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Item 7. Management’s Discussion and Analysis

2023-02-15 compared with 2022-02-24 · 347 added, 343 removed, 595 unchanged (54% of the section changed)

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Our 2022 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 sponsored products.

The other sponsored products include:

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

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

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and non-discretionary advisory services through model delivery.

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.

We manage a broad mix of equity, fixed income, multi-asset, alternative, and money market asset classes and solutions that meet the varied needs and objectives of individual and institutional investors.

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

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

Additionally, approximately 30% of our operating expenses for the years ended December 31, 2021, 2020 and 2019 are impacted by changes in 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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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;

and, most importantly, we provide our clients with strong investment management expertise and service.

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").

The acquisition of OHA included $57 billion of capital under management, of which $47 billion of fee-basis assets under management was added to our assets under management as of the date of the acquisition.

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.

Alternative credit strategies continue to be in demand from investors across the globe seeking attractive yields and risk-adjusted returns.

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.

Alternative credit strategies continue to be in demand from investors

across the globe seeking attractive yields and risk-adjusted returns.

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

MARKET TRENDS.

Even though the coronavirus pandemic continued, major U.S.

stock indexes climbed in 2021, extending the brisk rebound that started in late-March 2020.

Equities advanced as the economy reopened and recovered—facilitated by the rollout of coronavirus vaccines and some federal fiscal relief—and as corporations reported robust earnings growth.

Elevated inflation stemming in part from shortages of some goods and materials amid global supply chain disruptions, the emergence of variants of the coronavirus, and the Federal Reserve’s decision to taper its monthly asset purchases starting in November were among the factors that have weighed on the financial markets.

stock indexes fell sharply in 2022, the worst year for equities since the 2008 global financial crisis.

Growth stocks significantly underperformed value stocks across all markets.

Investors shunned riskier assets in response to Russia’s invasion of Ukraine, elevated inflation exacerbated by rising commodity prices and global supply chain disruptions, surging U.S.

Treasury yields, and the U.S.

Federal Reserve’s ("Federal Reserve") short-term interest rate increases starting in March.

Although many indexes finished the year above their lowest levels of 2022, the year ended with many investors concerned that ongoing Federal Reserve rate hikes would hurt corporate earnings and push the economy into a recession in 2023.

Stocks in developed non-U.S.

equity markets rose but lagged U.S.

European stock markets were broadly positive in U.S.

dollar terms.

Several markets produced gains exceeding 20%.

Shares in Spain and Portugal trailed with gains of less than 2%.

Developed Asian markets were mixed in dollar terms.

Hong Kong stocks fell about 4% due in part to the Chinese government’s regulatory crackdown in certain sectors, as well as concerns about some highly indebted firms in the Chinese property market.

Japanese shares gained about 2%.

Stocks in emerging markets generally declined in U.S.

dollar terms, as currency weakness versus the dollar reduced local returns to U.S.

In Asia, stocks in Taiwan and India surged almost 27%, but Chinese shares fell nearly 22% amid the government’s regulatory crackdown and concerns about the property market.

Latin American markets were also mixed, as several countries struggled with political uncertainty, currency weakness, and elevated inflation that prompted central banks to raise short-term interest rates.

Stocks in most emerging European markets appreciated, but Turkish shares and the lira plunged as the central bank reduced short-term interest rates in the final months of the year despite elevated inflation.

markets declined in 2022, as elevated inflation prompted many central banks to tighten their monetary policies.

A stronger U.S.

dollar versus major currencies exacerbated local losses in dollar terms.

Developed European and Asian markets fell broadly in dollar terms, though stocks in the UK, Hong Kong, and Australia held up relatively well.

Stocks in emerging markets fared worse than developed non-U.S.

markets in 2022.

Emerging Asian markets were mostly lower in dollar terms, especially South Korea, Taiwan, and China.

In emerging Europe, many markets declined amid close proximity to the Russian-Ukrainian conflict.

However, Turkish stocks soared as the central bank reduced interest rates in the latter half of the year despite elevated inflation.

Several markets in Latin America performed well, thanks in part to elevated commodity prices for much of the year.

Returns of several major equity market indexes for 2022 are as follows:

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(1) Returns exclude dividends

Global bond returns were mostly negative amid rising bond market interest rates and, as the year progressed, growing expectations for major central banks to curtail their stimulus efforts.

In the U.S., yields rose across the Treasury yield curve—especially in the intermediate-term portion of the curve—amid expectations that the Federal Reserve’s tapering of monthly asset purchases, which began in November, will be a prelude to tighter monetary policy sometime in 2022.

Global bond returns were broadly negative as bond market interest rates climbed worldwide and many central banks increased their key interest rates to fight inflation.

In the U.S., yields rose across the Treasury yield curve, with short- and intermediate-term yields rising above longer-term yields—often a signal of an approaching recession—as the Federal Reserve raised the fed funds target rate from near-zero in March to the 4.25% to 4.50% range by the end of the year.

The 10-year U.S.

Treasury note yield increased from 1.52% to 3.88% in 2022.

taxable investment-grade universe, Treasury securities performed worst, while corporate, mortgage-backed, and commercial mortgage-backed securities fell to a lesser extent.

Asset-backed securities held up best, albeit with slight losses.

Tax-free municipal securities produced positive returns, as municipal yields rose less than comparable Treasury yields.

High yield bonds strongly outperformed for the year.

taxable investment-grade universe, corporate bonds fell sharply as interest rates rose and credit spreads widened.

Treasury and mortgage-backed securities also fared poorly.

Asset-backed securities held up relatively well but still produced losses.

Tax-free municipal bonds declined but outperformed the taxable bond market.

High yield bonds also fared poorly as credit spreads widened.

Bonds in developed non-U.S.

markets declined in U.S.

dollar terms, as a stronger U.S.

dollar versus the yen, the euro, and other currencies reduced local returns to U.S.

Emerging markets bonds also declined, as bond yields increased and many emerging countries raised short-term interest rates in an attempt to stem inflation.

Local currency issues fared worse than dollar-denominated debt, as most emerging markets currencies declined against the dollar.

markets declined in 2022, as interest rates in most developed countries increased amid elevated inflation, and losses to U.S.

investors were exacerbated by a stronger U.S.

dollar versus many other currencies.

Emerging markets bonds declined as investors were risk averse and as central banks in many emerging countries raised interest rates to fight inflation and defend weakening currencies.

Returns of several major bond market indexes for 2022 are as follows:

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JPMorgan Emerging Markets Bond Index Plus (24.7)%

ICE Bank of America U.S.

High Yield Index (11.2)%

Credit Suisse Leveraged Loan Index (1.1)%

ASSETS UNDER MANAGEMENT.

Assets under management ended 2021 at $1,687.8 billion, an increase of $217.3 billion from the end of 2020.

This increase was primarily driven by market appreciation and income, net of distributions not reinvested, of $198.9 billion.

The acquisition of OHA completed on December 29, 2021 included $57 billion of capital under management (which includes net assets value, portfolio value and/or unfunded capital), of which $46.9 million of fee-basis assets under management are included in the assets under management in the tables below.

These increases were partially offset by net cash outflows of $28.5 billion for 2021.

Assets under management ended 2022 at $1,274.7 billion, a decrease of $413.1 billion from the end of 2021.

This decrease was primarily driven by net market depreciation and losses, including distributions not reinvested, of $351.4 billion and net cash outflows of $61.7 billion for 2022.

Clients transferred $12.4 billion in net assets from the U.S.

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(in billions) U.S.

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

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

Assets under management at December 31, 2019 $ 682.7 $ 313.8 $ 210.3 $ 1,206.8

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Client transfers (13.7) 2.0 11.7 —

(23.2) 1.1 22.1 — —

Net cash flows after client transfers (25.2) 10.0 20.8 5.6

Net market depreciation, net of income 135.6 63.0 34.5 — 233.1

Net market appreciation and income 140.0 76.3 43.7 260.0

Distributions not reinvested (2.9) — (.2) (3.1)

Acquired assets under management — — 1.2 1.2

Change during the period 111.9 86.3 65.5 263.7

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Client transfers (23.8) 2.7 21.1 —

(13.7) 2.0 11.7 — —

Net cash flows after client transfers (28.7) (31.3) 31.5 (28.5)

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Distributions not reinvested (6.3) — (.2) (6.5)

Acquired assets under management — — 1.2 — 1.2

Change during the period 76.8 26.1 67.5 170.4

Acquired fee-basis assets under management — 10.9 36.0 46.9

Assets under management at December 31, 2021 871.4 437.1 379.3 1,687.8

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Client transfers (12.4) 1.5 10.9 —

(23.8) 2.7 21.1 — —

Net cash flows after client transfers (55.5) (22.3) 16.1 (61.7)

Net market appreciation and income 111.8 57.4 36.2 — 205.4

Net market depreciation and losses (184.8) (94.3) (69.0) (348.1)

Distributions not reinvested (3.3) — — (3.3)

Change during the period (243.6) (116.6) (52.9) (413.1)

Preacquisition assets under management at December 31, 2021 871.4 426.2 343.3 — $ 1,640.9

Acquired fee-basis assets under management — 10.9 — 36.0 46.9

Assets under management at December 31, 2022 627.8 320.5 326.4 $ 1,274.7

(1) In all three years, the majority of the client transfers were from the T.

Rowe Price U.S.

mutual funds to the T.

Rowe Price collective investment trusts, which are included in collective investment trusts and other investment products.

The following table details changes in our assets under management by asset class during the last three years:

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Net cash flows — 14.1 (8.5) — 5.6

Net market depreciation, net of income (3)

Net market appreciation and income (3)

196.9 5.5 54.5 — 256.9

Acquired assets under management — 1.2 — — 1.2

Change during the period 196.9 20.8 46.0 — 263.7

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141.5 .6 56.8 — 198.9

Acquired assets under management — 1.2 — — 1.2

Acquired fee-basis assets under management — 5.2 — 41.7 46.9

Change during the period 96.9 7.0 71.7 41.7 217.3

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Net cash flows (72.7) 4.1 4.9 2.0 (61.7)

Net market appreciation and income (3)

Net market depreciation and losses (3)

(255.8) (12.8) (82.5) (0.3) (351.4)

Change during the period (328.5) (8.7) (77.6) 1.7 (413.1)

Preacquisition assets under management at December 31, 2021 992.7 170.5 477.7 — $ 1,640.9

Acquired fee-basis assets under management — 5.2 — 41.7 46.9

Assets under management at December 31, 2022 $ 664.2 $ 167.0 $ 400.1 $ 43.4 $ 1,274.7

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account for 9.1% of our assets under management at December 31, 2022 and 9.9% at December 31, 2021.

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

Our net cash flows in 2021 reflect net outflows from domestic equity as well as domestic fixed income.

Our net cash outflows in 2022 are driven primarily by our growth-oriented equity strategies sourced from U.S.

intermediaries.

These outflows were partially offset by net cash inflows in our international fixed income, multi-asset, and alternative strategies.

From a geography perspective, the Americas and EMEA regions experienced net outflows predominantly in equity in both regions, while APAC had positive net flows.

Net cash flows for 2021 reflect net outflows from domestic equity as well as domestic fixed income.

These outflows also reflect the redemption of about $2.5 billion from our U.S.

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Net cash flows for 2020 reflect positive flows into fixed income and international equity, while experiencing net outflows in domestic equity and our multi-asset franchise resulting from macroeconomic headwinds and ongoing pressure from passive investments.

Net cash flows for 2019 were driven by diversified inflows across distribution channels and geographies, the strength of our multi-asset franchise, and positive flows into fixed income and international equity.

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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$ 334.2 $ 391.1 $ 332.2 $ 11.3 $ 11.3 $ (6.5)

The firm also provides 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.

The firm also offers advice solutions through retail separately managed accounts and separately managed accounts model delivery.

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 December 31, 2022, total assets in these solutions were $410 billion, of which $403 billion are included in our reported assets under management in the tables above.

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

As of December 31, 2021, our assets under administration were $270 billion, of which nearly $163 billion are assets we manage.

As of December 31, 2022, our assets under administration were $214 billion, of which nearly $133 billion were assets we manage.

INVESTMENT PERFORMANCE (1) .

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(1) The investment performance reflects that of T.

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

Rowe Price sponsored mutual funds and composites AUM.

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This analysis compares T.

Rowe Price active funds to the applicable universe of passive/index open-end funds and ETFs of peer firms.

Rowe Price active funds with the applicable universe of passive/index open-end funds and ETFs of peer firms.

The top chart reflects the percentage of T.

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GAAP basis and a non-GAAP basis.

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, including in 2021, transaction costs associated with the acquisition of OHA.

We completed our acquisition of OHA on December 29, 2021;

however, our results of operations do not include any financial results of OHA for 2021 as the OHA activity between the closing date and December 31, 2021 was deemed to be immaterial.

We currently expect acquisition-related intangibles amortization, fair value adjustments of contingent consideration, acquisition-related retention compensation expense, and other acquisition-related expenses to impact our operating results beginning in 2022.

The non-GAAP basis adjusts for the impact of our consolidated sponsored investment products, the impact of market movements on the supplemental savings plan liability and related economic hedges, investment income related to certain other investments, acquisition-related amortization and costs, impairment charges, and certain nonrecurring charges and gains, if any.

We completed the acquisition of OHA on December 29, 2021.

As a result, our results of operations for 2021 and 2020 do not include any financial results of OHA.

2022 compared with 2021 2021 compared with 2020

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Weighted average common shares outstanding assuming dilution 227.1 228.8 231.2 (1.7) (.7) % (2.4) (1.0) %

Adjusted non-GAAP basis (2)

Adjusted basis (2)

Operating expenses $ 4,087.8 $ 3,840.3 $ 3,342.7 $ 247.5 6.4 % $ 497.6 14.9 %

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Ending assets under management $ 1,274.7 $ 1,687.8 $ 1,470.5 $ (413.1) (24.5) % $ 217.3 14.8 %

Annualized Effective Fee Rate (in bps) 42.7 44.4 45.6 (1.7) n/m (1.2) n/m

(1) The percentage change in non-operating income is not meaningful (n/m).

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

(3) Average assets under management for 2021 does not include the impact of the acquired fee-basis assets under management related to the OHA acquisition.

(3) Average assets under management for 2021 and 2020 do not include the impact of the acquired fee-basis assets under management related to the OHA acquisition.

Results Overview - 2022 as compared to 2021

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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 2021 increased 24.7% over the comparable 2020 period as average assets under our management increased $351.4 billion, or 28.2%, to $1,599.3 billion.

In 2021, we voluntarily waived $57.9 million, or less than 1%, of our investment advisory fees from certain of our money market mutual funds, trusts, and other investment portfolios in order to maintain a positive yield for investors.

At December 31, 2021, combined net assets of the investment portfolios in which we waived fees in 2021 were $22.0 billion.

We anticipate that the waivers in Q1 2022 will be at a slightly lower level than Q4 2021, and we expect to continue to waive fees through at least the first half of 2022.

Investment advisory revenues earned in 2022 decreased 15.9% over the comparable 2021 period as average assets under our management decreased $200.9 billion, or 12.6%, to $1,398.4 billion.

For the first half of 2022, we voluntarily waived $9.3 million, or less than .2%, of our investment advisory fees from certain of our money market mutual funds, trusts, and other investment portfolios in order to maintain a positive yield for investors.

No fees were waived in the second half of 2022.

The average annualized fee rate earned on our assets under management was 42.7 basis points in 2022, compared with 44.4 basis points earned in 2021.

Our effective fee rate has declined largely 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 year, higher money market fee waivers, and lower performance-based fees.

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

Our effective fee rate has declined largely due to a mix shift toward lower fee asset classes and vehicles as a result of market declines and net flows, partially offset by a reduction in money market fee waivers and a higher-than-average effective fee rate earned on our alternative asset

The average annualized fee rate earned on our assets under management was 42.3 basis points for the fourth quarter of 2022.

Operating expenses.

Operating expenses were $4,114.7 million in 2022, an increase of 3.9% over the comparable 2021 period.

Our operating expenses for 2022 include impairment charges of $175.1 million related to certain investment management contract intangible assets whose assessed fair value has declined below their respective carrying values.

On a non-GAAP basis, operating expenses were $4,087.8 million, a 6.4% increase over the comparable 2021 period.

The increase in both GAAP and non-GAAP operating expenses was primarily due to higher compensation expenses, including higher annual bonuses, salaries and benefits, and stock-based compensation expenses as a result of continued investment in hiring for our business as well as higher distribution and servicing costs due to higher average assets under management.

The 2021 period also reflects costs incurred from an expanded relationship with FIS Capital Markets US LLC ("FIS"), which began providing technology development and core operations for our full-service recordkeeping offering in August 2021.

These 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.

The firm currently estimates its 2022 non-GAAP operating expenses, including a full-year of OHA's operating expenses, will grow in the range of 12% to 16%.

Without consideration of OHA's operating expenses, the firm's 2022 non-GAAP operating expenses are expected to grow in the range of 4% to 8%.

The firm could elect to adjust its expense growth should unforeseen circumstances arise, including significant market movements.

Our operating expenses for 2022 also include OHA's operating expenses, which primarily impact compensation expense;

technology, occupancy, and facility costs;

and general, administrative and other costs.

The increase in our non-GAAP operating expenses was primarily attributable to the addition of OHA operating expenses;

salaries and benefits;

severance and other costs associated with the fourth quarter of 2022 workforce reduction action;

higher costs related to the ongoing investment in the firm's technology capabilities;

higher recordkeeping expenses due to the expanded relationship with FIS;

and information services and travel-related costs.

These increases were offset in part by lower distribution and servicing costs and lower bonuses.

We currently estimate our 2023 non-GAAP operating expenses, excluding non-GAAP accrued carried interest compensation, will grow in the range of 2% to 6% from the comparable 2022 amount of $4,070.2 million.

This range reflects the redeployment of $85 million in savings realized from the expense management actions taken in 2022 to fund strategic priorities.

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

Operating margin.

Our operating margin in 2022 was 36.6%, compared with 48.4% in 2021.

The increase in our operating margin in 2021 compared with 2020 is primarily driven by revenue growth outpacing the increase in operating expenses.

The decrease in our operating margin in 2022 compared with 2021 is primarily driven by a decrease in investment advisory revenue as a result of lower average assets under management and higher operating expenses.

Diluted earnings per share.

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On a non-GAAP basis, diluted earnings per share was $8.02 in 2022 as compared to $12.75 for 2021.

The increase in both GAAP and non-GAAP diluted earnings per share in 2021 compared to 2020 was primarily driven by higher operating income, lower weighted average outstanding shares, and a lower effective tax rate.

These drivers of the increase were partially offset by lower net investment gains recognized in 2021 than in 2020.

The decrease in both 2022 GAAP and non-GAAP diluted earnings per share compared to 2021 was primarily driven by lower operating income, net investment losses in 2022 as compared to net investment gains in 2021, and a higher effective tax rate.

These decreases were partially offset by lower weighted average outstanding shares.

Impairment charges recorded in the fourth quarter of 2022 impacted the lower operating income that drove the GAAP diluted earnings per share decrease.

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

Future Operating Results Impact of OHA acquisition

As part of the OHA acquisition, certain assets and liabilities resulting from the purchase price allocation, along with certain retention-related arrangements, will impact our operating results in future periods.

These include the amortization of certain intangibles, fair value adjustments of contingent consideration, amortization of any fair market value basis differences, and compensation expense of retention-related arrangements.

The table below highlights the maximum future impact of these items on our consolidated income statement and expected future recognition period.

See Note 2 to our consolidated financial statements for more information about these acquisition-related items.

Item Maximum Future Impact to Operating Results

(in millions) Description Recognition Period

Contingent Consideration Liability - Earnout (1)

Up to $593.7 Fair market value remeasured each quarter over the performance period with any change recognized in general, administrative, and other expenses;

Portion considered to be compensatory will be recognized as compensation expense over the related service period.

Definite-lived intangible assets (1)

$ 613.9 Non-cash amortization of investment management agreement intangible assets.

For 2022, amount to be recognized is expected to be $109 million.

(weighted average)

Investments in affiliated private investment funds - fair value in excess of carrying value (1)

$ 306.5 Non-cash amortization to be recognized as a reduction in net revenues.

For 2022, amount to be recognized is expected to be $53 million.

(weighted average)

Non-controlling interest - fair value in excess of carrying value (1)

$ (129.1) Non-cash amortization to be recognized as a reduction in compensation expense.

For 2022, amount to be recognized is expected to be $23 million.

(weighted average)

Purchase consideration deemed compensatory (1)

$ 283.2 Non-cash amortization to be recognized as compensation expense.

For 2022, amount to be recognized is expected to be $57 million.

Value creation arrangement Variable - Fair market value at December 31, 2021 was $30 million.

Fair market value remeasured each quarter and recognized over the performance period as compensation expense.

(1) Related operating results impact is anticipated to be a non-GAAP adjustment beginning in 2022.

Results Overview - 2021 as compared to 2020

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The average annualized fee rate earned on our assets under management was 44.4 basis points in 2021, compared with 45.6 basis points earned in 2020.

Our effective fee rate declined largely due to client transfers within the complex to lower fee vehicles or share classes and the money market fee waivers.

These declines were partially offset by performance-based fees earned in 2020.

Our effective fee rate declined largely due to the July 2021 fee reductions in our target date products, client transfers within the complex to lower fee vehicles or share classes, higher money market fee waivers, and lower performance-based fees.

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

Operating expenses.

For 2021, operating expenses were $3,961.9 million as compared with $3,461.0 million in the 2020 period.

The increase in operating expenses was primarily due to a $38.6 million increase in expense related to the supplemental savings plan from higher market returns, higher compensation expenses and our continued strategic investments.

In 2020, our non-GAAP operating expenses increased 6.1% to $3,342.7 million compared with 2019.

On a non-GAAP basis, operating expenses were $3,840.3 million as compared with $3,342.7 million in 2020.

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

These 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.

Operating margin.

Our operating margin in 2021 was 48.4%, compared with 44.2% in 2020.

The increase in our operating margin in 2020 compared to 2019 was primarily driven by the higher net revenues, partially offset by higher compensation-related expenses.

The increase in our operating margin in 2021 compared to 2020 was primarily driven by revenue growth outpacing the increase in operating expenses.

Diluted earnings per share.

Diluted earnings per share was $13.12 in 2021 as compared with $9.98 in 2020.

The 14.7% increase in diluted earnings per share in 2020 compared to 2019 as primarily driven by higher operating income, lower weighted average outstanding shares, and a lower effective tax rate.

These drivers of the increase were partially offset by lower net investment gains recognized in 2020 than in 2019.

On a non-GAAP basis, diluted earnings per share were $12.75 in 2021 as compared with $9.58 in 2020.

The increase in non-GAAP diluted earnings per share was primarily due to higher operating income, lower weighted average outstanding shares, and a lower effective tax rate.

The impact of these drivers were partially offset by lower net investment gains recognized in 2020 than in 2019.

These drivers of the increase were partially offset by lower net investment gains recognized in 2021 than in 2020.

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

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573.6 573.8 513.6 (.2) — % 60.2 11.7 %

Capital allocation-based income (1)

(54.3) — — (54.3) n/m — n/m

Net revenues $ 6,488.4 $ 7,671.9 $ 6,206.7 $ (1,183.5) (15.4) % $ 1,465.2 23.6 %

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

Investment advisory fees.

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2022 compared with 2021 2021 compared with 2020 2022 2021

Increase in average assets under management Increase in investment advisory fees Increase in average assets under management Increase in investment advisory fees

Decrease in average assets under management Decrease in investment advisory fees Increase in average assets under management Increase in investment advisory fees Annualized effective fee rate (in bps)

mutual funds (17.6) % (20.6) % 24.6 % 20.6 % 49.4 51.2

Subadvised funds, separate accounts, collective investment trusts, and other investment products (6.7) % (8.4) % 32.6 % 32.0 % 35.8 36.5

Total investment advisory fees 28.2 % 24.7 % 12.5 % 11.4 %

In general, strong market returns in 2021 shifted the asset and share class mix among different fee rates and products including those with tiered-fee structures.

Additionally, we have reduced the management fees of certain products over the last few years, including fee reductions in our target date products in July 2021.

In 2021, the relationship between U.S.

Total (12.6) % (15.9) % 28.2 % 24.7 % 42.7 44.4

In 2022, volatile markets and net outflows, overall, shifted the asset strategy and share class mix toward lower fee strategies and classes.

These drivers were offset in part by a reduction in money market fee waivers and higher-than-average fee rates earned on our alternative asset class.

In 2021, strong market returns shifted the asset and share class mix among different fee rates and products including those with tiered-fee structures.

Additionally, we reduced the management fees of certain products over the last few years, including fee reductions in our target date products in July 2021.

The relationship between U.S.

mutual funds' average assets under management and investment advisory fee growth was impacted by the July 2021 fee reductions in our target date products and increased money market fees waivers.

For the subadvised funds, separate accounts, collective investment trusts, and other investment products, the July 2021 target date products fee reductions and lower performance fees reduced our effective fee rate, but was partially offset by a mix shift towards equities and inflows into our international products.

For the subadvised funds, separate accounts, collective investment trusts, and other investment products, the July 2021 target date

products fee reductions and lower performance fees reduced our effective fee rate, but was partially offset by a mix shift towards equities and inflows into our international products.

These investment advisory revenues include fees earned for distribution-related services that we contract third-party intermediaries to provide.

The costs we incur to pay the third-party intermediaries are recorded as part of distribution and servicing expenses.

In 2020, in general, strong market returns shifted the asset and share class mix among different fee rates and products including those with tiered-fee structures.

Additionally, we have reduced the management fees of certain products over the last few years.

The relationship between average assets under management and investment

advisory fee growth was also impacted by the money market fees waivers and client transfers within the complex to lower fee vehicles or share classes.

Administrative, distribution, and servicing fees.

Administrative, distribution, and servicing fees in 2021 were $573.8 million, an increase of $60.2 million from 2020.

The higher fees were primarily due to increased transfer agent servicing activities provided to our 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 costs paid to third-party intermediaries that source these assets and is reported in distribution and servicing expense.

Administrative, distribution, and servicing fees in 2022 were $573.6 million, a decrease of $.2 million from 2021.

Lower 12b-1 revenue earned in 2022 primarily 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 was offset by higher trustee services revenue and transfer agent servicing activities provided to our U.S.

mutual funds for retail shareholders.

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 is reported in distribution and servicing expense.

For 2021, administrative, distribution, and servicing fees were $573.8 million, an increase of $60.2 million from 2020.

The higher fees were primarily due to increased transfer agent servicing activities provided to our U.S.

mutual funds.

This increase was partially offset by lower 12b-1 revenue earned on the Advisor and R classes of the U.S.

mutual funds as well as client transfers to lower fee vehicles and share classes have reduced assets under management in these share classes.

Net revenues are presented after the elimination of $5.5 million for 2021, $9.9 million for 2020, and $6.8 million for 2019, earned from our consolidated T.

Rowe Price investment products.

The increase in fees were primarily due to higher transfer agent servicing activities provided to our U.S.

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

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

Capital allocation-based income.

Capital allocation-based income reduced net revenues by $54.3 million.

This amount includes an increase of $43.7 million in accrued carried interest from investments in affiliated investment funds.

The increase in accrued carried interest was more than offset by non-cash amortization of $53.0 million associated with the difference in the acquisition closing date fair value and the carrying value of investments acquired as part of the OHA acquisition (basis difference).

Additionally, during the fourth quarter of 2022, we determined that certain of our investments in affiliated investment funds that earn capital allocation-based income were other-than-temporarily impaired, and we recognized related impairment charges totaling $45.0 million due to reduced incentive fee growth expectations for these specific investments and a higher discount rate.

Subsequent to the impairment charge, the remaining weighted average amortization period for these basis differences is 5.9 years.

We recognized a corresponding net reduction in compensation expense of $22.9 million related to the total capital allocation-based income that is attributable to the non-controlling interests.

This $22.9 million reduction includes $40.5 million related to the amortization and impairment charges offset in part by $17.6 million in compensation expense related to the accrued carried interest.

Net revenues are presented after the elimination of $2.0 million for 2022, $5.5 million for 2021, and $9.9 million for 2020, earned from our consolidated sponsored investment products.

The corresponding expenses recognized by these consolidated products were also eliminated from operating expenses.

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(in millions) 2022 2021 2020 $ Change % Change $ Change % Change

Compensation and related costs, excluding supplemental savings plan $ 2,300.0 $ 2,070.6 $ 1,896.0 $ 229.4 11.1 % $ 174.6 9.2 %

Compensation and related costs, excluding acquisition-related retention agreements, capital allocation-based income compensation, and supplemental savings plan $ 2,405.8 $ 2,300.0 $ 2,070.6 $ 105.8 4.6 % $ 229.4 11.1 %

Acquisition-related retention agreements 70.2 — — 70.2 n/m — n/m

Capital allocation-based income compensation (22.9) — — (22.9) n/m — n/m

Supplemental savings plan (132.3) 83.0 111.8 (215.3) (259.4) % (28.8) (25.8) %

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General, administrative, and other 412.2 383.6 316.1 28.6 7.5 % 67.5 21.4 %

Change in fair value of contingent consideration (161.2) — — (161.2) n/m — n/m

Acquisition-related amortization and impairment costs 283.5 — — 283.5 n/m — n/m

Total operating expenses $ 4,114.7 $ 3,961.9 $ 3,461.0 $ 152.8 3.9 % $ 500.9 14.5 %

Compensation and related costs, excluding supplemental savings plan.

Compensation and related costs, excluding the supplemental savings plan, increased $229.4 million, or 11.1%, for 2021 as compared with 2020.

Compensation and related costs, excluding non-cash amortization of certain acquisition-related retention agreements, capital allocation-based income compensation, and supplemental savings plan increased $105.8 million, or 4.6%, as compared with 2021.

The 2022 period includes OHA's compensation and related costs.

Contributing to the increase was $131.7 million associated with an increase in base salaries and related benefits from higher average headcount and base salary increases in January and July 2022, and a total of $10.8 million in additional costs associated with non-cash stock-based compensation expense.

These increases in compensation and related costs were offset in part by a decline in bonuses of $48.6 million.

For 2021, compensation and related costs, excluding non-cash amortization of certain acquisition-related retention agreements, capital allocation-based income compensation, and supplemental savings plan, increased $229.4 million, or 11.1%, for 2021 as compared with 2020.

This increase was primarily due to our strong operating results which led to an $107.6 million increase in our annual bonus compensation and $28.4 million in higher stock-based compensation expense.

Also contributing to the increase in costs was a $88.5 million increase in salaries, benefits and related employee costs due to modest increases in base salaries at the beginning of the year as well as an increase in our average headcount, excluding the transition of 800 T.

Rowe Price operations and technology associates to FIS on August 1, 2021 and the addition of OHA associate at the end of the year.

Rowe Price operations and technology associates to FIS on August 1, 2021 and the addition of OHA associates at the end of the year.

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.

For 2020, compensation and related costs, excluding the supplemental savings plan, increased $174.6 million, or 9.2%, as compared with 2019.

This increase was primarily due to an $83.0 million increase in salaries, benefits and related employee costs, as our average staff size increased 5.8% from prior year and we made modest increases to base salaries at the beginning of the year.

Strong 2020 operating results led to a $65.5 million increase in our annual variable compensation, primarily bonus compensation, and higher stock-based compensation expense.

These increases in compensation and related costs were partially offset by $30.4 million in higher labor capitalization related to internally developed software in 2020.

Distribution and servicing costs.

Distribution and servicing costs were $373.9 million for 2021, an increase of $95.4 million, or 34.3%, compared to 2020.

Distribution and servicing costs were $301.5 million for 2022, a decrease of $72.4 million, or 19.4%, compared to 2021.

The decrease was primarily driven by lower average assets under management in certain share classes of the U.S.

mutual funds that earn 12(b)-1 fees.

Additionally, lower average assets under management in our international products, including our Japanese Investment Trusts (ITMs) and certain SICAV share classes, contributed to lower distribution costs.

Distribution and servicing costs were $373.9 million for 2021, an increase of $95.4 million, or 34.3%, compared with 2020.

The increase was primarily driven by higher AUM-based distribution costs as a result of continued market appreciation and inflows into our international products, including our Japanese ITMs and SICAVs.

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financial intermediaries also contributed to the increase.

Distribution and servicing costs were $278.5 million for 2020, an increase of $16.0 million, or 6.1%, compared with 2019.

The increase was primarily driven by higher distribution costs as a result of continued inflows into our international products, including our Japanese ITMs and SICAVs.

These higher distribution costs were partially offset by client transfers, largely from Advisor and R classes, to vehicles that don't pay distribution and servicing costs.

Distribution and servicing costs paid to third-party intermediaries that source the assets of certain share classes of our U.S.

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Advertising and promotion.

Advertising and promotion costs were $100.2 million for 2021, an increase of $16.5 million, or 19.7%, compared with 2020.

Advertising and promotion costs were $97.3 million for 2022, a decrease of $2.9 million, or 2.9%, compared with 2021.

The decrease was primarily driven by a decrease in media advertising spend during 2022, partially offset by higher promotion-related costs.

For 2021, advertising and promotion costs were $100.2 million, an increase of $16.5 million, or 19.7%, compared with 2020.

The increase was primarily driven by increased media spend during 2021.

For 2020, advertising and promotion costs were $83.7 million, a decrease of $13.1 million, or 13.5%, compared with 2019.

The decrease was primarily driven by lower media costs and fewer conference and promotional events in 2020 as a result of cancellations arising from the coronavirus pandemic in 2020.

Product and recordkeeping related costs.

Product and recordkeeping related costs were $300.1 million for 2022, an increase of $63.8 million, or 27.0%, compared with 2021.

More than 85% of the increase in 2021 was driven by the recordkeeping costs incurred as part of our expanded FIS relationship, including certain transition expenses that will 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.

Approximately 86% of the increase in 2022 was driven by the recordkeeping costs incurred as part of our expanded relationship with Fidelity National Information Services, Inc.

("FIS") that began in August 2021.

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

Product and recordkeeping related costs were $236.3 million for 2021, an increase of $80.8 million, or 52.0%, compared with 2020.

The increase is primarily due to higher expenses related to servicing retirement plan products, partially offset by lower costs incurred to provide administrative services to the U.S.

mutual funds.

More than 85% of the increase in 2021 was driven by the recordkeeping costs incurred as part of our expanded FIS relationship, including certain transition expenses that will not recur in 2022.

Technology, occupancy, and facility costs.

Technology, occupancy, and facility costs were $560.5 million for 2022, $484.9 million for 2021, and $444.8 million for 2020.

The increases over the last two years were due primarily to ongoing investment in our technology capabilities, including hosting solution licenses and related depreciation.

The 2019 year included certain non-recurring office facility costs.

The increases over the last two years were due primarily to ongoing investment in our technology capabilities, including hosting solution licenses, depreciation, and increased office facility costs, primarily due to higher rent expense and other facility-related costs.

General, administrative, and other costs.

General, administrative, and other costs were $412.2 million for 2022, $383.6 million for 2021, and $316.1 million for 2020.

Nearly 50% of the increase in 2021 was related to the transaction costs incurred to complete the acquisition of OHA.

The increase in 2022 as compared to 2021 was primarily due to higher net business-related expenses, including higher travel and information services as well as certain nonrecurring costs incurred during 2022.

Partially offsetting this increase were the absence of transaction costs incurred to complete the acquisition of OHA in December 2021 and lower professional and legal fees.

Nearly 50% of the increase in 2021 as compared to 2020 was related to the transaction costs incurred to complete the acquisition of OHA in December 2021.

Higher information services, legal, and third-party research costs contributed to the remaining increase in 2021 compared with 2020.

Travel-related expenses in 2021 were lower than 2020, and both 2021 and 2020 expenses were lower than travel-related expenses in 2019 due to the impact of the coronavirus pandemic.

For 2020, higher third-party investment research costs, professional fees, and other administrative related costs in 2020 were more than offset by lower travel-related expenses.

Non-operating income

Net non-operating investment income decreased $211.9 million in 2021 compared with 2020 and decreased $43.8 million in 2020 compared with 2019.

Net non-operating investment activity for the years ended December 31, 2021, 2020 and 2019 comprised the following:

Travel-related expenses in 2021 were lower than 2020.

Change in fair value of contingent consideration.

Our contingent consideration consists of an earnout arrangement as part of our acquisition of OHA in December 2021 in which additional purchase price may be due to OHA upon satisfying or exceeding certain defined revenue targets.

Every reporting period, we record the potential amount due under this arrangement at fair value.

During the year ended December 31, 2022, we recognized a reduction in the fair value of the contingent consideration liability of $161.2 million as the challenging market conditions have reduced revenue expectations and increased the discount rates used in the fair value determinations.

Acquisition-related amortization and impairment costs.

As part of the purchase accounting for the acquisition of OHA in December 2021, we identified and separately recognized at fair value certain indefinite- and definite-lived intangible assets.

In 2022, we recognized $108.5 million in amortization related to the definite-lived intangible assets.

Additionally, during the fourth quarter of 2022, we determined that certain of these intangible assets were impaired and recognized related impairment charges totaling $175.1 million.

The impairment charges were comprised of $99.2 million for the indefinite-lived investment advisory agreement assets, $17.6 million related to the trade name, and $58.2 million for definite-lived investment advisory agreements assets.

The impairment of these assets were primarily the result of reduced growth expectations for both management and incentive fees and a higher discount rate as well as net client outflows for the indefinite-lived investment advisory agreement assets.

Subsequent to the impairment charge, the remaining weighted average amortization period for our definite-lived intangible assets is 6.5 years.

Should conditions that led us to recognize these impairment charges deteriorate, additional impairments may be recognized in future periods.

Non-operating income (loss)

Non-operating investment income decreased $710.1 million to a non-operating loss of $425.5 million in 2022 compared to a non-operating gain of $284.6 million in 2021.

Non-operating investment income decreased $211.9 million in 2021 compared with 2020.

Non-operating investment activity for the years ended December 31, 2022, 2021 and 2020 comprised the following:

2022 compared with 2021 2021 compared with 2020

(in millions) 2022 2021 2020 $ Change $ Change

Net gains (losses) from non-consolidated T.

Rowe Price investment products

Net gains (losses) from non-consolidated sponsored investment products

Cash and discretionary investments

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Dividend income .8 .9 2.2 (.1) (1.3)

Market related gains and equity in earnings 41.6 32.2 42.7 9.4 (10.5)

Net gain recognized upon deconsolidation 2.4 .7 .1 1.7 .6

Market related gains (losses) and equity in earnings (losses) (60.1) 41.6 32.2 (101.7) 9.4

Net gains recognized upon deconsolidation 3.0 2.4 .7 .6 1.7

Investments used to hedge the supplemental savings plan liability (139.4) 83.0 91.1 (222.4) (8.1)

Total net gains from non-consolidated T.

Rowe Price investment products 156.6 218.9 239.0 (62.3) (20.1)

Total net gains (losses) from non-consolidated sponsored investment products (220.1) 156.6 218.9 (376.7) (62.3)

Other investment income 15.4 59.2 27.9 (43.8) 31.3

Net gains on investments 215.8 246.8 260.4 (31.0) (13.6)

Net gains on consolidated sponsored investment portfolios 74.7 251.7 272.9 (177.0) (21.2)

Other income (loss), including foreign currency gains and losses (5.9) (2.0) 7.0 (3.9) (9.0)

Non-operating income $ 284.6 $ 496.5 $ 540.3 $ (211.9) $ (43.8)

Net gains (losses) on investments (204.7) 215.8 246.8 (420.5) (31.0)

Net gains (losses) on consolidated sponsored investment portfolios (203.5) 74.7 251.7 (278.2) (177.0)

Other losses, including foreign currency losses (17.3) (5.9) (2.0) (11.4) (3.9)

Non-operating income (loss) $ (425.5) $ 284.6 $ 496.5 $ (710.1) $ (211.9)

While market declines tempered some in the last quarter of 2022, our overall investment portfolio valuations for 2022 were negatively impacted by market declines caused by the continued elevated inflation, supply chain disruptions, and a more aggressive pace of Federal Reserve interest rate increases.

Our investment portfolio for 2021 generated lower market gains than our investment portfolio in 2020.

Our consolidated investment products and supplemental savings plan hedge portfolio comprised approximately 55% of the net gains recognized in 2021.

Our cash and discretionary investments generated income of $28.7 million in 2021 as compared to $92.7 million in 2020.

During the first quarter of 2020, the coronavirus pandemic caused global economies and market disruptions, but strong markets for the remainder of 2020 reversed net investment losses experienced in the first quarter and generated significant gains by the end of 2020.

Our consolidated investment products and supplemental savings plan hedge portfolio comprised almost 70% of the net gains recognized in 2020.

Our cash and discretionary investments generated income of $92.7 million in 2020 as compared to $126.0 million in 2019 as the very low interest environment reduced the dividends earned from our money market fund investments.

The impact of consolidating certain T.

Rowe Price investment products on the individual lines of our consolidated statements of income for 2021, 2020, and 2019 is as follows:

The impact of consolidating certain sponsored investment products on the individual lines of our consolidated statements of income for 2022, 2021, and 2020 is as follows:

2022 compared with 2021 2021 compared with 2020

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Our effective tax rate for 2022 was 25.6%, compared with 22.4% for 2021 and 22.2% for 2020.

The increase in our effective tax rate in 2021 from 2020 was primarily due to a lower net gains attributable to non-controlling interests.

We continue to see benefit from the phased-in implementation of the 2018 Maryland state tax legislation and higher discrete tax benefits associated with the settlement of stock-based awards given the rise in our stock price in 2021.

For 2020, the decrease in our effective tax rate from 2019 was primarily due to the phased-in benefit of the 2018 Maryland state tax legislation has had on our effective state tax rate and higher discrete tax benefits associated with the settlement of stock-based awards given the rise in our stock price in 2020.

We have realized a net benefit from the Maryland legislation, which 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, in the final year of the phase in, we expect our 2022 effective state tax rate will be reduced to less than 3%.

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.

The 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.

The increase in our effective tax rate in 2022 from 2021 was primarily due to the unfavorable impact of net losses attributable to redeemable non-controlling interests held in our consolidated investment products and a reduction in the discrete tax benefits associated with option exercises and restricted stock vests.

Furthermore, our effective tax rate was unfavorably impacted by a valuation allowance recorded to recognize only the portion of a UK-based deferred tax asset that is more likely than not to be realized.

These unfavorable impacts were partially offset by the favorable impacts of the reduction of 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.

For 2021, the increase in our effective tax rate from 2020 was primarily due to lower net gains attributable to non-controlling interests.

We continued to see benefit from the phased-in implementation of the 2018 Maryland state tax legislation and higher discrete tax benefits associated with the settlement of stock-based awards given the rise in our stock price in 2021.

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 rates for 2022, 2021 and 2020 were 24.7% , 22.5%, 23.3%, r espectively.

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 as well as the remeasurement of the contingent consideration liability.

We currently estimate our GAAP effective tax rate for the full-year 2023 will be in the range of 24.5% to 28.5% and our non-GAAP effective tax rate for the full-year 2023 will be in the range of 24.5% to 27.5%.

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The following schedules reconcile certain U.S.

GAAP financial measures for each of the last five years.

(in millions) Operating expenses Net operating income Non-operating income Provision (benefit) for income taxes (5)

GAAP financial measures for each of the last three years.

(in millions) Operating expenses Net operating income Non-operating income (loss) Provision (benefit) for income taxes (6)

Net income attributable to T.

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Non-GAAP adjustments:

Consolidated T.

investment products (1)

Acquisition-related non-GAAP adjustments:

Investment and NCI amortization and impairments (1) (Capital allocation-based income and Compensation and related costs)

40.5 57.5 — 15.5 42.0 .18

Supplemental savings plan liability (2)

Acquisition-related retention arrangements (1) (Compensation and related costs)

(70.2) 70.2 — 18.9 51.3 .22

Acquisition-related transaction costs (3)

Contingent consideration (1)

161.2 (161.2) — (43.3) (117.9) (.52)

Intangible assets amortization and impairments (1)

(283.5) 283.5 — 76.2 207.3 .89

Transaction costs (2) (General, admin and other)

(.9) .9 — .2 .7 .01

Total acquisition-related non-GAAP adjustments (152.9) 250.9 — 67.5 183.4 .78

Supplemental savings plan liability (3) (Compensation and related costs)

132.3 (132.3) 139.4 1.9 5.2 .02

Consolidated T.

investment products (4)

(6.3) 8.2 203.5 27.8 75.6 .33

Other non-operating income (5)

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Non-GAAP adjustments:

Consolidated T.

investment products (1)

Acquisition-related transaction costs (2)

(General, admin and other)

(31.9) 31.9 — 7.2 24.7 .11

Supplemental savings plan liability (3)

(Compensation and related costs)

(83.0) 83.0 (83.0) — — —

Consolidated T.

investment products (4)

(6.7) 12.2 (74.7) (10.6) (36.3) (.16)

Other non-operating income (5)

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Non-GAAP adjustments:

Supplemental savings plan liability (3) (Compensation and related costs)

(111.8) 111.8 (91.1) 7.2 13.5 .06

Consolidated T.

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(6.5) 16.4 (251.7) (19.5) (65.1) (.27)

Supplemental savings plan liability (2)

(73.2) 73.2 (67.9) 1.3 4.0 .02

Other non-operating income (5)

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Adjusted Non-GAAP Basis $ 3,342.7 $ 2,873.9 $ 92.7 $ 689.8 $ 2,276.8 $ 9.58

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

Rowe Price investment products have on our U.S.

(1) These non-GAAP adjustments remove the impact of acquisition-related amortization and impairments of intangible assets, the recurring fair value remeasurements of the contingent consideration liability, amortization and impairment of acquired investments 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 our core operating results and to increase comparability period to period.

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

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

(3) This non-GAAP adjustment removes the compensation expense impact from market valuation changes in the supplemental savings plan liability and the related net gains (losses) on investments designated as an economic hedge against the related liability.

Amounts deferred under the supplemental savings plan are adjusted for appreciation (depreciation) of hypothetical investments chosen by participants.

We use sponsored investment products to economically hedge the exposure to these market movements.

Management believes 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.

(4) These non-GAAP adjustments remove the impact that the consolidated sponsored investment products have on our U.S.

GAAP consolidated statements of income.

Specifically, we add back the operating expenses and subtract the investment income of the consolidated T.

Rowe Price investment products.

The adjustment to our operating expenses represents the operating expenses of the consolidated products, net of the elimination of related management and administrative fees.

Specifically, we add back the operating expenses and subtract the investment income of the consolidated sponsored investment products.

The adjustment to operating expenses represents the operating expenses of the consolidated products, net of the elimination of related management and administrative fees.

The adjustment to net income attributable to T.

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

We remove the impact of the consolidated T.

Rowe Price investment products as we believe they impact the reader’s ability to understand our core operating results.

(2) These non-GAAP adjustments remove the compensation expense resulting from market valuation changes in the supplemental savings plan liability and the related net gains (losses) on investments designated as an economic hedge against the related liability.

Amounts deferred under the supplemental savings plan are adjusted for appreciation (depreciation) of hypothetical investments chosen by participants.

Rowe Price investment products to economically hedge the exposure to these market movements.

We believe it is useful to offset the non-operating investment income (loss) realized on the 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 transaction costs incurred related to the acquisition of OHA.

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.

(4) 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.

We retain the investment gains recognized on our non-consolidated cash and discretionary investments as these assets and related income (loss) are considered part of our core operations.

We believe adjusting for these non-operating income (loss) items helps the reader’s ability to understand our core operating results and increases comparability to prior years.

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

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

Management believes the consolidated sponsored investment products may impact the reader’s ability to understand our core operating results.

(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 that are not part of the cash and discretionary investment portfolio.

Management retains the investment gains recognized on the non-consolidated cash and discretionary investments as these assets and related income (loss) are considered part of

our core operations.

Management believes adjusting for these non-operating income (loss) items helps the reader’s ability to understand our core operating results and increases comparability to prior years.

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

(6) The income tax impacts were calculated in order to achieve an overall non-GAAP effective tax rate of 24.7% for 2022, 22.5% for 2021 and 23.3% for 2020.

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Rowe Price Group, Inc.

increased from $7.7 billion to $9.0 billion.

decreased from $9.0 billion to $8.8 billion.

Tangible book value decreased to $5.8 billion at December 31, 2022.

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Of these cash and discretionary investments, $809.1 million at December 31, 2022, and $764.2 million at December 31, 2021 were held by our subsidiaries located outside the U.S.

Cash and discretionary investment portfolio returned gains of $28.7 million in 2021 as compared to $92.7 million in 2020.

Cash and discretionary investment portfolio experienced market losses of $24.4 million in 2022 compared to market gains of $28.7 million in 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 our investments, including those acquired as part of the OHA acquisition, relate to where they are presented in the consolidated balance sheet as of December 31, 2022.

(in millions)

Cash and cash equivalents

Net assets of consolidated T.

Rowe Price investment products (1)

(in millions) Cash and cash equivalents Investments Net assets of consolidated sponsored investment products (1)

Cash and discretionary investments $ 1,755.6 $ 441.6 $ 8.1 $ 2,205.3

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Investments in CLOs — 116.0 — 116.0

— 129.9 — 129.9

Total cash and investments attributable to T.

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

The $35.5 million and the $893.5 million represent the total value at December 31, 2021 of our interest in the consolidated T.

Rowe Price investment products.

The total net assets of consolidated T.

Rowe Price investment products at December 31, 2021 of $1,911.3 million includes assets of $1,962.8 million less liabilities of $51.4 million as reflected in the consolidated balance sheet in Item 8.

The $8.1 million and the $799.5 million represent the total value at December 31, 2022 of our interest in the consolidated sponsored investment products.

The total net assets of consolidated sponsored investment products at December 31, 2022 of $1,514.3 million includes assets of $1,603.4 million less liabilities of $89.1 million as reflected in the consolidated balance sheet in Item 8.

Financial Statements of this Form 10-K.

(2) Amounts relate to investments acquired as part of the OHA acquisition.

See Note 5 to the consolidated financial statements for more information.

Our 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 that are held by unrelated third-party investors.

Although we can redeem our net interest in these T.

Rowe Price investment products at any time, we cannot directly access or sell the assets held by the products to obtain cash for general operations.

Additionally, the assets of these T.

Rowe Price investment products are not available to our general creditors.

Our interest in these T.

Rowe Price investment products was used as initial seed capital and is recategorized as discretionary when it is determined by management that the seed capital is no longer needed.

(2) Includes $190.7 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 consolidated balance sheet reflects the cash and cash equivalents, investments, other assets and liabilities of those sponsored investment products we consolidate, as well as redeemable non-controlling interests for the portion of these sponsored investment products that are held by unrelated third-party investors.

Although we can redeem our net interest in these sponsored investment products at any time, we cannot directly access or sell the assets held by the products to obtain cash for general operations.

Additionally, the assets of these sponsored investment products are not available to our general creditors.

Our interest in these sponsored investment products was used as initial seed capital and is recategorized as discretionary when it is determined by management that the seed capital is no longer needed.

We assess the discretionary products and, when we decide to liquidate our interest, we seek to do so in a way as to not impact the product and, ultimately, the unrelated third-party investors.

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

As part of the offering, we sold a portion of our 26% interest and received net proceeds of approximately $28.0 million 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% of UTI Asset Management Company (India).

Uses of Liquidity

On December 29, 2021, we paid approximately $2.5 billion in cash and issued $881.5 million of T.

Rowe Price Group, Inc.

common shares, approximately 4.4 million shares, to complete the acquisition of OHA.

We paid $4.80 per share in regular dividends in 2022, an increase of 11.1% over the $4.32 per share paid in 2021.

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

Further, we expended $855.3 million in 2022 to repurchase 6.8 million shares, or 2.9%, of our outstanding common stock at an average price of $126.69 per share.

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We will generally repurchase our common stock over time to offset the dilution created by our equity-based compensation plans.

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

Further, on December 29, 2021, we paid approximately $2.5 billion in cash and issued $881.5 million of T.

Rowe Price Group, Inc.

common shares, approximately 4.4 million shares, to complete the acquisition of OHA.

Since the end of 2019, we have returned $6.8 billion to stockholders through stock repurchases, our regular quarterly dividends, and a special dividend of $3.00 per share in 2021, as follows:

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Total $ 2,958.5 $ 699.8 $ 3,183.5 $ 6,841.8

We anticipate property and equipment expenditures for the full-year 2022 to be about $295 million, of which more than three-quarters is planned for technology initiatives.

We anticipate property and equipment expenditures for the full-year 2023 to be about $350 million, of which more than two-thirds is planned for technology initiatives.

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

The following tables summarize the cash flows for 2022, 2021 and 2020, that are attributable to T.

Rowe Price Group, our consolidated T.

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

Rowe Price Group, our consolidated sponsored investment products, and the related eliminations required in preparing the statement.

Cash flow attributable to:

(in millions) T.

Rowe Price Group Consolidated T.

Rowe Price investment products Elims As reported

Rowe Price Group Consolidated sponsored investment products Elims As reported

Cash flows from operating activities

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Depreciation, amortization and impairments of property, equipment and software 225.7 — — 225.7

Amortization and impairment of acquisition-related assets and retention agreements 420.1 — — 420.1

Fair value remeasurement of contingent consideration liability (161.2) — — (161.2)

Stock-based compensation expense 285.4 — — 285.4

Net gains recognized on investments (169.4) — 46.9 (122.5)

Net change in T.

Rowe Price investment products used to economically hedge supplemental savings plan liability (85.7) — — (85.7)

Net change in trading securities held by consolidated T.

Rowe Price investment products 14.9 — 14.9

Net losses recognized on investments 314.0 — (103.4) 210.6

Net change in sponsored investment products used to economically hedge supplemental savings plan liability (18.8) — — (18.8)

Net change in trading securities held by consolidated sponsored investment products — 87.9 — 87.9

Other changes in assets and liabilities (182.8) 46.6 (3.7) (139.9)

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Net cash provided by (used in) financing activities (2,028.5) 94.4 (142.8) (2,076.9)

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

Rowe Price investment products — 2.6 — 2.6

Effect of exchange rate changes on cash and cash equivalents of consolidated sponsored investment products — 9.5 — 9.5

Net change in cash and cash equivalents during period 232.5 18.0 — 250.5

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(in millions) T.

Rowe Price Group Consolidated T.

Rowe Price investment products Elims As reported

Rowe Price Group Consolidated sponsored investment products Elims As reported

Cash flows from operating activities

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Net gains recognized on investments (169.4) — 46.9 (122.5)

Net change in T.

Rowe Price investment products used to economically hedge supplemental savings plan liability (142.9) — (142.9)

Net change in trading securities held by consolidated T.

Rowe Price investment products (798.8) (798.8)

Net change in sponsored investment products used to economically hedge supplemental savings plan liability (85.7) — — (85.7)

Net change in trading securities held by consolidated sponsored investment products — 14.9 — 14.9

Other changes in assets and liabilities 121.1 (51.9) (1.8) 67.4

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Net cash provided by (used in) financing activities (2,922.0) (14.9) (51.9) (2,988.8)

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

Rowe Price investment products — 1.9 — 1.9

Effect of exchange rate changes on cash and cash equivalents of consolidated sponsored investment products — 2.6 — 2.6

Net change in cash and cash equivalents during period (628.6) (3.7) — (632.3)

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(in millions) T.

Rowe Price Group Consolidated T.

Rowe Price investment products Elims As reported

Rowe Price Group Consolidated sponsored investment products Elims As reported

Cash flows from operating activities

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Net gains recognized on investments (274.3) — 84.7 (189.6)

Net change in T.

Rowe Price investment products used to economically hedge supplemental savings plan liability (126.0) (126.0)

Net change in trading securities held by consolidated T.

Rowe Price investment products — (930.9) — (930.9)

Net change in sponsored investment products used to economically hedge supplemental savings plan liability (142.9) — — (142.9)

Net change in trading securities held by consolidated sponsored investment products — (798.8) — (798.8)

Other changes in assets and liabilities 87.7 6.8 (3.4) 91.1

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Net cash provided by (used in) financing activities (2,043.8) 637.0 (79.5) (1,486.3)

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

Rowe Price investment products — (2.5) — (2.5)

Effect of exchange rate changes on cash and cash equivalents of consolidated sponsored investment products — 1.9 — 1.9

Net change in cash and cash equivalents during period 369.9 28.3 — 398.2

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Operating cash flows attributable to T.

Rowe Price Group increased $949.3 million, including a $710.2 million increase in net income, timing differences on the cash settlement of our assets and liabilities of $33.4 million, and $148.5 million of higher non-cash adjustments, including unrealized investment gains/losses, depreciation, and stock-based compensation expense.

The non-cash adjustments were primarily driven by a $104.9 million decrease in net investment gains in 2021 compared to 2020.

Additionally, in 2021, we had net investments of $85.7 million from certain investment products that economically hedge our supplemental savings plan liability, while we had net investments of $142.9 million in 2020.

Rowe Price Group decreased $988.0 million, including a $1,525.0 million decrease in net income, a decrease in timing differences on the cash settlement of our assets and liabilities of $303.9 million.

These decreases were partially offset by a higher add back of $774.0 million in non-cash adjustments, including unrealized investment gains/losses, depreciation, amortization

and impairments of acquisition-related assets and retention arrangements, the fair value remeasurement of the contingent consideration liability, stock-based compensation expense, and other non-cash items.

The non-cash adjustments were primarily driven by $314.0 million in net investment losses in 2022 compared to $169.4 million of net investment gains in 2021 as well as $420.1 million in amortization and impairments of acquisition-related assets and retention agreements incurred in 2022.

Additionally, in 2022, we had net investments of $18.8 million from certain investment products that economically hedge our supplemental savings plan liability, compared to net investments of $85.7 million in 2021.

The remaining change in reported cash flows from operating activities was attributable to the net change in trading securities held in our consolidated investment products’ underlying portfolios.

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Operating cash flows attributable to T.

Rowe Price Group increased $276.7 million, including a $241.4 million in increased net income and a $81.0 million incremental add-back from higher non-cash adjustments, including unrealized investment gains/losses, depreciation, and stock-based compensation expense.

Additionally, in 2020, we invested $142.9 million in certain investment products to economically hedge our supplemental savings plan liability.

This level of investment is slightly higher than the $126.0 million invested in 2019.

These increases were partially offset by the timing differences on the cash settlement of our assets and liabilities which lowered operating cash flows by $28.8 million.

The change in the non-cash adjustments from 2019 were driven primarily by a $42.6 million decrease in net investment gains and a $39.6 million increase in stock-based compensation expense.

The non-cash adjustments were primarily driven by a $104.9 million decrease in net investment gains in 2021 compared to 2020.

The remaining change in reported cash flows from operating activities was attributable to the net change in trading securities held in our consolidated investment products’ underlying portfolios.

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Rowe Price Group totaled $179.3 million in 2022 compared with $1,134.9 million of cash used in investing activities in 2021.

During 2021, we used $2,450.8 million

as part of the consideration paid to complete the acquisition of OHA.

In addition, we increased our property and equipment expenditures by $24.5 million and increased the level of seed capital provided by $29.3 million.

We eliminate our seed capital in those T.

Rowe Price investment products we consolidate in preparing our consolidated statements of cash flows.

Decreasing the cash used in investing activities were higher net proceeds from the sale of

certain discretionary investments of $1,578.3 million during 2021 compared to net proceeds of $181.7 million during 2020.

During 2022, net proceeds from the sale of certain discretionary investments of $208.5 million were lower compared to $1,577.8 million during 2021 as investments were sold in 2021 to fund part of the consideration paid to complete the acquisition of OHA.

In 2022, we also increased the level of seed capital in those sponsored investment products we consolidate by $92.8 million.

We eliminate our seed capital in those sponsored investment products we consolidate in preparing our consolidated statements of cash flows.

The remaining change in reported cash flows from investing activities of $8.2 million is primarily related to the net cash removed from our balance sheet from consolidating and deconsolidating investment products.

Net cash used in investing activities that are attributable to T.

Rowe Price Group totaled $65.3 million in 2020, a decrease of $424.0 million compared to 2019.

During 2020, we received net proceeds from the sale of certain discretionary investments of $181.7 million compared to net dispositions of $108.3 million during 2019.

Rowe Price Group totaled $1,134.9 million in 2021, compared with $65.3 million of cash used in investing activities in 2020.

During 2021, we used $2,450.8 million as part of the consideration paid to complete the acquisition of OHA.

In addition, we increased our property and equipment expenditures by $24.5 million and increased the level of seed capital provided by $29.3 million.

We eliminate our seed capital in those T.

Rowe Price investment products we consolidate in preparing our consolidated statements of cash flows.

The $35.5 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.

We eliminate our seed capital in those sponsored investment products we consolidate in preparing our consolidated statements of cash flows.

Decreasing the cash used in investing activities were higher net proceeds from the sale of certain discretionary investments of $1,577.8 million during 2021 compared to net proceeds of $181.7 million during 2020.

The remaining change in reported cash flows from investing activities of $37.0 million is primarily related to the net cash removed from our balance sheet from consolidating and deconsolidating investment products.

Financing Activities

Net cash used in financing activities attributable to T.

Rowe Price Group were $2,922.0 million in 2021 compared with $2,043.8 million in 2020.

During 2021, there was a $856.1 million increase in dividends paid in 2021 as a result of an 20.0% increase in our quarterly dividend per share and a special cash dividend paid in July 2021.

During 2021 we used $1.1 billion to repurchase 5.9 million shares compared to $1.2 billion to repurchase 10.9 million shares in 2020.

The remaining change in reported cash flows from financing activities is primarily attributable to a $624.3 million decrease in net subscriptions received from redeemable non-controlling interest holders of our consolidated investment products and a $85.5 million decrease in cash flow related to common stock issued under stock compensation plans during 2021 compared to 2020.

Rowe Price Group totaled $2,028.5 million in 2022 compared with $2,922.0 million in 2021.

During 2022, we used $849.8 million to repurchase 6.8 million shares compared to $1.1 billion to repurchase 5.9 million shares in 2021.

The $594.5 million decrease in dividends paid in 2022 is a result of a special cash dividend paid in July 2021 that did not recur in 2022, partially offset by the 11.1% increase in our quarterly dividend per share in 2022.

In addition, $35.1 million in net distributions to non-controlling interests in consolidated entities increased net cash used in financing activities.

The remaining change in reported cash flows from financing activities is primarily attributable to a $18.4 million decrease in net redemptions from redeemable non-controlling interest holders of our consolidated investment products and a $45.4 million increase in cash flow related to common stock issued under stock compensation plans during 2022 compared to 2021.

Net cash used in financing activities attributable to T.

Rowe Price Group totaled $2,043.8 million in 2020, an increase of $687.4 million compared with $1,356.4 million in 2019.

During 2020, there was a $496.1 million increase in cash paid for common stock repurchases as we repurchased 3.9 million more shares of common stock in 2020 than in 2019.

Additionally, there was a $111.9 million increase in dividends paid in 2020 as a result of an 18.4% increase in our quarterly dividend per share.

The remaining change in reported cash flows from financing activities is primarily attributable to a $79.4 million decrease in cash flow related to common stock issued under stock compensation plans and a $33.8 million decrease in net subscriptions received from redeemable non-controlling interest holders of our consolidated investment products during 2020 compared to 2019.

Rowe Price Group totaled $2,922.0 million in 2021, compared with $2,043.8 million in 2020.

During 2021, there was a $856.1 million increase in dividends paid in 2021 as a result of an 20.0% increase in our quarterly dividend per share and a special dividend paid in July 2021.

During 2021, we used $1.1 billion to repurchase 5.9 million shares compared to $1.2 billion to repurchase 10.9 million shares in 2020.

investment products and a $85.5 decrease in cash flow related to common stock issued under stock compensation plans during 2021 compared to 2020.

MATERIAL CASH COMMITMENTS.

Our material cash commitments primarily include our obligations under the supplemental savings plan, our lease obligations, and other contractual amounts that will be due for the purchase of goods or services to be used in our operations.

Some of these contractual amounts may be cancelable under certain conditions and may involve termination fees.

Some of these contractual amounts may be cancellable under certain conditions and may involve termination fees.

We expect to fund these cash commitments from future cash flows from operations.

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As part of the OHA acquisition, T.

Rowe Price has committed $500 million to fund OHA products over the next five years and entered into certain earnout and other arrangements that we discuss in more detail in Note 2 to our consolidated financial statements.

CRITICAL ACCOUNTING POLICIES.

Rowe Price has committed $500 million to fund OHA products through 2026.

As of December 31, 2022, T.

Rowe Price has $464.1 million remaining to commit to the OHA products.

Rowe Price has also entered into certain earnout and other arrangements as part of that acquisition.

For more detail on these arrangements, see Note 2 to our consolidated financial statements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES.

The preparation of financial statements often requires the selection of specific accounting methods and policies from among several acceptable alternatives.

Further, significant estimates and judgments may be required in selecting and applying those methods and policies in the recognition of the assets and liabilities in our consolidated balance sheets, the revenues and expenses in our consolidated statements of income, and the information that is contained in our significant accounting policies and notes to the consolidated financial statements.

These policies and estimates are considered critical because they had a material impact or are reasonably likely to have a material impact on our consolidated financial statements and because they require management to make significant judgments, assumptions or estimates.

Making these estimates and judgments requires the analysis of information concerning events that may not yet be complete and of facts and circumstances that may change over time.

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We present those significant accounting policies used in the preparation of our consolidated financial statements as an integral part of those statements within this 2022 Annual Report on Form 10-K.

In the following discussion, we highlight and explain further certain of those policies that are most critical to the preparation and understanding of our financial statements.

In the following discussion, we highlight and explain further certain of those policies and estimates that are most critical to the preparation and understanding of our financial statements.

Consolidation

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We are the primary beneficiary if we have the power to direct the activities of the VIE that most significantly impact its economic performance and the obligation to absorb losses of the entity or the right to receive benefits from the VIE that could potentially be significant.

Our SICAV funds and other T.

Rowe Price investment products regulated outside the U.S.

Our SICAV funds and other sponsored investment products regulated outside the U.S.

are determined to be VIEs.

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Other-than-temporary impairments of equity method investments

We evaluate our equity method investments, including our investment in UTI and certain investments in T.

Rowe Price investment products, for impairment when events or changes in circumstances indicate that the carrying value of the investment exceeds its fair value, and the decline in fair value is other than temporary.

We evaluate our equity method investments, including our investment in UTI, certain investments in sponsored investment products, and our investments in the affiliated private investment funds, for impairment when events or changes in circumstances indicate that the carrying value of the investment exceeds its fair value, and the decline in fair value is other than temporary.

For our investments in our affiliated private investment funds, we consider the length of time and the extent to which market value has been less than cost, any specific events that may influence the operations of the funds and our intent and ability to retain the investment for a period of time to allow for any anticipated recovery in market value.

We generally believe an assessment period of four consecutive quarters of sustained market losses is a reasonable period to allow for an anticipated market recovery.

Business Combinations

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As a result, if the subsequent actual results and updated projections of the underlying business activity change, compared with the assumptions and projections used to develop these values, we could experience impairment charges which could be material.

Intangible assets acquired in business combinations consist primarily of investment advisory agreements and trade names.

Intangible assets acquired in business combinations consist primarily of investment advisory agreements and a trade name.

We also acquired certain carried interest entities that primarily hold interests in general partners of affiliated private investment funds with capital allocation-based income arrangements.

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Accordingly, future business and economic conditions, as well as changes in any of the assumptions described above, can materially impact the amount of contingent consideration expense we record in any given period.

Intangible asset impairments

As a result of our December 2021 acquisition of OHA, we recorded separately identifiable indefinite-lived and definite-lived intangible assets consisting primarily of investment advisory agreements and a trade name.

Indefinite-lived intangible assets are tested for impairment annually, in the fourth quarter, or more frequently if events or changes in circumstances indicate that it is more likely than not that the intangible asset is impaired.

Management must first determine the level at which indefinite-lived intangible assets are tested for impairment (i.e., unit of account).

We have concluded that each of the trade name and investment advisory agreements indefinite-lived intangible asset will be considered their own separate unit of account.

Once the unit of account is determined, management has the option to first assess indefinite-lived intangible assets for qualitative factors to determine whether it is necessary to perform a quantitative impairment test.

If a quantitative impairment test is required, the impairment test consists of a comparison of the fair value of an intangible asset with its carrying amount.

If the carrying amount of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

If required, fair value is generally determined using a discounted cash flow analysis where estimated future cash flows are discounted to arrive at a single present value amount.

This approach includes inputs that require significant management judgment, the most relevant of which include revenue growth, discount rates, and effective tax rates.

Changes in these inputs could produce different fair value amounts and therefore different impairment conclusions.

During 2022, our annual impairment review of our indefinite-lived intangible assets determined that both our indefinite-lived investment management agreements intangible asset and trade name were impaired at the review date.

These intangible assets were determined to have had triggering events due to a combination of lower than expected cash flows and revenue projections from the most recent fair value determination in December 2021.

During 2022, we recognized $116.8 million of non-cash impairment charges on these indefinite-lived intangible assets.

Definite-lived intangible assets are reviewed for impairment whenever events or circumstances indicate that the asset group's carrying amount may not be recoverable (i.e., the carrying amount is less than the undiscounted estimated future cash flows).

Management must first determine the level at which definite-lived intangible assets are tested for impairment (i.e., asset group).

The determination of the asset group is judgmental and the intangible assets can be grouped based on the lowest level for which identifiable cash flows are largely independent of identifiable cash flows for other groups of assets.

Since each affiliated private investment fund has identifiable cash flows separate from other funds, we determined that the asset group for testing is each individual affiliated private investment fund.

Once the asset group is identified, we next determine whether there are any triggering events that would cause us to believe that the carrying value would not be recoverable.

If there is a triggering event, then we would perform a test of recoverability.

Based on that test, if the carrying value is not recoverable, then a fair value measurement is required of the asset group to determine if the fair value is less than the asset group's carrying amount.

If required, fair value would be determined using a discounted cash flow analysis where estimated future cash flows are discounted to arrive at a single present value amount.

This approach includes inputs that require significant management judgment, the most relevant of which include revenue growth, discount rates, and effective tax rates.

Any impairment loss would be the difference between the fair value of the asset group and its carrying amount.

During 2022, we determined in the fourth quarter that certain definite-lived intangible assets carrying value were not recoverable due to lower than expected cash flows and revenue projections.

Accordingly, during 2022, we recognized a non-cash impairment charge on these intangible assets of $58.2 million.

We internally conduct, manage, and report our operations as one reportable business segment - investment advisory business.

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

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

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.

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.

This reflects how the chief operating decision maker allocates resources and assesses performance.

Accordingly, we have one reporting unit - our investment advisory business, consistent with our single operating segment, to which all goodwill has been assigned.

We evaluate the carrying amount of goodwill in our consolidated balance sheets for possible impairment on an annual basis in the fourth quarter of each year using a fair value approach.

Goodwill would be considered impaired whenever our historical carrying amount exceeds the fair value of our investment advisory business.

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We must also perform impairment testing at other times if an event or circumstance occurs indicating that it is more likely than not that an impairment has been incurred.

The maximum future impairment of goodwill that we could incur is the amount recognized in our consolidated balance sheets, $2,693.2 million as of December 31, 2021, including $2,027.5 million of goodwill generated from the OHA acquisition.

Given that the OHA acquisition closed on December 29, 2021, no impairment testing was performed on the related goodwill.

The maximum future impairment of

goodwill that we could incur is the amount recognized in our consolidated balance sheets, $2,642.8 million as of December 31, 2022.

Provision for income taxes

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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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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, other market conditions and the acquisition of OHA.

legal or regulatory developments;

geopolitical instability;

interest rates and currency fluctuations;

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, 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 T.

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

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;

the impact of changes in interest rates and inflation;

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

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;

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Rowe Price funds terminated or significantly altered the terms of the investment management or related administrative services agreements.

Non-operating investment income will also fluctuate primarily due to the size of our investments, changes in their market valuations, and any other-than-temporary impairments that may arise or, in the case of our equity method investments, our proportionate share of the investees’ net income.

Non-operating investment income will also fluctuate primarily due to the size of our investments, changes in their market

valuations, and any other-than-temporary impairments that may arise or, in the case of our equity method investments, our proportionate share of the investees’ net income.

Our future results are also dependent upon the level of our expenses, which are subject to fluctuation for the following or other reasons:

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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;

any goodwill or other asset impairment that may arise;

any goodwill, intangible asset or other asset impairment that may arise;

fluctuation in foreign currency exchange rates applicable to the costs of our international operations;

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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.

limited to, effects on costs that we incur and effects on investor interest in T.

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

Our business is also subject to substantial governmental regulation, and changes in legal, regulatory, accounting, tax, and compliance requirements may have a substantial effect on our operations and results, including, but not limited to, effects on costs that we incur and effects on investor interest in sponsored investment products and investing in general or in particular classes of mutual funds or other investments.

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 7. Management’s Discussion and Analysis