What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-04-28 compared with 2021-10-28 · 237 added, 321 removed, 455 unchanged (55% of the section changed)

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Our revenues and net income are derived primarily from investment advisory services provided to individual and institutional investors in U.S.

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.

mutual funds, subadvised funds, separately managed accounts, collective investment trusts, and other affiliated products.

The other affiliated products include:

open-ended investment products offered to investors outside the U.S., products offered through variable annuity life insurance plans in the U.S., affiliated private investment funds or private accounts, and collateralized loan obligations.

We also provide certain investment advisory clients with related administrative services, including distribution, mutual fund transfer agent, accounting, and shareholder services;

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and non-discretionary advisory services through model delivery.

Additionally, we also derive revenue from our interests in general partners of certain affiliated private investment funds that are entitled to a disproportionate allocation of income through capital allocation-based arrangements.

We manage a broad range of U.S., international and global stock, bond, and money market mutual funds and collective investment trusts and other investment products, which meet the varied needs and objectives of individual and institutional investors.

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Accordingly, fluctuations in financial markets and in the composition of assets under management affect our revenues and results of operations.

Additionally, approximately 30% of our operating expenses are impacted by fluctuations in our assets under management.

We incur significant expenditures to develop new products and services and improve and expand our capabilities and distribution channels in order to attract new investment advisory clients and additional investments from our existing clients.

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However, over the long term we expect well-executed active management to play an important role for investors.

In this regard, we remain debt-free with ample liquidity and resources that allow us to take advantage of attractive growth opportunities.

In this regard, we have ample liquidity and resources that allow us to take advantage of attractive growth opportunities.

We are investing in key capabilities, including investment professionals, distribution professionals, technologies, and new product offerings in order to provide our clients with strong investment management expertise and service.

On December 29, 2021, we completed our acquisition of Oak Hill Advisors, L.P., a leading alternative credit manager, and other entities that had common ownership (collectively, OHA).

We acquired 100% of the equity interests of Oak Hill Advisors, L.P., 100% of the equity interests in entities that make co-investments in certain affiliated private investment funds (the "co-investment entities") and a majority of the equity interests in entities that have interests in general partners of affiliated private investment funds and are entitled to a disproportionate allocation of income (the "carried interest entities").

As of March 31, 2022, OHA had $57 billion of capital under management (which includes net assets value, portfolio value and/or unfunded capital).

MARKET TRENDS.

stock market indexes were mixed in the third quarter.

Large-cap shares outperformed.

Stocks generally rose through early September, supported by favorable second-quarter corporate earnings reports.

However, the spread of the delta variant of the coronavirus weighed on the economic recovery.

Toward the end of the quarter, investors turned cautious as longer-term U.S.

Treasury yields climbed amid growing expectations that the Federal Reserve could soon begin to taper its monthly asset purchases.

Investors were also concerned that Congress had not yet passed legislation that raises or eliminates the debt ceiling, which is the statutory limit on the federal government’s borrowing ability.

European stock markets were widely mixed in U.S.

dollar terms;

UK shares fell marginally.

Developed Asian and Far East markets were also mixed.

Japanese shares rose close to 5%, whereas Hong Kong stocks slumped more than 9% due in part to Chinese regulatory developments.

Emerging markets equities generally declined.

In Latin America, Brazilian shares tumbled more than 20% in U.S.

dollar terms;

in Asia, South Korean shares slumped 13%.

Emerging European markets rose broadly, though Turkish stocks trailed the region with a 2% gain.

Many global equity markets declined in the first quarter of 2022.

In fact, the U.S.

stock market experienced its worst quarter since the pandemic began about two years ago.

Stocks fell as Russia invaded Ukraine in late February, prompting the U.S.

and many other nations, especially in Europe, to respond with broad and damaging economic sanctions targeting a number of key Russian individuals and institutions.

Equities were also hurt by elevated inflation—exacerbated by a sharp increase in commodity prices—as well as the onset of Federal Reserve interest rate increases and expectations for the Federal Reserve to pursue an aggressive pace of monetary tightening.

Developed Asian and Far East markets were mostly lower in U.S.

dollar terms, but Australian stocks bucked the negative trend with a 7% gain, helped by local currency strength versus the U.S.

In Europe, most markets declined in dollar terms, as local losses were exacerbated by a weak euro and British pound.

Equities in energy producer Norway, however, rose more than 10%.

Stocks in Portugal and the UK rose about 2%.

In emerging Asia, markets were mixed in U.S.

dollar terms, but Chinese shares skidded 14%.

Emerging European markets were widely mixed, but Latin American markets produced excellent returns in dollar terms, as the resource-rich region benefited from higher commodity prices.

Gulf Cooperation Council markets in the Middle East were buoyed by higher global oil prices.

Returns of several major equity market indexes were as follows:

Three months ended Nine months ended

Three months ended

Index 3/31/2022

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(1) Returns exclude dividends

Global bond returns produced mostly flat or negative returns in U.S.

dollar terms.

In the U.S., long-term Treasury yields initially declined, but they rose in late September after the Federal Reserve signaled that it could soon moderate the pace of its monthly asset purchases.

Global bonds produced mostly negative returns in U.S.

dollar terms, as the U.S.

Federal Reserve began to raise short-term interest rates and Treasury yields—especially short- and intermediate-term yields—rose in anticipation of tighter monetary policy in response to elevated inflation.

The 10-year U.S.

Treasury yield increased from 1.45% to 1.52% during the quarter.

In the taxable investment-grade bond universe, all major segments—including Treasuries, corporate bonds, and mortgage- and asset-backed securities—were essentially flat.

Tax-free municipal securities fell slightly and trailed the taxable investment-grade bond market.

High yield bonds produced slight positive returns and outperformed high-quality issues.

Treasury note yield rose from 1.52% to 2.32%.

In the taxable investment-grade universe, long-term Treasury and corporate bonds fared worst.

Mortgage-backed and commercial mortgage-backed securities also declined materially.

Asset-backed securities held up best.

Tax-free municipal bonds fared slightly worse than the taxable bond market.

High yield corporate bonds declined due to risk aversion.

Bonds in developed non-U.S.

markets declined as longer-term interest rates in various countries rose and a stronger U.S.

dollar reduced local returns to U.S investors.

The Japanese yen fell about .5% versus the greenback, while the euro and British pound dropped more than 2%.

Emerging markets bonds also declined.

Local currency issues fared worse than dollar-denominated debt, as the South African rand, the South Korean won, and several Latin American currencies fell materially against the U.S.

markets produced negative returns in U.S.

dollar terms, as government bond yields in various markets rose amid concerns about inflation and the potential for tighter central bank monetary policies this year.

A stronger U.S.

dollar reduced overseas bond returns in dollar terms.

Emerging markets bonds slumped as investors shunned riskier investments, but local currency issues held up better than dollar-denominated emerging markets debt.

Currencies in several Latin American countries appreciated strongly versus the U.S.

dollar, but many other currencies depreciated.

Returns for several major bond market indexes were as follows:

Three months ended Nine months ended

Three months ended

Index 3/31/2022

Bloomberg Barclays U.S.

Bloomberg U.S.

Aggregate Bond Index (5.9)%

JPMorgan Global High Yield Index (4.5)%

Bloomberg Barclays Municipal Bond Index (.3)% .8%

Bloomberg Barclays Global Aggregate Ex-U.S.

Bloomberg Municipal Bond Index (6.2)%

Bloomberg Global Aggregate Ex-U.S.

Dollar Bond Index (6.2)%

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ASSETS UNDER MANAGEMENT (1) .

Assets under management ended the third quarter of 2021 at $1,612.3 billion, a decrease of $10.8 billion from June 30, 2021, and an increase of $141.8 billion from the end of 2020.

For the three months ended September 30, 2021, the decrease in assets under management was driven by net cash outflows of $6.4 billion and market depreciation, including distributions not reinvested, of $4.4 billion.

Clients transferred $3.6 billion in net assets from the U.S.

mutual funds primarily to collective investment trusts and other investment products, of which $1.9 billion transferred into the retirement date trusts.

For the nine months ended September 30, 2021, the increase in assets under management was driven by market appreciation, net of distributions not reinvested, of $147.6 billion, partially offset by net cash outflows of $5.8 billion.

Assets under management ended the first quarter of 2022 at $1,551.8 billion, a decrease of $136.0 billion from December 31, 2021.

The decrease in assets under management was driven by net cash outflows of $5.3 billion and market depreciation, including distributions not reinvested, of $130.7 billion.

Clients transferred $4.1 billion in net assets from the U.S.

mutual funds primarily to collective investment trusts and other investment products, of which $3.3 billion transferred into the retirement date trusts.

The following tables detail changes in our assets under management, by vehicle and asset class, during the three- and nine-month periods ended September 30, 2021:

Three months ended 9/30/2021 Nine months ended 9/30/2021

The following tables detail changes in our assets under management, by vehicle and asset class, during the first quarter of 2022:

Three months ended 3/31/2022

(in billions) U.S.

mutual funds Subadvised funds and separate accounts Collective investment trusts and other investment products Total U.S.

mutual funds Subadvised funds and separate accounts Collective investment trusts and other investment products Total

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Net cash flows after client transfers (9.8) (4.5) 9.0 (5.3)

Net market (depreciation)/appreciation and (losses)/gains (1.1) (.8) (2.3) (4.2) 82.1 40.6 25.4 148.1

Net market depreciation and losses (71.8) (34.6) (23.9) (130.3)

Net distributions not reinvested (.4) — — (.4)

Change during the period (82.0) (39.1) (14.9) (136.0)

Assets under management at September 30, 2021 $ 861.0 $ 420.8 $ 330.5 $ 1,612.3 $ 861.0 $ 420.8 $ 330.5 $ 1,612.3

Three months ended 9/30/2021 Nine months ended 9/30/2021

Assets under management at March 31, 2022 $ 789.4 $ 398.0 $ 364.4 $ 1,551.8

Three months ended 3/31/2022

(in billions) Equity Fixed income, including money market Multi-asset (2)

Total Equity Fixed income, including money market Multi-asset (2)

Alternatives (3)

Assets under management at beginning of period $ 992.7 $ 175.7 $ 477.7 $ 41.7 $ 1,687.8

Net cash flows (18.1) 5.3 6.7 .8 (5.3)

Net market (depreciation)/appreciation and (losses)/gains (2)

Net market depreciation and losses (4)

(96.6) (5.8) (28.0) (.3) (130.7)

Change during the period (114.7) (.5) (21.3) .5 (136.0)

Assets under management at September 30, 2021 $ 974.7 $ 180.7 $ 456.9 $ 1,612.3 $ 974.7 $ 180.7 $ 456.9 $ 1,612.3

Assets under management at March 31, 2022 $ 878.0 $ 175.2 $ 456.4 $ 42.2 $ 1,551.8

(1) Includes fee basis assets under management.

(2) The underlying assets under management of the multi-asset portfolios have been aggregated and presented in this category and not reported in the equity and fixed income columns.

(3) The alternatives asset class includes strategies authorized to invest more than 50% of its holdings in private credit, leveraged loans, mezzanine, real assets/CRE, structured products, stressed / distressed, non-investment grade CLOs, special situations, or have absolute return as its investment objective.

Generally, only those strategies with longer than daily liquidity are included.

(4) Includes distributions reinvested and not reinvested.

Investment advisory clients outside the United States account for 8.8% of our assets under management at September 30, 2021, 9.0% at June 30, 2021, and 9.3% at December 31, 2020.

Investment advisory clients outside the United States account for 9.7% of our assets under management at March 31, 2022 and 9.9% at December 31, 2021.

Our target date retirement products, which are included in the multi-asset totals shown above, continue to be a significant part of our assets under management.

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Net cash inflows (outflows)

Assets under management Three months ended Nine months ended

Assets under management Three months ended

(in billions) 3/31/2022 12/31/2021 3/31/2022 3/31/2021

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$ 375.2 $ 391.1 $ 7.3 $ 4.5

We also provide strategic investment advice solutions for certain portfolios.

These advice solutions, which the vast majority is overseen by our multi-asset division, may include strategic asset allocation, and in certain portfolios, asset selection and/or tactical asset allocation overlays.

We also offer advice solutions through retail separately managed accounts and separately managed accounts model delivery.

As of March 31, 2022, total assets in these solutions were $466 billion, of which $459 billion are included in our reported assets under management in the tables above.

We provide participant accounting and plan administration for defined contribution retirement plans that invest in the firm's U.S.

mutual funds, collective investment trusts and funds outside of the firm's complex.

As of September 30, 2021, our assets under administration were $260 billion, of which nearly $173 billion are assets we manage.

In recent years, the firm began offering non-discretionary advisory services through model delivery and multi-asset solutions for providers to implement.

We record the revenue earned on these services in administrative fees.

The assets under advisement in these portfolios, predominantly in the United States, were $8 billion at September 30, 2021.

As of March 31, 2022, our assets under administration were $256 billion, of which nearly $153 billion are assets we manage.

INVESTMENT PERFORMANCE (1) .

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Our performance disclosures include specific asset classes, assets under management weighted performance, mutual fund performance against passive peers and composite performance against benchmarks.

The following tables present investment performance for the one-, three-, five-, and 10-years ended September 30, 2021.

The following tables present investment performance for the one-, three-, five-, and 10-years ended March 31, 2022.

Past performance is no guarantee of future results.

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All Composites 42% 45% 63% 76%

As of September 30, 2021, 73 of 123 (59.3%) of the firm's rated U.S.

As of March 31, 2022, 69 of 124 (55.6%) of the firm's rated U.S.

mutual funds (across primary share classes) received an overall rating of 4 or 5 stars.

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In addition, 67% (5) of AUM in the firm's rated U.S.

mutual funds (across primary share classes) ended September 30, 2021 with an overall rating of 4 or 5 stars.

mutual funds (across primary share classes) ended March 31, 2022 with an overall rating of 4 or 5 stars.

(1) The investment performance reflects that of T.

Rowe Price sponsored mutual funds and composites AUM and not of OHA’s products.

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RESULTS OF OPERATIONS.

The following table and discussion sets forth information regarding our consolidated financial results for the three and nine months ended September 30, 2021 and 2020 on a U.S.

The following table and discussion sets forth information regarding our consolidated financial results for the three months ended March 31, 2022 and 2021 on a U.S.

GAAP basis as well as a non-GAAP basis.

The first quarter of 2022 reflects the operating results of OHA which was acquired at the end of 2021.

The non-GAAP basis adjusts for the impact of our consolidated T.

Rowe Price investment products, the impact of market movements on the supplemental savings plan liability and related economic hedges, investment income related to certain other investments, and certain nonrecurring charges and gains, if any.

Three months ended Q1 2022 vs.

Q3 2020 Nine months ended YTD 2021 vs.

(in millions, except per-share data) 9/30/2021 9/30/2020 $ change % change 9/30/2021 9/30/2020 $ change % change

(in millions, except per-share data) 3/31/2022 3/31/2021 $ change % change

Investment advisory fees $ 1,662.1 $ 1,687.8 $ (25.7) (1.5) %

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Non-operating income (loss) (1)

$ (11.5) $ 191.6 $ (203.1) n/m $ 234.5 $ 106.4 $ 128.1 n/m

$ (198.5) $ 102.1 $ (300.6) n/m

Net income attributable to

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Non-operating income (loss) (1)

$ (3.0) $ 25.6 $ (28.6) n/m $ 28.5 $ 50.2 $ (21.7) n/m

$ (23.8) $ 13.7 $ (37.5) n/m

Net income attributable to T.

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GAAP measures at the end of the Results of Operations section of this Management’s Discussion and Analysis.

Results Overview - Quarter ended September 30, 2021

Investment advisory revenues.

Investment advisory fees are earned based on the value and composition of our assets under management, which change based on fluctuations in financial markets and net cash flows.

Results Overview - Quarter ended March 31, 2022

Net revenues.

Total net revenues consist of investment advisory revenues;

administrative, distribution, and servicing fees, and capital allocation-based income.

Total net revenues were $1,863.0 million in the first quarter of 2022 compared with $1,826.8 million in the first quarter of 2021.

Approximately 90% of our total net revenues are earned from investment advisory revenues.

Investment advisory fees are generally earned based on the value and composition of our assets under management, which change based on fluctuations in financial markets and net cash flows.

As our average assets under management increase or decrease in a given period, the level of our investment advisory fee revenue for that same period generally fluctuates in a similar manner.

Our annualized effective fee rates can be impacted by market or cash flow related shifts among asset and share classes, price changes in existing products, and asset level changes in products with tiered-fee structures.

Investment advisory revenues earned in the third quarter of 2021 increased over the comparable 2020 quarter as average assets under our management increased $355.8 billion, or 27.5%, to $1,648.7 billion.

In the third quarter of 2021, we voluntarily waived $13.7 million, or less than 1%, of our investment advisory fees in order to continue to maintain a positive yield for investors.

At September 30, 2021, combined net assets of the investment portfolios in which we waived fees in the third quarter of 2021 were $23.7 billion.

We anticipate that the waivers in the fourth quarter of 2021 will be at a similar level to the third quarter of 2021 and expect to continue to waive fees into 2022.

The average annualized effective fee rate earned during the third quarter of 2021 was 43.6 basis points, compared with 45.2 basis points earned during both the third quarter of 2020 and the second quarter of 2021.

In comparison to the third quarter of 2020, our annualized effective fee rate declined primarily due to the July 2021 fee reductions in our target-date products, client transfers within the complex to lower fee vehicles or share classes over the last twelve months and the money market fee waivers.

These fee pressures were partially offset as higher market valuations led to an asset class shift towards equity strategies.

Operating expenses.

Operating expenses were $957.9 million in the third quarter of 2021 compared with $866.9 million in the third quarter of 2020.

The increase in our operating expenses was primarily due to higher compensation costs and higher distribution and servicing costs as average assets under management increased over prior year.

Also contributing to the increase in operating expenses during the quarter were costs incurred as a

result of our previously announced expanded relationship with FIS, a global technology leader, in which FIS assumed responsibility for managing retirement technology development and core operations for our full-service recordkeeping offering on August 1, 2021.

During the quarter, the firm incurred recordkeeping costs, which were partially offset by a reduction in the compensation expenses related to the approximately 800 associates who transitioned to FIS, as well as transition costs associated with the expanded relationship.

These increases were partially offset by lower compensation expenses related to the supplemental savings plan.

For the third quarter of 2021, the decrease in the supplemental savings plan expense was entirely offset by a corresponding decrease in the non-operating gains earned on the investments used to economically hedge the related liability.

The firm employed 7,124 associates at September 30, 2021, a decrease of 7.2% from the end of 2020 and 6.7% from September 30, 2020.

Excluding the approximate 800 associates that became employees of FIS on August 1, 2021, headcount would have increased approximately 3% from both the end of 2020 and from September 30, 2020.

On a non-GAAP basis, our operating expenses in the third quarter of 2021 increased 15.3% to $957.2 million compared to the third quarter of 2020.

Our non-GAAP operating expenses exclude the impact of our supplemental savings plan and consolidated sponsored investment products.

See our non-GAAP reconciliations later in this Management’s Discussion and Analysis section.

Operating margin.

Our operating margin in the third quarter of 2021 was 51.0%, compared to 45.7% earned in the 2020 quarter.

The increase in our operating margin for the third quarter of 2021 compared to the 2020 period was primarily driven by higher investment advisory fee revenue and lower expense related to our supplemental savings plan, partially offset by higher product and recordkeeping expenses as well as distribution and servicing costs.

Diluted earnings per share.

Diluted earnings per share was $3.31 for the third quarter of 2021 as compared to $2.73 for the third quarter of 2020.

The 21.2% increase was primarily driven by higher operating income, as strong markets since the end of the third quarter of 2020 have increased average assets under management resulting in higher investment advisory fee revenue, and a lower effective tax rate.

This increase was partially offset by net investment losses recognized in the third quarter of 2021 as compared to significant net investment gains in the third quarter of 2020, as the sharp market returns in 2020 quarterly outpaced the market performance in the third quarter of 2021.

On a non-GAAP basis, diluted earnings per share was $3.27 for the third quarter of 2021 as compared to $2.55 for the third quarter of 2020.

Similar to our GAAP diluted earnings, the increase is largely attributable to higher operating income compared to 2021 period.

Results Overview - Year-to-Date ended September 30, 2021

Investment advisory revenues.

Investment advisory revenues earned in the nine months ended September 30, 2021 increased over the comparable 2020 period as average assets under our management increased $382.4 billion, or 31.9%, to $1,581.3 billion.

We waived $43.0 million, or less than 1%, of total investment advisory fees from certain of our money market mutual funds, trusts and other investment portfolios during the nine months ended September 30, 2021.

The average annualized effective fee rate earned on our assets under management during the nine months ended September 30, 2021 was 44.7 basis points compared with 45.6 basis points earned during the same period of 2020.

Our annualized effective fee rate declined primarily due to the July 2021 fee reductions in our target-date products, client transfers within the complex to lower fee vehicles or share classes over the last twelve months and the money market fee waivers.

These fee pressures were partially offset as higher market valuations led to an asset class shift towards equity strategies.

Operating expenses.

Operating expenses were $2,862.7 million in the nine months ended September 30, 2021 compared with $2,484.0 million in the 2020 period.

More than half of the increase in operating expenses was due to higher compensation expenses, including higher interim bonus accrual, increased salaries and benefits, and a $14.2 million increase in operating expenses related to the supplemental savings plan due to higher market returns in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.

For the nine months ended September 30, 2021, the increase in the supplemental savings plan expense was entirely offset by a corresponding increase in the non-operating gains earned on the investments used to economically hedge the

related liability.

Also contributing to the increase in operating expenses were higher distribution and servicing costs due to higher average assets under management and higher product and recordkeeping costs due to the expanded FIS arrangement.

On a non-GAAP basis, our operating expenses for the nine months ended September 30, 2021 increased 15.0% to $2,798.2 million compared to the 2020 period.

Our non-GAAP operating expenses exclude the impact of our supplemental savings plan and consolidated sponsored investment products.

Operating expenses on a GAAP basis were $985.6 million in the first quarter of 2022 compared with $933.6 million in the first quarter of 2021.

On a non-GAAP basis, operating expenses were $1,039.1 million, a 14.3% increase over the comparable 2021 period.

About half of the increase in our non-GAAP operating expenses from the first quarter of 2021 is due to the inclusion of OHA’s operating expenses in the first quarter of 2022 following the acquisition at the end of 2021.

OHA's operating expenses primarily impact compensation expense;

technology, occupancy, and facility costs;

and general, administrative and other costs.

The remaining increase is primarily attributable to higher costs for technology development and core operations provided by FIS since August 2021 for the firm's full-service recordkeeping offering and higher costs related to the ongoing investment in the firm's technology capabilities.

The costs incurred from the FIS arrangement were partially offset by a reduction in compensation expenses as a result of the approximately 800 associates who transitioned to FIS in August 2021.

Our non-GAAP operating expenses exclude the impact of the supplemental savings plan, consolidated sponsored products, the remeasurement of the contingent consideration liability, amortization of certain acquisition-related assets, and other acquisition-related costs.

See our non-GAAP reconciliations later in this Management’s Discussion and Analysis section.

In 2021 and beyond, we expect to advance our strategic priorities to maintain our position as a global and diversified asset manager, a global partner for retirement investors and a provider of integrated investment solutions;

to embed environmental, social and governance and sustainability principles across the firm;

to maintain effective processes and controls while becoming a more adaptive and agile firm;

and to become a destination of choice for top talent with a diverse workforce and inclusive culture.

We narrowed our 2021 non-GAAP operating expense growth guidance from a range of 12% - 15% to a range of 13% - 15% to reflect results year-to-date and expectations for the fourth quarter of 2021.

This expense excludes any acquisition costs expected to be incurred in relation to the announced agreement to acquire OHA.

We can elect to adjust our expense growth in the future should unforeseen circumstances arise, including significant market movements.

As discussed in July 2021, the impact of our expanded partnership with FIS is reflected in the expense growth guidance above.

We updated our forecasted 2022 non-GAAP operating expenses, including a full-year of OHA’s operating expenses, from a range of 12% to 16% to a range of 10% to 14% to reflect lower market-related expenses and a slower pace of net hiring experienced in the quarter.

We could elect to further adjust our expense growth should unforeseen circumstances arise, including significant market movements.

Operating margin.

Our operating margin in the nine months ended September 30, 2021 was 49.9%, compared to 44.5% earned in the 2020 period.

The increase in our operating margin for the nine months ended September 30, 2021 compared to the 2020 period was primarily driven by higher net revenues, partially offset by higher compensation costs and product and recordkeeping costs as well as distribution and servicing costs.

Our operating margin in the first quarter of 2022 was 47.1%, compared to 48.9% earned in the 2021 quarter.

The decrease in our operating margin for the first quarter of 2022 compared to the 2021 period was primarily driven by expense growth outpacing the increase in net revenues in the first quarter of 2022.

Diluted earnings per share.

Diluted earnings per share was $9.94 for the nine months ended September 30, 2021 as compared to $6.66 for the nine months ended September 30, 2020.

The 49.2% increase was primarily driven by higher net income, lower weighted average outstanding shares, and a lower effective tax rate.

On a non-GAAP basis, diluted earnings per share was $9.59 for the nine months ended September 30, 2021 as compared to $6.69 for the 2020 period.

The increase in adjusted diluted earnings per share was primarily due to higher operating income and lower weighted average outstanding shares.

See our non-GAAP reconciliations later in this Management’s Discussion and Analysis section.

Our 2022 diluted earnings per share reflects the net income of OHA that was acquired at the end of 2021.

Diluted earnings per share was $2.41 for the first quarter of 2022 as compared to $3.17 for the first quarter of 2021.

The 24.0% decrease was primarily driven by lower operating income and net investment losses recognized in the first quarter of 2022 as compared to net investment gains in the first quarter of 2021, as the strong market returns in 2021 outpaced the market performance in the first quarter of 2022.

On a non-GAAP basis, diluted earnings per share was $2.62 for the first quarter of 2022 as compared to $3.01 for the first quarter of 2021.

Similar to our GAAP diluted earnings, the decrease is largely attributable to lower operating income compared to 2021 period and net investment losses on our seed and discretionary portfolio recognized in the first quarter of 2022 as compared to net investment gains in the first quarter of 2021.

Three months ended Q1 2022 vs.

Q3 2020 Nine months ended YTD 2021 vs.

(in millions) 9/30/2021 9/30/2020 $ change % change 9/30/2021 9/30/2020 $ change % change

(in millions) 3/31/2022 3/31/2021 $ change % change

Investment advisory fees

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156.5 139.0 17.5 12.6 %

Capital allocation-based income (1)

44.4 — 44.4 n/m

Net revenues $ 1,863.0 $ 1,826.8 $ 36.2 2.0 %

Average assets under management (in billions)

mutual funds $ 881.0 $ 708.8 $ 172.2 24.3 % $ 848.1 $ 664.0 $ 184.1 27.7 %

Subadvised funds, separate accounts, collective investment trusts, and other investment products 767.7 584.1 183.6 31.4 % 733.2 534.9 198.3 37.1 %

$ 1,648.7 $ 1,292.9 355.8 27.5 % $ 1,581.3 $ 1,198.9 382.4 31.9 %

(1) The percentage change for capital allocation-based income is not meaningful (n/m) .

Investment advisory fees.

Investment advisory revenues earned in the third quarter of 2021 from our U.S.

mutual funds were $1,125.5 million, an increase of 19.8% from the comparable 2020 quarter.

Average assets under management in these funds for the third quarter of 2021 increased 24.3% from the 2020 quarter to $881 billion.

The annualized effective fee rate of 50.7 basis points for the third quarter of 2021 decreased from 52.7 basis points in the third quarter of 2020.

In comparison to the third quarter of 2020, our annualized effective fee rate for U.S.

mutual funds decreased primarily due to the July 2021 fee reductions in our target date products and increased money market fee waivers.

For the nine months ended September 30, 2021, investment advisory revenues earned from the firm's U.S.

mutual funds were $3,273.2 million, an increase of 24.0% from the comparable 2020 period.

Average assets under management in these funds for the nine months ended September 30, 2021 increased 27.7% from the 2020 period to $848.0 billion.

The annualized effective fee rate of 51.6 basis points for the nine months ended September 30, 2021 decreased from 53.1 basis points for the nine months ended September 30, 2020.

Our annualized effective fee rate for our U.S.

mutual funds decreased primarily due to the July 2021 fee reductions in our target date products and increased money market fee waivers.

In addition, strong market returns contributed to a relative decrease in the percentage fee earned as the asset levels of certain tiered-fee funds crossed a new tier.

Investment advisory revenues earned in the first quarter of 2022 decreased over the comparable 2021 quarter despite an increase in average assets under our management of $51.1 billion, or 3.4%, to $1,559.9 billion.

In the first quarter of 2022, we voluntarily waived $9.2 million, or less than 1%, of our investment advisory fees in order to continue to maintain a positive yield for investors.

At March 31, 2022, combined net assets of the investment portfolios in which we waived fees in the first quarter of 2022 were $22.8 billion.

We anticipate that the waivers will decline in the second quarter of 2022 and are expected to cease by the end of the second quarter of 2022.

The total average annualized effective fee rate earned during the first quarter of 2022 was 43.2 basis points, compared with 45.4 basis points earned during the first quarter of 2021 and 43.4 basis points earned during the fourth quarter of 2021.

In comparison to the first quarter of 2021, our annualized effective fee rate declined primarily due to the July 2021 fee reductions in our target-date products and an asset mix shift to lower fee vehicles and asset classes within the complex over the last twelve months.

These fee pressures were partially offset by the higher than average fee rate earned on our alternative asset class.

Investment advisory revenues earned in the first quarter of 2022 from our U.S.

mutual funds were $976.5 million, a decrease of 7.0% from the comparable 2021 quarter.

Average assets under management in these funds for the first

quarter of 2022 decreased 2.0% from the 2021 quarter to $798.0 billion.

The annualized effective fee rate of 49.6 basis points for the first quarter of 2022 decreased from 52.3 basis points in the first quarter of 2021 primarily due to the July 2021 fee reductions in our target-date products and an asset mix shift to lower fee vehicles and asset classes within the complex over the last twelve months.

Subadvised funds, separate accounts, collective investment trusts and other investment products (other portfolios)

Investment advisory revenues earned in the third quarter of 2021 from these other portfolios were $687.9 million, an increase of 29.8% from the comparable 2020 quarter.

Investment advisory revenues earned in the first quarter of 2022 from these other portfolios were $685.6 million, an increase of 7.5% from the comparable 2021 quarter.

Average assets under management for these products increased 9.7% from the 2021 quarter to $761.9 billion.

The annualized effective fee rate of 35.5 basis points for the third quarter of 2021 decreased from 36.1 basis points in the third quarter of 2020.

In comparison to the third quarter of 2020, our annualized effective fee rate for our other portfolios was primarily due to the July 2021 fee reductions in our target date products.

For the nine months ended September 30, 2021, investment advisory revenues earned from subadvised and separate accounts as well as collective investment trusts and other investment products were $2,015.2 million, an increase of 38.8% from the 2020 period.

Average assets under management for these products increased 37.1% from the 2020 period to $733.3 billion.

The annualized effective fee rate of 36.7 basis points for the nine months ended September 30, 2021 increased from 36.3 basis points for the nine months ended September 30, 2020.

annualized effective fee rate for our other portfolios increased primarily due to the mix shift towards equities and flows into our international products offset slightly by the July 2021 fee reductions in our target date products.

A portion of the increase in these advisory revenues and related average assets under management is due to the acquisition of OHA at the end of 2021.

The annualized effective fee rate of 36.5 basis points for the first quarter of 2022 decreased from 37.2 basis points in the first quarter of 2021.

The decrease is primarily due to the July 2021 fee reductions in our target-date products and an asset mix shift to lower fee vehicles and asset classes within the complex over the last twelve months.

These fee pressures were partially offset by the higher than average fee rate earned on our alternative asset class.

Administrative, distribution, and servicing fees.

Administrative, distribution, and servicing fees in the third quarter of 2021 were $140.7 million, an increase of $14.2 million, or 11.2%, from the comparable 2020 quarter.

For the nine months ended September 30, 2021, these fees were $421.8 million, an increase of $38.9 million, or 10.2%, from the 2020 period.

The increase was primarily due to higher transfer agent servicing activities provided to the U.S.

mutual funds, higher model delivery revenue, as well as higher 12b-1 revenue earned on the Advisor and R share classes of the U.S.

mutual funds as a result of increased assets under management in these share classes.

The increase in 12b-1 revenue is offset entirely by an increase in the costs paid to third-party intermediaries that source these assets and are reported in distribution and servicing expense.

Administrative, distribution, and servicing fees in the first quarter of 2022 were $156.5 million, an increase of $17.5 million, or 12.6%, from the comparable 2021 quarter.

The increase was primarily due to higher transfer agent servicing activities provided to the T.

Rowe Price mutual funds, higher model delivery revenue, and higher trustee services revenue.

These increases were partially offset by lower 12b-1 revenue earned on the Advisor and R share classes of the U.S.

mutual funds as a result of lower assets under management in these share classes.

The decrease in 12b-1 revenue is offset entirely by a decrease in the costs paid to third-party intermediaries that source these assets and are reported in distribution and servicing expense.

Capital allocation-based income.

Capital allocation-based income in the first quarter of 2022 was $44.4 million.

This represents $57.6 million of the carried interest we earn from investments in affiliated private investment funds, partially offset by $13.2 million in non-cash amortization associated with the difference in the closing date fair value and carrying value of investments acquired as part of the OHA acquisition.

Our net revenues reflect the elimination of advisory and administrative fee revenue earned from our consolidated

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The corresponding expenses recognized by these products, and consolidated in our financial statements, were also eliminated from operating expenses.

For the third quarter, we eliminated net revenue of $1.6 million in 2021 and $2.7 million in 2020.

For the nine months ended September 30, we eliminated net revenue of $4.0 million in 2021 and $7.3 million in 2020

For the first quarter, we eliminated net revenue of $.9 million in 2022 and $1.3 million in 2021.

Operating expenses

Three months ended Q1 2022 vs.

Q3 2020 Nine months ended YTD 2021 vs.

(in millions) 9/30/2021 9/30/2020 $ change % change 9/30/2021 9/30/2020 $ change % change

(in millions) 3/31/2022 3/31/2021 $ change % change

Compensation and related costs, excluding supplemental savings plan $ 632.6 $ 561.3 $ 71.3 12.7 %

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Compensation and related costs, excluding supplemental savings plan.

Compensation and related costs, excluding supplemental savings plan, were $564.9 million in the third quarter of 2021, an increase of $47.3 million, or 9.1%, compared to the 2020 quarter.

The increase from the 2020 quarter was primarily due to a $32.5 million increase in our interim bonus accrual.

We recognize the interim bonus accrual ratably over the year using the ratio of recognized quarterly net revenues to currently forecasted annual net revenues.

Also contributing to the increase in 2021 costs compared to the third quarter of 2020 was a $16.1 million increase in salaries and benefits due to modest increases in base salaries at the beginning of the year and an increase in our average staff size before the transition of approximately 800 T.

Rowe Price operations and technology associates to FIS on August 1, 2021.

For the nine months ended September 30, 2021, compensation and related costs, excluding supplemental savings plan, were $1,692.3 million, an increase of $195.7 million, or 13.1%, compared to the 2020 period.

The increase in compensation and related costs from the 2020 period was primarily due to a $121.7 million increase in our interim bonus accrual.

Also contributing to the increase in costs compared to 2020 was a $78.1 million increase in salaries and benefits due to modest increases in base salaries at the beginning of the year and an increase in our average staff size before the transition of approximately 800 operations and technology associates to FIS on August 1, 2021.

These increases in compensation and related costs were offset in part by $11.7 million in higher labor capitalization related to internally developed software in 2021 period.

Compensation and related costs, excluding supplemental savings plan, were $632.6 million in the first quarter of 2022, an increase of $71.3 million, or 12.7%, compared to the 2021 quarter.

The first quarter of 2022 includes OHA’s compensation and related costs, carried interest-related compensation, and $13.7 million in non-cash amortization of certain acquisition-related retention arrangements.

The firm employed 7,573 associates at March 31, 2022, an increase of .6% from the end of 2021.

Distribution and servicing.

Distribution and servicing costs were $96.0 million for the third quarter of 2021, an increase of 30.6% from the $73.5 million recognized in the 2020 quarter.

For the nine months ended September 30, 2021, these costs were $274.3 million, an increase of 36.3% over the $201.2 million recognized in the comparable 2020 period.

The increase is primarily driven by higher AUM-based distribution costs as a result of continued market

appreciation and inflows in our international products, including our Japanese Investment Trusts (ITMs), and SICAVs.

Also contributing to the increase are higher costs incurred to distribute certain other products through U.S.

financial intermediaries, as assets under management in these products have increased from prior year.

Distribution and servicing costs were $85.9 million for the first quarter of 2022, an increase of .4% from the $85.6 million recognized in the 2021 quarter.

The slight increase was primarily driven by

higher costs incurred to distribute certain products through U.S.

financial intermediaries, as assets under management in these products have increased from prior year, and by higher AUM-based distribution costs in our international products, including our Japanese Investment Trusts (ITMs), and certain SICAV share classes.

These increases were partially offset by lower 12b-1 fees due to lower average assets under management in the U.S.

mutual funds.

The amounts paid to third-party intermediaries that source the assets of the Advisor and R share classes of our U.S.

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Advertising and promotion.

Advertising and promotion costs were $22.1 million in the third quarter of 2021, an increase of $7.9 million, or 55.6%, compared to the $14.2 million recognized in the 2020 quarter.

For the nine months ended September 30, 2021, these costs were $61.4 million, an increase of $8.9 million, or 17.0%, compared to the 2020 period.

The increase in both the third quarter and nine months ended September 30, 2021 was driven primarily by the media spend related to the launch of a new brand marketing campaign and the promotion of the firm's target date solutions, along with lower spending in 2020 due to the impact of the coronavirus pandemic.

Advertising and promotion costs were $23.4 million in the first quarter of 2022, an increase of $4.5 million, or 23.8%, compared to the $18.9 million recognized in the 2021 quarter.

The increase was driven primarily by increased media spend as well as advertising development costs during the quarter, along with lower spending in 2021 due to the impact of the coronavirus pandemic.

Product and recordkeeping related costs.

Product and recordkeeping costs were $70.3 million in the third quarter of 2021, an increase of $33.5 million, or 91%, compared to the $36.8 million in the 2020 quarter.

For the nine months ended September 30, 2021, these costs were $154.6 million, an increase of $36.6 million, or 31%, compared to the 2020 period.

More than 85% of the increase in the third quarter and more than 80% of the increase in the nine months ended September 30, 2021 was driven primarily by the recordkeeping costs incurred as part of our expanded FIS relationship, including certain transition expenses that will extend into the fourth quarter of 2021 but not recur in 2022.

While these transition expenses will not recur, we do expect to incur certain technology-related costs as part of this expanded relationship with FIS over the next few years.

These will be reported as technology, occupancy, and facility costs.

Product and recordkeeping costs were $80.4 million in the first quarter of 2022, an increase of $39.4 million, or 96%, compared to the $41.0 million in the 2021 quarter.

Approximately 80% of the increase in the first quarter of 2022 was driven by the recordkeeping costs incurred as part of our expanded FIS relationship that began in August 2021.

Technology, occupancy, and facility costs.

Technology, occupancy, and facility costs were $123.1 million in the third quarter of 2021, an increase of $7.5 million, or 6.5%, compared to the $115.6 million recognized in the 2020 quarter.

For the nine months ended September 30, 2021, these costs were $359.7 million, an increase of $27.4 million, or 8.2%, compared to the 2020 period.

The increase is due primarily to the ongoing investment in our technology capabilities, including hosted solution licenses and depreciation.

Increased facility-related costs also contributed to the increase for the nine months ended September 30, 2021.

Technology, occupancy, and facility costs were $133.9 million in the first quarter of 2022, an increase of $16.6 million, or 14.2%, compared to the $117.3 million recognized in the 2021 quarter.

The increase is due primarily to the ongoing investment in our technology capabilities, including hosted solution licenses, depreciation and office facility costs.

General, administrative, and other.

General, administrative, and other expenses were $81.8 million in the third quarter of 2021, an increase of $7.3 million, or 6.1%, compared to the $74.5 million recognized in the 2020 quarter.

Higher research costs primarily due to additional investment professional headcount, higher information services and travel-related costs were the primary contributors to the higher costs in the third quarter of 2021 compared to 2020.

For the nine months ended September 30, 2021, general, administrative, and other expenses were $260.8 million, an increase of $22.8 million, or 9.6%, compared to the 2020 period.

Higher information services and research costs were primary contributors to the higher costs in 2021 as compared to 2020.

Travel-related expenses were lower compared to the nine months ended September 30, 2020, due to the impact of the coronavirus pandemic.

General, administrative, and other expenses were $80.4 million in the first quarter of 2022, a decrease of $6.9 million, or 7.9%, compared to the $87.3 million recognized in the 2021 quarter.

The decrease was primarily related to the favorable impact of the change in fair value of the contingent consideration liability of $45.5 million, partially offset by $27.1 million in acquisition-related amortization and other acquisition-related costs.

Higher information services, external research, travel and other nonrecurring administrative costs further offset the decrease in general, administrative and other expenses in the first quarter of 2022 compared to 2021.

Non-operating income (loss)

Non-operating loss for the third quarter of 2021 was $11.5 million, a decrease of $203.1 million from non-operating income of $191.6 million in the 2020 quarter.

For the nine months ended September 30, 2021, non-operating income was $234.5 million, an increase of $128.1 million from non-operating income of $106.4 million in the comparable 2020 period.

The following table details the components of non-operating income for both the third quarter and nine months ended September 30, 2021 and 2020.

Three months ended Nine months ended

Non-operating loss for the first quarter of 2022 was $198.5 million as compared to non-operating income of $102.1 million in the 2021 quarter.

The following table details the components of non-operating income (loss) for both the first quarter ended March 31, 2022 and 2021.

Three months ended

(in millions) 3/31/2022 3/31/2021

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Other investment income 10.2 18.2

Net gains on investments 8.7 84.6 165.0 100.6

Net gains (losses) on investments (89.9) 68.6

Net gains (losses) on consolidated sponsored investment portfolios (101.4) 37.2

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Non-operating income (loss) $ (198.5) $ 102.1

The significant investment portfolio gains in the third quarter of 2020 outperformed the slight investment portfolio losses in the third quarter of 2021 as the spread of the delta variant of the coronavirus weighed on the global economy and markets resulting in lower valuations at the end of the third quarter.

The cash and discretionary investment portfolio also experienced net investment losses of $3.0 million during the third quarter of 2021.

Our investment portfolio for the nine months ended September 30, 2021, outperformed the same period in 2020 as a result of the significant market losses experienced in the first quarter of 2020.

Our consolidated investment products and supplemental savings plan hedge portfolio comprised approximately 60% of the net gains recognized during the nine months ended September 30, 2021.

The table above includes the net investment income of the underlying portfolios included in the consolidated T.

The significant investment portfolio gains in the first quarter of 2021 outperformed the investment portfolio losses in the first quarter of 2022 as the Russian invasion of Ukraine, inflation fears and the Federal Reserve interest rate increases weighed on the global economy and markets resulting in lower valuations at the end of the first quarter 2022.

The cash and discretionary investment portfolio also experienced net investment losses of $23.8 million during the first quarter of 2022.

The table above includes the net investment income of the underlying portfolios included in the consolidated

Rowe Price investment products and not just the net investment income related to our interest.

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Rowe Price investment products had on the individual lines of our unaudited condensed consolidated statements of income and the portion attributable to our interest:

Three months ended Nine months ended

Three months ended

(in millions) 3/31/2022 3/31/2021

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Provision for income taxes

Our GAAP effective tax rate for the third quarter of 2021 was 23.1%, compared with 24.1% in the 2020 quarter.

For the nine months ended September 30, 2021, our GAAP effective tax rate was 23.3%, compared with 24.0% in the 2020 period.

The following table reconciles the statutory federal income tax rate to our effective tax rate for both the three- and nine-months ended September 30, 2021 and 2020:

Three months ended Nine months ended

The following table reconciles the statutory federal income tax rate to our effective tax rate on a GAAP basis for both the three months ended March 31, 2022 and 2021:

Three months ended

3/31/2022 3/31/2021

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

3.8 3.9 3.8 4.1

Net (income) losses attributable to redeemable non-controlling interests .3 (.6)

Net excess tax benefits from stock-based compensation plans activity

(1.6) (.8) (1.1) (1.3)

(.2) .3 (.2) .2

Effective income tax rate

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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.

Our GAAP effective tax rate for the first quarter of 2022 was 24.2%, compared with 23.2% in the 2021 quarter.

The increase in the GAAP effective tax rate in 2022 from 2021 was primarily due to net losses attributable to redeemable non-controlling interests held in our consolidated investment products and lower discrete tax benefits associated with the settlement of stock-based awards.

These increases were partially offset by the favorable impacts of the reduction in the effective state tax rate due to the full phase-in of the 2018 Maryland state tax legislation and the remeasurement of the contingent consideration liability with respect to the earnout arrangement with OHA.

The non-GAAP tax rate primarily adjusts for the impact of the consolidated investment products, including the net income attributable to the redeemable non-controlling interests.

Our non-GAAP effective tax rate was 23.1% in the third quarter of 2021 compared with 24.1% in third quarter of 2020, and was 23.4% for the nine months ended September 30, 2021 compared with 23.9% for the nine months ended September 30, 2020.

The non-GAAP effective tax rate for the third quarter of 2021 was favorably impacted by higher discrete discrete tax benefits associated with the settlement of stock-based awards.

The non-GAAP effective tax rate for the nine months ended September 30, 2021 was favorably impacted by a lower state effective tax rate.

The firm continues to see the phased-in benefit of the 2018 Maryland state tax legislation in which we expect to reduce our effective state rate over the five-year phase-in period to less than 3% by the end of 2022.

Our effective tax rate will continue to experience volatility in future periods as the discrete tax benefits recognized from option exercises are impacted by market fluctuations in our stock price and timing of option exercises.

Our GAAP rate will also be impacted by net investment income recognized on our consolidated investment products that are driven by market fluctuations and changes in the proportion of their net income that is attributable to non-controlling interests.

We currently estimate that our effective tax rate for the full year 2021, on a GAAP and non-GAAP basis, will be in the range of 22.0% to 24.0%.

Our non-GAAP effective tax rate was 24.2% in the first quarter of 2022 compared with 23.7% in first quarter of 2021.

The increase in the non-GAAP effective tax rate was primarily attributable to lower discrete tax benefits associated with the settlement of stock-based awards compared to the first quarter of 2021.

The non-GAAP effective tax rate for the three months ended March 31, 2022 continues to be favorably impacted by the complete phase-in benefit of the 2018 Maryland state tax legislation.

Our effective tax rate will continue to experience volatility in future periods as the tax benefits recognized from stock-based compensation are impacted by market fluctuations in our stock price and timing of option exercises as well as the remeasurement of the contingent consideration liability.

Our GAAP rate will also be impacted by changes in the proportion of net income that is attributable to our redeemable non-controlling interests and non-controlling interests reflected in permanent equity.

We currently estimate that our effective tax rate for the full year 2022, on a GAAP basis, will be in the range of 22.0% to 25.0%.

On a non-GAAP basis, the range is 23.0% to 25.0%.

NON-GAAP INFORMATION AND RECONCILIATION.

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GAAP financial measures for the three months ended

September 30, 2021 and 2020.

March 31, 2022 and 2021.

Three months ended 3/31/2022

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51.0 (51.0) 55.3 1.7 2.7 .01

Acquisition-related transaction costs (3)

(.7) .7 — .3 .4 —

Acquisition-related contingent consideration (4)

45.5 (45.5) — (18.2) (27.3) (.12)

Acquisition-related compensation arrangements (4)

(13.6) 13.6 — 5.4 8.2 .04

Acquisition-related amortization - investments and intangible assets (4)

(27.1) 40.3 — 16.1 24.2 .10

Other non-operating income (5)

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Adjusted Non-GAAP Basis $ 909.2 $ 918.9 $ 13.7 $ 220.6 $ 712.0 $ 3.01

The following schedules reconcile certain U.S.

GAAP financial measures for the nine months ended September 30, 2021 and 2020.

Nine months ended 9/30/2021

Operating expenses Net operating income Non-operating income (loss) Provision (benefit) for income taxes (4)

Net income attributable to T.

Rowe Price Diluted earnings per share (5)

$ 2,862.7 $ 2,847.5 $ 234.5 $ 717.1 $ 2,342.3 $ 9.94

Non-GAAP adjustments:

Consolidated T.

investment products (1)

(4.9) 9.1 (75.7) (13.5) (30.5) (.13)

Supplemental savings plan liability (2)

(59.6) 59.6 (59.3) .3 — —

Other non-operating income (3)

— — (71.0) (17.8) (53.2) (.22)

Adjusted Non-GAAP Basis

$ 2,798.2 $ 2,916.2 $ 28.5 $ 686.1 $ 2,258.6 $ 9.59

Nine months ended 9/30/2020

Operating expenses Net operating income Non-operating income (loss) Provision (benefit) for income taxes (4)

Net income attributable to T.

Rowe Price Diluted earnings per share (5)

$ 2,484.0 $ 1,989.8 $ 106.4 $ 502.5 $ 1,589.3 $ 6.66

Non-GAAP adjustments:

Consolidated T.

investment products (1)

(4.4) 11.7 (13.3) (1.3) 4.1 .02

Supplemental savings plan liability (2)

(45.4) 45.4 (29.2) 6.2 10.0 .04

Other non-operating income (3)

— — (13.7) (6.9) (6.8) (.03)

Adjusted Non-GAAP Basis

$ 2,434.2 $ 2,046.9 $ 50.2 $ 500.5 $ 1,596.6 $ 6.69

(1) These non-GAAP adjustments remove the impact that the consolidated T.

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The adjustment to net income attributable to T.

Rowe Price represents the net income of the consolidated products, net of redeemable non-controlling interest.

Rowe Price represents the net income of the consolidated products, net of redeemable non-controlling interests.

We remove the impact of the consolidated T.

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We believe it is useful to offset the non-operating investment income (loss) realized on the economic hedges against the related compensation expense and remove the net impact to help the reader's ability to understand our core operating results and to increase comparability period to period.

(3) This non-GAAP adjustment removes the transactions costs incurred related to the acquisition of OHA.

Management believes adjusting for these charges help the reader's ability to understand the firm's core operating results and to increase comparability period to period.

(4) These non-GAAP adjustments remove the impact of acquisition-related amortization and costs including amortization of intangible assets, the recurring fair value remeasurements of the contingent consideration liability, amortization of acquired investment and non-controlling interest basis differences and amortization of compensation-related arrangements.

Management believes adjusting for these charges helps the reader's ability to understand the firm's core operating results and to increase comparability period to period.

(5) This non-GAAP adjustment represents the other non-operating income (loss) and the net gains (losses) earned on our non-consolidated investment portfolio that are not designated as economic hedges of the supplemental savings plan liability, and non-consolidated seed investments and other investments that are not part of the cash and discretionary investment portfolio.

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Additionally, we do not emphasize the impact of the portion of non-operating income (loss) removed when managing and evaluating our core performance.

(4) The income tax impacts were calculated in order to achieve an overall year-to-date non-GAAP effective tax rate of 23.4% for the first nine months of 2021 and 23.9% for the first nine months of 2020.

As such, the non-GAAP effective tax rate for three months ended September 30, 2021 and 2020 was 23.1% and 24.1%, re spectively.

(6) The income tax impacts were calculated in order to achieve an overall non-GAAP effective tax rate for the three months ended March 31, 2022 and 2021 of 24.2% and 23.7%, re spectively.

The firm estimates that its effective tax rate for the full-year 2022 on a non-GAAP basis will be in the range of 23.0% to 25.0%.

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The calculation of adjusted net income allocated to common stockholders is as follows:

Three months ended Nine months ended

Three months ended

3/31/2022 3/31/2021

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Sources of Liquidity

We remain debt-free with ample liquidity, including cash and investments in T.

We have ample liquidity, including cash and investments in T.

Rowe Price products, as follows:

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Rowe Price products $ 4,490.2 $ 4,258.8

Our discretionary investment portfolio is comprised primarily of short duration bond funds, which typically yield higher than money market rates, and asset allocation products.

Cash and discretionary investments experienced $3.0 million in market losses and $28.5 million in market gains in the three- and nine-months ended September 30, 2021, respectively, as compared to investment gains of $25.6 million and $50.2 million in the three- and nine-months ended September 30, 2020.

Cash and discretionary investments in T.

Rowe Price products held by our subsidiaries outside the United States were $927.1 million at September 30, 2021 and $675.8 million at December 31, 2020.

Our discretionary investment portfolio is comprised of short duration bond funds, which typically yield higher than money market rates, and asset allocation products.

Cash and discretionary investments experienced market losses of $23.8 million in the three months ended March 31, 2022 compared to investment gains of $13.7 million in the 2021 quarter.

Our subsidiaries outside the United States hold cash and discretionary investments of $869.1 million at March 31, 2022 and $764.2 million at December 31, 2021.

Given the availability of our financial resources and cash expected to be generated through future operations, we do not maintain an available external source of additional liquidity.

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The following table details how T.

Rowe Price’s interests in cash and investments relate to where they are presented on the unaudited condensed consolidated balance sheet as of September 30, 2021.

interests in cash and investments relate to where they are presented on the unaudited condensed consolidated balance sheet as of March 31, 2022.

(in millions)

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Rowe Price 1,997.5 1,680.8 811.9 4,490.2

Investments in affiliated private investment funds (2)

— 795.2 — 795.2

Investments in CLOs — 124.5 — 124.5

Investment in UTI and other investments — 278.8 — 278.8

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Redeemable non-controlling interests — — 790.4 790.4

As reported on unaudited condensed consolidated balance sheet at September 30, 2021 $ 3,418.5 $ 3,330.3 $ 1,934.6 $ 8,683.4

As reported on unaudited condensed consolidated balance sheet at March 31, 2022 $ 1,997.5 $ 2,879.3 $ 1,602.3 $ 6,479.1

(1) The consolidated T.

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mutual funds as well as those funds regulated outside the U.S.

The $60.8 million and the $787.2 million represent the total value at September 30, 2021 of our interest in the consolidated T.

The $73.9 million and the $738.0 million represent the total value at March 31, 2022 of our interest in the consolidated T.

Rowe Price investment products.

The total net assets of the T.

Rowe Price investment products at September 30, 2021 of $1,934.6 million includes assets of $2,026.7 million, less liabilities of $92.1 million as reflected in our unaudited condensed consolidated balance sheets.

Rowe Price investment products at March 31, 2022 of $1,602.3 million includes assets of $1,658.2 million, less liabilities of $55.9 million as reflected in our unaudited condensed consolidated balance sheets.

(2) Includes $272.2 million of non-controlling interests in consolidated entities and represents the portion of these investments, held by third parties, that we cannot sell in order to obtain cash for general operations.

Our unaudited condensed consolidated balance sheet reflects the cash and cash equivalents, investments, other assets and liabilities of those T.

Rowe Price investment products we consolidate, as well as redeemable non-

controlling interests for the portion of these T.

Rowe Price investment products we consolidate, as well as redeemable non-controlling interests for the portion of these T.

Rowe Price investment products that are held by unrelated third-party investors.

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We increased our quarterly recurring dividend per common share in February 2022 by 11.1% to $1.20 per common share from $1.08 per common share.

Additionally, our Board of Directors declared a special cash dividend of $3.00 per common share, or $699.8 million, on June 14, 2021, that was paid on July 7, 2021.

Further, we expended $526.6 million in the first nine months of 2021 to repurchase 2.9 million shares, or 1.3% of our outstanding common stock, at an average price of $182.27 per share.

Further, we expended $320.1 million in the first quarter of 2022 to repurchase 2.1 million shares, or .9% of our outstanding common stock, at an average price of $151.97 per share.

These dividends and repurchases were expended using existing cash balances and cash generated from operations.

While opportunistic in our approach to stock buybacks, we will generally repurchase our common stock over time to offset the dilution created by our equity-based compensation plans.

Since the end of 2018, we have returned $5.5 billion to stockholders through stock repurchases, regular quarterly dividends, and special dividends, as follows:

(in millions) Recurring dividend Special dividend (1)

Stock repurchases Total cash returned to stockholders

Since the end of 2019, we have returned $5.5 billion to stockholders through stock repurchases, regular quarterly dividends, and a special dividend, as follows:

(in millions) Recurring dividend Special dividend Stock repurchases Total cash returned to stockholders

2020 $ 846.0 $ — $ 1,192.2 $ 2,038.2

2021 1,003.7 699.8 1,136.0 2,839.5

Nine months ended 9/30/2021 755.0 699.8 526.6 1,981.4

Three months ended 3/31/2022 279.2 — 320.1 599.3

Total $ 2,128.9 $ 699.8 $ 2,648.3 $ 5,477.0

(1) Special cash dividend declared in June 2021 was paid in July 2021.

We anticipate property, equipment and other capital expenditures, including internal labor capitalization, for the full-year 2021 to be about $250 million, of which more than three-quarters is planned for technology initiatives.

We anticipate property, equipment, software and other capital expenditures, including internal labor capitalization, for the full-year 2022 to be about $290 million, of which more than three-quarters is planned for technology initiatives.

We expect to fund our anticipated capital expenditures with operating cash flows and other available resources.

On October 28, 2021, we entered into an agreement to acquire 100% of the equity of OHA, and certain other entities that have common ownership.

We will acquire OHA for a purchase price of up to $4.2 billion, with $3.3 billion payable at closing, approximately 74% in cash and 26% in T.

Rowe Price Group, Inc.

common stock, and up to an additional $900 million in cash upon the achievement of defined business milestones starting in 2025.

We expect that the acquisition will close in the fourth quarter of 2021.

The following table summarizes the cash flows for the nine months ended September 30, 2021 and 2020, that are attributable to T.

The following table summarizes the cash flows for the three months ended March 31, 2022 and 2021, that are attributable to T.

Rowe Price, our consolidated T.

Rowe Price investment products, and the related eliminations required in preparing the statement.

Nine months ended

Three months ended

3/31/2022 3/31/2021

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Cash flows from operating activities

Net income $ 2,342.3 $ 66.5 $ (43.9) $ 2,364.9 $ 1,589.3 $ 1.6 $ 2.8 $ 1,593.7

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

Depreciation and amortization of property and equipment 151.1 — — 151.1 144.0 — — 144.0

Net income (loss) $ 567.9 $ (103.9) $ 50.4 $ 514.4 $ 749.4 $ 33.7 $ (18.3) $ 764.8

Adjustments to reconcile net income (loss) to net cash provided by operating activities

Depreciation and amortization of property, equipment and software 54.5 — — 54.5 49.0 — 49.0

Amortization of acquired assets and liabilities 53.9 — — 53.9 — — —

Fair value remeasurement of contingent liability (45.5) — — (45.5) — — — —

Stock-based compensation expense 63.6 — — 63.6 57.5 — 57.5

Net (gains) losses recognized on investments 88.7 — (50.4) 38.3 (77.8) — 18.3 (59.5)

Net (investments) redemptions in T.

Net redemptions in T.

Rowe Price investment products used to economically hedge supplemental savings plan liability 6.1 — — 6.1 22.0 — 22.0

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Rowe Price investment products — 180.1 — 180.1 — (120.9) (120.9)

Other changes in assets and liabilities 573.1 (42.6) (.5) 530.0 458.8 2.5 (1.4) 459.9

Other changes 229.0 9.4 (.4) 238.0 338.5 (56.5) (.2) 281.8

Net cash provided by (used in) operating activities 1,018.2 85.6 (.4) 1,103.4 1,138.6 (143.7) (.2) 994.7

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Operating activities attributable to T.

Rowe Price during the first nine months of 2021 provided cash flows of $3,072.6 million as compared to $2,265.0 million during the first nine months of 2020.

Rowe Price during the first quarter of 2022 provided cash flows of $1,018.2 million as compared to $1,138.6 million during the first quarter of 2021.

Operating cash flows attributable to T.

Rowe Price increased $807.6 million, including a $753.0 million increase in net income from the first nine months of 2020 and timing differences on the cash settlement of our assets and liabilities of $114.3 million.

This increase was partially offset by $106.9 million in lower non-cash adjustments, including unrealized investment gains/losses, depreciation, and stock-based compensation expense.

The non-cash adjustments were primarily driven by a $115.8 million increase in net investment gains in the first nine months of 2021 compared with the first nine months of 2020.

Additionally, in 2021, we had net proceeds of $28.1 million from certain investment products that economically hedge our supplemental savings plan liability, while we had net investments of $19.1 million in the same period of 2020.

Rowe Price decreased $120.4 million, including a $181.5 million decrease in net income from the first quarter of 2021 and timing differences primarily on the cash settlement of our assets and liabilities of $109.5 million.

These decreases were partially offset by $186.5 million in lower non-cash adjustments, including unrealized investment gains/losses, depreciation, amortization of acquisition-related assets and retention arrangements, the fair value remeasurement of the contingent consideration liability, stock-based compensation expense, and other noncash items.

The non-cash adjustments were primarily driven by $88.7 million in net investment losses in the first quarter of 2022 compared with $77.8 million in net investment gains in the first quarter of 2021.

Additionally, in 2022, we had net proceeds of $6.1 million from certain investment products that economically hedge our supplemental savings plan liability compared to net proceeds of $22.0 million in the same period of 2021.

Our interim operating cash flows do not include the cash impact of variable compensation that is accrued throughout the year before being substantially paid out in December.

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Net cash provided by investing activities that are attributable to T.

Rowe Price totaled $108.0 million in the first nine months of 2021 compared with $100.6 million of cash used by investing activities in the 2020 period.

During 2021, we decreased the level of seed capital provided by $131.4 million.

Rowe Price totaled $44.4 million in the first quarter of 2022 compared with $30.4 million of cash provided by investing activities in the 2021 period.

we increased the cash provided by investing activities with higher net proceeds from the sale of certain of our discretionary investments of $58.9 million compared to net proceeds of $47.8 million during 2021.

Partially offsetting these increases were decreased property, equipment and software expenditures of $3.9 million.

We also decreased the level of seed capital provided by $.8 million.

We eliminate our seed capital in those T.

Rowe Price investment products we consolidate in preparing our unaudited condensed consolidated statement of cash flows.

Further increasing the cash provided by investing activities were higher net proceeds from the sale of certain of our discretionary investments of $238.1 million compared to net proceeds of $141.6 million during 2020.

Partially offsetting these increases were increased property and equipment expenditures of $23.3 million.

The remaining $21.4 million change in reported cash flows from investing activities is related to the net cash removed from our balance sheet from consolidating and deconsolidating investment products.

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Net cash used in financing activities attributable to T.

Rowe Price were $1,913.8 million in the first nine months of 2021 compared with $1,718.0 million in the 2020 period.

During the first nine months of 2021, we used $526.6 million to repurchase 2.9 million shares compared to $1.2 billion to repurchase 10.8 million shares in the first nine months of 2020.

Partially offsetting this decrease in cash used for stock repurchases was a $818.3 million increase in dividends paid in 2021 as a result of the special cash dividend paid in July 2021 and the 20.0% increase in our quarterly dividend per share.

The remaining change in reported cash flows from financing activities is primarily attributable to a $276.0 million decrease in net subscriptions received from redeemable non-controlling interest holders of our consolidated investment products during the first nine months of 2021 compared to the 2020 period.

Rowe Price were $588.2 million in the first quarter of 2022 compared with $490.6 million in the 2021 period.

During the first quarter of 2022, we used $320.1 million to repurchase 2.1 million shares compared to $259.2 million to repurchase 1.6 million shares in the first quarter of 2021.

During the first quarter of 2022, there was a $26.9 million increase in dividends paid in 2022 as a result of the 11.1% increase in our quarterly dividend per share.

Partially offsetting these increases in net cash used in financing activities were $6.0 million in net contributions from non-controlling interests in consolidated entities.

The remaining change in reported cash flows from financing activities is primarily attributable to $55.9 million in net redemptions from redeemable non-controlling interest holders of our consolidated investment products during the first quarter of 2022 as compared to $183.1 million in net subscriptions received from redeemable non-controlling interest holders of our consolidated investment products during the first quarter of 2021.

CRITICAL ACCOUNTING POLICIES.

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Rowe Price, including those within this report, may contain certain forward-looking information, including information or anticipated information relating to:

our revenues, net income, and earnings per share on common stock;

our revenues, net income, and earnings per share of common stock;

changes in the amount and composition of our assets under management;

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our tax rate;

and our expectations regarding financial markets, strategic transactions, dividends, stock repurchases, investments, new products and services, capital expenditures, changes in our effective fee rate, the impact of the coronavirus pandemic, other market conditions and the acquisition of OHA.

the timing and expense related to the integration of OHA with and into our business;

and our expectations regarding financial markets, future transactions, dividends, stock repurchases, investments, new products and services, capital expenditures, changes in our effective fee rate, the impact of the coronavirus pandemic, and other market conditions.

Readers are cautioned that any forward-looking information provided by or on behalf of T.

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cash inflows and outflows in the U.S.

mutual funds, subadvised funds, separately managed accounts, collective investment trusts, and other investment products, fluctuations in global financial markets that result in appreciation or depreciation of the assets under our management, our introduction of new mutual funds and investment products, changes in retirement savings trends relative to participant-directed investments and defined contribution plans, and the impact of the coronavirus outbreak.

mutual funds, subadvised funds, separately managed accounts, collective investment trusts, and other investment products, performance fees, capital allocation-based income, fluctuations in global financial markets that result in appreciation or depreciation of the assets under our management, our introduction of new mutual funds and investment products, changes in retirement savings trends relative to participant-directed investments and defined contribution plans, and the impact of the coronavirus outbreak.

The ability to attract and retain investors’ assets under our management is dependent on investor sentiment and confidence;

the relative investment performance of the U.S.

mutual funds and other managed investment products as compared with competing offerings and market indexes;

the relative investment performance of the T.

Rowe Price mutual funds and other managed investment products as compared with competing offerings and market indexes;

the ability to maintain our investment management and administrative fees at appropriate levels;

competitive conditions in the mutual fund, asset management, and broader financial services sectors;

and our level of success in implementing our strategy to expand our business, including our announced plan to establish T.

our level of success in implementing our strategy to expand our business, including our establishment of T.

Rowe Price Investment Management as a separate registered investment adviser;

and our ability to attract and retain key personnel.

Our revenues are substantially dependent on fees earned under contracts with the T.

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and to further penetrate our distribution channels within the U.S.;

the pace and level of spending to support key strategic priorities;

the pace and level of spending to support key strategic priorities, including the integration of OHA with and into our business;

variations in the level of total compensation expense due to, among other things, bonuses, restricted stock units and other equity grants, other incentive awards, our supplemental savings plan, changes in our employee count and mix, and competitive factors;

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expenses and capital costs, such as technology assets, depreciation, amortization, and research and development, incurred to maintain and enhance our administrative and operating services infrastructure;

the level of third party research costs, unanticipated costs that may be incurred to protect investor accounts and the goodwill of our clients;

the timing of the assumption of all third party research payments, unanticipated costs that may be incurred to protect investor accounts and the goodwill of our clients;

and disruptions of services, including those provided by third parties, such as fund and product recordkeeping, facilities, communications, power, and the mutual fund transfer agent and accounting systems.

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Rowe Price investment products and investing in general or in particular classes of mutual funds or other investments.

Our acquisition of OHA is subject to various risks and uncertainties, which could impact the completion of the transaction and effect our results of operations, including:

(i) the occurrence of any event, change, or other circumstances that could give rise to the termination of the purchase agreement;

(ii) closing conditions may not be satisfied in a timely manner or at all, including due to the failure to obtain regulatory and client approvals;

(iii) the announcement and pendency of the acquisition may disrupt our business operations (including the threatened or

actual loss of employees, clients, or suppliers);

(iv) we could experience financial or other setbacks if the transaction encounters unanticipated problems;

(v) anticipated benefits of the transaction, including the realization of revenue, accretion, financial benefits or returns, and expense and other synergies, may not be fully realized or may take longer to realize than expected;

(vi) client and investor interest in T.

Rowe Price or the combined business’s products may be less than anticipated;

and (vii) we may be unable to successfully integrate OHA’s businesses or to integrate the businesses within the anticipated time frame.

Quantitative and Qualitative Disclosures About Market Risk.

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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-Q

Item 2. Management’s Discussion and Analysis