What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2021-02-11 compared with 2020-02-13 · 249 added, 203 removed, 725 unchanged (38% of the section changed)

8 unchanged sentences

Report of Independent Registered Public Accounting Firm

Table of Contents C^<l3Q6*4v9%C:Mg

CONSOLIDATED BALANCE SHEETS

(in millions, except share data)

12/31/2020 12/31/2019

Cash and cash equivalents $ 2,151.7 $ 1,781.8

Accounts receivable and accrued revenue 863.1 646.6

Investments 3,250.8 2,939.8

Assets of consolidated T.

Rowe Price investment products ($ 2,497.4 million at December 31, 2020 and $ 1,975.3 million at December 31, 2019, related to variable interest entities)

2,695.5 2,276.9

Operating lease assets 117.6 110.8

Property and equipment, net 695.4 674.4

Goodwill 665.7 665.7

Other assets 219.2 234.4

Total assets $ 10,659.0 $ 9,330.4

Accounts payable and accrued expenses $ 187.7 $ 214.5

18 unchanged sentences

The accompanying notes to consolidated financial statements are an integral part of these statements.

Table of Contents C^<l3Q6*4v9%C:Mg

CONSOLIDATED STATEMENTS OF INCOME

(in millions, except per-share amounts)

2020 2019 2018

Investment advisory fees $ 5,693.1 $ 5,112.5 $ 4,850.6

Administrative, distribution, and servicing fees 513.6 505.4 522.0

Net revenues 6,206.7 5,617.9 5,372.6

Operating expenses

15 unchanged sentences

Provision for income taxes 718.9 678.4 615.9

Net income 2,523.3 2,248.9 1,768.7

net income (loss) attributable to redeemable non-controlling interests 150.6 117.6 ( 68.8 )

3 unchanged sentences

Rowe Price Group

Basic $ 10.08 $ 8.82 $ 7.41

Diluted $ 9.98 $ 8.70 $ 7.27

The accompanying notes to consolidated financial statements are an integral part of these statements.

Table of Contents C^<l3Q6*4v9%C:Mg

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)

2020 2019 2018

Net income $ 2,523.3 $ 2,248.9 $ 1,768.7

Other comprehensive income (loss)

7 unchanged sentences

Equity method investments 2.1 2.4 ( 15.2 )

Total currency translation adjustments

Net unrealized holding gains (losses) on available-for-sale investments

Reclassification of (gains) losses in accumulated other comprehensive income to non-operating investment income:

Capital gain distributions

Net gains realized on dispositions determined using average cost

Net unrealized gains recognized upon the transfer to trading investments

Total reclassification adjustments

Total net unrealized holding losses recognized in other comprehensive income

Other comprehensive loss before income taxes

Reclassification adjustment recognized upon partial disposition of equity method investment 7.5 — —

Total equity method investments 9.6 2.4 ( 15.2 )

Other comprehensive income (loss) before income taxes 66.7 ( 1.1 ) ( 63.5 )

Net deferred tax benefits ( 11.8 ) .5 9.2

5 unchanged sentences

The accompanying notes to consolidated financial statements are an integral part of these statements.

Table of Contents C^<l3Q6*4v9%C:Mg

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

2020 2019 2018

Cash flows from operating activities

Net income $ 2,523.3 $ 2,248.9 $ 1,768.7

Adjustments to reconcile net income to net cash provided by operating activities

1 unchanged sentence

Stock-based compensation expense 246.2 206.6 197.1

Realized gains on dispositions of available-for-sale T.

Rowe Price investment products

Gains recognized upon transfer of an investment in a T.

Rowe Price mutual fund from available-for-sale to held as trading

Net gains recognized on other investments

( 189.6 ) ( 176.3 ) ( 50.5 )

Net investments in T.

23 unchanged sentences

Net change in cash and cash equivalents during period 398.2 363.0 ( 510.5 )

Cash and cash equivalents at beginning of period, including $70.1 million at December 31, 2018 and $103.1 million at December 31, 2017 held by consolidated T.

Cash and cash equivalents at beginning of period, including $ 76.5 million at December 31, 2019, $ 70.1 million at December 31, 2018 and $ 103.1 million at December 31, 2017 held by consolidated T.

Rowe Price investment products

1,858.3 1,495.3 2,005.8

Cash and cash equivalents at end of period, including $ 104.8 million at December 31, 2020, $ 76.5 million at December 31, 2019, and $ 70.1 million at December 31, 2018, held by consolidated T.

Rowe Price investment products

$ 2,256.5 $ 1,858.3 $ 1,495.3

The accompanying notes to consolidated financial statements are an integral part of these statements.

Table of Contents C^<l3Q6*4v9%C:Mg

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (shares in thousands;

dollars in millions)

excess of par value

outstanding Common

stock Additional

excess of par value Retained

earnings AOCI (1)

stockholders’

Redeemable non-controlling interests

equity Redeemable non-controlling interests

Balances at December 31, 2017 245,111 $ 49.0 $ 846.1 $ 4,932.9 $ ( 3.6 ) $ 5,824.4 $ 992.8

Cumulative effect adjustment upon adoption of new financial instruments and accumulated other comprehensive income guidance on January 1, 2018 (2)

— — — 22.4 ( 7.9 ) 14.5 —

Reclassification adjustment of stranded tax benefits on currency translation adjustments upon adoption of new AOCI (1) guidance on January 1, 2018

— — — 2.3 ( 2.3 ) — —

Balances at January 1, 2018 245,111 49.0 846.1 4,957.6 ( 13.8 ) 5,838.9 992.8

Net income — — — 1,837.5 — 1,837.5 ( 68.8 )

Other comprehensive income (loss), net of tax — — — — ( 28.2 ) ( 28.2 ) ( 26.1 )

Dividends declared ($ 2.8 per share)

— — — ( 694.7 ) — ( 694.7 ) —

Common stock-based compensation plans activity:

1 unchanged sentence

Restricted shares issued, net of shares withheld for taxes

( 115 ) — ( 11.4 ) — — ( 11.4 ) —

Shares issued upon vesting of restricted stock units, net of shares withheld for taxes 1,053 .2 ( 36.8 ) — — ( 36.6 ) —

8 unchanged sentences

Balances at December 31, 2018 238,069 47.6 654.6 5,464.1 ( 42.0 ) 6,124.3 740.3

Cumulative effect adjustment upon adoption of new financial instruments and accumulated other comprehensive income guidance on January 1, 2018 (2)

Reclassification adjustment of stranded tax benefits on currency translation adjustments upon adoption of new AOCI (1) guidance on January 1, 2018

Balances at January 1, 2018

Net income — — — 2,131.3 — 2,131.3 117.6

Other comprehensive income (loss), net of tax — — — — ( 1.0 ) ( 1.0 ) .4

Dividends declared ($ 3.04 per share)

— — — ( 733.6 ) — ( 733.6 ) —

Common stock-based compensation plans activity:

1 unchanged sentence

Restricted shares issued, net of shares withheld for taxes

( 41 ) — ( 5.9 ) — — ( 5.9 ) —

Shares issued upon vesting of restricted stock units, net of shares withheld for taxes 1,245 .2 ( 59.5 ) — — ( 59.3 ) —

9 unchanged sentences

The accompanying notes to consolidated financial statements are an integral part of these statements.

Table of Contents C^<l3Q6*4v9%C:Mg

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (shares in thousands;

dollars in millions)

outstanding Common

stock Additional

excess of par

value Retained

earnings AOCI (1)

stockholders’

Redeemable non-controlling interests

equity Redeemable non-controlling interests

Balances at December 31, 2019 235,214 $ 47.0 $ 654.6 $ 6,443.5 $ ( 43.0 ) $ 7,102.1 $ 1,121.0

Net income — — — 2,372.7 — 2,372.7 150.6

Other comprehensive income (loss), net of tax — — — — 20.0 20.0 34.9

Dividends declared ($ 3.60 per share)

— — — ( 846.1 ) — ( 846.1 ) —

Common stock-based compensation plans activity:

1 unchanged sentence

Restricted shares withheld for taxes, net of shares issued

8 — — — — — —

Shares issued upon vesting of restricted stock units, net of shares withheld for taxes 1,457 .3 ( 92.0 ) — — ( 91.7 ) —

12 unchanged sentences

The accompanying notes to consolidated financial statements are an integral part of these statements.

Table of Contents C^<l3Q6*4v9%C:Mg

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4 unchanged sentences

mutual funds ("U.S.

mutual funds"), subadvised funds, separately managed accounts, and other T.

mutual funds"), subadvised funds, separately managed accounts, collective investment trusts, and other T.

Rowe Price products.

Rowe Price products include:

open-ended investment products offered to investors outside the U.S.

and products offered through variable annuity life insurance plans in the U.S.

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, and trust services.

trust services;

and non-discretionary advisory services through model delivery.

Investment advisory revenues depend largely on the total value and composition of assets under our management.

6 unchanged sentences

We adopted Accounting Standards Update No.

2016-02 — Leases (Topic 842) on January 1, 2019.

The update required the recognition of right-of-use lease assets and liabilities on the balance sheet and the disclosure of qualitative and quantitative information about leasing arrangements.

We adopted this standard using a modified retrospective approach without restating prior comparative periods.

We also elected to use certain practical expedients that allowed us to not perform the following:

(1) reassess whether expired or existing non-lease contracts that commenced before January 1, 2019 contained an embedded lease, (2) reevaluate the accounting classification of our existing operating leases, and (3) determine whether initial direct costs related to existing leases should be capitalized under this guidance.

On January 1, 2019, we recognized operating lease assets totaling $ 168.7 million and corresponding operating lease liabilities of $ 168.7 million related primarily to our real estate leases.

At implementation, we also reclassified $ 27.7 million in deferred rent liabilities related to these leases, reducing the recognized operating lease assets to $ 141.0 million .

The adoption did not have a material impact on our results of operations;

however, the initial recognition of our operating lease assets and operating lease liabilities on January 1, 2019, represented a non-cash investing activity that affected the amount reported in other changes in assets and liabilities in our unaudited condensed consolidated statements of cash flows.

Our leases accounting policy is included in the Summary of Significant Accounting Policies section below.

Additional information on our operating leases is included in Note 7 - Leases.

NEWLY ISSUED BUT NOT YET ADOPTED ACCOUNTING GUIDANCE.

In August 2018, the FASB issued Accounting Standards Update No.

2018-15 — Intangibles—Goodwill and Other— Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.

This update provides additional guidance on the accounting for costs of implementation activities performed in a cloud computing arrangement that is a service contract.

The amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

We will adopt this guidance on January 1, 2020, using the prospective method of adoption.

We do not expect any material impact on our financial position and results of operations in future periods.

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract on January 1, 2020 using the prospective method of adoption.

This update required implementation costs incurred in cloud computing arrangements to be deferred and recognized over the term of the hosting arrangement.

A hosting arrangement is an agreement that allows customers, like us, to access and use software on an as-needed basis without having possession of the software.

Beginning January 1, 2020, we were required to defer such qualifying implementation costs.

We have capitalized an immaterial amount of implementation costs incurred in a cloud computing arrangement.

Accordingly, the adoption of this guidance did not have a material impact on our consolidated balance sheets or our consolidated statements of income.

NEWLY ISSUED BUT NOT YET ADOPTED ACCOUNTING GUIDANCE.

We have considered all other newly issued accounting guidance that is applicable to our operations and the preparation of our 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.

Table of Contents C^<l3Q6*4v9%C:Mg

ECONOMIC RELIEF LEGISLATION.

On March 27, 2020, the U.S.

enacted the Coronavirus Aid, Relief and Economic Security ("CARES") Act.

The CARES Act provides economic relief to eligible businesses and individuals impacted by the novel coronavirus pandemic.

The CARES Act's provisions will not have a material impact on our financial position and results of operations.

Further, on December 27, 2020, the U.S.

enacted the Consolidated Appropriations Act ("CAA").

The CAA provides additional economic relief to eligible businesses and individuals impacted by the coronavirus pandemic as well as extending certain provisions of the CARES Act.

We are currently reviewing the CAA, but we do not expect it to have a material impact on our financial position and results of operations.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.

29 unchanged sentences

Investments in T.

Rowe Price investment products have been made for both general corporate investment purposes and to provide seed capital for newly formed product s.

Rowe Price investment products have been made for both general corporate investment purposes and to provide seed capital for newly formed products.

Those investments that we do not consolidate are carried at fair value using the quoted closing NAV per share of each fund as of the balance sheet date.

2 unchanged sentences

We elected to value our interest in investment partnerships, for which market prices or quotations are not readily available, at fair value using the NAV per share as a practical expedient.

Table of Contents C^<l3Q6*4v9%C:Mg

Changes in the fair values of all these investments are reflected in non-operating income in our consolidated statements of income.

11 unchanged sentences

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.

We review new arrangements at inception to evaluate whether we substantially obtain all the economic benefits of and have the right to control the use of an asset.

We review new arrangements at inception to evaluate whether we have the right to obtain substantially all the economic benefits of and have the right to control the use of an asset.

If we determine that an arrangement qualifies as a lease, we recognize a lease liability and a corresponding asset on the lease’s commencement date.

2 unchanged sentences

Our leases qualify as operating leases and consist primarily of real estate leases for corporate offices, data centers, and other facilities.

We measure our operating lease liabilities using an estimated incremental borrowing rate as there is no rate implicit in any of our operating lease arrangements.

We measure our operating lease liabilities using an estimated incremental borrowing rate as an implicit rate cannot be readily determinable from any of our operating lease arrangements.

Since we do not have any outstanding borrowings, we estimate our incremental borrowing rate using an estimated credit rating and available market information.

11 unchanged sentences

leasehold improvements, 7 years;

furniture and other equipment, 6 years;

and leased land, 99 years.

Table of Contents C^<l3Q6*4v9%C:Mg

and furniture and other equipment, 6 years.

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.

38 unchanged sentences

Regulations require that the funds’ shareholders also approve material changes to investment advisory contracts.

Table of Contents C^<l3Q6*4v9%C:Mg

Administrative, distribution, and servicing fees

2 unchanged sentences

participant recordkeeping and transfer agent services for defined contribution retirement plans;

brokerage, and trust services.

trust services;

and non-discretionary advisory services through model delivery.

The administrative service agreements with the U.S.

2 unchanged sentences

The fees are generally constrained and are recognized as revenue when costs are incurred to perform the services.

These fees are generally offset by the costs incurred to provide such services.

Other administrative service agreements for participant recordkeeping and transfer agent services for defined contribution retirement plans;

10 unchanged sentences

Accordingly, the majority of the distribution and servicing revenue disclosed in Note 3 - Information about Receivables, Revenues and Services relates to distribution and servicing obligations that were satisfied during prior periods.

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 also recognize the corresponding costs paid to the third-party financial intermediaries that distribute these funds' share classes within the distribution and servicing costs line of the consolidated statements of income.

The fee revenue that we recognize from the funds and the expense that we recognize for the fees paid to third-party intermediaries are equal in amount and, therefore, do not impact our net operating income.

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 (2017 Non-Employee Director Equity Plan and 2007 Non-Employee Director Equity Plan, collectively the Director Plans).

We maintain three stockholder-approved employee long-term incentive plans (2020 Long-Term Incentive Plan, 2012 Long-Term Incentive Plan, and 2004 Stock Incentive Plan, collectively the LTI Plans) and two stockholder-approved non-employee director plans (2017 Non-Employee Director Equity Plan and 2007 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.

6 unchanged sentences

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 similar time-based vesting requirements as the other restricted

Table of Contents C^<l3Q6*4v9%C:Mg

stock units described above.

The number of restricted stock units retained is also subject to similar time-based vesting requirements 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.

16 unchanged sentences

dollars using year-end exchange rates, and revenues and expenses are translated using weighted-average exchange rates for the period.

Prior to 2018, comprehensive income also included the change in net unrealized security holding gains (losses) on investments classified as available-for-sale.

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.

2 unchanged sentences

The amount of the reclassification depends on the investment’s accounting treatment before and after the change in ownership percentage.

Prior to 2018, tax effects relating to each available-for-sale investment’s unrealized holding gain or loss were reclassified upon the sale of the investment.

NOTE 2 – CASH EQUIVALENTS.

Cash equivalent investments in the T.

Rowe Price money market mutual funds aggregate $ 1,355.6 million at December 31, 2019 , and $ 1,196.0 million at December 31, 2018 .

Rowe Price money market mutual funds aggregate to $ 1,931.1 million at December 31, 2020, and $ 1,355.6 million at December 31, 2019.

Dividends earned on these investments totaled $ 4.2 million in 2020, $ 33.3 million in 2019, and $ 27.0 million in 2018.

Table of Contents C^<l3Q6*4v9%C:Mg

NOTE 3 – INFORMATION ABOUT RECEIVABLES, REVENUES, AND SERVICES.

1 unchanged sentence

Administrative, distribution, and servicing fees

(in millions)

Investment advisory fees

Administrative fees

Distribution and servicing fees

Subadvised and separate accounts and other investment products

(in millions) Investment advisory fees Administrative fees Distribution and servicing fees Net revenues

mutual funds $ 3,639.9 $ 291.3 $ 111.3 $ 4,042.5

Subadvised funds, separate accounts, collective investment trusts, and other investment products 2,053.2 — — 2,053.2

Other clients — 111.0 — 111.0

$ 5,693.1 $ 402.3 $ 111.3 $ 6,206.7

Administrative, distribution, and servicing fees

(in millions)

Investment advisory fees

Administrative fees

Distribution and servicing fees

Subadvised and separate accounts and other investment products

(in millions) Investment advisory fees Administrative fees Distribution and servicing fees Net revenues

mutual funds $ 3,452.5 $ 281.8 $ 120.0 $ 3,854.3

Subadvised funds, separate accounts, collective investment trusts, and other investment products 1,660.0 — — 1,660.0

Other clients — 103.6 — 103.6

$ 5,112.5 $ 385.4 $ 120.0 $ 5,617.9

Administrative, distribution, and servicing fees

(in millions)

Investment Advisory Fees

Administrative Fees

Distribution and servicing fees

Subadvised and separate accounts and other investment products

(in millions) Investment Advisory Fees Administrative Fees Distribution and servicing fees Net Revenues

mutual funds $ 3,375.0 $ 302.2 $ 138.0 $ 3,815.2

Subadvised funds, separate accounts, collective investment trusts, and other investment products 1,475.6 — — 1,475.6

Other clients — 81.8 — 81.8

$ 4,850.6 $ 384.0 $ 138.0 $ 5,372.6

In the second quarter of 2020, we changed our fee structure of the target date retirement funds such that our investment advisory fee revenue is now earned at the target date retirement fund level rather than at the underlying mutual fund level.

As a result, we have modified our investment advisory fee and assets under management presentation below to separately disclose the fees earned from clients and related assets under management of our multi-asset portfolios.

All prior periods have been recast to conform to this new presentation and to provide comparability.

The following table details the investment advisory fees earned from clients by their underlying asset class.

(in millions) 2020 2019 2018

Equity and blended assets

Equity $ 2,440.4 $ 2,219.1 $ 2,125.4

Fixed income, including money market 266.5 280.1 288.2

Subadvised and separate accounts and other investment products

Multi-asset 933.0 953.3 961.4

3,639.9 3,452.5 3,375.0

Subadvised funds, separate accounts, collective investment trusts, and other investment products

Equity and blended assets 1,326.3 1,033.4 892.0

Fixed income, including money market 149.3 153.7 227.4

Table of Contents C^<l3Q6*4v9%C:Mg

Multi-asset 577.6 472.9 356.2

2,053.2 1,660.0 1,475.6

Total $ 5,693.1 $ 5,112.5 $ 4,850.6

The following table summarizes the investment portfolios and assets under management on which we earn investment advisory fees.

(in billions)

Average during

As of December 31,

Equity and blended assets

(in billions) Average during As of December 31,

2020 2019 2018 2020 2019

Equity $ 417.0 $ 376.3 $ 356.9 $ 498.6 $ 407.1

Fixed income, including money market 76.8 72.0 70.3 79.4 73.7

Subadvised and separate accounts and other investment products

Equity and blended assets

Multi-Asset 193.9 192.1 194.6 216.6 201.9

687.7 640.4 621.8 794.6 682.7

Subadvised funds, separate accounts, collective investment trusts, and other investment products

Equity 321.3 257.3 218.1 397.2 291.7

Fixed income, including money market 82.1 79.5 92.6 89.3 74.2

Multi-Asset 156.8 132.1 104.0 189.4 158.2

560.2 468.9 414.7 675.9 524.1

Total $ 1,247.9 $ 1,109.3 $ 1,036.5 $ 1,470.5 $ 1,206.8

Investors that we serve are primarily domiciled in the U.S.;

6 unchanged sentences

The carrying values of investments that are not part of the consolidated T.

Rowe Price investment products are as follows:

Rowe Price investment products at December 31 are as follows:

(in millions) 2020 2019

1 unchanged sentence

Rowe Price investment products

Rowe Price investment products designated as an economic hedge of supplemental savings plan liability

Discretionary investments $ 1,647.7 $ 1,221.8

Seed capital 169.5 181.1

Supplemental savings plan liability economic hedges 768.1 561.1

Investment partnerships and other investments 95.1 99.7

1 unchanged sentence

Rowe Price investment products

26% interest in UTI Asset Management Company Limited (India)

Discretionary investments 242.9 610.0

Seed capital 178.6 95.6

Investment in UTI Asset Management Company Limited (India) 145.5 164.5

Investment partnerships and other investments 2.4 5.0

Treasury note 1.0 1.0

The investment partnerships are carried at fair value using NAV per share as a practical expedient.

Our interests in these partnerships are generally not redeemable and are subject to significant restrictions on transferability.

Total $ 3,250.8 $ 2,939.8

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.

1 unchanged sentence

During 2020, we recognized $ 142.7 million of net unrealized gains on investments held at fair value that were still held at December 31, 2020.

For 2019, we recognized $ 105.4 million of net unrealized gains on investments held at fair value that were still held at December 31, 2019.

For 2018, we recognized $ 18.5 million of net unrealized losses on investments held at fair value that were still held at December 31, 2018.

For 2017 , the majority of unrealized gains or losses on investments held at fair value are included and presented with other comprehensive income.

Dividends, including capital gain distributions, earned on the T.

Rowe Price investment products held at fair value, totaled $ 50.8 million in 2020, $ 50.6 million in 2019, and $ 36.0 million in 2018.

Table of Contents C^<l3Q6*4v9%C:Mg

During the years ended December 31, 2019 , 2018 and 2017 , certain T.

During each of 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.

1 unchanged sentence

Rowe Price investment products as either an equity method investment or an investment held at fair value.

Additionally, during the years ended December 31, 2019 , 2018 and 2017 , certain T.

Additionally, during 2019 and 2018, certain T.

Rowe Price investment products that were being accounted for as equity method investments were consolidated, as we regained a controlling interest.

1 unchanged sentence

(in millions) 2020 2019 2018

Net increase (decrease) in assets of consolidated T.

Net decrease in assets of consolidated T.

Rowe Price investment products $ ( 546.1 ) $ ( 380.5 ) $ ( 736.6 )

Net increase (decrease) in liabilities of consolidated

Net increase (decrease) in liabilities of consolidated T.

Rowe Price investment products $ ( 10.5 ) $ ( 15.0 ) $ 17.6

3 unchanged sentences

Rowe Price investment products with non-USD functional currencies from accumulated other comprehensive income to non-operating income.

In 2018, we sold our 10 % holding in Daiwa SB Investments Ltd.

The realized gain is recognized in net gains on investments on our consolidated statement of income and represents the majority of the increase over the prior year periods.

In October 2020, UTI Asset Management Company Limited (India), one of our equity method investments, held an initial public offering in India.

As part of the offering, we sold a portion of our 26 % interest and recorded a net gain on the sale of approximately $ 2.8 million in the fourth quarter of 2020.

Subsequent to the sale, we have an ownership interest of 23 % in UTI Asset Management Company Limited (India) and are restricted from selling any interest for one year from the date of the initial public offering.

VARIABLE INTEREST ENTITIES.

4 unchanged sentences

Unfunded capital commitments 12.3 18.1

Uncollected investment advisory and administrative fees

Receivable for investment advisory and administrative fees 13.8 10.5

$ 170.8 $ 184.6

The unfunded capital commitments, totaling $ 12.3 million at December 31, 2020, and $ 18.1 million at December 31, 2019, relate primarily to investment partnerships in which we have an existing investment.

10 unchanged sentences

These levels are not necessarily an indication of the risk or liquidity associated with our investments.

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.

This table excludes investments held by

Table of Contents C^<l3Q6*4v9%C:Mg

consolidated T.

The following table summarizes our investments that are recognized in our consolidated balance sheets at December 31 using fair value measurements determined based on the differing levels of inputs.

This table excludes investments held by consolidated T.

Rowe Price investment products which are presented separately on our consolidated balance sheets and are detailed in Note 6.

(in millions)

Cash equivalents held in T.

Rowe Price money market funds

(in millions) Level 1 Level 2 Level 1 Level 2

Rowe Price investment products

Cash equivalents held in money market funds $ 1,931.1 $ — $ 1,355.6 $ —

Discretionary investments 1,647.7 1,221.8 —

Seed capital 156.6 12.9 171.2 9.9

Supplemental savings plan liability economic hedges 768.1 — 561.1 —

Other investments .5 .6 — —

Total $ 4,504.0 $ 13.5 $ 3,309.7 $ 9.9

At December 31, 2020, the reported investments held at fair value in Note 4 include $ 94.0 million of investments that are carried at fair value using the NAV per share as a practical expedient.

6 unchanged sentences

The following table details the net assets of the consolidated T.

Rowe Price investment products :

(in millions)

Rowe Price investment products at December 31:

(in millions) VOE VIE Total VOE VIE Total

Cash and cash equivalents (1)

$ 7.1 $ 97.7 $ 104.8 $ 9.9 $ 66.6 $ 76.5

Investments (2)

188.2 2,372.7 2,560.9 281.1 1,891.3 2,172.4

Other assets 2.8 27.0 29.8 10.6 17.4 28.0

Total assets 198.1 2,497.4 2,695.5 301.6 1,975.3 2,276.9

Liabilities 10.0 47.7 57.7 12.2 27.0 39.2

Net assets $ 188.1 $ 2,449.7 $ 2,637.8 $ 289.4 $ 1,948.3 $ 2,237.7

Attributable to T.

1 unchanged sentence

Attributable to redeemable non-controlling interests 57.4 1,504.3 1,561.7 89.8 1,031.2 1,121.0

$ 188.1 $ 2,449.7 $ 2,637.8 $ 289.4 $ 1,948.3 $ 2,237.7

(1) Cash and cash equivalents includes $ 7.0 million and $ 9.1 million at December 31, 2020 and 2019, respectively, of investments in

8 unchanged sentences

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.

Table of Contents C^<l3Q6*4v9%C:Mg

The operating results of the consolidated T.

Rowe Price investment products , are reflected in our consolidated statements of income as follows:

(in millions)

Rowe Price investment products, are reflected in our consolidated statements of income for the year ended December 31 as follows:

2020 2019 2018

(in millions) VOE VIE Total VOE VIE Total VOE VIE Total

Operating expenses reflected in net operating income $ ( 1.6 ) $ ( 14.8 ) $ ( 16.4 ) $ ( 2.2 ) $ ( 12.5 ) $ ( 14.7 ) $ ( 1.9 ) $ ( 10.8 ) $ ( 12.7 )

4 unchanged sentences

Net income (loss) attributable to redeemable non-controlling interests — 150.6 150.6 7.5 110.1 117.6 ( 12.3 ) ( 56.5 ) ( 68.8 )

$ 11.6 $ 223.7 $ 235.3 $ 28.8 $ 229.4 $ 258.2 $ ( 18.6 ) $ ( 87.0 ) $ ( 105.6 )

The operating expenses of these consolidated products are reflected in other operating expenses.

3 unchanged sentences

The following table details the impact of these consolidated investment products on the individual lines of our consolidated statements of cash flows.

(in millions)

2020 2019 2018

(in millions) VOE VIE Total VOE VIE Total VOE VIE Total

Net cash provided by operating activities $ ( 155.4 ) $ ( 401.3 ) $ ( 556.7 ) $ ( 7.2 ) $ ( 663.6 ) $ ( 670.8 ) $ ( 43.9 ) $ ( 505.2 ) $ ( 549.1 )

Net cash used in investing activities

Net cash provided by (used in) investing activities ( 23.4 ) ( 30.5 ) ( 53.9 ) ( 7.1 ) ( 11.3 ) ( 18.4 ) ( .8 ) ( 23.0 ) ( 23.8 )

Net cash used in financing activities 176.0 461.0 637.0 5.7 692.4 698.1 56.1 499.2 555.3

6 unchanged sentences

These cash flows were eliminated in consolidation.

Table of Contents C^<l3Q6*4v9%C:Mg

FAIR VALUE MEASUREMENTS.

10 unchanged sentences

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)

Rowe Price investment products using fair value measurements determined based on the differing levels of inputs as of December 31.

(in millions) Level 1

Cash equivalents $ 7.0 $ — $ 9.1 $ 1.1

2 unchanged sentences

Other investments 2.6 131.0 2.7 33.8

$ 317.6 $ 2,250.3 $ 174.6 $ 2,008.0

Liabilities $ ( .4 ) $ ( 18.8 ) $ ( .4 ) $ ( 11.2 )

NOTE 7 – LEASES.

All of our leases are operating leases and primarily consist of real estate leases for corporate offices, data centers, and other facilities.

In December 2020, we announced that we signed a letter of intent for a long-term lease for our global headquarters in a different downtown location in Baltimore, Maryland.

We plan to relocate our operations from our East Pratt Street offices in 2024.

As of December 31, 2020, the weighted-average remaining lease term on our leases is approximately 4.8 and the weighted-average discount rate used to measure the lease liabilities is 3.5 %.

Operating lease expense for the year ended December 31, 2019 , 2018 , and 2017 was $ 29.0 million , $ 40.1 million , and $ 36.0 million , respectively.

Charges related to our operating leases that are variable, including variable common area maintenance charges and other management-related costs, and not included in the measurement of the lease liabilities, were $ 10.0 million for the year ended December 31, 2019 .

We made lease payments of $ 29.5 million during the year ended December 31, 2019 .

Operating lease expense was $ 32.1 million in 2020, $ 29.0 million in 2019, and $ 40.1 million in 2018.

We made lease payments of $ 31.2 million during 2020.

Our future undiscounted cash flows related to our operating leases and the reconciliation to the operating lease liability as of December 31, 2020, are as follows:

(in millions) 2020

Thereafter 12.6

Total future undiscounted cash flows 168.3

1 unchanged sentence

Operating lease liabilities, as reported $ 154.1

Table of Contents C^<l3Q6*4v9%C:Mg

NOTE 8 – PROPERTY AND EQUIPMENT.

5 unchanged sentences

Furniture and other equipment 193.3 193.5

Land 37.2 33.4

Leased land — 2.7

1,970.3 1,816.8

Less accumulated depreciation and amortization 1,274.9 1,142.4

Total $ 695.4 $ 674.4

Compensation and related costs attributable to the development of computer software for internal use, totaling $ 125.9 million in 2020, $ 95.5 million in 2019, and $ 85.5 million in 2018, have been capitalized.

3 unchanged sentences

Current income taxes

federal $ 547.1 $ 490.9 $ 484.2

State and local 135.2 135.9 138.7

Foreign 22.9 18.3 28.5

Deferred income taxes (benefits) 13.7 33.3 ( 35.5 )

Total $ 718.9 $ 678.4 $ 615.9

On December 22, 2017, the U.S.

1 unchanged sentence

The Tax Reform included numerous changes to existing tax laws, including a permanent reduction in the federal corporate income tax rate.

For the years ended December 31, 2018 and 2017, the income tax provision includes nonrecurring charges of $ 20.8 million and $ 71.1 million , respectively, related to the enactment of Tax Reform.

As of December 31, 2018, we have completed our accounting for the income tax effects of Tax Reform.

For the year ended December 31, 2018, the income tax provision includes nonrecurring charges of $ 20.8 million related to the enactment of Tax Reform.

As of December 31, 2018, we completed our accounting for the income tax effects of Tax Reform.

On April 24, 2018, the state of Maryland enacted new state tax legislation.

1 unchanged sentence

We recognized a nonrecurring charge of $ 7.9 million during 2018 for the re-measurement of our deferred tax assets and liabilities to reflect the effect of this Maryland state tax legislation.

Table of Contents C^<l3Q6*4v9%C:Mg

Deferred income taxes and benefits arise from temporary differences between taxable income for financial statement and income tax return purposes.

2 unchanged sentences

Property and equipment $ 15.6 $ 3.0 $ 11.0

Operating lease assets

Operating lease liabilities

Asset impairments 2.9 ( 2.4 ) .9

Stock-based compensation 1.8 4.5 7.1

1 unchanged sentence

Supplemental savings plan liability ( 43.3 ) ( 33.6 ) ( 17.4 )

Asset impairments

Unrealized holding gains recognized in non-operating income 46.8 63.0 ( 32.0 )

Other ( 7.9 ) ( 2.5 ) ( 2.9 )

Total deferred income taxes (benefits) $ 13.7 $ 33.3 $ ( 35.5 )

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

2020 2019 2018

Statutory U.S.

federal income tax rate 21.0 % 21.0 % 21.0 %

Impact of nonrecurring charge relating to U.S.

Impact of nonrecurring charge related to Maryland state tax legislation

Nonrecurring charge relating to U.S.

tax reform — — .8

Nonrecurring charge related to Maryland state tax legislation — — .3

State income taxes for current year, net of federal income tax benefits (1)

1 unchanged sentence

Net excess tax benefits from stock-based compensation plans activity ( 1.9 ) ( 1.5 ) ( 1.7 )

Other items .5 .4 .1

Effective income tax rate 22.2 % 23.2 % 25.8 %

(1) State income tax benefits are reflected in the total benefits for net income attributable to redeemable non-controlling interests and stock-based compensation plans activity.

Table of Contents C^<l3Q6*4v9%C:Mg

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

(in millions) 2020 2019

Deferred tax liabilities

Property and equipment

Operating lease assets

Net unrealized holding gains recognized in income

Deferred tax assets

5 unchanged sentences

Currency translation adjustment .2 11.9

Other 13.5 15.4

Deferred tax liabilities

Property and equipment ( 64.9 ) ( 49.3 )

Operating lease assets ( 34.9 ) ( 33.9 )

Net unrealized holding gains recognized in income ( 130.9 ) ( 93.1 )

Net unrealized holding gains on investments held as available-for-sale — —

Other ( 12.4 ) ( 22.1 )

( 243.1 ) ( 198.4 )

Net deferred tax asset $ 60.6 $ 77.1

16 unchanged sentences

Changes in tax positions related to

Current year 7.7 8.1 5.8

Prior years ( 2.6 ) .5 3.8

Expired statute of limitations ( 2.3 ) ( .8 ) ( 1.1 )

2 unchanged sentences

however, we do not expect that unrecognized tax benefits for tax positions taken with respect to 2020 and prior years will significantly change in 2021.

has concluded examinations related to federal tax obligations through the year 2016 .

A net interest payable related to our unrecognized tax benefits of $ 2.1 million at December 31, 2019 , and $ 1.2 million at December 31, 2018 , are

Table of Contents C^<l3Q6*4v9%C:Mg

recognized in our consolidated balance sheets.

has concluded examinations related to federal tax obligations through the year 2016 as well as the 2018 year.

The 2017 year examination has not yet been concluded.

A net interest payable related to our unrecognized tax benefits of $ 1.9 million at December 31, 2020, and $ 2.1 million at December 31, 2019, 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.

2 unchanged sentences

SHARE REPURCHASES.

At December 31, 2019 , a liability of $ 12.2 million is included in accounts payable and accrued expenses for common stock repurchases that settled during the first week of January 2019.

At December 31, 2020 and 2019, liabilities of $ 2.5 million and $ 12.2 million were included in accounts payable and accrued expenses for common stock repurchases that settled during the first week of January 2021 and January 2020, respectively.

The Board of Directors has authorized the future repurchase of up to 21,467,311 common shares as of December 31, 2020.

7 unchanged sentences

The following table summarizes the status of, and changes in, our stock options during 2020.

Weighted-average

Options Weighted-

price Weighted-average

Outstanding at December 31, 2019 7,388,068 $ 71.06

Exercised ( 3,046,414 ) $ 69.01

Forfeited ( 6,874 ) $ 74.48

Expired ( 5,724 ) $ 53.22

Outstanding at December 31, 2020 4,329,056 $ 72.52 3.1

2 unchanged sentences

The total intrinsic value of options exercised was $ 198.3 million in 2020, $ 170.9 million in 2019, and $ 208.4 million in 2018.

At December 31, 2019 , the aggregate intrinsic value of in-the-money options outstanding was $ 375.2 million , including $ 344.3 million related to options exercisable.

Table of Contents C^<l3Q6*4v9%C:Mg

At December 31, 2020, the aggregate intrinsic value of in-the-money options outstanding was $ 341.4 million, all outstanding options are exercisable.

RESTRICTED SHARES AND STOCK UNITS.

The following table summarizes the status of, and changes in, our nonvested restricted shares and restricted stock units during 2020.

shares Restricted

units Weighted-

Nonvested at December 31, 2019 7,404 6,718,261 $ 98.75

2 unchanged sentences

Vested (value at vest date was $ 310.5 million)

( 7,404 ) ( 2,096,963 ) $ 92.14

Nonvested dividend equivalents granted to non-employee directors — 2,356 $ 123.48

Forfeited — ( 115,878 ) $ 99.76

Nonvested at December 31, 2020 7,412 6,367,059 $ 116.51

11 unchanged sentences

Fourth quarter 2021 50.3

Total 2021 222.4

2022 through 2026 215.1

Table of Contents C^<l3Q6*4v9%C:Mg

Total $ 437.5

NOTE 12 – EARNINGS PER SHARE CALCULATIONS.

8 unchanged sentences

Weighted-average common shares

Outstanding 228.8 235.4 242.2

Outstanding assuming dilution 231.2 238.6 246.9

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)

Weighted-average outstanding stock options excluded

For the past three years, no stock options have been excluded from the calculation of diluted earnings per common share as none of the options' inclusion would be anti-dilutive.

NOTE 13 – OTHER COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME.

3 unchanged sentences

Currency translation adjustments $ ( 10.3 ) $ .5 $ 8.3

Reclassification adjustment recognized upon partial disposition of equity method investment ( 1.7 ) — —

Reclassification adjustment recognized in the provision for income taxes upon deconsolidation of T.

Rowe Price investment product .2 — .9

Total deferred tax benefits (income taxes) on currency translation adjustments

Net unrealized holding gains or losses (1)

Reclassification adjustments recognized in the provision for income taxes:

Capital gain distributions

Net gains realized on dispositions

Net gains recognized upon transfer to trading investments

Net deferred tax benefits (income taxes) on net unrealized holding gains or losses

Total net deferred tax benefits $ ( 11.8 ) $ .5 $ 9.2

(1) On January 1, 2018, we implemented new accounting guidance that eliminated the available-for-sale investment category for equity securities and required unrealized holding gains on equity securities to be recognized in the consolidated income statement.

Prior to this guidance, unrealized holding gains for available-for-sale equity securities were recognized in accumulated other comprehensive income and reclassified to the consolidated income statement upon sale of the investment.

As a result of this change, reclassification of unrealized holding gains from accumulated other comprehensive income did not occur in 2019 or 2018.

Table of Contents C^<l3Q6*4v9%C:Mg

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

Currency translation adjustments

(in millions)

Equity method investments

Consolidated T.

Rowe Price investment products - variable interest entities

Total currency translation adjustments

Net unrealized holding gains

(in millions) Equity method investments Consolidated T.

Rowe Price investment products - variable interest entities Total currency translation adjustments Net unrealized holding gains Total

Balances at December 31, 2017 $ ( 30.6 ) $ 19.1 $ ( 11.5 ) $ 7.9 $ ( 3.6 )

Reclassification of unrealized holding gains to retained earnings upon adoption of new financial instruments guidance (1)(2)

— — — ( 7.9 ) ( 7.9 )

Reclassification adjustment of stranded tax benefits on currency translation adjustments upon adoption of new accumulated other comprehensive income guidance ( 6.4 ) 4.1 ( 2.3 ) — ( 2.3 )

Balance at January 1, 2018 ( 37.0 ) 23.2 ( 13.8 ) — ( 13.8 )

Other comprehensive income (loss) before reclassifications and income taxes ( 15.2 ) ( 18.6 ) ( 33.8 ) — ( 33.8 )

Reclassification adjustments recognized in non-operating income — ( 3.6 ) ( 3.6 ) — ( 3.6 )

( 15.2 ) ( 22.2 ) ( 37.4 ) — ( 37.4 )

Net deferred tax benefits (income taxes) 3.4 5.8 9.2 — 9.2

1 unchanged sentence

Balances at December 31, 2018 ( 48.8 ) 6.8 ( 42.0 ) — ( 42.0 )

Reclassification of unrealized holding gains to retained earnings upon adoption of new financial instruments guidance (1)(2)

Reclassification adjustment of stranded tax benefits on currency translation adjustments upon adoption of new accumulated other comprehensive income guidance

Balance at January 1, 2018

Other comprehensive income (loss) before reclassifications and income taxes 2.4 ( 3.8 ) ( 1.4 ) — ( 1.4 )

Reclassification adjustments recognized in non-operating income — ( .1 ) ( .1 ) — ( .1 )

2.4 ( 3.9 ) ( 1.5 ) — ( 1.5 )

Net deferred tax benefits (income taxes) ( .5 ) 1.0 .5 — .5

1 unchanged sentence

Balances at December 31, 2019 ( 46.9 ) 3.9 ( 43.0 ) — ( 43.0 )

Other comprehensive income (loss) before reclassifications and income taxes

Other comprehensive income before reclassifications and income taxes 2.1 22.9 25.0 — 25.0

Reclassification adjustments recognized in non-operating income 7.5 ( .7 ) 6.8 — 6.8

9.6 22.2 31.8 — 31.8

Net deferred tax benefits (income taxes) ( 6.3 ) ( 5.5 ) ( 11.8 ) — ( 11.8 )

6 unchanged sentences

tax law changes enacted on December 22, 2017, from accumulated other comprehensive income to retained earnings.

Table of Contents C^<l3Q6*4v9%C:Mg

NOTE 14 – DELL APPRAISAL RIGHTS MATTER.

18 unchanged sentences

Rowe Price believes the claims are without merit and is vigorously defending the action.

This matter is in the discovery phase 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.

The parties each filed motions for summary judgement and, with the exception of one claim, the court has denied the parties’ cross motions for summary judgment and will schedule the case for trial.

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.

15 unchanged sentences

In the alternative, the complaint seeks the rescission of each fund’s investment management agreement and restitution of any allegedly excessive management fees.

Rowe Price believes the claims are without merit and is vigorously defending the action.

The parties filed a stipulation of dismissal with prejudice in the United States District Court on December 30, 2020.

There was no settlement or other consideration given by T.

Rowe Price to the plaintiffs.

In addition to the matters discussed above, various claims against us arise in the ordinary course of business, including employment-related claims.

4 unchanged sentences

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.

Through the 2020 plan year, 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 adjusted in accordance with the hypothetical investments chosen by the officer from a list of mutual funds.

1 unchanged sentence

Certain senior officers elected to defer $ 105.8 million in 2020, $ 107.5 million in 2019, and $ 118.9 million in 2018.

Beginning with the plan's 2021 year, the maximum that certain senior officers can defer will be the lesser of 50 % of their annual cash incentive earned or $ 2 million.

Additionally, the officers can now defer amounts for a minimum of five years rather than the two years prior to the plan's 2021 year.

NOTE 17 – SUPPLEMENTARY QUARTERLY FINANCIAL DATA (Unaudited).

Net income (1)(2)(3)

Net income attributable to

Rowe Price Group (1)(2)(3)

Basic earnings on common stock (1)(2)(3)(4)

Net revenues Net income Net income attributable to

Rowe Price Group Basic earnings on common stock (1)

Diluted earnings on common stock (1)

(in millions)

(1) During the fourth quarter of 2018, we recognized a $ 15.2 million reduction in operating expenses, or $ 0.05 , in diluted earnings per share, upon recovering a portion of the payments we made to our clients in 2016.

For more details related to the Dell appraisal rights matter, see Note 14 to the consolidated financial statements.

(2) During the second quarter of 2018 we recognized a nonrecurring charge of 20.8 million , or $ 0.08 in diluted earnings per share related to the U.S.

tax law changes that were enacted on December 22, 2017, and a nonrecurring charge of $ 7.9 million , or $ .03 in diluted earnings per share for the remeasurement of our deferred tax assets and liabilities to reflect the effect of Maryland state tax legislation enacted on April 24, 2018.

See Note 9 to the consolidated financial statements for further details.

(3) During the third quarter of 2018, we recognized a realized gain of $ .27 in diluted earnings per share from the sale of our 10 % holding in Daiwa SB Investments Ltd.

(in millions) (per share)

1st quarter $ 1,462.6 $ 166.6 $ 343.1 $ 1.43 $ 1.41

2nd quarter $ 1,415.4 $ 728.5 $ 603.0 $ 2.58 $ 2.55

3rd quarter $ 1,595.8 $ 698.6 $ 643.2 $ 2.75 $ 2.73

4th quarter $ 1,732.9 $ 929.6 $ 783.4 $ 3.36 $ 3.33

1st quarter $ 1,327.3 $ 554.0 $ 512.6 $ 2.11 $ 2.09

2nd quarter $ 1,395.2 $ 555.9 $ 527.5 $ 2.18 $ 2.15

3rd quarter $ 1,426.7 $ 545.1 $ 545.9 $ 2.26 $ 2.23

4th quarter $ 1,468.7 $ 593.9 $ 545.3 $ 2.27 $ 2.24

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

Table of Contents C^<l3Q6*4v9%C:Mg

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

20 unchanged sentences

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that is communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgment.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Evaluation of the assets under management data used in the calculation of investment advisory fees revenue

Evaluation of the completeness and accuracy of assets under management data used in the calculation of investment advisory fees revenue

As discussed in Note 1 to the consolidated financial statements, the Company recognizes fees for its investment advisory agreements based on a percentage of its assets under management (AUM).

AUM represents a significant input to the calculation of investment advisory fees.

AUM data represents a significant input to the calculation of investment advisory fees.

The Company recognized $3.6 billion in investment advisory fees related to T.

1 unchanged sentence

mutual funds (Funds) during the year ended December 31, 2020.

Specifically as it pertains to the Funds, AUM is transmitted through multiple information technology (IT) systems used in the calculation of investment advisory fee revenue.

Table of Contents C^<l3Q6*4v9%C:Mg

We identified the evaluation of AUM for the Funds transmitted through multiple IT systems as a critical audit matter given the importance of maintaining the AUM data to be input into the calculation of investment advisory fee revenues.

There is a high degree of effort involved in performing procedures to address the Company’s use of multiple IT systems to maintain the AUM data.

Such procedures require specialized skills to test the AUM data as it is processed through multiple IT systems.

The primary procedures we performed to address the critical audit matter included the following.

We tested certain internal controls over the Company’s revenue processes, including manual controls that reconcile AUM between IT systems.

We involved IT professionals with specialized skills and knowledge, who assisted in the testing of general IT controls and the interface of data between multiple IT systems used to maintain AUM.

To assess the AUM, we compared AUM used in the calculation of investment advisory fees to the source IT systems and to audited financial statements, for a selection of Funds.

/ s / KPMG LLP

We identified the evaluation of the completeness and accuracy of AUM data for the Funds as a critical audit matter as AUM data is transmitted through multiple information technology (IT) systems used in the calculation of investment advisory fee revenue.

Given the Company's use of multiple IT systems, the nature and extent of audit effort involved in performing procedures to evaluate the completeness and accuracy of AUM data required the use of IT professionals with specialized skills and knowledge.

The following are the primary procedures we performed to address the critical audit matter.

We evaluated the design and tested the operational effectiveness of certain internal controls over the Company’s revenue processes, including manual controls over the completeness and accuracy of AUM data.

We involved IT professionals with specialized skills and knowledge, who assisted in the testing of general IT controls and the interface of data between multiple IT systems used to maintain AUM data.

To assess the AUM data, we (1) compared AUM used in the calculation of a sample of investment advisory fees to the source IT systems, and (2) for a selection of Funds, compared AUM on select dates from the source IT system to the audited Fund financial statements.

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

1 unchanged sentence

February 11, 2021

Table of Contents C^<l3Q6*4v9%C:Mg

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data