What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-24 compared with 2021-02-11 · 295 added, 143 removed, 831 unchanged (35% of the section changed)

Financial Statements and Supplementary Data.

Financial Statements.

Index to Financial Statements:

Consolidated Balance Sheets at December 31, 2021 and 2020 54

Consolidated Statements of Income for each of the years in the three-year period ended December 31, 2020 52

Consolidated Statements of Income for each of the years in the three-year period ended

December 31, 2021 55

Consolidated Statements of Comprehensive Income for each of the years in the three-year period ended December 31, 2021 56

Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2020 54

Consolidated Statements of Cash Flows for each of the years in the three-year period ended

December 31, 2021 57

Consolidated Statements of Stockholders' Equity for each of the years in the three-year period ended December 31, 2021 58

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (KPMG LLP, Baltimore, MD, Auditor ID:

CONSOLIDATED BALANCE SHEETS

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Operating lease assets 201.2 117.6

Property and equipment, net 695.4 674.4

Property, equipment and software, net 736.2 695.4

Intangible assets 913.4 —

Goodwill 2,693.2 665.7

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Supplemental savings plan liability 882.6 772.2

Contingent consideration liability 306.3 —

Income taxes payable 77.9 85.0

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Accumulated other comprehensive loss ( 26.5 ) ( 23.0 )

Total stockholders' equity attributable to T.

Rowe Price Group, Inc.

9,022.7 7,707.0

Non-controlling interests in consolidated entities 248.7 —

Total permanent stockholders' equity 9,271.4 7,707.0

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Advertising and promotion 100.2 83.7 96.8

Product-related costs 155.5 153.2 157.1

Product and recordkeeping related costs 236.3 155.5 153.2

Technology, occupancy, and facility costs 484.9 444.8 427.3

General, administrative, and other 383.6 316.1 321.9

Nonrecurring recoveries related to Dell appraisal rights matter — — ( 15.2 )

Total operating expenses 3,961.9 3,461.0 3,230.9

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

Depreciation, amortization and impairment of property and equipment 189.6 190.8 159.5

Depreciation, amortization and impairment of property, equipment and software 204.8 189.6 190.8

Stock-based compensation expense 274.6 246.2 206.6

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Additions to property and equipment ( 239.1 ) ( 214.6 ) ( 204.6 )

Acquisition, net of cash acquired ( 2,450.8 ) — —

Other investing activity 30.9 50.5 6.8

Net cash provided by (used in) investing activities ( 36.3 ) ( 324.5 ) ( 875.5 )

Net cash used in investing activities ( 1,098.1 ) ( 36.3 ) ( 324.5 )

Cash flows from financing activities

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Dividends paid to common stock and equity-award holders ( 1,701.9 ) ( 845.8 ) ( 733.9 )

Net subscriptions received from redeemable non-controlling interest holders 557.5 523.7 470.4

Net cash provided by (used in) financing activities ( 1,486.3 ) ( 832.7 ) ( 1,239.5 )

Net subscriptions (redemptions) from redeemable non-controlling interest holders ( 66.8 ) 557.5 523.7

Net cash used in financing activities ( 2,988.8 ) ( 1,486.3 ) ( 832.7 )

Effect of exchange rate changes on cash and cash equivalents of consolidated T.

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stockholders’

equity Redeemable non-controlling interests

equity attributable to T.

Rowe Price Group, Inc.

Redeemable non-controlling interests

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)

— — — 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 — — — 2,131.3 — 2,131.3 117.6

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stockholders’

equity Redeemable non-controlling interests

equity attributable to T.

Rowe Price Group, Inc.

Non-controlling interests in consolidated entities Total permanent 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 $ — $ 7,707.0 $ 1,561.7

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— — — ( 1,003.5 ) — ( 1,003.5 ) — ( 1,003.5 ) —

Special cash dividend declared ($ 3.00 per share)

— — — ( 699.5 ) — ( 699.5 ) — ( 699.5 ) —

Common stock-based compensation plans activity:

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Restricted shares withheld for taxes, net of shares issued 6 — — — — — — — —

8 — — — — — —

Shares issued upon vesting of restricted stock units, net of shares withheld for taxes 1,492 .3 ( 128.0 ) — — ( 127.7 ) — ( 127.7 ) —

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Common shares repurchased ( 5,941 ) ( 1.2 ) ( 809.4 ) ( 325.4 ) — ( 1,136.0 ) — ( 1,136.0 ) —

Net subscriptions into T.

Common shares issued for acquisition 4,447 .9 880.6 — — 881.5 — 881.5 —

Non-controlling interests — — — — — — 248.7 248.7 —

Net redemptions from T.

Rowe Price investment products — — — — — — — — ( 67.7 )

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(1) Accumulated other comprehensive income

(2) Includes the reclassification of $ 1.7 million of stranded income taxes on available-for-sale investments resulting from U.S.

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

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

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and non-discretionary advisory services through model delivery.

On December 29, 2021, we completed our acquisition of Oak Hill Advisors, L.P., a leading alternative credit manager, and other entities that have 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").

The acquisition accelerates our expansion into alternatives investment markets and complements our existing global platform and ongoing strategic initiatives in our core investments and distribution capabilities.

OHA and its advisory affiliates provide investment advisory, asset management and other advisory services primarily to affiliated private investment funds and private accounts investing in leveraged loans, high yield bonds, structured products, private lending, distressed securities and turnaround investments.

Rowe Price Group, Inc.

recorded the assets acquired and liabilities assumed at their acquisition date fair values on its consolidated balance sheets as of the close date.

Rowe Price Group, Inc.

did not record any 2021 OHA financial results in its consolidated statements of income or comprehensive income as the OHA activity between the closing date and December 31, 2021 was deemed immaterial.

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

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Actual results may vary from our estimates.

NEW ACCOUNTING GUIDANCE.

We adopted 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 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.

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We do not believe that any such guidance has or will have a material effect on our financial position or results of operations.

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.

Business Combinations

We account for business combinations under the acquisition method of accounting, whereby we recognize assets acquired and liabilities assumed, including separately identified intangible assets, contingent liabilities, and non-controlling interests, based on the fair value estimates as of the date of the acquisition.

Any excess purchase consideration over the fair value of the identified net assets acquired is recognized as goodwill.

During the measurement period, which is not to exceed one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill.

Upon the conclusion of the measurement period, any subsequent adjustments are recorded in earnings.

Consolidation

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were determined to be VIEs.

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

In addition, in connection with the OHA acquisition, we acquired a majority of the carried interest entities.

These carried interest entities are considered VIEs and T.

Rowe Price is determined to be the primary beneficiary.

The total assets, liabilities, and non-controlling interests of these consolidated VIEs as of December 31, 2021 were $ 692.7 million, $ 56.4 million, and $ 248.7 million, respectively.

Further, these carried interest entities hold general partner interests in affiliated private investment funds that are VIEs, though these carried interest entities were determined to not be the primary beneficiary, and therefore, these affiliated private investment funds are not consolidated.

Redeemable non-controlling interests

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As such, we reflect redeemable non-controlling interests as temporary equity in our consolidated balance sheets.

Non-controlling interests in consolidated entities

As a result of the OHA acquisition, we recognized non-controlling interests in the consolidated carried interest entities and present it as a component of permanent equity in our consolidated balance sheets.

The non-controlling interests represent the minority interest held by limited partnerships controlled by employees, one of which is a member of our Board of Directors.

Beginning in 2022, income (loss) will be allocated to these non-controlling interests based on the carried interest entity contractual arrangements that govern the allocation of income (loss), such as net income allocable to T.

Investments in T.

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The basis difference between our carrying value and our proportionate share of UTI’s book value is primarily related to consideration paid in excess of the stepped-up basis of assets and liabilities on the date of purchase.

Investments in affiliated private investment funds

The investments in affiliated private investment funds - carried interest represent interests in general partners of affiliated private investment funds with disproportionate allocation of income or capital allocation-based arrangements that are accounted for as financial instruments under ASC 323, Investments – Equity Method and Joint Ventures ("ASC 323") since the general partner has significant governance rights in the investment funds in which it invests, which demonstrate significant influence.

Held to Maturity

As part of the acquisition of OHA, we acquired investments in rated notes of certain European collateralized loan obligation funds.

We have designated these rated notes as held-to-maturity and will carry them on the balance sheet at amortized cost.

At December 31, 2021, these investments were recorded at their acquisition date fair value in accordance with ASC 805 - Business Combinations .

Concentration of risk

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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.

The lease liability is initially measured at the present value of the future minimum lease payments over the lease term using the rate implicit in the arrangement or, if not available, our incremental borrowing rate.

An operating lease asset is measured initially at the value of the lease liability less any lease incentives and initial direct costs incurred.

The lease liability is initially measured at the present value of the future minimum lease payments over the lease term using

the rate implicit in the arrangement or, if not available, our incremental borrowing rate.

An operating lease asset is measured initially at the value of the lease liability less any lease incentives received and initial direct costs incurred.

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

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We recognize operating lease expense on a straight-line basis over the lease term as part of technology, occupancy, and facility costs in our consolidated statements of income.

Property and equipment

Property and equipment is stated at cost net of accumulated depreciation and amortization computed using the straight-line method.

Property, equipment and software

Property, equipment and software is stated at cost net of accumulated depreciation and amortization computed using the straight-line method.

Provisions for depreciation and amortization are based on the following weighted-average estimated useful lives:

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and furniture and other equipment, 6 years.

Intangible assets

Intangible assets acquired in the OHA acquisition consist primarily of investment advisory agreements and a trade name.

The fair values of the acquired investment advisory agreements are based on the net present value of estimated future cash flows attributable to the agreements, which include significant assumptions about revenue growth rate, discount rate and effective tax rate.

The investment advisory agreement intangible assets will be amortized using the straight-line method over their estimated useful lives unless the asset is determined to have an indefinite life as there is no foreseeable limit on the contract period.

The weighted average useful life of definite-lived intangibles assets is approximately 6.1 years.

The trade name fair value is determined using the relief from royalty method based on net present value of estimated cash flows, which include significant assumptions about royalty rate, revenue growth rate, discount rate and effective tax rate.

Additionally, we identified the trade name intangible asset as indefinite-lived as there is no foreseeable limit on the use of the OHA name.

Indefinite-lived intangible assets are tested for impairment annually or more frequently when an event occurs or circumstances change that more likely than not reduce the fair value of the indefinite-lived intangible asset below its carrying value.

Definite-lived intangible assets are tested when there is an indication of impairment.

Impairment is indicated when the carrying value of the asset is not recoverable and exceeds its fair value.

If indicators are present, we perform a recoverability test by comparing the estimated undiscounted future cash flows attributable to the asset group in question to the asset group’s carrying amount.

If the undiscounted estimated future cash flows are less than the carrying amount of the asset, the asset’s cost is adjusted to fair value and an impairment loss is recognized.

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.

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We do not have distinct operating segments or components that separately constitute a business.

Accordingly, we attribute goodwill to a single reportable business segment and reporting unit—our investment advisory business.

Accordingly, we attribute goodwill to a single reportable segment and reporting unit - our investment advisory business.

With the completion of the acquisition of OHA in December 2021, we are currently evaluating the impact that OHA will have on our business reporting and goodwill impairment analysis.

Revenue recognition

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

We recognize performance-based incentive fees in connection with the investment advisory agreements from certain separately managed and subadvised accounts.

We are entitled to receive performance-based incentive fees when the return on investment assets exceeds a certain benchmark return.

In such arrangements, these incentive fees are recognized at the end of the measurement period when the performance benchmark or contractual

outperformance has been achieved.

Performance-based incentive fees are considered a form of variable consideration, and as such these fees are subject to potential reversal up until the end of the measurement period (which is generally one year) when the performance-based incentive fees become fixed, determinable, and are not subject to significant reversal.

There are no significant judgments made when determining the performance-based incentive fees.

Beginning in 2022, investment advisory fees will also include fees earned from affiliated private investment funds or private accounts that are determined either monthly or quarterly and are generally based on the fund’s or account's net asset value or invested capital.

Investment advisory fees earned from CLOs include senior collateral management fees and subordinated collateral management fees, which are generally determined quarterly based on the sum of collateral principal amounts and the aggregate principal amount of all defaulted obligations.

If amounts distributable on any payment date are insufficient to pay the collateral management fee according to the priority of payments, any shortfall is deferred and payable on subsequent payment dates.

Administrative, distribution, and servicing fees

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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.

Capital allocation-based income

Beginning in 2022, we will record income earned from investments in affiliated private investment funds with capital allocation-based arrangements that are accounted for under ASC 323 based on the proportionate share of the income or loss of the fund assuming the fund was liquidated as of each reporting date pursuant to each investment fund's governing agreements.

Accordingly, this income, also known as carried interest, is accounted for outside of the scope of ASC 606.

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

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The changes in accumulated balances of each component of other comprehensive income, the deferred tax impacts of each component, and information about significant items reclassified out of accumulated other comprehensive income are presented in the notes to the financial statements.

The notes also indicate the line item of our consolidated statements of income in which the significant reclassifications were recognized.

The notes also indicate the line item

of our consolidated statements of income in which the significant reclassifications were recognized.

We reclassify income tax effects relating to currency translation adjustments to tax expense when there is a reduction in our ownership interest in the related investment.

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

NOTE 2 - ACQUISITION .

As discussed in Note 1, on December 29, 2021, T.

Rowe Price Group, Inc.

and certain wholly owned subsidiaries completed the acquisition of Oak Hill Advisors, L.P., a leading alternative credit manager, and other entities that have common ownership (collectively, "OHA").

The upfront purchase consideration transferred included cash consideration of $ 2,487.4 million, and 4.4 million shares of common stock valued at $ 881.5 million.

The upfront purchase consideration included the retirement of $ 217.1 million of OHA debt.

The consideration transferred is subject to customary working capital and escrow settlements in the post-combination period.

The equity consideration transferred is restricted from sale for one year .

In addition, contingent consideration in the amount of up to $ 900.0 million in cash 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 are 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.

The earnout amount will be subject to a proportional reduction if OHA's actual revenue at the end of the earnout period does not meet the defined revenue targets and could result in no earnout payout if OHA's actual revenue falls below 75 % of the defined revenue target.

About 22 % of the earnout is conditioned upon continued service with T.

Rowe Price and is excluded from the purchase consideration transferred as further discussed in Compensation Arrangements below.

A Monte Carlo simulation was used to determine the fair value of the earnout.

The portion of the earnout which is not conditioned upon continued service with T.

Rowe Price had a fair value of $ 306.3 million and is recorded as a contingent consideration liability in our 2021 consolidated balance sheet.

The acquisition met the requirements to be considered a business combination under ASC 805 - Business Combinations and was accounted for using the acquisition method of accounting.

Accordingly, the purchase price consideration was allocated to the assets acquired, including separately identified intangibles, and liabilities assumed based on their estimated fair values as of the acquisition date.

Any excess of the purchase price over the fair value of the identifiable assets and liabilities is recorded as goodwill.

Approximately $ 1.2 billion of the goodwill generated by the acquisition is deductible in future periods for U.S.

federal income tax purposes.

The remaining goodwill is not deductible for tax purposes.

The non-deductible goodwill is part of a tax basis difference associated with our investment in OHA, and, as permitted by accounting guidance, we have adopted an accounting policy to not record a related deferred tax liability.

In addition to the upfront and contingent consideration, we also assumed debt of $ 113.5 million and identified non-controlling interests in acquired consolidated entities of $ 248.7 million.

See below for a summary of the total purchase consideration transferred at closing and the total purchase consideration allocated.

(in millions)

Cash consideration $ 2,487.4

Contingent consideration 306.3

Equity consideration 881.5

Debt assumed 113.5

Non-controlling interests in consolidated entities 248.7

Total purchase consideration at closing 4,037.4

cash payment treated as future compensation expense (1)

Total purchase consideration transferred $ 3,754.2

(1) See discussion in Compensation Arrangement section below.

The amount is included within “Other Assets” on our consolidated balance sheet.

The purchase price allocation is preliminary and subject to change during the measurement period, which is not to exceed one year from the acquisition date.

The following table sets forth the preliminary fair values of the assets acquired and liabilities assumed in connection with the acquisition:

(in millions) Acquisition date fair value

Cash and cash equivalents $ 22.1

Accounts receivable and accrued revenue 122.2

Investments 891.0

Property, equipment and software, net 22.4

Operating lease asset 101.5

Intangible assets 913.4

Goodwill 2,027.5

Other assets 27.2

Total assets 4,127.3

Accounts payable and accrued expenses $ 133.3

Operating lease liability 114.1

Deferred tax liabilities, included in other assets in the consolidated balance sheet 125.7

Total liabilities assumed 373.1

Total purchase consideration $ 3,754.2

The fair values of the acquired assets and liabilities assumed were determined using level 3 inputs.

The fair value of the intangible assets and certain investments in affiliated private investment funds where we earn a carried interest were determined using net present value of estimated future cash flows.

The acquired book values of the remaining assets and liabilities approximated their fair values.

As part of the acquisition, T.

Rowe Price Group, Inc.

incurred approximately $ 31.9 million of acquisition-related costs that are included in general, administrative and other expenses in our 2021 consolidated statement of income.

GOODWILL AND INTANGIBLE ASSETS

Goodwill is comprised of future benefits for T.

Rowe Price from the OHA acquisition, which do not qualify as separately recognized intangible assets.

With the completion of the acquisition of OHA in December 2021, we are currently evaluating the impact that OHA will have on our segment reporting and goodwill impairment analysis.

The intangible assets include an indefinite-lived trade name of $ 134.7 million and both indefinite- and definite-lived investment advisory agreements totaling $ 778.7 million.

See Note 10 for more details on goodwill and the intangible assets.

As part of the OHA acquisition, investments in affiliated private investment funds have been recorded at fair value of $ 761.1 million as of the acquisition date.

The difference of $ 375.0 million between the carrying value of these investments on OHA’s books and their fair value represent the basis difference, of which $ 306.5 million will be amortized on a straight-line basis over the funds’ estimated weighted average remaining life of 5.9 years.

This amortization will be included in “Net revenues” in the consolidated statements of income in future periods.

Rowe Price acquired the majority, but not 100 % of the equity interest in these carried interest entities, non-controlling interests have been recorded in permanent stockholders' equity at a fair value of $ 248.7 million as of the acquisition date.

The fair value of these non-controlling interests include a basis difference of $ 154.3 million, of which $ 129.1 million is attributable to funds with a definite life and will be amortized on a straight-line basis over the funds’ estimated weighted average remaining life of 5.9 years.

The non-controlling interests are held by employees that participate in the management of the investments in affiliated private investment funds and therefore profit and

loss allocations will be reflected as compensation expense in the consolidated statements of income.

Accordingly, the future basis difference amortization will also be included in “Compensation and related costs” line in the consolidated statements of income.

COMPENSATION ARRANGEMENTS

In connection with the OHA acquisition, a portion of the upfront purchase consideration and future payments to sellers or employees related to other compensation arrangements are conditioned upon continued service or a future performance period.

These arrangements are treated as post-combination compensation expense recognized over a period of three to five years , and had an aggregate fair value of $ 459.9 million as of the acquisition closing date.

These arrangements include an agreement among certain sellers whereby $ 283.2 million of their upfront purchase consideration would be forfeited and redistributed among the other sellers who are party to the agreement if employment with T.

Rowe Price or an affiliate was voluntarily terminated prior to the fifth anniversary of the acquisition date.

Additionally, these arrangements include about 22 % of the total earnout with a fair value of $ 88.2 million as of December 31, 2021, and $ 58.3 million in retention bonuses that will be paid to certain employees of OHA following the completion of a service period.

The aggregate fair value of $ 459.9 million also includes an agreement, referred to as the Value Creation Agreement, 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.

The fair value of the earnout and Value Creation Agreement will be remeasured each reporting period and recognized over the related service periods.

Due to the timing of the OHA acquisition, no compensation expense related to these arrangements is included in our consolidated statements of income for the year ended December 31, 2021.

CASH FLOW INFORMATION

For cash flow reporting purposes, there were non-cash financing activities of $ 881.5 million for the issuance of T.

Rowe Price Group, Inc.

common stock as part of the purchase consideration and non-cash investing activities of $ 306.3 million related to the contingent consideration for the earnout.

PRO FORMA SUMMARY

The following unaudited pro forma summary presents combined results of operations of T.

Rowe Price Group, Inc.

as if the OHA acquisition had occurred on January 1, 2020.

The pro forma adjustments include acquisition-related costs and adjustments to intangible amortization expense.

These pro forma results are not indicative of results of operations that would have been achieved had the acquisition occurred on January 1, 2020, nor are they indicative of future results of operations of the combined entity.

Pro forma years ended (unaudited)

(in millions) 12/31/2021 12/31/2020

Revenue $ 8,162 $ 6,479

Net income $ 3,016 $ 2,241

NOTE 3 – CASH EQUIVALENTS.

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

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.

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Total $ 7,098.1 $ 5,693.1 $ 5,112.5

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

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

The assets under management as of December 31, 2021, in the table below, excludes fee-basis assets under management of $ 46.9 billion acquired as part of the OHA acquisition.

(in billions) Average during As of December 31,

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account for about 9.9 % and 9.3 % of our assets under management at December 31, 2021 and 2020, respectively.

The percentage at December 31, 2021 reflects the assets under management from OHA's clients outside the United States.

Total net revenues earned from T.

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Investment partnerships and other investments 108.9 95.1

Investments in affiliated collateralized loan obligations 10.8 —

Equity method investments

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Investment in UTI Asset Management Company Limited (India) 165.4 145.5

Investment partnerships and other investments 2.4 5.0

Investments in affiliated private investment funds - carried interest 609.8 —

Investments in affiliated private investment funds - seed/co-investment 151.3 —

Other investment partnerships and investments 2.5 2.4

Held to maturity

Investments in affiliated collateralized loan obligations (1)

Treasury note 1.0 1.0

Total $ 2,975.5 $ 3,250.8

(1) These investments were acquired as part of the OHA acquisition.

As of December 31, 2021, these investments are recorded at their acquisition date fair value but will be accounted for as held-to-maturity going forward.

The investment partnerships are carried at fair value using net asset value ("NAV") per share as a practical expedient.

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

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

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Rowe Price investment products $ ( 753.0 ) $ ( 546.1 ) $ ( 380.5 )

Net increase (decrease) in liabilities of consolidated T.

Net decrease in liabilities of consolidated T.

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

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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.

Subsequent to the sale, we have an ownership interest of 23 % in UTI Asset Management Company Limited (India).

INVESTMENTS IN AFFILIATED PRIVATE INVESTMENT FUNDS.

We acquired investments in certain OHA affiliated private investment funds that are recorded at their acquisition fair value of $ 761.1 million as of December 31, 2021 and reported in investments in our 2021 consolidated balance sheet.

For the carried interest investments, we will recognize an allocable share of net profits as determined by the underlying limited partnership agreements in net revenues in future consolidated statements of income.

For seed/ co-investments, we will recognize income from these investments in non-operating income in future consolidated statements of income.

INVESTMENTS IN AFFILIATED COLLATERALIZED LOAN OBLIGATIONS.

As part of the OHA acquisition, we acquired long-term investments in collateralized loan obligations ("CLOs") and assumed debt associated with these investments.

We recorded these investments at their acquisition date fair values.

The European CLOs, which were valued at $ 129.9 million at December 31, 2021, invest in 5 % vertical strips in each class of rated notes and subordinated notes.

Certain investments in the debt tranches of the CLOs will be subsequently measured at amortized cost as investments held to maturity and included in investments in our consolidated balance sheets.

The subordinated note tranches of these investments are accounted for as equity method investments and our allocable share of income will be included in non-operating income (loss) in the consolidated statements of income beginning in 2022.

Certain of the investments in the debt tranches of the CLOs have been pledged as collateral against the repurchase agreements.

The debt assumed was valued at $ 113.5 million at December 31, 2021, and is reported in accounts payable and accrued expenses of the consolidated balance sheet.

The debt assumed includes outstanding repurchase agreements of € 66.7 million (equivalent to $ 75.9 million at the December 31, 2021 EUR spot rate) that are collateralized by our CLO investment.

Interest income on the underlying investments accrues quarterly and those amounts are retained by the counterparty.

Interest expense accrues quarterly, which is equal to the interest income retained by the counterparty, plus 0.5 % per annum on the notes of the underlying pledged investments.

We still hold the legal rights and obligations associated with the underlying assets and therefore continue to satisfy the United Kingdom risk retention requirements.

The debt we assumed also includes outstanding note facilities of € 32.4 million (equivalent to $ 36.9 million at the December 31, 2021 EUR spot rate) that were entered into in connection with the financing of certain CLO investments and are collateralized by first priority security interests in the assets of the consolidated OHA entity that is party to the notes.

These notes bear interest at rates based on EURIBOR plus the initial margin, which equals all-in rates ranging from 1.70 % to 1.95 % as of December 31, 2021.

The notes mature on various dates through 2032 or if the investment is paid back in full or cancelled, whichever is sooner.

Payments are required on the debt when payments are received on the investments.

Each deed contains covenants which, if not met, may cause the termination of the note facility and declare principal and interest immediately due and payable.

The consolidated entity that is the party to the notes was in compliance with all such covenants at December 31, 2021.

VARIABLE INTEREST ENTITIES.

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In addition to such amounts, a percentage of prior distributions may be called under certain circumstances.

In connection with the OHA acquisition, we acquired carried interest entities that hold general partner interests in affiliated private investment funds that are VIEs, though these carried interest entities were determined to not be the primary beneficiary.

Our maximum risk of loss related to these affiliated investment funds are the investment carrying value of $ 761.1 million, the unfunded capital commitments of $ 86.2 million, and their receivable for investment advisory and performance-based incentive fees of $ 122.2 million.

NOTE 6 – FAIR VALUE MEASUREMENTS.

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Level 3 – unobservable inputs reflecting our own assumptions based on the best information available.

value any investments using Level 3 inputs.

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.

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These investments are not required to be included in the fair value hierarchy levels above.

As part of the acquisition of OHA, we recorded the assets acquired and liabilities assumed at the acquisition date fair value.

See Note 2 for more information on the acquisition and the fair value of the assets acquired and liabilities assumed.

NOTE 7 – CONSOLIDATED T.

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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 %.

As of December 31, 2021, the weighted-average remaining lease term on our leases is approximately 9.1 years and the weighted-average discount rate used to measure the lease liabilities is 2.4 %.

Operating lease expense was $ 32.5 million in 2021, $ 32.1 million in 2020, and $ 29.0 million in 2019.

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We made lease payments of $ 36.6 million during 2021.

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:

Due to the timing of the closing of the acquisition of OHA on December 29, 2021, we have excluded operating lease expense and payments for 2021 from the disclosures above.

Our future undiscounted cash flows related to our operating leases, including operating leases associated with OHA, and the reconciliation to the operating lease liability as of December 31, 2021, are as follows:

(in millions) 2021

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Operating lease liabilities, as reported $ 249.2

NOTE 8 – PROPERTY AND EQUIPMENT.

Property and equipment at December 31 consists of:

NOTE 9 – PROPERTY, EQUIPMENT AND SOFTWARE.

Property, equipment and software at December 31 consists of:

(in millions) 2021 2020

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Land 25.7 37.2

Leased land — 2.7

2,193.2 1,970.3

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Compensation and related costs attributable to the development of computer software for internal use, totaling $ 137.6 million in 2021, $ 125.9 million in 2020, and $ 95.5 million in 2019, have been capitalized.

NOTE 10 - GOODWILL AND INTANGIBLE ASSETS.

Goodwill and intangible assets consist of the following:

(in millions) As of December 31,

Goodwill $ 2,693.2 $ 665.7

Indefinite-lived intangible assets - trade name 134.7 —

Indefinite-lived intangible assets - investment advisory agreements 164.8 —

Definite-lived intangible assets - investment advisory agreements 613.9 —

Total $ 3,606.6 $ 665.7

The estimated weighted average life for the definite-lived intangible assets is 6.1 years.

Estimated amortization expense for the definite-lived investment advisory agreements intangible assets for 2022 through 2026 is $ 108.5 million for 2022, $ 108.1 million for 2023, $ 105.7 million for 2024, $ 105.0 million for 2025 and $ 87.7 million for 2026.

Due to the timing of the acquisition of OHA, there was no amortization expense for acquisition intangible assets included in the consolidated statements of income for the year ended December 31, 2021.

Goodwill activity during the years ended December 31, 2021 and 2020, was as follows:

(in millions) 2021 2020

Balance, beginning of the year $ 665.7 $ 665.7

Acquisition of OHA 2,027.5 —

Balance, end of year $ 2,693.2 $ 665.7

For the goodwill held prior to the acquisition of OHA, 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.

NOTE 11 – INCOME TAXES.

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Total $ 896.1 $ 718.9 $ 678.4

On December 22, 2017, the U.S.

enacted a comprehensive tax reform bill.

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

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.

This new state tax legislation, effective in 2018, adopted a five-year phase-in of the single sales factor method of apportionment for calculating income tax for multi-state companies doing business in Maryland and is expected to result in a net benefit over time.

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.

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

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federal income tax rate 21.0 % 21.0 % 21.0 %

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)

Net income attributable to redeemable non-controlling interests (2)

( .1 ) ( 1.2 ) ( 1.0 )

Net excess tax benefits from stock-based compensation plans activity ( 2.1 ) ( 1.9 ) ( 1.5 )

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(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.

(2) Net income attributable to redeemable non-controlling interests represents the portion of earnings held in the firm's consolidated investment products, which are not taxable to the firm despite being included in pre-tax income.

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

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Deferred tax liabilities

Acquisition-related retention liability ( 68.4 ) —

Acquired Investments ( 59.2 ) —

Property and equipment ( 76.7 ) ( 64.9 )

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Net unrealized holding gains recognized in income ( 104.8 ) ( 130.9 )

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

Other ( 16.6 ) ( 12.4 )

( 350.0 ) ( 243.1 )

Net deferred tax asset $ 60.6 $ 77.1

Net deferred tax (liability) asset $ ( 7.0 ) $ 60.6

We intend to repatriate earnings of T.

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however, we do not expect that unrecognized tax benefits for tax positions taken with respect to 2021 and prior years will significantly change in 2022.

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.

has concluded examinations related to federal tax obligations through the year 2019.

A net interest payable related to our unrecognized tax benefits of $ 1.6 million at December 31, 2021, and $ 1.9 million at December 31, 2020, are recognized in our consolidated balance sheets.

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NOTE 12 – STOCKHOLDERS' EQUITY.

SPECIAL DIVIDEND.

On June 14, 2021, the Board of Directors declared a special cash dividend of $ 3.00 per common share, or $ 699.8 million, that was paid on July 7, 2021, to stockholders of record as of the close of business on June 25, 2021.

SHARE REPURCHASES.

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 15,525,910 common shares as of December 31, 2021.

Accounts payable and accrued expenses includes liabilities of $ 2.5 million at December 31, 2020 for common stock repurchases that settled during the first week of January 2021.

RESTRICTED CAPITAL.

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Exercised ( 1,533,084 ) $ 69.44

Forfeited ( 6,874 ) $ 74.48

Expired ( 5,724 ) $ 53.22

Outstanding at December 31, 2021 2,846,579 $ 72.87 2.5

Exercisable at December 31, 2021 2,846,579 $ 72.87 2.5

Compensation and related costs includes a charge for stock option-based compensation expense of $ 2.0 million in 2020, $ 5.1 million in 2019, and $ 15.3 million in 2018.

Compensation and related costs includes a charge for stock option-based compensation expense of $ 2.0 million in 2020 and $ 5.1 million in 2019.

There was no stock option-based compensation expense in 2021.

The total intrinsic value of options exercised was $ 177.2 million in 2021, $ 198.3 million in 2020, and $ 170.9 million in 2019.

At December 31, 2021, the aggregate intrinsic value of in-the-money options outstanding was $ 352.3 million, all outstanding options are exercisable.

EFFECT OF SPECIAL CASH DIVIDEND.

As a result of the special cash dividend declared by the Board of Directors in June 2021, the anti-dilution provisions of our employee long-term incentive plans and non-employee director plans (collectively, the LTI plans) require an automatic adjustment to neutralize the effect of the special cash dividend.

On the special cash dividend’s ex-dividend date (June 24, 2021), the number of shares authorized and the number of stock options outstanding and their exercise price were adjusted resulting in an increase of 50,607 stock options outstanding on the ex-dividend date, and no incremental compensation expense.

In the table above, the number of options outstanding at December 31, 2020 was updated to reflect this adjustment.

RESTRICTED SHARES AND STOCK UNITS.

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(in millions) Equity method investments Consolidated T.

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

Rowe Price investment products - variable interest entities Total currency translation adjustments Total

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)

— — — ( 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 2.4 ( 3.8 ) ( 1.4 ) ( 1.4 )

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Balances at December 31, 2021 $ ( 36.7 ) $ 10.2 $ ( 26.5 ) $ ( 26.5 )

(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 most 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.

Upon adoption, we reclassified the accumulated net of tax unrealized holding gain related to our available-for-sale investment portfolio from accumulated other comprehensive income to retained earnings.

(2) Includes the reclassification of $ 1.7 million of stranded income taxes on available-for-sale investments resulting from U.S.

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

NOTE 14 – DELL APPRAISAL RIGHTS MATTER.

In 2016, we paid $ 166.2 million to compensate certain U.S.

mutual funds, trusts, subadvised clients, and separately managed accounts (collectively, "Clients") for the denial of their appraisal rights by the Delaware Chancery Court ("Court") in connection with the 2013 leveraged buyout of Dell, Inc.

Later in 2016 and 2017, we entered into settlement agreements totaling $ 150.0 million with our insurance carrier.

These insurance proceeds were recognized in operating expenses as an offset to the charge we recognized for compensation paid to Clients in operating expenses.

In 2018, all parties settled with Dell, and the Court approved final adjustments to the compensation paid to Clients in final non-appealable judgments.

As a result, we obtained repayments from Clients, of which we retained the first $ 15.2 million and paid the remaining amount received back to our insurers.

We recognized $ 15.2 million as a reduction in operating expenses in 2018.

The net impact of the Dell appraisal matter on our financial statements was $ 1.0 million of operating expenses.

The other comprehensive income (loss) in the table above excludes $( 26.2 ) million in 2021, $ 34.9 million in 2020, and $ 0.4 million in 2019 of other comprehensive income (loss) related to redeemable non-controlling interests held in our consolidated products.

NOTE 16 – COMMITMENTS AND CONTINGENCIES.

Rowe Price has committed $ 500 million to fund OHA products over the next five years .

CONTINGENCIES.

On February 14, 2017, T.

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The matter has been certified as a class action.

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

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.

Rowe Price Blue Chip Growth Fund, T.

Rowe Price Capital Appreciation Fund, T.

Rowe Price Equity Income Fund, T.

Rowe Price Growth Stock Fund, T.

Rowe Price International Stock Fund, T.

Rowe Price High Yield Fund, T.

Rowe Price New Income Fund and T.

Rowe Price Small Cap Stock Fund (the “Funds”) filed a Section 36(b) complaint under the caption Zoidis v.

Rowe Price Assoc., Inc., against T.

Rowe Price Associates, Inc.

Rowe Price”) in the United States District Court for the Northern District of California.

The complaint alleges that the management fees for the identified funds are excessive because

Rowe Price charges lower advisory fees to subadvised clients with funds in the same strategy.

The complaint seeks to recover the allegedly excessive advisory fees received by T.

Rowe Price in the year preceding the start of the lawsuit, along with investments’ returns and profits.

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

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.

The parties reached a settlement agreement, which was presented to the court for preliminary approval on January 7, 2022.

The proposed settlement would not be material to T.

Rowe Price Group, Inc.

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

In the opinion of management, after consultation with counsel, the likelihood of an adverse determination in one or more of these pending ordinary course of business claims that would have a material adverse effect on our financial position or results of operations is remote.

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The amounts deferred are adjusted in accordance with the hypothetical investments chosen by the officer from a list of mutual funds.

The officer can initially defer these amounts for a period of two to 15 years.

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 revenues Net income Net income attributable to

Rowe Price Group Basic earnings on common stock (1)

Diluted earnings on common stock (1)

(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.

Previous to the 2021 plan year, the officer could initially defer these amounts for a period of two to 15 years.

Certain senior officers elected to defer $ 63.5 million in 2021, $ 105.8 million in 2020, and $ 107.5 million in 2019

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

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.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

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

The communication of critical audit matters 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

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

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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.

Purchase price allocation for Oak Hill Advisors, L.P.

and certain related entities

As discussed in Note 2 to the consolidated financial statements, the Company completed its acquisition of Oak Hill Advisors, L.P.

on December 29, 2021.

The Company accounted for this transaction as a business combination.

The transaction resulted in management recording $778.7 million of investment advisory agreement intangibles and $609.8 million of equity method investments in affiliated private investment funds with capital allocation-based income arrangements (certain acquired assets).

Fair values of these certain acquired assets at the transaction date are based on the net present value of estimated future cash flows attributable to those assets, which include assumptions as of the acquisition date about the discount rates and assets under management (AUM) data.

We have identified the evaluation of the purchase price allocation to these certain acquired assets as a critical audit matter.

Subjective auditor judgement was required to determine the extent of audit evidence over the existence and valuation of AUM data.

Additionally, specialized skills and knowledge were required to evaluate management’s discount rates used to estimate the fair value of these certain acquired assets.

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

We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s accounting for the acquisition, including controls over the existence and valuation of AUM data and the determination of the discount rates.

We evaluated the existence and valuation of AUM data at the acquisition date by confirming certain underlying investment positions with third parties and independently pricing those securities.

We also involved valuation professionals with specialized skills and knowledge to assist in evaluating the appropriateness of management’s assumptions about the discount rates by testing the inputs used by management.

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

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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