk or liquidity associated with our investments. The following table summarizes our investments and liabilities that are recognized in our unaudited condensed consolidated balance sheets using fair value measurements determined based on the differing levels of inputs. This table excludes investments held by the consolidated T. Rowe Price investment products which are presented separately on our unaudited condensed consolidated balance sheets and are detailed in Note 5.
| 9/30/2022 | 12/31/2021 | ||||||||||||||||||||||||||||||||||
| (in millions) | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||||||
| T. Rowe Price investment products | |||||||||||||||||||||||||||||||||||
| Cash equivalents held in money market funds | 1,917.3 | $ | — | $ | — | $ | 1,183.9 | $ | — | $ | — | ||||||||||||||||||||||||
| Discretionary investments | 241.4 | — | — | 518.7 | — | — | |||||||||||||||||||||||||||||
| Seed capital | 147.1 | 30.0 | — | 241.4 | 23.4 | — | |||||||||||||||||||||||||||||
| Supplemental savings plan liability economic hedges | 669.5 | — | — | 881.5 | — | — | |||||||||||||||||||||||||||||
| Other investments | .7 | .1 | — | .7 | .1 | — | |||||||||||||||||||||||||||||
| Investments in affiliated collateralized loan obligations | — | 6.4 | — | — | 10.8 | — | |||||||||||||||||||||||||||||
| Total | $ | 2,976.0 | $ | 36.5 | $ | — | $ | 2,826.2 | $ | 34.3 | $ | — | |||||||||||||||||||||||
| Contingent consideration liability | $ | — | $ | — | $ | 131.3 | $ | — | $ | — | $ | 306.3 |
The fair value hierarchy level table above does not include the investment partnerships and other investments for which fair value is estimated using their NAV per share as a practical expedient. The carrying value of these investments as disclosed in Note 3 were $91.0 million at September 30, 2022, and $108.1 million at December 31, 2021.
As part of the purchase consideration for our acquisition of OHA in December 2021, there was contingent consideration in the amount of up to $900.0 million, payable in cash, that may be due as part of an earnout payment starting in 2025 and ending in 2027 upon satisfying or exceeding certain defined revenue targets. These defined revenue targets will be evaluated on a cumulative basis beginning at the end of 2024, with the ability to extend two additional years if the defined revenue targets are not achieved. About 22% of the earnout is conditioned upon continued service with T. Rowe Price and was excluded from the purchase consideration and deemed compensatory. The fair value of the earnout deemed compensatory is remeasured each reporting period and recognized over the related service period. For the three- and nine- months ended September 30, 2022, $2.9 million
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and $11.7 million, respectively, was recorded as part of compensation expense in our unaudited condensed consolidated statements of income for the portion of the earnout deemed compensatory.
The change in the contingent consideration liability measured at fair value for which we used Level 3 inputs to determine fair value is as follows:
| Contingent Consideration Liability | ||||||||
| (in millions) | Three months ended 9/30/2022 | Nine months ended 9/30/2022 | ||||||
| Balance at beginning of period | $ | 161.2 | $ | 306.3 | ||||
| Measurement period adjustment | — | (49.3) | ||||||
| Unrealized (gains) losses, included in earnings | (29.9) | (125.7) | ||||||
| Balance, September 30, 2022 | $ | 131.3 | $ | 131.3 |
The fair value of the contingent consideration is measured using the Monte Carlo simulation methodology of valuation. The most significant assumptions used relate to the discount rates and from changes pertaining to the achievement of the defined financial targets. The unrealized (gains) losses during the quarter are reflected in general, administrative and other expenses in our unaudited condensed consolidated statements of income.
In addition, simultaneously with the OHA acquisition, a Value Creation Agreement was entered into whereby certain employees of OHA will receive incentive payments in the aggregate equal to 10% of the appreciated value of the OHA business, subject to an annualized preferred return to T. Rowe Price, on the fifth anniversary of the acquisition date. This arrangement is treated as a post-combination compensation expense. This arrangement will be remeasured at fair value at each reporting date and recognized over the related service period. For the three- and nine- months ended September 30, 2022, $2.4 million and $7.1 million was recognized as part of compensation expense in our unaudited condensed consolidated statements of income.
NOTE 5 – CONSOLIDATED T. ROWE PRICE INVESTMENT PRODUCTS AND OTHER ENTITIES.
The T. Rowe Price investment products that we consolidate in our unaudited condensed consolidated financial statements are generally those products we provided initial seed capital at the time of their formation and have a controlling interest. Our U.S. mutual funds are considered voting interest entities, while those regulated outside the U.S. are considered variable interest entities.
The following table details the net assets of the consolidated T. Rowe Price investment products:
| 9/30/2022 | 12/31/2021 | ||||||||||||||||||||||||||||||||||
| (in millions) | Voting interest entities | Variable interest entities | Total | Voting interest entities | Variable interest entities | Total | |||||||||||||||||||||||||||||
| Cash and cash equivalents(1) | $ | .2 | $ | 77.9 | $ | 78.1 | $ | 7.3 | $ | 93.8 | $ | 101.1 | |||||||||||||||||||||||
| Investments(2) | 48.5 | 1,124.9 | 1,173.4 | 188.9 | 1,645.0 | 1,833.9 | |||||||||||||||||||||||||||||
| Other assets | .8 | 32.0 | 32.8 | 5.1 | 22.7 | 27.8 | |||||||||||||||||||||||||||||
| Total assets | 49.5 | 1,234.8 | 1,284.3 | 201.3 | 1,761.5 | 1,962.8 | |||||||||||||||||||||||||||||
| Liabilities | 5.9 | 41.6 | 47.5 | 15.3 | 36.2 | 51.5 | |||||||||||||||||||||||||||||
| Net assets | $ | 43.6 | $ | 1,193.2 | $ | 1,236.8 | $ | 186.0 | $ | 1,725.3 | $ | 1,911.3 | |||||||||||||||||||||||
| Attributable to T. Rowe Price | $ | 29.3 | $ | 626.7 | $ | 656.0 | $ | 125.3 | $ | 803.7 | $ | 929.0 | |||||||||||||||||||||||
| Attributable to redeemable non-controlling interests | 14.3 | 566.5 | 580.8 | 60.7 | 921.6 | 982.3 | |||||||||||||||||||||||||||||
| $ | 43.6 | $ | 1,193.2 | $ | 1,236.8 | $ | 186.0 | $ | 1,725.3 | $ | 1,911.3 |
(1) Cash and cash equivalents includes $.1 million at September 30, 2022, and $6.5 million at December 31, 2021, of T. Rowe Price money market mutual funds.
(2) Investments include $8.6 million at September 30, 2022, and $42.5 million at December 31, 2021 of other T. Rowe Price investment products.
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Although we can redeem our net interest in these consolidated 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 unaudited condensed 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 for the three- and nine-months ended September 30, 2022 and 2021, are reflected in our unaudited condensed consolidated statements of income as follows:
| Three months ended | |||||||||||||||||||||||||||||||||||
| 9/30/2022 | 9/30/2021 | ||||||||||||||||||||||||||||||||||
| (in millions) | Voting interest entities | Variable interest entities | Total | Voting interest entities | Variable interest entities | Total | |||||||||||||||||||||||||||||
| Operating expenses reflected in net operating income | $ | — | $ | (1.8) | $ | (1.8) | $ | (.1) | $ | (2.7) | $ | (2.8) | |||||||||||||||||||||||
| Net investment income (loss) reflected in non-operating income (loss) | (1.8) | (40.0) | (41.8) | .7 | (17.8) | (17.1) | |||||||||||||||||||||||||||||
| Impact on income before taxes | $ | (1.8) | $ | (41.8) | $ | (43.6) | $ | .6 | $ | (20.5) | $ | (19.9) | |||||||||||||||||||||||
| Net income (loss) attributable to T. Rowe Price | $ | (1.1) | $ | (15.9) | $ | (17.0) | $ | .5 | $ | (.6) | $ | (.1) | |||||||||||||||||||||||
| Net income (loss) attributable to redeemable non-controlling interests | (.7) | (25.9) | (26.6) | .1 | (19.9) | (19.8) | |||||||||||||||||||||||||||||
| $ | (1.8) | $ | (41.8) | $ | (43.6) | $ | .6 | $ | (20.5) | $ | (19.9) |
| Nine months ended | |||||||||||||||||||||||||||||||||||
| 9/30/2022 | 9/30/2021 | ||||||||||||||||||||||||||||||||||
| (in millions) | Voting interest entities | Variable interest entities | Total | Voting interest entities | Variable interest entities | Total | |||||||||||||||||||||||||||||
| Operating expenses reflected in net operating income | $ | (.3) | $ | (5.9) | $ | (6.2) | $ | (.4) | $ | (8.7) | $ | (9.1) | |||||||||||||||||||||||
| Net investment income (loss) reflected in non-operating income | (16.5) | (231.3) | (247.8) | 14.1 | 61.5 | 75.6 | |||||||||||||||||||||||||||||
| Impact on income before taxes | $ | (16.8) | $ | (237.2) | $ | (254.0) | $ | 13.7 | $ | 52.8 | $ | 66.5 | |||||||||||||||||||||||
| Net income (loss) attributable to T. Rowe Price Group | $ | (11.4) | $ | (110.7) | $ | (122.1) | $ | 8.8 | $ | 35.1 | $ | 43.9 | |||||||||||||||||||||||
| Net income (loss) attributable to redeemable non-controlling interests | (5.4) | (126.5) | (131.9) | 4.9 | 17.7 | 22.6 | |||||||||||||||||||||||||||||
| $ | (16.8) | $ | (237.2) | $ | (254.0) | $ | 13.7 | $ | 52.8 | $ | 66.5 |
The operating expenses of the consolidated investment products are reflected in general, administrative and other expenses. In preparing our unaudited condensed consolidated financial statements, we eliminated operating expenses of $.5 million and $1.6 million for the three months ended September 30, 2022 and 2021, respectively, against the investment advisory and administrative fees earned from these products. Operating expenses eliminated for the nine months ended September 30, 2022 and 2021, were $2.0 million and $4.0 million, respectively. The net investment income (loss) reflected in non-operating income (loss) includes dividend and interest income as well as 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 unaudited condensed consolidated statements of cash flows for the nine months ended September 30, 2022 and 2021.
| Nine months ended | |||||||||||||||||||||||||||||||||||
| 9/30/2022 | 9/30/2021 | ||||||||||||||||||||||||||||||||||
| (in millions) | Voting interest entities | Variable interest entities | Total | Voting interest entities | Variable interest entities | Total | |||||||||||||||||||||||||||||
| Net cash provided by (used in) operating activities | $ | (17.7) | $ | 75.7 | $ | 58.0 | $ | (109.1) | $ | 127.7 | $ | 18.6 | |||||||||||||||||||||||
| Net cash used in investing activities | (.1) | (8.6) | (8.7) | (11.9) | (3.7) | (15.6) | |||||||||||||||||||||||||||||
| Net cash provided by (used in) financing activities | 10.7 | (94.8) | (84.1) | 120.1 | (132.7) | (12.6) | |||||||||||||||||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents of consolidated T. Rowe Price investment products | — | 11.8 | 11.8 | — | (3.6) | (3.6) | |||||||||||||||||||||||||||||
| Net change in cash and cash equivalents during period | (7.1) | (15.9) | (23.0) | (.9) | (12.3) | (13.2) | |||||||||||||||||||||||||||||
| Cash and cash equivalents at beginning of year | 7.3 | 93.8 | 101.1 | 7.1 | 97.7 | 104.8 | |||||||||||||||||||||||||||||
| Cash and cash equivalents at end of period | $ | .2 | $ | 77.9 | $ | 78.1 | $ | 6.2 | $ | 85.4 | $ | 91.6 |
The net cash provided by financing activities during the nine months ended September 30, 2022 and 2021 includes $22.3 million and $35.3 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.
These levels are not necessarily an indication of the risk or liquidity associated with these investment holdings. 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.
| 9/30/2022 | 12/31/2021 | ||||||||||||||||||||||
| (in millions) | Level 1 | Level 2 | Level 1 | Level 2 | |||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Cash equivalents | $ | .1 | $ | 21.0 | $ | 6.5 | $ | .7 | |||||||||||||||
| Equity securities | 129.4 | 130.3 | 247.8 | 340.3 | |||||||||||||||||||
| Fixed income securities | 875.7 | — | 1,187.4 | ||||||||||||||||||||
| Other investments | 9.8 | 28.2 | 5.7 | 52.7 | |||||||||||||||||||
| $ | 139.3 | $ | 1,055.2 | $ | 260.0 | $ | 1,581.1 | ||||||||||||||||
| Liabilities | $ | (8.8) | $ | (10.2) | $ | (.7) | $ | (9.7) |
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NOTE 6 - GOODWILL AND INTANGIBLE ASSETS.
Goodwill and intangible assets consist of the following:
| (in millions) | 9/30/2022 | 12/31/2021 | ||||||||||||
| Goodwill | $ | 2,652.4 | $ | 2,693.2 | ||||||||||
| Indefinite-lived intangible assets - trade name | 134.7 | 134.7 | ||||||||||||
| Indefinite-lived intangible assets - investment advisory agreements | 164.8 | 164.8 | ||||||||||||
| Definite-lived intangible assets - investment advisory agreements | 532.5 | 613.9 | ||||||||||||
| Total | $ | 3,484.4 | $ | 3,606.6 |
Amortization expense for the definite-lived investment advisory agreements intangible assets was $27.1 million and $81.4 million for the three- and nine- months ended September 30, 2022, respectively. Estimated amortization expense for the definite-lived investment advisory agreements intangible assets for the remainder of 2022 is $27.1 million, $108.1 million for 2023, $105.6 million for 2024, $105.0 million for 2025, and $87.7 million for 2026.
Goodwill activity during the three- and nine- months ended September 30, 2022 was as follows:
| (in millions) | Three months ended 9/30/2022 | Nine months ended 9/30/2022 | |||||||||
| Balance at beginning of period | $ | 2,652.4 | $ | 2,693.2 | |||||||
| Measurement period adjustment | — | (40.8) | |||||||||
| Balance, September 30, 2022 | $ | 2,652.4 | $ | 2,652.4 |
We evaluate the carrying amount of goodwill for possible impairment on an annual basis in the fourth quarter using a fair value approach or if triggering events occur that require us to evaluate for impairment earlier.
NOTE 7 – STOCKHOLDERS’ EQUITY.
Accounts payable and accrued expenses includes liabilities of $16.1 million at September 30, 2022 for common stock repurchases that settled during the first week of October 2022.
NOTE 8 – STOCK-BASED COMPENSATION.
STOCK OPTIONS.
The following table summarizes the status of, and changes in, our stock options during the nine months ended September 30, 2022.
| Options | Weighted- average exercise price | ||||||||||
| Outstanding at December 31, 2021 | 2,846,579 | $ | 72.87 | ||||||||
| Exercised | (463,232) | $ | 65.14 | ||||||||
| Outstanding at September 30, 2022 | 2,383,347 | $ | 74.37 | ||||||||
| Exercisable at September 30, 2022 | 2,383,347 | $ | 74.37 |
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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 the nine months ended September 30, 2022.
| Restricted shares | Restricted stock units | Weighted-average fair value | |||||||||||||||
| Nonvested at December 31, 2021 | 5,720 | 5,701,865 | $ | 146.87 | |||||||||||||
| Time-based grants | 8,715 | 63,475 | $ | 127.99 | |||||||||||||
| Dividend equivalents granted to non-employee directors | — | 2,897 | $ | 121.67 | |||||||||||||
| Vested | (4,336) | (97,003) | $ | 113.22 | |||||||||||||
| Forfeited | — | (149,318) | $ | 143.31 | |||||||||||||
| Nonvested at September 30, 2022 | 10,099 | 5,521,916 | $ | 147.33 |
Nonvested at September 30, 2022, includes performance-based restricted stock units of 294,518. These nonvested performance-based restricted stock units include 81,123 units for which the performance period has lapsed, and the performance threshold has been met.
FUTURE STOCK-BASED COMPENSATION EXPENSE.
The following table presents the compensation expense to be recognized over the remaining vesting periods of the stock-based awards outstanding at September 30, 2022. Estimated future compensation expense will change to reflect future grants of restricted stock awards and units, future option grants, changes in the probability of performance thresholds being met, and adjustments for actual forfeitures.
| (in millions) | |||||
| Fourth quarter 2022 | $ | 54.4 | |||
| 2023 | 125.7 | ||||
| 2024 through 2027 | 105.4 | ||||
| Total | $ | 285.5 |
NOTE 9 – EARNINGS PER SHARE CALCULATIONS.
The following table presents the reconciliation of net income attributable to T. Rowe Price 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 reflects the potential dilution, determined using the treasury stock method, that could occur if outstanding stock options were exercised and non-participating stock awards vested. No outstanding stock options had an anti-dilutive impact on the diluted earnings per common share calculation in the periods presented.
| Three months ended | Nine months ended | ||||||||||||||||||||||
| (in millions) | 9/30/2022 | 9/30/2021 | 9/30/2022 | 9/30/2021 | |||||||||||||||||||
| Net income attributable to T. Rowe Price | $ | 384.4 | $ | 777.2 | $ | 1,291.9 | $ | 2,342.3 | |||||||||||||||
| Less: net income allocated to outstanding restricted stock and stock unit holders | 9.2 | 19.5 | 29.6 | 61.6 | |||||||||||||||||||
| Net income allocated to common stockholders | $ | 375.2 | $ | 757.7 | $ | 1,262.3 | $ | 2,280.7 | |||||||||||||||
| Weighted-average common shares | |||||||||||||||||||||||
| Outstanding | 225.3 | 226.9 | 226.7 | 227.2 | |||||||||||||||||||
| Outstanding assuming dilution | 226.3 | 229.1 | 228.0 | 229.4 |
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NOTE 10 – OTHER COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE LOSS.
The changes in each component of accumulated other comprehensive loss, including reclassification adjustments for the three months ended September 30, 2022 and 2021 are presented in the table below.
| Three months ended 9/30/2022 | Three months ended 9/30/2021 | |||||||||||||||||||||||||||||||||||||||||||
| (in millions) | Equity method investments | Consolidated T. Rowe Price investment products - variable interest entities | Total currency translation adjustments | Equity method investments | Consolidated T. Rowe Price investment products - variable interest entities | Total currency translation adjustments | ||||||||||||||||||||||||||||||||||||||
| Balances at beginning of period | $ | (39.9) | $ | (7.5) | $ | (47.4) | $ | (43.8) | $ | 15.1 | $ | (28.7) | ||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications and income taxes | .7 | (12.7) | (12.0) | 3.5 | (5.0) | (1.5) | ||||||||||||||||||||||||||||||||||||||
| Net deferred tax benefits (income taxes) | (.1) | 3.0 | 2.9 | (.4) | 1.2 | .8 | ||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | .6 | (9.7) | (9.1) | 3.1 | (3.8) | (.7) | ||||||||||||||||||||||||||||||||||||||
| Balances at end of period | $ | (39.3) | $ | (17.2) | $ | (56.5) | $ | (40.7) | $ | 11.3 | $ | (29.4) | ||||||||||||||||||||||||||||||||
The other comprehensive income (loss) in the table above excludes losses of $19.1 million and $12.2 million of other comprehensive income related to redeemable non-controlling interests held in our consolidated products for the three months ended September 30, 2022 and 2021, respectively.
The changes in each component of accumulated other comprehensive loss, including reclassification adjustments for the nine months ended September 30, 2022 and 2021, are presented in the table below.
| Nine months ended 9/30/2022 | Nine months ended 9/30/2021 | ||||||||||||||||||||||||||||||||||||||||
| (in millions) | Equity method investments | Consolidated T. Rowe Price investment products - variable interest entities | Total currency translation adjustments | Equity method investments | Consolidated T. Rowe Price investment products - variable interest entities | Total currency translation adjustments | |||||||||||||||||||||||||||||||||||
| Balances at beginning of period | $ | (36.7) | $ | 10.2 | $ | (26.5) | $ | (43.6) | $ | 20.6 | $ | (23.0) | |||||||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications and income taxes | (1.9) | (29.3) | (31.2) | 2.4 | (9.8) | (7.4) | |||||||||||||||||||||||||||||||||||
| Reclassification adjustments recognized in non-operating income | — | (6.9) | (6.9) | — | (2.6) | (2.6) | |||||||||||||||||||||||||||||||||||
| (1.9) | (36.2) | (38.1) | 2.4 | (12.4) | (10.0) | ||||||||||||||||||||||||||||||||||||
| Net deferred tax benefits (income taxes) | (.7) | 8.8 | 8.1 | .5 | 3.1 | 3.6 | |||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | (2.6) | (27.4) | (30.0) | 2.9 | (9.3) | (6.4) | |||||||||||||||||||||||||||||||||||
| Balances at end of period | $ | (39.3) | $ | (17.2) | $ | (56.5) | $ | (40.7) | $ | 11.3 | $ | (29.4) | |||||||||||||||||||||||||||||
The other comprehensive income (loss) in the table above excludes losses of $44.6 million for the 2022 period and income of $20.2 million for the 2021 period of other comprehensive income (loss) related to redeemable non-controlling interests held in our consolidated products.
Page 19
NOTE 11 – COMMITMENTS AND CONTINGENCIES.
COMMITMENTS.
T. Rowe Price has committed $482.3 million to fund OHA products over the next five years.
CONTINGENCIES.
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.
Page 20
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
T. Rowe Price Group, Inc.:
Results of Review of Interim Financial Information
We have reviewed the condensed consolidated balance sheet of T. Rowe Price Group, Inc. and subsidiaries (the “Company") as of September 30, 2022, the related condensed consolidated statements of income, comprehensive income, stockholders’ equity for the three-month and nine-month periods ended September 30, 2022 and 2021, the related condensed consolidated statements of cash flows for the nine-month periods ended September 30, 2022 and 2021, and the related notes (collectively, the consolidated interim financial information). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2021, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated February 24, 2022, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2021, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
This consolidated interim financial information is the responsibility of the Company’s management. 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 reviews in accordance with the standards of the PCAOB. A review of consolidated interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
/s/ KPMG LLP
Baltimore, Maryland
October 27, 2022
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