# PRICE T ROWE GROUP INC (TROW) FY 2023 MD&A Verbatim Item 7 Management's Discussion and Analysis from PRICE T ROWE GROUP INC's 10-K for fiscal year 2023. SEC filing source: https://www.sec.gov/Archives/edgar/data/1113169/000111316924000007/trow-20231231.htm Accession: 0001113169-24-000007 Filing date: 2024-02-16 Report date: 2023-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/TROW/ All MD&A years: /company/TROW/mda/ Previous year: /company/TROW/mda/fy2022/ (FY 2022) Next year: /company/TROW/mda/fy2024/ (FY 2024) Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. OVERVIEW. Our 2023 revenues and net income are derived primarily from investment advisory services provided to individual and institutional investors in a broad range of investment solutions across equity, fixed income, multi-asset, and alternative capabilities. We also provide certain investment advisory clients with related administrative services, including distribution, mutual fund transfer agent, accounting, and shareholder services; participant recordkeeping and transfer agent services for defined contribution retirement plans; brokerage; trust services; and non-discretionary advisory services through model delivery. 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. 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. These efforts often involve costs that precede any future revenues that we may recognize from an increase to our assets under management. The investment management industry has been evolving and industry participants are facing several challenging trends including passive investments taking market share from traditional active strategies; continued downward fee pressure; demand for new investment vehicles to meet client needs; and an ever-changing regulatory landscape. In this regard, we have ample liquidity and resources that allow us to take advantage of attractive growth opportunities. We are investing in key capabilities, including investment professionals, distribution professionals, technologies, and new product offerings in order to provide our clients with strong investment management expertise and service. On December 29, 2021, we completed our acquisition of Oak Hill Advisors, L.P., a leading alternative credit manager, and other entities that had common ownership (collectively, OHA). We acquired 100% of the equity interests of Oak Hill Advisors, L.P., 100% of the equity interests in entities that make co-investments in certain affiliated private investment funds (the "co-investment entities") and a majority of the equity interests in entities that have interests in general partners of affiliated private investment funds and are entitled to a disproportionate allocation of income (the "carried interest entities"). 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. MARKET TRENDS. Major U.S. stock indexes produced strong gains in 2023. Due in part to generally favorable corporate earnings, a resilient economy, and increased investor interest in artificial intelligence, equities were led by a relatively small group of high-growth, technology-oriented mega-cap companies. The market overcame bearish factors such as regional bank turmoil in the spring; uncertainty about Congress and President Biden agreeing to raise the debt ceiling; geopolitical tensions; and a sluggish Chinese economic recovery amid property sector distress. Arguably the most significant factor affecting the U.S. economy and the financial markets throughout the year was rising interest rates in response to elevated inflation. The Federal Reserve raised short-term interest rates four times through the end of July, lifting the fed funds target rate to the 5.25% to 5.50% range. Long-term U.S. Treasury yields climbed for much of the year, peaking in October, before falling sharply in response to weaker-than-expected inflation and labor market data. Equities rallied through year-end, as Fed officials projected at their mid-December policy meeting that there could be three quarter-point rate cuts in 2024. Developed non-U.S. equity markets produced strong gains in U.S. dollar terms; returns to U.S. investors were lifted by a weaker dollar versus major European currencies. In Europe, equity markets advanced broadly. UK shares gained about 14% but lagged various markets in the European Union. In developed Asia, equities in Japan led the region with a gain of about 21%, helped by the continuation of a highly stimulative monetary policy. Hong Kong stocks declined nearly 15%, hurt in part by Chinese economic and property market weakness. Emerging equity markets produced solid gains but underperformed stocks in developed markets in U.S. dollar terms. Most markets in Latin America produced very strong returns. In the emerging Europe, Middle East, and Africa 20 Page 29 Table of Contents                 (EMEA) region, market performance was largely positive. In emerging Asia, several markets rose sharply, but Chinese shares tumbled more than 11%. Returns of several major equity market indexes for 2023 are as follows: [[GREPCENT_TABLE]] [["S&P 500 Index","26.3%"],["NASDAQ Composite Index(1)","43.4%"],["Russell 2000 Index","16.9%"],["MSCI EAFE (Europe, Australasia, and Far East) Index","18.9%"],["MSCI Emerging Markets Index","10.3%"]] [[/GREPCENT_TABLE]] (1) Returns exclude dividends Global bond returns produced positive returns in U.S. dollar terms in 2023, thanks to a late-year drop in longer-term interest rates in many countries. In the U.S., Treasury bill yields rose as the Federal Reserve lifted the fed funds target rate to the 5.25% to 5.50% range by the end of July and kept the target range steady through the end of the year. Intermediate- and long-term U.S. Treasury yields climbed to multi-year highs by late October. The 10-year U.S. Treasury note yield reached the 5.00% level for the first time in about 16 years. Yields plunged in the last two months of the year, however, amid signs of disinflation, labor market softening, and expectations for Fed rate cuts in 2024. The 10-year U.S. Treasury note yield started and ended the year at 3.88%. In the U.S. investment-grade bond universe, sector performance was broadly positive. Corporate bonds produced very strong gains. Mortgage-backed, commercial mortgage-backed, and asset-backed securities performed in line with the broad market index. U.S. Treasury securities trailed with milder gains. Tax-free municipal bonds outpaced the broad taxable bond market. High yield corporate bonds, which are less sensitive to interest rate movements and more sensitive to credit-related trends, strongly outperformed higher-quality bonds. Bonds in developed non-U.S. markets produced positive returns in U.S. dollar terms, helped by a weaker dollar versus major European currencies. In Europe, long-term government bond yields climbed as major central banks raised short-term rates for most of the year. Long-term yields retreated with U.S. Treasury yields in the fourth quarter as inflation pressures eased and the major central banks kept short-term rates steady. In Japan, long-term Japanese government bond (JGB) yields were fairly steady in the first half of the year but climbed from July through late October. During that timeframe, the Bank of Japan (BoJ) increased the flexibility of its yield curve control policy, and the 10-year JGB yield approached 1.00%—its highest level in more than a decade. Yields retreated in November and December. Emerging markets bonds produced strong returns in dollar terms. Bonds denominated in local currencies fared better than dollar-denominated issues, as most emerging markets currencies strengthened versus the U.S. dollar. Returns of several major bond market indexes for 2023 are as follows: [[GREPCENT_TABLE]] [["Bloomberg Barclays U.S. Aggregate Bond Index","5.5%"],["J.P. Morgan Global High Yield Index","13.3%"],["Bloomberg Barclays Municipal Bond Index","6.4%"],["Bloomberg Barclays Global Aggregate Ex-U.S. Dollar Bond Index","5.7%"],["J.P. Morgan Emerging Markets Bond Index Plus","10.3%"],["Bank of America US High Yield Index","13.5%"],["Credit Suisse Leveraged Loan Index","13.0%"]] [[/GREPCENT_TABLE]] ASSETS UNDER MANAGEMENT. Assets under management ended 2023 at $1,444.5 billion, an increase of $169.8 billion from the end of 2022. This increase was primarily driven by net market appreciation and income, net of distributions not reinvested, of $251.6 billion, offset by net cash outflows of $81.8 billion. 20 Page 30 Table of Contents                 The following table details changes in our assets under management by asset class during the last three years: [[GREPCENT_TABLE]] [["(in billions)","","Equity","","Fixed income, including money market","","Multi-asset(1)","","Alternatives(2)","","Total"],["Assets under management at December 31, 2020","","$","895.8","","","$","168.7","","","$","406.0","","","$","\u2014","","","$","1,470.5"],["Net cash flows(3)","","(44.6)","","","1.2","","","14.9","","","\u2014","","","(28.5)"],["Net market appreciation (depreciation) and income(4)","","141.5","","","0.6","","","56.8","","","\u2014","","","198.9"],["Acquired assets under management","","\u2014","","","5.2","","","\u2014","","","41.7","","","46.9"],["Change during the period","","96.9","","","7.0","","","71.7","","","41.7","","","217.3"],["Assets under management at December 31, 2021","","992.7","","","175.7","","","477.7","","","41.7","","","1,687.8"],["Net cash flows(3)","","(72.7)","","","4.1","","","4.9","","","2.0","","","(61.7)"],["Net market appreciation (depreciation) and income(4)","","(255.8)","","","(12.8)","","","(82.5)","","","(0.3)","","","(351.4)"],["Change during the period","","(328.5)","","","(8.7)","","","(77.6)","","","1.7","","","(413.1)"],["Assets under management at December 31, 2022","","664.2","","","167.0","","","400.1","","","43.4","","","1,274.7"],["Net cash flows(3)","","(85.4)","","","(6.8)","","","9.1","","","1.3","","","(81.8)"],["Net market appreciation (depreciation) and income(4)","","164.8","","","9.8","","","73.8","","","3.2","","","251.6"],["Change during the period","","79.4","","","3.0","","","82.9","","","4.5","","","169.8"],["Assets under management at December 31, 2023","","$","743.6","","","$","170.0","","","$","483.0","","","$","47.9","","","$","1,444.5"]] [[/GREPCENT_TABLE]] (1) The underlying AUM of the multi-asset portfolios have been aggregated and presented in this category and not reported in the equity and fixed income columns. (2) The alternatives asset class includes strategies authorized to invest more than 50% of its holdings in private credit, leveraged loans, mezzanine, real assets/CRE, structured products, stressed/distressed, non-investment grade CLOs, special situations, business development companies, or that have absolute return as its investment objective. Generally, only those strategies with longer than daily liquidity are included. Unfunded capital commitments of $11.6 billion at December 31, 2023 and $10.6 billion at December 31, 2022 and are not reflected in AUM above. (3)    Alternatives net cash flows include outflows of $2.6 billion in 2023 and $2.6 billion in 2022 that represent investment manager-driven distributions. (4) Reflects net distributions not reinvested of $2.9 billion in 2023, $3.3 billion in 2022, and $6.5 billion in 2021. Investment advisory clients outside the U.S. accounted for 8.6% of our assets under management at December 31, 2023 and 9.1% at December 31, 2022. Assets under management in our target date retirement products, which are included in the multi-asset column shown above, were $408.4 billion at December 31, 2023, compared with $334.2 billion at December 31, 2022, and $391.1 billion at December 31, 2021. Net inflows into these products were $13.1 billion in 2023, $11.3 billion in 2022, and $11.3 billion in 2021. Our net cash outflows in 2023 were driven primarily by our growth-oriented equity strategies sourced from Americas financial intermediaries and institutional clients. These outflows were partially offset by net cash inflows in our multi-asset strategies, predominately our target date retirement products, and alternative strategies. From a geography perspective, net outflows were predominantly from U.S. clients invested in equity strategies though all regions experienced net outflows. For 2022, net outflows were 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 geographical 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 fixed income to fund the cash portion of our OHA acquisition. These outflows were partially offset by cash inflows in our multi-asset franchise and international fixed income. From a geographical perspective, the Americas and EMEA regions experienced net outflows predominantly in equity in both regions, while APAC had net inflows. We 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 20 Page 31 Table of Contents                 managed accounts and separately managed accounts model delivery. As of December 31, 2023, total assets in these solutions were $499 billion, of which $487 billion are included in our reported assets under management in the tables above. We provide participant accounting and plan administration for defined contribution retirement plans that invest in the firm's U.S. mutual funds, collective investment trusts and funds managed outside of the firm's complex. As of December 31, 2023, our assets under administration were $245 billion, of which nearly $146 billion were assets we manage. INVESTMENT PERFORMANCE(1). Strong investment performance and brand awareness is a key driver to attracting and retaining assets—and to our long-term success. The following table presents investment performance for the one-, three-, five-, and 10-years ended December 31, 2023. Past performance is no guarantee of future results. [[GREPCENT_TABLE]] [["% of U.S. mutual funds that outperformed Morningstar median(2),(3)"],["","","1 year","","3 years","","5 years","","10 years"],["Equity","","53%","","50%","","53%","","71%"],["Fixed Income","","63%","","58%","","50%","","62%"],["Multi-Asset","","76%","","47%","","67%","","81%"],["All Funds","","64%","","52%","","56%","","71%"],["% of U.S. mutual funds that outperformed passive peer median(2),(4)"],["","","1 year","","3 years","","5 years","","10 years"],["Equity","","58%","","45%","","51%","","51%"],["Fixed Income","","59%","","53%","","58%","","57%"],["Multi-Asset","","73%","","45%","","61%","","54%"],["All Funds","","64%","","48%","","56%","","53%"],["% of composites that outperformed benchmarks(5)"],["","","1 year","","3 years","","5 years","","10 years"],["Equity","","50%","","30%","","51%","","62%"],["Fixed Income","","55%","","35%","","48%","","73%"],["All Composites","","52%","","32%","","50%","","66%"]] [[/GREPCENT_TABLE]] 20 Page 32 Table of Contents                 [[GREPCENT_TABLE]] [["AUM Weighted Performance"],["% of U.S. mutual funds AUM that outperformed Morningstar median(2),(3)"],["","","1 year","","3 years","","5 years","","10 years"],["Equity","","66%","","46%","","42%","","83%"],["Fixed Income","","68%","","69%","","66%","","76%"],["Multi-Asset","","94%","","72%","","91%","","96%"],["All Funds","","74%","","55%","","57%","","86%"],["% of U.S. mutual funds AUM that outperformed passive peer median(2),(4)"],["","","1 year","","3 years","","5 years","","10 years"],["Equity","","69%","","34%","","31%","","51%"],["Fixed Income","","60%","","68%","","68%","","63%"],["Multi-Asset","","94%","","63%","","95%","","95%"],["All Funds","","75%","","45%","","52%","","64%"],["% of composites AUM that outperformed benchmarks(5)"],["","","1 year","","3 years","","5 years","","10 years"],["Equity","","56%","","33%","","44%","","51%"],["Fixed Income","","56%","","31%","","44%","","52%"],["All Composites","","56%","","33%","","44%","","51%"]] [[/GREPCENT_TABLE]] As of December 31, 2023, 46 of 86 (53.5%) of our rated U.S. mutual funds (across primary share classes) received an overall rating of 4 or 5 stars. By comparison, 32.5% of Morningstar's fund population is given a rate of 4 or 5 stars(6). In addition, 64.0%(6) of AUM in our rated U.S. mutual funds (across primary share classes) ended 2023 with an overall rating of 4 or 5 stars. (1) The investment performance reflects that of T. Rowe Price sponsored mutual funds and composites AUM. (2) Source: © 2024 Morningstar, Inc. All rights reserved. The information contained herein: 1) is proprietary to Morningstar and/or its content providers; 2) may not be copied or distributed; and 3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. (3) Source: Morningstar. Primary share class only. Excludes money market mutual funds, funds with an operating history of less than one year, T. Rowe Price passive funds, and T. Rowe Price funds that are clones of other funds. The top chart reflects the percentage of T. Rowe Price funds with 1 year, 3 year, 5 year, and 10 year track record that are outperforming the Morningstar category median. The bottom chart reflects the percentage of T. Rowe Price funds AUM that has outperformed for the time periods indicated. Total Fund AUM included for this analysis includes $323B for 1 year, $323B for 3 years, $323B for 5 years, and $320B for 10 years. (4) Passive Peer Median was created by T. Rowe Price using data from Morningstar. Primary share class only. Excludes money market mutual funds, funds with an operating history of less than one year, funds with fewer than three peers, T. Rowe Price passive funds, and T. Rowe Price funds that are clones of other funds. This analysis compares T. 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. Rowe Price funds with 1 year, 3 year, 5 year, and 10 year track record that are outperforming the passive peer universe. The bottom chart reflects the percentage of T. Rowe Price funds AUM that has outperformed for the time periods indicated. Total AUM included for this analysis includes $307B for 1 year, $272B for 3 years, $271B for 5 years, and $263B for 10 years. (5)Composite net returns are calculated using the highest applicable separate account fee schedule. Excludes money market composites. All composites compared to official GIPS composite primary benchmark. The top chart reflects the percentage of T. Rowe Price composites with 1 year, 3 year, 5 year, and 10 year track record that are outperforming their benchmarks. The bottom chart reflects the percentage of T. Rowe Price composite AUM that has outperformed for the time periods indicated. Total AUM included for this analysis includes $1,280B for 1 year, $1,264B for 3 years, $1,255B for 5 years, and $1,222B for 10 years. (6) The Morningstar Rating™ for funds is calculated for funds with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. Morningstar gives its best ratings of 5 or 4 stars to the top 32.5% of all funds (of the 32.5%,10% get 5 stars and 22.5% get 4 stars). The Overall Morningstar Rating™ is derived from a weighted average of the performance figures associated with a fund’s 3, 5, and 10 year (if applicable) Morningstar Rating™ metrics. RESULTS OF OPERATIONS. The following table and discussion set forth information regarding our consolidated financial results for 2023, 2022 and 2021 on a U.S. GAAP basis and a non-GAAP basis. The non-GAAP basis adjusts for the impact of our consolidated sponsored investment products, the impact of market movements on the supplemental savings plan liability and related economic hedges, investment income related to certain other investments, acquisition-related amortization and costs, impairment charges, and certain nonrecurring charges and gains, if any. We completed the acquisition of OHA on December 29, 2021. As a result, our results of operations for 2021 does not include any financial results of OHA. 20 Page 33 Table of Contents                 [[GREPCENT_TABLE]] [["","","","2023 compared with 2022","","2022 compared with 2021"],["(in millions, except per-share data)","2023","","2022","","2021","","$ Change","","% Change (1)","","$ Change","","% Change (1)"],["U.S. GAAP basis"],["Investment advisory fees","$","5,747.7","","","$","5,969.1","","","$","7,098.1","","","$","(221.4)","","","(3.7)","%","","$","(1,129.0)","","","(15.9)","%"],["Capital allocation-based income(2)","$","161.9","","","$","(54.3)","","","$","\u2014","","","$","216.2","","","n/m","","$","(54.3)","","","n/m"],["Net revenues","$","6,460.5","","","$","6,488.4","","","$","7,671.9","","","$","(27.9)","","","(0.4)","%","","$","(1,183.5)","","","(15.4)","%"],["Operating expenses","$","4,474.3","","","$","4,114.7","","","$","3,961.9","","","$","359.6","","","8.7","%","","$","152.8","","","3.9","%"],["Net operating income","$","1,986.2","","","$","2,373.7","","","$","3,710.0","","","$","(387.5)","","","(16.3)","%","","$","(1,336.3)","","","(36.0)","%"],["Non-operating income","$","504.1","","","$","(425.5)","","","$","284.6","","","$","929.6","","","n/m","","$","(710.1)","","","n/m"],["Net income attributable to T. Rowe Price Group","$","1,788.7","","","$","1,557.9","","","$","3,082.9","","","$","230.8","","","14.8","%","","$","(1,525.0)","","","(49.5)","%"],["Diluted earnings per common share","$","7.76","","","$","6.70","","","$","13.12","","","$","1.06","","","15.8","%","","$","(6.42)","","","(48.9)","%"],["Weighted average common shares outstanding assuming dilution","224.8","","","227.1","","","228.8","","","(2.3)","","","(1.0)","%","","(1.7)","","","(0.7)","%"],["Adjusted basis(3)"],["Operating expenses","$","4,260.7","","","$","4,087.8","","","$","3,840.3","","","$","172.9","","","4.2","%","","$","247.5","","","6.4","%"],["Operating expenses, excluding accrued carried interest related compensation","$","4,190.7","","","$","4,070.2","","","$","3,840.3","","","$","120.5","","","3.0","%","","$","229.9","","","6.0","%"],["Net operating income","$","2,263.2","","","$","2,500.5","","","$","3,837.1","","","$","(237.3)","","","(9.5)","%","","$","(1,336.6)","","","(34.8)","%"],["Non-operating income (loss)","$","140.8","","","$","(24.4)","","","$","28.7","","","$","165.2","","","n/m","","$","(53.1)","","","n/m"],["Net income attributable to T. Rowe Price Group","$","1,750.1","","","$","1,864.8","","","$","2,995.3","","","$","(114.7)","","","(6.2)","%","","$","(1,130.5)","","","(37.7)","%"],["Diluted earnings per common share","$","7.59","","","$","8.02","","","$","12.75","","","$","(0.43)","","","(5.4)","%","","$","(4.73)","","","(37.1)","%"],["Assets under management (AUM) (in billions)"],["Average AUM(4)","$","1,362.3","","","$","1,398.4","","","$","1,599.3","","","$","(36.1)","","","(2.6)","%","","$","(200.9)","","","(12.6)","%"],["Ending AUM","$","1,444.5","","","$","1,274.7","","","$","1,687.8","","","$","169.8","","","13.3","%","","$","(413.1)","","","(24.5)","%"],["Annualized Effective Fee Rate (in bps)","42.2","","42.7","","44.4","","(0.5)","","","n/m","","(1.7)","","","n/m"]] [[/GREPCENT_TABLE]] (1) The percentage change is not meaningful (n/m). (2) Capital allocation-based income represents the change in accrued carried interest. (3) See the reconciliation to the comparable U.S. GAAP measures at the end of the Results of Operations section of this Management's Discussion and Analysis. (4) Average assets under management for 2021 does not include the impact of the fee-basis assets under management acquired in the OHA acquisition. Results Overview - 2023 as compared to 2022 Investment advisory revenues. Investment advisory fees are earned based on the value and composition of our assets under management, which change based on fluctuations in financial markets and net cash flows. As our average assets under management increase or decrease in a given period, the level of our investment advisory fee revenue for that same period generally fluctuates in a similar manner. Our annualized effective fee rates can be impacted by market or cash flow related shifts among asset and share classes, price changes in existing products, and asset level changes in products with tiered-fee structures. Investment advisory revenues earned in 2023 decreased 3.7% over the comparable 2022 period as average assets under our management decreased $36.1 billion, or 2.6%, to $1,362.3 billion. The average annualized effective fee rate earned on our assets under management was 42.2 basis points in 2023, compared with 42.7 basis points earned in 2022. Our effective fee rate has declined largely due to a mix shift toward lower fee asset classes and vehicles as a result of net equity outflows, partially offset by higher market 20 Page 34 Table of Contents                 returns and higher performance-based fees during the same period. The average annualized fee rate earned on our assets under management was 42.2 basis points for the fourth quarter of 2023. Operating expenses. Operating expenses were $4,474.3 million in 2023, an increase of 8.7% over the comparable 2022 period. The impact of market movements on the supplemental savings plan liability accounted for about 70% of the increase in U.S. GAAP operating expenses. Non-operating income has a corresponding increase due to our economic hedge of the liability. On a non-GAAP basis, operating expenses were $4,260.7 million, a 4.2% increase over the comparable 2022 period. The increase in our non-GAAP operating expenses was primarily driven by higher costs across compensation and benefits, accrued carried interest related compensation expense, technology, facility, advertising, and professional fees. These increases were offset in part by higher capitalized labor, lower stock-based compensation, and a non-recurring recovery of general and administrative costs incurred in 2022. We currently estimate our 2024 non-GAAP operating expenses, excluding non-GAAP accrued carried interest compensation, will grow in the range of 3%-5% from the comparable 2023 amount of $4,190.7 million. We could elect to adjust our expense growth should unforeseen circumstances arise, including significant market movements. Operating margin. Our operating margin in 2023 was 30.7%, compared with 36.6% in 2022. The decrease in our operating margin in 2023 compared with 2022 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. Diluted earnings per share was $7.76 in 2023 as compared to $6.70 in 2022. On a non-GAAP basis, diluted earnings per share was $7.59 in 2023 as compared to $8.02 in 2022. The increase in 2023 GAAP basis diluted earnings per share from 2022 was primarily due to net investment income in 2023 as compared to net investment losses in 2022. These increases were partially offset by lower operating income and a higher effective tax rate. For non-GAAP diluted earnings per share, the decrease in 2023 was primarily due to lower operating income and a higher effective tax rate. These decreases were offset by net investment income earned on our cash and discretionary investment portfolio in 2023 as compared to net investment losses in 2022. See our non-GAAP reconciliations later in this Management's Discussion and Analysis section. Results Overview - 2022 as compared to 2021 Investment advisory revenues. Investment advisory fees are earned based on the value and composition of our assets under management, which change based on fluctuations in financial markets and net cash flows. As our average assets under management increase or decrease in a given period, the level of our investment advisory fee revenue for that same period generally fluctuates in a similar manner. Our annualized effective fee rates can be impacted by market or cash flow related shifts among asset and share classes, price changes in existing products, and asset level changes in products with tiered-fee structures. Investment advisory revenues earned in 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 0.2%, 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 money market fees were waived in the second half of 2022. The average annualized effective 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 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 class. The average annualized fee rate earned on our assets under management was 42.3 basis points for the fourth quarter of 2022. 20 Page 35 Table of Contents                 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. 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. Operating margin. Our operating margin in 2022 was 36.6%, compared with 48.4% in 2021. 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. Diluted earnings per share was $6.70 in 2022 as compared to $13.12 in 2021. On a non-GAAP basis, diluted earnings per share was $8.02 in 2022 as compared to $12.75 for 2021. The decrease in both 2022 GAAP and non-GAAP diluted earnings per share compared to 2021 was primarily driven by lower operating income, net investment losses in 2022 as compared to net investment gains in 2021, and a higher effective tax rate. These decreases were partially offset by lower weighted average outstanding shares. Impairment charges recorded in the fourth quarter of 2022 also impacted the lower operating income that drove the GAAP diluted earnings per share decrease. See our non-GAAP reconciliations later in this Management's Discussion and Analysis section. 20 Page 36 Table of Contents                 Net revenues [[GREPCENT_TABLE]] [["","","","2023 compared with 2022","","2022 compared with 2021"],["(in millions)","2023","","2022","","2021","","$ Change","","% Change1","","$ Change","","% Change1"],["Investment advisory fees"],["Equity","$","3,445.5","","","$","3,759.7","","","$","4,899.9","","","$","(314.2)","","","(8.4)","%","","$","(1,140.2)","","","(23.3)","%"],["Fixed income, including money markets","401.5","","","427.4","","","409.8","","","(25.9)","","","(6.1)","%","","17.6","","","4.3","%"],["Multi-asset","1,583.4","","","1,508.9","","","1,788.4","","","74.5","","","4.9","%","","(279.5)","","","(15.6)","%"],["Alternatives","317.3","","","273.1","","","\u2014","","","44.2","","","16.2","%","","273.1","","","n/m"],["","5,747.7","","","5,969.1","","","7,098.1","","","(221.4)","","","(3.7)","%","","(1,129.0)","","","(15.9)","%"],["Capital allocation-based income","161.9","","","(54.3)","","","\u2014","","","216.2","","","n/m","","(54.3)","","","n/m"],["Administrative, distribution, and servicing fees"],["Administrative fees","467.5","","","481.4","","","453.5","","","(13.9)","","","(2.9)","%","","27.9","","","6.2","%"],["Distribution and servicing fees","83.4","","","92.2","","","120.3","","","(8.8)","","","(9.5)","%","","(28.1)","","","(23.4)","%"],["","550.9","","","573.6","","","573.8","","","(22.7)","","","(4.0)","%","","(0.2)","","","\u2014","%"],["Net revenues","$","6,460.5","","","$","6,488.4","","","$","7,671.9","","","$","(27.9)","","","(0.4)","%","","$","(1,183.5)","","","(15.4)","%"],["Average AUM (in billions):"],["Equity","$","705.2","","","$","763.6","","","$","972.0","","","$","(58.4)","","","(7.6)","%","","$","(208.4)","","","(21.4)","%"],["Fixed income, including money market","169.3","","","173.4","","","177.7","","","(4.1)","","","(2.4)","%","","(4.3)","","","(2.4)","%"],["Multi-asset","442.3","","","418.7","","","449.6","","","23.6","","","5.6","%","","(30.9)","","","(6.9)","%"],["Alternatives","45.5","","","42.7","","","\u2014","","","2.8","","","6.6","%","","42.7","","","n/m"],["Average AUM","$","1,362.3","","","$","1,398.4","","","$","1,599.3","","","$","(36.1)","","","(2.6)","%","","$","(200.9)","","","(12.6)","%"],["Ending AUM (in billions)","$","1,444.5","","","$","1,274.7","","","$","1,687.8","","","$","169.8","","","13.3","%","","$","(413.1)","","","(24.5)","%"]] [[/GREPCENT_TABLE]] (1) n/m - the percentage change is not meaningful. Investment advisory fees. The relationship between the change in average assets under management and the change in investment advisory fee revenue for 2023, 2022 and 2021 are presented above. In 2023, the decline in overall advisory revenues was driven by lower average AUM and a mix shift toward lower fee asset classes and vehicles. A lower starting AUM and net outflows in 2023 were the primary drivers of a lower average AUM in 2023. These impacts were partially offset by stronger overall market returns in 2023 and $38.3 million of performance-based fees primarily earned on alternative strategy accounts in 2023 compared to an insignificant amount of performance-based fees in 2022. 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. Administrative, distribution, and servicing fees in 2023 were $550.9 million, a decrease of $22.7 million from 2022. The decrease is primarily driven by lower transfer agent servicing activities provided to the T. Rowe Price mutual funds, and lower 12b-1 revenue earned from the Advisor and R share classes of the U.S. mutual funds as a result of lower average assets under management in these share classes. The decrease in 12b-1 revenue is offset entirely by a decrease in the costs paid to third-party intermediaries that source these assets and is reported in distribution and servicing expense. For 2022, 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. 20 Page 37 Table of Contents                 Capital allocation-based income increased net revenues by $161.9 million. The 2023 amount includes an increase of $223.2 million in accrued carried interest from investments in affiliated investment funds, partially offset by $61.3 million of non-cash amortization and impairments associated with the difference between the assets' fair value and carrying value on the date they were acquired. The firm realized carried interest of $109.8 million compared with $87.7 million in the 2022 period. We recognized corresponding compensation expense of $44.6 million related to total capital allocation-based income, consisting of $70.0 million related to the accrued carried interest offset in part by $25.4 million in amortization and impairment charges. While impairments recognized in 2023 were immaterial, should market and performance conditions deteriorate, additional impairments may be recognized in future periods. Comparatively, capital allocation-based income reduced net revenues by $54.3 million for 2022. This amount includes an increase of $43.7 million in accrued carried interest that was completely offset by $98.0 million of non-cash amortization and impairments, consisting of $53.0 million of non-cash amortization 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), and $45.0 million of impairment charges due to reduced incentive fee growth expectations for certain investments in affiliated investment funds that earn capital allocation-based income, which we determined were other-than-temporarily impaired in 2022, and a higher discount rate. 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 $2.1 million for 2023, $2.0 million for 2022, and $5.5 million for 2021, earned from our consolidated sponsored investment products. The corresponding expenses recognized by these consolidated products were also eliminated from operating expenses. 20 Page 38 Table of Contents                 Operating expenses [[GREPCENT_TABLE]] [["","","","2023 compared with 2022","","2022 compared with 2021"],["(in millions)","2023","","2022","","2021","","$ Change","","% Change","","$ Change","","% Change"],["Compensation and related costs, excluding acquisition-related retention agreements, capital allocation-based income compensation, and supplemental savings plan","$","2,450.7","","","$","2,405.8","","","$","2,300.0","","","$","44.9","","","1.9","%","","$","105.8","","","4.6","%"],["Acquisition-related retention agreements","55.0","","","70.2","","","\u2014","","","(15.2)","","","n/m","","70.2","","","n/m"],["Capital allocation-based income compensation","44.6","","","(22.9)","","","\u2014","","","67.5","","","n/m","","(22.9)","","","n/m"],["Supplemental savings plan","123.2","","","(132.3)","","","83.0","","","255.5","","","n/m","","(215.3)","","","n/m"],["Compensation and related costs","$","2,673.5","","","$","2,320.8","","","$","2,383.0","","","352.7","","","15.2","%","","(62.2)","","","(2.6)","%"],["Distribution and servicing costs","289.9","","","301.5","","","373.9","","","(11.6)","","","(3.8)","%","","(72.4)","","","(19.4)","%"],["Advertising and promotion","114.2","","","97.3","","","100.2","","","16.9","","","17.4","%","","(2.9)","","","(2.9)","%"],["Product and recordkeeping related costs","291.0","","","300.1","","","236.3","","","(9.1)","","","(3.0)","%","","63.8","","","27.0","%"],["Technology, occupancy, and facility costs","632.6","","","560.5","","","484.9","","","72.1","","","12.9","%","","75.6","","","15.6","%"],["General, administrative, and other","421.3","","","412.2","","","383.6","","","9.1","","","2.2","%","","28.6","","","7.5","%"],["Change in fair value of contingent consideration","(82.4)","","","(161.2)","","","\u2014","","","78.8","","","n/m","","(161.2)","","","n/m"],["Acquisition-related amortization and impairment costs","134.2","","","283.5","","","\u2014","","","(149.3)","","","n/m","","283.5","","","n/m"],["Total operating expenses","$","4,474.3","","","$","4,114.7","","","$","3,961.9","","","$","359.6","","","8.7","%","","$","152.8","","","3.9","%"]] [[/GREPCENT_TABLE]] Compensation and related costs, excluding non-cash amortization of certain acquisition-related retention agreements, capital allocation-based income compensation, and supplemental savings plan were $2,450.7 million, an increase $44.9 million, or 1.9%, compared with 2022. The increase in 2023 was driven by $99.1 million in higher salaries and related benefits as a result of base salary increases in January 2023 and July 2022. These increases were offset by higher capitalized labor, lower non-cash stock-based compensation, and lower other employee-related costs. The firm employed 7,906 associates at December 31, 2023, an increase of 0.5% from the end of 2022. For 2022, 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. Distribution and servicing costs were $289.9 million for 2023, a decrease of $11.6 million, or 3.8%, compared to $301.5 million in 2022. The decrease was primarily driven by lower average assets under management in certain share classes of the U.S. mutual funds that earn 12b-1 fees and SICAVs. These decreases were partially offset by higher costs incurred to distribute certain products through U.S. intermediaries as the average assets under management in these products were higher. For 2022, distribution and services costs were $301.5 million, a decrease of $72.4 million, or 19.4%, compared to $373.9 million for 2021. The decrease was primarily driven by lower average assets under management in certain share classes of the U.S. mutual funds that earn 12b-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 paid to third-party intermediaries that source the assets of certain share classes of our U.S. mutual funds and our international products, such as our Japanese ITMs and SICAVs, are recognized in this expense category. Both of these costs are offset entirely by the revenue we earn and report in net revenues: 20 Page 39 Table of Contents                 12b-1 revenue recognized in administrative, distribution, and servicing fees for the U.S. mutual funds and investment advisory fee revenue for our international products. Advertising and promotion costs were $114.2 million for 2023, an increase of $16.9 million, or 17.4%, compared with 2022. The increase was primarily driven by higher media advertising and agency costs in 2023 For 2022, advertising and promotion costs were $97.3 million, 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. Product and recordkeeping related costs were $291.0 million for 2023, a decrease of $9.1 million, or 3.0%, compared with 2022. The decrease was driven by lower 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. 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. Technology, occupancy, and facility costs were $632.6 million for 2023, $560.5 million for 2022, and $484.9 million for 2021. The increases over the last two years were primarily due to ongoing investment in our technology capabilities, including depreciation and hosting solution licenses, and increased office facility costs, mainly related to rent expense associated with a new London office that we began leasing in the second half of 2022 and occupied in September 2023. General, administrative, and other costs were $421.3 million for 2023, $412.2 million for 2022, and $383.6 million for 2021. The increase in 2023 compared to 2022 was primarily due to higher professional fees and travel costs. Partially offsetting these increases was a recovery of $20.8 million in nonrecurring costs that were incurred in 2022. 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. Change in fair value of contingent consideration. Our contingent consideration consists of an earnout arrangement as part of the 2021 acquisition of OHA in which additional purchase price may be due to the sellers upon satisfying or exceeding certain defined revenue targets. Each reporting period, we record the fair value of the contingent consideration due under this arrangement. We recognized a reduction in the fair value of the contingent consideration liability of $82.4 million in 2023 and $161.2 million in 2022 as challenging market conditions reduced revenue expectations and increased the discount rates used in the fair value determinations. Acquisition-related amortization and impairment costs primarily relate to the indefinite- and definite-lived intangible assets identified and separately recognized, at fair value, as part of the purchase accounting of the 2021 acquisition of OHA. In 2023, we recognized acquisition-related amortization and impairment costs of $134.2 million, a decrease of $149.3 million or 52.7%, compared with 2022. The decrease from 2022 was primarily driven by an insignificant amount of impairment charges for certain intangibles compared to $175.1 million in 2022. The impairment charges for both periods were the result of reduced growth expectations for both investment management and incentive fees. Specific to 2022, the impairment charges were also impacted by a higher discount rate compared to when the acquisition closed in 2021. The remaining weighted average amortization period for our definite-lived intangible assets is 5.5 years. Should conditions that led us to recognize these impairment charges deteriorate, additional impairments may be recognized in future periods. 20 Page 40 Table of Contents                 Non-operating income (loss) Non-operating investment income was $504.1 million in 2023 compared to a non-operating loss of $425.5 million in 2022 and non-operating income of $284.6 million in 2021. Non-operating investment activity for the years ended December 31, 2023, 2022 and 2021 comprised the following: [[GREPCENT_TABLE]] [["","","","","","","","2023 compared with 2022","","2022 compared with 2021"],["(in millions)","2023","","2022","","2021","","$ Change","","$ Change"],["Net gains (losses) from non-consolidated sponsored investment products"],["Cash and discretionary investments"],["Dividend income","$","109.1","","","$","34.7","","","$","34.7","","","$","74.4","","","$","\u2014"],["Market related gains (losses) and equity in earnings (losses)","24.5","","","(59.1)","","","(6.0)","","","83.6","","","(53.1)"],["Total cash and discretionary investments","133.6","","","(24.4)","","","28.7","","","158.0","","","(53.1)"],["Seed capital investments"],["Dividend income","1.8","","","0.8","","","0.9","","","1.0","","","(0.1)"],["Market related gains (losses) and equity in earnings (losses)","50.3","","","(60.1)","","","41.6","","","110.4","","","(101.7)"],["Net gains recognized upon deconsolidation","\u2014","","","3.0","","","2.4","","","(3.0)","","","0.6"],["Investments used to hedge the supplemental savings plan liability","123.6","","","(139.4)","","","83.0","","","263.0","","","(222.4)"],["Total net gains (losses) from non-consolidated sponsored investment products","309.3","","","(220.1)","","","156.6","","","529.4","","","(376.7)"],["Other investment income","45.9","","","15.4","","","59.2","","","30.5","","","(43.8)"],["Net gains (losses) on investments","355.2","","","(204.7)","","","215.8","","","559.9","","","(420.5)"],["Net gains (losses) on consolidated sponsored investment portfolios","164.6","","","(203.5)","","","74.7","","","368.1","","","(278.2)"],["Other losses, including foreign currency losses","(15.7)","","","(17.3)","","","(5.9)","","","1.6","","","(11.4)"],["Non-operating income (loss)","$","504.1","","","$","(425.5)","","","$","284.6","","","$","929.6","","","$","(710.1)"]] [[/GREPCENT_TABLE]] In 2023, stronger market returns contributed to the increased valuation and gains of our investment portfolio, while higher interest rates increased dividend income earned on our cash equivalents. In 2022, our overall investment portfolio valuations 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. 20 Page 41 Table of Contents                 The impact of consolidating certain sponsored investment products on the individual lines of our consolidated statements of income for 2023, 2022, and 2021 is as follows: [[GREPCENT_TABLE]] [["","","","2023 compared with 2022","","2022 compared with 2021"],["(in millions)","2023","","2022","","2021","","$ Change","","","","$ Change"],["Operating expenses reflected in net operating income","$","(11.1)","","","$","(8.2)","","","$","(12.2)","","","$","(2.9)","","","","","$","4.0"],["Net investment income reflected in non-operating income","164.6","","","(203.5)","","","74.7","","","368.1","","","","","(278.2)"],["Impact on income before taxes","$","153.5","","","$","(211.7)","","","$","62.5","","","$","365.2","","","","","$","(274.2)"],["Net income attributable to our interest in the consolidated T. Rowe Price investment products","$","106.5","","","$","(103.4)","","","$","46.9","","","$","209.9","","","","","$","(150.3)"],["Net income attributable to redeemable non-controlling interests (unrelated third-party investors)","47.0","","","(108.3)","","","15.6","","","155.3","","","","","(123.9)"],["Impact on income before taxes","$","153.5","","","$","(211.7)","","","$","62.5","","","$","365.2","","","","","$","(274.2)"]] [[/GREPCENT_TABLE]] Provision for income taxes The following table reconciles the statutory federal income tax rate to our effective tax rate for the years ended December 31, 2023, 2022, and 2021: [[GREPCENT_TABLE]] [["","2023","","2022","","2021"],["Statutory U.S. federal income tax rate","21.0","%","","21.0","%","","21.0","%"],["State income taxes for current year, net of federal income tax benefits(1)","2.3","","","3.4","","","3.7"],["Net income attributable to redeemable non-controlling interests(2)","(0.5)","","","1.3","","","(0.1)"],["Net excess tax benefits from stock-based compensation plans activity","0.1","","","(0.4)","","","(2.1)"],["Valuation allowance","3.4","","","\u2014","","","\u2014"],["Other items","\u2014","","","0.3","","","(0.1)"],["Effective income tax rate","26.3","%","","25.6","%","","22.4","%"]] [[/GREPCENT_TABLE]] (1) State income tax benefits are reflected in the total benefits for net income attributable to redeemable non-controlling interests and stock-based compensation plans activity. (2)    Net income attributable to redeemable non-controlling interests represents the portion of earnings held in the firm's consolidated investment products, which are not taxable to the firm despite being included in pre-tax income. Our effective tax rate for 2023 was 26.3%, compared with 25.6% for 2022 and 22.4% for 2021. The increase in our effective tax rate in 2023 from 2022 was primarily due to an increase in the valuation allowances recorded mainly against UK-based deferred tax assets, including net operating losses, and a decrease in discrete tax benefits associated with option exercises and restricted stock vests. These unfavorable impacts were partially offset by a favorable impact of net gains attributable to redeemable non-controlling interests held in our consolidated investment products and state tax liability settlements. For 2022, the increase in our effective tax rate 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 UK-based deferred tax assets that are 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. 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 2023, 2022 and 2021 were 27.2%, 24.7%, 22.5%, respectively. 20 Page 42 Table of Contents                 Our effective tax rate will continue to experience volatility in future periods due to, among other things, the impact on the stock-based compensation tax benefits recognized from market fluctuations in our stock price and timing of option exercises, changes in the mix of our earnings among countries with differing tax laws, and changes in the valuation allowance of foreign based deferred tax assets. As of December 31, 2023, the total valuation allowance recorded was $102.8 million, of which nearly all is related to UK-based deferred tax assets. We intend to continue maintaining a full valuation allowance on these and future deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. Our U.S. GAAP effective tax 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 effective tax rates for the full-year 2024 will be in the range of 23.0% to 27.0% on a GAAP basis, and 23% to 26% on a non-GAAP basis. This range reflects lower expected valuation allowances related to our foreign based deferred tax assets and a lower state rate associated with changes in income apportionment rules in certain jurisdictions. The Organization of Economic Co-operation and Development has issued Pillar Two Model Rules (Pillar Two) introducing a global 15% minimum tax effective January 1, 2024 within certain countries in which we operate. Our preliminary determination is that the Pillar Two implementation is unlikely to have a material impact on the company's future consolidated results of operations, cash flows, and overall financial position. We will continue to monitor and evaluate the impacts of enacted and pending Pillar Two legislation on our operations. NON-GAAP INFORMATION AND RECONCILIATION. We believe the non-GAAP financial measures below provide relevant and meaningful information to investors about our core operating results. These measures have been established in order to increase transparency for the purpose of evaluating our core business, for comparing current results with prior period results, and to enable more appropriate comparison with industry peers. However, non-GAAP financial measures should not be considered a substitute for financial measures calculated in accordance with U.S. GAAP and may be calculated differently by other companies. The following schedules reconcile certain U.S. GAAP financial measures for each of the last three years. [[GREPCENT_TABLE]] [["","2023"],["(in millions)","Operating expenses","","Net operating income","","Non-operating income (loss)","","Provision (benefit) for income taxes(6)","","Net income attributable to T. Rowe Price Group","","Diluted earnings per share(7)"],["U.S. GAAP Basis","$","4,474.3","","","$","1,986.2","","","$","504.1","","","$","654.6","","","$","1,788.7","","","$","7.76"],["Non-GAAP adjustments:"],["Acquisition-related:"],["Investment and NCI amortization and impairments(1) (Capital allocation-based income and Compensation and related costs)","25.4","","","35.9","","","\u2014","","","7.9","","","28.0","","","0.12"],["Acquisition-related retention arrangements(1) (Compensation and related costs)","(55.0)","","","55.0","","","\u2014","","","10.8","","","44.2","","","0.19"],["Contingent consideration(1)","82.4","","","(82.4)","","","\u2014","","","(10.6)","","","(71.8)","","","(0.31)"],["Intangible assets amortization and impairments(1)","(134.2)","","","134.2","","","\u2014","","","28.8","","","105.4","","","0.46"],["Total acquisition-related","(81.4)","","","142.7","","","\u2014","","","36.9","","","105.8","","","0.46"],["Supplemental savings plan liability(3) (Compensation and related costs)","(123.2)","","","123.2","","","(123.6)","","","0.5","","","(0.9)","","","\u2014"],["Consolidated T. Rowe Priceinvestment products(4)","(9.0)","","","11.1","","","(164.6)","","","(22.3)","","","(84.2)","","","(0.37)"],["Other non-operating income(5)","\u2014","","","\u2014","","","(75.1)","","","(15.8)","","","(59.3)","","","(0.26)"],["Adjusted Non-GAAP Basis","$","4,260.7","","","$","2,263.2","","","$","140.8","","","$","653.9","","","$","1,750.1","","","$","7.59"]] [[/GREPCENT_TABLE]] 20 Page 43 Table of Contents                 [[GREPCENT_TABLE]] [["","2022"],["","Operating expenses","","Net operating income","","Non-operating income (loss)","","Provision (benefit) for income taxes(6)","","Net income attributable to T. Rowe Price","","Diluted earnings per share(7)"],["U.S. GAAP Basis (FS line item)","$","4,114.7","","","$","2,373.7","","","$","(425.5)","","","$","498.6","","","$","1,557.9","","","$","6.70"],["Non-GAAP adjustments:"],["Acquisition-related:"],["Investment and NCI amortization and impairments(1) (Capital allocation-based income and Compensation and related costs)","40.5","","","57.5","","","\u2014","","","15.5","","","42.0","","","0.18"],["Acquisition-related retention arrangements(1) (Compensation and related costs)","(70.2)","","","70.2","","","\u2014","","","18.9","","","51.3","","","0.22"],["Contingent consideration(1)","161.2","","","(161.2)","","","\u2014","","","(43.3)","","","(117.9)","","","(0.52)"],["Intangible assets amortization and impairments(1)","(283.5)","","","283.5","","","\u2014","","","76.2","","","207.3","","","0.89"],["Transaction costs(2) (General, admin and other)","(0.9)","","","0.9","","","\u2014","","","0.2","","","0.7","","","0.01"],["Total acquisition-related","(152.9)","","","250.9","","","\u2014","","","67.5","","","183.4","","","0.78"],["Supplemental savings plan liability(3) (Compensation and related costs)","132.3","","","(132.3)","","","139.4","","","1.9","","","5.2","","","0.02"],["Consolidated T. Rowe Price investment products(4)","(6.3)","","","8.3","","","203.5","","","27.8","","","75.7","","","0.33"],["Other non-operating income(5)","\u2014","","","\u2014","","","58.2","","","15.5","","","42.7","","","0.19"],["Adjusted Non-GAAP Basis","$","4,087.8","","","$","2,500.6","","","$","(24.4)","","","$","611.3","","","$","1,864.9","","","$","8.02"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","2021"],["(in millions)","Operating expenses","","Net operating income","","Non-operating income","","Provision (benefit) for income taxes(6)","","Net income attributable to T. Rowe Price Group","","Diluted earnings per share(7)"],["U.S. GAAP Basis (FS line item)","$","3,961.9","","","$","3,710.0","","","$","284.6","","","$","896.1","","","$","3,082.9","","","$","13.12"],["Non-GAAP adjustments:"],["Acquisition-related transaction costs (2) (General, admin and other)","(31.9)","","","31.9","","","\u2014","","","7.2","","","24.7","","","0.11"],["Supplemental savings plan liability(3) (Compensation and related costs)","(83.0)","","","83.0","","","(83.0)","","","\u2014","","","\u2014","","","\u2014"],["Consolidated T. Rowe Price investment products(4)","(6.7)","","","12.2","","","(74.7)","","","(10.6)","","","(36.3)","","","(0.16)"],["Other non-operating income(5)","\u2014","","","\u2014","","","(98.2)","","","(22.2)","","","(76.0)","","","(0.32)"],["Adjusted Non-GAAP Basis","$","3,840.3","","","$","3,837.1","","","$","28.7","","","$","870.5","","","$","2,995.3","","","$","12.75"]] [[/GREPCENT_TABLE]] (1)    These non-GAAP adjustments remove the impact of acquisition-related amortization and costs, including amortization of intangible assets, the recurring fair value remeasurements of the contingent consideration liability, amortization of acquired investment and non-controlling interest basis differences and amortization of compensation-related arrangements. We believe 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 acquisition-related transactions costs. We believe 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 T. 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) recognized on the 20 Page 44 Table of Contents                 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 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 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 represents the net income of the consolidated products, net of redeemable non-controlling interests. We believe 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 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. We retain in our non-GAAP measures the investment gains recognized on the cash and discretionary investments as these assets and related income (loss) are considered part of our core operations. We believe adjusting for the remaining non-operating income (loss) 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 this portion of non-operating income (loss) 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 27.2% for 2023, 24.7% for 2022 and 22.5% for 2021. (7)    This non-GAAP measure was calculated by applying the two-class method to adjusted net income attributable to     T. Rowe Price Group and dividing by the weighted-average common shares outstanding assuming dilution. The calculation of net income allocated to common stockholders is as follows: [[GREPCENT_TABLE]] [["","","Year ended"],["(in millions)","","2023","","2022","","2021"],["Adjusted net income attributable to T. Rowe Price Group","","$","1,750.1","","","$","1,864.8","","","$","2,995.3"],["Less: net income allocated to outstanding restricted stock and stock unit holders","","43.4","","","43.3","","","77.9"],["Adjusted net income allocated to common stockholders","","$","1,706.7","","","$","1,821.5","","","$","2,917.4"]] [[/GREPCENT_TABLE]] CAPITAL RESOURCES AND LIQUIDITY. During 2023, stockholders’ equity attributable to T. Rowe Price Group, Inc. increased from $8.8 billion to $9.5 billion. Tangible book value increased to $6.5 billion at December 31, 2023 from $5.8 billion at December 31, 2022. Sources of Liquidity We have ample liquidity, including cash and investments in T. Rowe Price products as follows: [[GREPCENT_TABLE]] [["(in millions)","12/31/2023","","12/31/2022"],["Cash and cash equivalents","$","2,066.6","","","$","1,755.6"],["Discretionary investments","463.7","","","449.7"],["Total cash and discretionary investments","2,530.3","","","2,205.3"],["Redeemable seed capital investments","1,370.9","","","1,120.3"],["Investments used to hedge the supplemental savings plan liability","894.6","","","760.7"],["Total cash and investments in T. Rowe Price products","$","4,795.8","","","$","4,086.3"]] [[/GREPCENT_TABLE]] Our discretionary investment portfolio is comprised primarily of short duration fixed income ETFs, which typically yield higher than money market rates. Of our cash and cash equivalents, $699.0 million at December 31, 2023, and $809.1 million at December 31, 2022 were held by our subsidiaries located outside the U.S. Our cash and discretionary investment portfolio experienced market gains of $140.8 million in 2023 compared to market losses of $24.4 million in 2022. Given the availability of our financial resources and cash expected to be generated through future operations, we do not maintain an available external source of additional liquidity. 20 Page 45 Table of Contents                 Our seed capital investments are redeemable, although we generally expect to be invested for several years for the products to build an investment performance history and until unrelated third-party investors substantially reduce our relative ownership percentage. The cash and investment presentation on the consolidated balance sheet is based on how we account for the cash or investment. The following table details how our investment interests relate to where they are presented in the consolidated balance sheet as of December 31, 2023. [[GREPCENT_TABLE]] [["(in millions)","","Cash and cash equivalents","","Investments","","Net assets of consolidated sponsored investment products(1)","","Total"],["Cash and discretionary investments","","$","2,066.6","","","$","251.7","","","$","212.0","","","$","2,530.3"],["Seed capital investments","","\u2014","","","338.9","","","1,032.0","","","1,370.9"],["Investments used to hedge the supplemental savings plan liability","","\u2014","","","827.6","","","67.0","","","894.6"],["Total cash and investments in T. Rowe Price products attributable to T. Rowe Price","","2,066.6","","","1,418.2","","","1,311.0","","","4,795.8"],["Investments in affiliated private investment funds(2)","","\u2014","","","773.3","","","\u2014","","","773.3"],["Investments in CLOs","","\u2014","","","102.5","","","\u2014","","","102.5"],["Investment in UTI and other investments","","\u2014","","","260.7","","","\u2014","","","260.7"],["Total cash and investments attributable to T. Rowe Price","","2,066.6","","","2,554.7","","","1,311.0","","","5,932.3"],["Redeemable non-controlling interests","","\u2014","","","\u2014","","","594.1","","","594.1"],["As reported on consolidated balance sheet at December 31, 2023","","$","2,066.6","","","$","2,554.7","","","$","1,905.1","","","$","6,526.4"]] [[/GREPCENT_TABLE]] (1)The consolidated T. Rowe Price investment products are generally those products we provided seed capital at the time of their formation and we have a controlling interest. The $1,311.0 million represents the total value at December 31, 2023 of our interest in the consolidated T. Rowe Price investment products. The total net assets of the T. Rowe Price investment products at December 31, 2023 of $1,905.1 million includes assets of $1,959.3 million, less liabilities of $54.2 million as reflected in the consolidated balance sheet in Item 8. Financial Statements of this Form 10-K. (2)    Includes $192.0 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 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. Uses of Liquidity We paid $4.88 per share in regular dividends in 2023, an increase of 1.7% over the $4.80 per share paid in 2022. Further, we expended $253.9 million in 2023 to repurchase 2.4 million shares, or 1.1%, of our outstanding common stock at an average price of $104.63 per share. These dividends and repurchases were expended using existing cash balances and cash generated from operations. 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. 20 Page 46 Table of Contents                 Since the end of 2020, we have returned $6.2 billion to stockholders through stock repurchases, our regular quarterly dividends, and a special dividend of $3.00 per share in 2021, as follows: [[GREPCENT_TABLE]] [["(in millions)","Recurring dividend","","Special dividend","","Stock repurchases","","Total cash returned to stockholders"],["2021","$","1,003.7","","","$","699.8","","","$","1,136.0","","","$","2,839.5"],["2022","1,108.8","","","\u2014","","","855.3","","","1,964.1"],["2023","1,121.9","","","\u2014","","","254.3","","","1,376.2"],["Total","$","3,234.4","","","$","699.8","","","$","2,245.6","","","$","6,179.8"]] [[/GREPCENT_TABLE]] We anticipate property and equipment expenditures for the full-year 2024 to be about $487 million. More than one-half is planned for technology initiatives, while the remaining will be facility related, including the completion of our new corporate headquarters. We expect to fund our anticipated capital expenditures with operating cash flows and other available resources. The following tables summarize the cash flows for 2023, 2022 and 2021, that are attributable to T. Rowe Price Group, our consolidated sponsored investment products, and the related eliminations required in preparing the statement. [[GREPCENT_TABLE]] [["","2023"],["","Cash flow attributable to:"],["(in millions)","T. Rowe Price Group","","Consolidated sponsored investment products","","Elims","","As reported"],["Cash flows from operating activities"],["Net income","$","1,788.7","","","$","153.5","","","$","(106.5)","","","$","1,835.7"],["Adjustments to reconcile net income to net cash provided by operating activities"],["Depreciation, amortization and impairments of property, equipment and software","254.8","","","\u2014","","","\u2014","","","254.8"],["Amortization and impairment of acquisition-related assets and retention agreements","226.8","","","\u2014","","","\u2014","","","226.8"],["Fair value remeasurement of contingent consideration liability","(82.4)","","","\u2014","","","\u2014","","","(82.4)"],["Stock-based compensation expense","265.6","","","\u2014","","","\u2014","","","265.6"],["Net gains recognized on investments","(567.3)","","","\u2014","","","106.5","","","(460.8)"],["Net change in sponsored investment products used to economically hedge supplemental savings plan liability","(10.3)","","","\u2014","","","66.4","","","56.1"],["Net change in trading securities held by consolidated sponsored investment products","\u2014","","","(1,070.3)","","","\u2014","","","(1,070.3)"],["Other changes in assets and liabilities","182.7","","","27.9","","","(17.0)","","","193.6"],["Net cash provided by (used in) operating activities","2,058.6","","","(888.9)","","","49.4","","","1,219.1"],["Net cash provided by (used in) investing activities","(310.2)","","","(56.8)","","","495.2","","","128.2"],["Net cash provided by (used in) financing activities","(1,437.4)","","","903.4","","","(544.6)","","","(1,078.6)"],["Effect of exchange rate changes on cash and cash equivalents of consolidated sponsored investment products","\u2014","","","0.4","","","\u2014","","","0.4"],["Net change in cash and cash equivalents during period","311.0","","","(41.9)","","","\u2014","","","269.1"],["Cash and cash equivalents at beginning of year","1,755.6","","","119.1","","","\u2014","","","1,874.7"],["Cash and cash equivalents at end of period","$","2,066.6","","","$","77.2","","","$","\u2014","","","$","2,143.8"]] [[/GREPCENT_TABLE]] 20 Page 47 Table of Contents                 [[GREPCENT_TABLE]] [["","2022"],["","Cash flow attributable to:"],["(in millions)","T. Rowe Price Group","","Consolidated sponsored investment products","","Elims","","As reported"],["Cash flows from operating activities"],["Net income","$","1,557.9","","","$","(211.7)","","","$","103.4","","","$","1,449.6"],["Adjustments to reconcile net income to net cash provided by operating activities"],["Depreciation, amortization and impairments of property, equipment and software","225.7","","","\u2014","","","\u2014","","","225.7"],["Amortization and impairment of acquisition-related assets and retention agreements","420.1","","","\u2014","","","\u2014","","","420.1"],["Fair value remeasurement of contingent consideration liability","(161.2)","","","\u2014","","","\u2014","","","(161.2)"],["Stock-based compensation expense","285.4","","","\u2014","","","\u2014","","","285.4"],["Net losses recognized on investments","314.0","","","\u2014","","","(103.4)","","","210.6"],["Net change in sponsored investment products used to economically hedge supplemental savings plan liability","(18.8)","","","\u2014","","","\u2014","","","(18.8)"],["Net change in trading securities held by consolidated sponsored investment products","\u2014","","","87.9","","","\u2014","","","87.9"],["Other changes in assets and liabilities","(182.8)","","","46.6","","","(3.7)","","","(139.9)"],["Net cash provided by (used in) operating activities","2,440.3","","","(77.2)","","","(3.7)","","","2,359.4"],["Net cash provided by (used in) investing activities","(179.3)","","","(8.7)","","","146.5","","","(41.5)"],["Net cash provided by (used in) financing activities","(2,028.5)","","","94.4","","","(142.8)","","","(2,076.9)"],["Effect of exchange rate changes on cash and cash equivalents of consolidated sponsored investment products","\u2014","","","9.5","","","\u2014","","","9.5"],["Net change in cash and cash equivalents during period","232.5","","","18.0","","","\u2014","","","250.5"],["Cash and cash equivalents at beginning of year","1,523.1","","","101.1","","","\u2014","","","1,624.2"],["Cash and cash equivalents at end of period","$","1,755.6","","","$","119.1","","","$","\u2014","","","$","1,874.7"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","2021"],["","Cash flow attributable to:"],["(in millions)","T. Rowe Price Group","","Consolidated sponsored investment products","","Elims","","As reported"],["Cash flows from operating activities"],["Net income","$","3,082.9","","","$","62.5","","","$","(46.9)","","","$","3,098.5"],["Adjustments to reconcile net income to net cash provided by operating activities"],["Depreciation, amortization and impairments of property, equipment and software","204.8","","","\u2014","","","\u2014","","","204.8"],["Stock-based compensation expense","274.6","","","\u2014","","","\u2014","","","274.6"],["Net gains recognized on investments","(169.4)","","","\u2014","","","46.9","","","(122.5)"],["Net change in sponsored investment products used to economically hedge supplemental savings plan liability","(85.7)","","","\u2014","","","\u2014","","","(85.7)"],["Net change in trading securities held by consolidated sponsored investment products","\u2014","","","14.9","","","\u2014","","","14.9"],["Other changes in assets and liabilities","121.1","","","(51.9)","","","(1.8)","","","67.4"],["Net cash provided by (used in) operating activities","3,428.3","","","25.5","","","(1.8)","","","3,452.0"],["Net cash provided by (used in) investing activities","(1,134.9)","","","(16.9)","","","53.7","","","(1,098.1)"],["Net cash provided by (used in) financing activities","(2,922.0)","","","(14.9)","","","(51.9)","","","(2,988.8)"],["Effect of exchange rate changes on cash and cash equivalents of consolidated sponsored investment products","\u2014","","","2.6","","","\u2014","","","2.6"],["Net change in cash and cash equivalents during period","(628.6)","","","(3.7)","","","\u2014","","","(632.3)"],["Cash and cash equivalents at beginning of year","2,151.7","","","104.8","","","\u2014","","","2,256.5"],["Cash and cash equivalents at end of period","$","1,523.1","","","$","101.1","","","$","\u2014","","","$","1,624.2"]] [[/GREPCENT_TABLE]] 20 Page 48 Table of Contents                 Operating activities Operating activities attributable to T. Rowe Price Group during 2023 provided cash flows of $2,058.6 million, a decrease of $381.7 million from $2,440.3 million during 2022. This decrease in cash flows provided by operating activities attributable to T. Rowe Price Group was primarily driven by a lower add-back of $986.5 million in non-cash items. The impact of these non-cash adjustments was offset in part by a $230.8 million increase in net income combined with $365.5 million from the cash settlement timing of our assets and liabilities. These non-cash adjustments were primarily driven by $567.3 million in net investment gains in 2023 compared to $314.0 million of net investment losses in 2022 as well as $226.8 million in amortization and impairments of acquisition-related assets and retention agreements incurred in 2023 compared to $420.1 million incurred in 2022. Additionally, in 2023, we had net investments of $10.3 million from certain investment products that economically hedge our supplemental savings plan liability, compared to net investments of $18.8 million in 2022. 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. Operating activities attributable to T. Rowe Price Group during 2022 provided cash flows of $2,440.3 million as compared to $3,428.3 million during 2021. Operating cash flows attributable to T. Rowe Price Group decreased $988.0 million, including a $1,525.0 million decrease in net income, timing differences on the cash settlement of our assets and liabilities of $303.9 million, and $774.0 million of higher 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 of net investment losses in 2022 compared to $169.4 million of net investment gains in 2021. 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. Investing activities Net cash used in investing activities that are attributable to T. Rowe Price Group totaled $310.2 million in 2023 compared with $179.3 million in 2022. During 2023, net proceeds from the sale of investments of $36.1 million were lower compared to $62.0 million during 2022. In 2023, we increased our property and equipment expenditures by $70.3 million and our other investing activity by $34.7 million. We eliminate our 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 $48.1 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 $179.3 million in 2022, compared with $1,134.9 million of cash used in investing activities in 2021. 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. Financing Activities Net cash used in financing activities attributable to T. Rowe Price Group totaled $1,437.4 million in 2023 compared with $2,028.5 million in 2022. During 2023, we used $254.4 million to repurchase 2.4 million shares compared to $849.8 million to repurchase 6.8 million shares in 2022. The $14.3 million increase in dividends paid in 2023 is a result of the 1.7% increase in our quarterly dividend per share in 2023. In addition, net distributions to non-controlling interests in consolidated entities increased by $8.2 million and cash flow related to common stock issued under stock compensation plans increased by $18.2 million during 2023 compared to 2022. The remaining change in reported cash flows from financing activities is primarily attributable to a $407.2 million increase in net subscriptions from redeemable non-controlling interest holders of our consolidated investment products during 2023. Net cash used in financing activities attributable to T. 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 20 Page 49 Table of Contents                 $1,138.5 million 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. MATERIAL CASH COMMITMENTS. Our material cash commitments primarily include our obligations under the supplemental savings plan, our lease obligations, our headquarters build out, 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 cancellable under certain conditions and may involve termination fees. We expect to fund these cash commitments from future cash flows from operations. Our obligations under the supplemental savings plan are disclosed on our consolidated balance sheet with more information included in Note 16 to the consolidated financial statements. Our lease obligations are disclosed in Note 7 to the consolidated financial statements. Additionally, there are unrecognized tax benefits discussed in Note 10 to our consolidated financial statements. While most of our other material cash commitments consist of goods and services used in our operations, these commitments primarily consist of obligations related to long-term software licensing and maintenance contracts, construction in process, and service contracts. We also have outstanding commitments to fund additional contributions to investment partnerships totaling $94.1 million. The vast majority of these additional contributions will be made to investment partnerships in which we have an existing investment. In addition to such amounts, a percentage of prior distributions may be called under certain circumstances. As part of the OHA acquisition, T. Rowe Price committed $500 million to fund OHA products through 2026. As of December 31, 2023, T. Rowe Price has $404.0 million remaining to commit to the OHA products. T. Rowe Price has also entered into certain earnout and other arrangements as part of that acquisition. For more detail on these arrangements, see Note 5 and Note 15 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. Accordingly, actual amounts or future results can differ materially from those estimates that we include currently in our consolidated financial statements, significant accounting policies, and notes. We present those significant accounting policies used in the preparation of our consolidated financial statements as an integral part of those statements within this 2023 Annual Report on Form 10-K. 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 We consolidate all subsidiaries and sponsored investment products in which we have a controlling financial interest. We are deemed to have a controlling interest when we own the majority of the voting interest of an entity or are deemed to be the primary beneficiary of a variable interest entity ("VIE"). VIEs are entities that lack sufficient equity 20 Page 50 Table of Contents                 to finance its activities or the equity holders do not have defined power to direct the activities of the entity normally associated with an equity investment. Our analysis to determine whether an entity is a VIE or a voting interest entity ("VOE") involves judgment and considers several factors, including an entity’s legal organization, capital structure, the rights of the equity investment holders, our ownership interest in the entity, and our contractual involvement with the entity. We continually review and reconsider our VIE or VOE conclusions upon the occurrence of certain events, such as changes to our ownership interest, changes to an entity’s legal structure, or amendments to governing documents. Our VIEs are primarily sponsored investment products and our variable interest consists of our equity ownership in and investment management fees earned from these entities. 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 sponsored investment products regulated outside the U.S. are determined to be VIEs. In addition, in connection with the OHA acquisition, we acquired certain carried interest entities, which are considered VIEs. These carried interest entities hold interests in general partners of affiliated private investment funds that are also VIEs; however, the carried interest entities are not the primary beneficiaries to these investment funds. Other-than-temporary impairments of equity method investments 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. Intangible assets 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 2023, our annual impairment review of our indefinite-lived intangible assets determined that they were not impaired at the review date. 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 20 Page 51 Table of Contents                 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 2023, we recognized an immaterial non-cash impairment charge on these intangible assets. Goodwill We internally conduct, manage, and report our operations as one reportable business segment - investment advisory business. 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. Our annual testing has demonstrated that the fair value of our investment advisory business (our market capitalization) exceeds our carrying amount (our stockholders’ equity) and, therefore, no impairment exists. Should we reach a different conclusion in the future, additional work would be performed to ascertain the amount of the noncash impairment charge to be recognized. 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, $2.6 billion as of December 31, 2023. Provision for income taxes After compensation and related costs, our provision for income taxes on our earnings is our largest annual expense. We operate in numerous states and countries through our various subsidiaries and must allocate our income, expenses, and earnings under the various laws and regulations of each of these taxing jurisdictions. Accordingly, our provision for income taxes represents our total estimate of the liability that we have incurred in doing business each year in all of our locations. Annually, we file tax returns that represent our filing positions with each jurisdiction and settle our return liabilities. Each jurisdiction has the right to audit those returns and may take different positions with respect to income and expense allocations and taxable earnings determinations. From time to time, we may also provide for estimated liabilities associated with uncertain tax return filing positions that are subject to, or in the process of, being audited by various tax authorities. Because the determination of our annual provision is subject to judgments and estimates, it is likely that actual results will vary from those recognized in our financial statements. As a result, we recognize additions to, or reductions of, income tax expense during a reporting period that pertain to prior period provisions as our estimated liabilities are revised and actual tax returns and tax audits are settled. We recognize any such prior period adjustment in the discrete quarterly period in which it is determined. We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. NEWLY ISSUED BUT NOT YET ADOPTED ACCOUNTING GUIDANCE. See Note 1 - Basis of Preparation and Summary of Significant Accounting Policies within Item 8, Financial Statements for a discussion of newly issued but not yet adopted accounting guidance. 20 Page 52 Table of Contents                 FORWARD-LOOKING INFORMATION. From time to time, information or statements provided by or on behalf of T. 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 of common stock; changes in the amount and composition of our assets under management; our expense levels; our tax rate; legal or regulatory developments; geopolitical instability; interest rates and currency fluctuations; and our expectations regarding financial markets, future transactions, dividends, stock repurchases, investments, new products and services, capital expenditures, changes in our effective fee rate, and other industry or market conditions. Readers are cautioned that any forward-looking information provided by or on behalf of T. Rowe Price is not a guarantee of future performance. Actual results may differ materially from those in forward-looking information because of various factors including, but not limited to, those discussed below and in Item 1A, Risk Factors, of this Form 10-K Annual Report. Further, forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of unanticipated events. Our future revenues and results of operations will fluctuate primarily due to changes in the total value and composition of assets under our management. Such changes result from many factors, including, among other things: client-related cash inflows and outflows in our 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 investment products, and changes in retirement savings trends relative to participant-directed investments and defined contribution plans. 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 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; and our ability to attract and retain key personnel. Our revenues are substantially dependent on fees earned under contracts with the T. Rowe Price funds and could be adversely affected if the independent directors of one or more of the T. 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. Our future results are also dependent upon the level of our expenses, which are subject to fluctuation for the following or other reasons: changes in the level of our advertising and promotion expenses in response to market conditions, including our efforts to expand our investment advisory business to investors outside the U.S. and to further penetrate our distribution channels within the U.S.; the pace and level of spending to support key strategic priorities; 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, intangible asset or other asset impairment that may arise; fluctuation in foreign currency exchange rates applicable to the costs of our international operations; expenses and capital costs, such as technology assets, depreciation, amortization, and research and development, incurred to maintain and enhance our administrative and operating services infrastructure; the timing of the assumption of all third party research payments, unanticipated costs that may be incurred to protect investor accounts and the goodwill of our clients; and disruptions of services, including those provided by third parties, such as fund and product recordkeeping, facilities, communications, power, and the mutual fund transfer agent and accounting systems, as a result of extreme events, cyberattacks or otherwise. 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. 20 Page 53 Table of Contents