Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

OVERVIEW.

Our revenues and net income are derived primarily from investment advisory services provided to individual and institutional investors in U.S. mutual funds, subadvised funds, separately managed accounts, collective investment trusts, and other T. Rowe Price products. The other T. Rowe Price products include: open-ended investment products offered to investors outside the U.S. and products offered through variable annuity life insurance plans in the U.S. We also provide certain investment advisory clients with related administrative services, including distribution, mutual fund transfer agent, accounting, and shareholder services; participant recordkeeping and transfer agent services for defined contribution retirement plans; brokerage; trust services; and non-discretionary advisory services through model delivery.

We manage a broad range of U.S., international and global stock, bond, and money market mutual funds and collective investment trusts and other investment products, which meet the varied needs and objectives of individual and institutional investors. Investment advisory revenues depend largely on the total value and composition of assets under our management. Accordingly, fluctuations in financial markets and in the composition of assets under management affect our revenues and results of operations. Additionally, approximately 30% of our operating expenses are impacted by changes in assets under management.

We incur significant expenditures to develop new products and services and improve and expand our capabilities and distribution channels in order to attract new investment advisory clients and additional investments from our existing clients. These efforts often involve costs that precede any future revenues that we may recognize from an increase to our assets under management.

The general trend to passive investing has been persistent and accelerated in recent years, which has negatively impacted our new client inflows. However, over the long term we expect well-executed active management to play an important role for investors. In this regard, we remain debt-free with ample liquidity and resources that allow us to take advantage of attractive growth opportunities. We are investing in key capabilities, including investment professionals, distribution professionals, technologies, and new product offerings; and, most importantly, we provide our clients with strong investment management expertise and service.

MARKET TRENDS.

U.S. stocks produced strong returns in 2020. Shares fell sharply during the first quarter in response to the global spreading of the coronavirus and severe economic weakness following lockdown measures. Starting in late March, equities rose sharply—and continued climbing throughout the year—in response to massive fiscal and monetary stimulus measures by governments and central banks around the world, as well as some economic re-opening efforts. Toward the end of the year, investor sentiment was lifted further by reduced political uncertainty following former Vice President Joe Biden’s victory over incumbent President Donald Trump in the November election. Also, investors were encouraged by the beginning of the distribution of some coronavirus vaccines that demonstrated very high efficacy rates in drug trials.

Stocks in developed non-U.S. equity markets produced positive returns in U.S. dollar terms but generally lagged U.S. shares. Local returns to U.S. investors were lifted by a weaker dollar against major non-U.S. currencies. In Asia, most major markets rose; Japanese shares advanced about 15%. In Europe, most markets also rose, but shares in the UK declined more than 10% due to uncertainty for most of the year about the UK’s post-Brexit trade relationship with the European Union.

Emerging markets stocks outperformed developed non-U.S. markets. Asia outperformed other emerging regions, thanks to market strength in South Korea, Taiwan, and China. In emerging Europe, Turkish and Russian shares declined moderately in U.S. dollar terms amid weak currencies versus the greenback. Latin American shares were mostly weaker, with regional heavyweight Brazil falling 19% in U.S. dollar terms as the real plunged more than 22% over the last year.

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Returns of several major equity market indexes for 2020 are as follows:


S&P 500 Index			18.4%
NASDAQ Composite Index(1)			43.6%
Russell 2000 Index			20.0%
MSCI EAFE (Europe, Australasia, and Far East) Index			8.3%
MSCI Emerging Markets Index			18.7%

(1) Returns exclude dividends

Global bonds produced mostly positive returns, as central banks slashed short-term interest rates and sovereign bond yields in many countries fell sharply. In the U.S. investment-grade market, corporate bonds did best, as investors sought attractive yields in a low interest rate environment. Treasury securities also did well as yields dropped across the yield curve. The 10-year U.S. Treasury note yield decreased from 1.92% to 0.93% over the last year. Asset- and mortgage-backed securities produced relatively mild gains. High yield corporate bonds and tax-free municipal bonds rose but trailed the broad taxable investment-grade bond market.

Bonds in developed non-U.S. markets produced strong gains in U.S. dollar terms, helped by dollar weakness against the euro and, to a lesser extent, the Japanese yen and the British pound. Bonds in developing markets generally appreciated in U.S. dollar terms, though local currency weakness in some countries, especially Brazil, Turkey, and Russia, reduced local returns to U.S. investors.

Returns of several major bond market indexes for 2020 are as follows:


Bloomberg Barclays U.S. Aggregate Bond Index			7.5%
JPMorgan Global High Yield Index			5.4%
Bloomberg Barclays Municipal Bond Index			5.2%
Bloomberg Barclays Global Aggregate Ex-U.S. Dollar Bond Index			10.1%
JPMorgan Emerging Markets Bond Index Plus			7.1%

ASSETS UNDER MANAGEMENT.

Assets under management ended 2020 at $1,470.5 billion, an increase of $263.7 billion from the end of 2019. This increase was driven by market appreciation and income, net of distributions not reinvested, of $256.9 billion and net cash inflows of $5.6 billion for 2020. In addition, we acquired client contracts from PNC Bank in September 2020 that added $1.2 billion of stable value assets under management. Clients transferred $13.7 billion in net assets from the U.S. mutual funds to primarily collective investment trusts and other investment products, of which $8.6 billion transferred into the retirement date trusts.

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


(in billions)	U.S. mutual funds		Subadvised and separate accounts		Collective investment trusts and other investment products		Total
Assets under management at December 31, 2017	$	606.3	$	255.2	$	129.6	$	991.1

Net cash flows before client transfers	4.4		(.2)		9.0		13.2
Client transfers(1)	(20.5)		2.8		17.7		—
Net cash flows after client transfers	(16.1)		2.6		26.7		13.2
Net market depreciation, net of income	(22.7)		(7.8)		(8.4)		(38.9)
Distributions not reinvested	(3.0)		—		(.1)		(3.1)
Change during the period	(41.8)		(5.2)		18.2		(28.8)

Assets under management at December 31, 2018	564.5		250.0		147.8		962.3

Net cash flows before client transfers	7.6		(.3)		5.9		13.2
Client transfers(1)	(23.2)		1.1		22.1		—
Net cash flows after client transfers	(15.6)		.8		28.0		13.2
Net market appreciation and income	135.6		63.0		34.5		233.1
Distributions not reinvested	(1.8)		—		—		(1.8)
Change during the period	118.2		63.8		62.5		244.5

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

Net cash flows before client transfers	(11.5)		8.0		9.1		5.6
Client transfers(1)	(13.7)		2.0		11.7		—
Net cash flows after client transfers	(25.2)		10.0		20.8		5.6
Net market appreciation and income	140.0		76.3		43.7		260.0
Distributions not reinvested	(2.9)		—		(.2)		(3.1)
Acquired AUM	—		—		1.2		1.2
Change during the period	111.9		86.3		65.5		263.7

Assets under management at December 31, 2020	$	794.6	$	400.1	$	275.8	$	1,470.5

(1) In all three years, the majority of the client transfers were from the T. Rowe Price U.S. mutual funds to the T. Rowe Price collective investment trusts, which are included in collective investment trusts and other investment products.

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


(in billions)	Equity		Fixed income, including money market		Multi-asset(1)		Total
Assets under management at December 31, 2017	$	564.1	$	134.4	$	292.6	$	991.1

Net cash flows	(1.4)		2.9		11.7		13.2
Net market depreciation, net of income(2)	(22.8)		(1.2)		(18.0)		(42.0)
Change during the period	(24.2)		1.7		(6.3)		(28.8)

Assets under management at December 31, 2018	539.9		136.1		286.3		962.3

Net cash flows	(.2)		3.5		9.9		13.2
Net market appreciation and income(2)	159.2		8.3		63.8		231.3
Change during the period	159.0		11.8		73.7		244.5

Assets under management at December 31, 2019	698.9		147.9		360.0		1,206.8

Net cash flows	—		14.1		(8.5)		5.6
Net market appreciation and income(2)	196.9		5.5		54.5		256.9
Acquired AUM	—		1.2		—		1.2
Change during the period	196.9		20.8		46.0		263.7

Assets under management at December 31, 2020	$	895.8	$	168.7	$	406.0	$	1,470.5

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

(2) Reported net of distributions not reinvested.

Investment advisory clients outside the U.S. account for 9.3% of our assets under management at December 31, 2020 and 6.9% at December 31, 2019.

Our net cash flows in 2020 reflect net positive flows due to inflows into fixed income and international equity. These inflows were partially offset by cash outflows in domestic equity and our multi-asset franchise resulting from macro-economic headwinds, including the CARES Act, and ongoing pressure from passive. In terms of equity products, the cash inflows from international equity offset the cash outflows from domestic equity products. From a geography perspective, EMEA and APAC regions performed well with positive net flows predominantly in equity in both regions. Net cash flows for 2019, and 2018 were driven by diversified inflows across distribution channels and geographies, the strength of our multi-asset franchise, and positive flows into fixed income and international equity.

Our target date retirement products, which are included in the multi-asset totals shown above, continue to be a significant part of our assets under management. Assets under management in our target date retirement products as well as net cash inflows/(outflows), by vehicle, are as follows:


	Assets under management						Net cash inflows/(outflows) for year ended
(in billions)	12/31/20		12/31/19		12/31/18		12/31/20		12/31/19		12/31/18
U.S. mutual funds	$	176.1	$	164.8	$	144.8	$	(12.7)	$	(10.8)	$	(14.1)
Collective investment trusts	145.4		119.2		79.7		5.4		19.5		21.4
Separately managed accounts	10.7		8.4		5.9		.8		1.1		4.7
	$	332.2	$	292.4	$	230.4	$	(6.5)	$	9.8	$	12.0

We provide participant accounting and plan administration for defined contribution retirement plans that invest in the firm's U.S. mutual funds, collective investment trusts and funds outside of the firm's complex. As of December 31, 2020, our assets under administration were $239 billion, of which nearly $148 billion are assets we manage. In recent years, we began offering non-discretionary advisory services through model delivery, which are managed accounts where portfolio holdings and trades in the portfolio are provided to sponsor platforms to implement for their clients. We record the revenue earned on these services in administrative fees. The assets under advisement in

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these portfolios, predominantly in the United States, is $2.8 billion at December 31, 2020.

INVESTMENT PERFORMANCE.

Strong investment performance and brand awareness is a key driver to attracting and retaining assets—and to our long-term success. Beginning in the third quarter of 2020, we expanded our performance disclosures to include specific assets classes, assets under management weighted performance, mutual fund performance against passive peers and composite performance against benchmarks. The following table presents investment performance for the one-, three-, five-, and 10-years ended December 31, 2020. Past performance is no guarantee of future results.


% of U.S. mutual funds that outperformed Morningstar median1,2
	1 year	3 years	5 years	10 years
Equity	65%	71%	66%	85%
Fixed Income	54%	55%	58%	57%
Multi-Asset	94%	94%	85%	90%

All Funds	70%	72%	69%	77%

% of U.S. mutual funds that outperformed passive peer median1,3
	1 year	3 years	5 years	10 years
Equity	52%	67%	64%	68%
Fixed Income	72%	59%	54%	47%
Multi-Asset	91%	82%	70%	86%

All Funds	69%	69%	63%	67%

% of composites that outperformed benchmarks4
	1 year	3 years	5 years	10 years
Equity	60%	65%	70%	77%
Fixed Income	66%	56%	67%	68%


All Composites	62%	62%	68%	74%


AUM Weighted Performance
% of U.S. mutual funds AUM that outperformed Morningstar median1,2
	1 year	3 years	5 years	10 years
Equity	76%	79%	84%	92%
Fixed Income	43%	51%	57%	59%
Multi-Asset	100%	97%	96%	97%

All Funds	79%	81%	85%	90%

% of U.S. mutual funds AUM that outperformed passive peer median1,3
	1 year	3 years	5 years	10 years
Equity	39%	81%	77%	73%
Fixed Income	58%	50%	37%	43%
Multi-Asset	95%	96%	95%	96%

All Funds	54%	83%	79%	77%

% of composites AUM that outperformed benchmarks4
	1 year	3 years	5 years	10 years
Equity	70%	71%	73%	73%
Fixed Income	53%	47%	49%	72%


All Composites	67%	67%	69%	73%

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As of December 31, 2020, 73 of 123 (59.3%) 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(5). In addition, 84%(5) of AUM in our rated U.S. mutual funds (across primary share classes) ended 2020 with an overall rating of 4 or 5 stars.

(1) Source: © 2020 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.

(2) 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 $493B for 1 year, $493B for 3 years, $493B for 5 years, and $484B for 10 years.

(3) 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 to 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 $475B for 1 year, $473B for 3 years, $432B for 5 years, and $411B for 10 years.

(4)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 $1,355B for 1 year, $1,353B for 3 years, $1,328B for 5 years, and $1,290B for 10 years

(5) 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.

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RESULTS OF OPERATIONS.

The following table and discussion set forth information regarding our consolidated financial results for 2020, 2019 and 2018 on a U.S. GAAP basis as well as a non-GAAP basis. The non-GAAP basis adjusts for the impact of our consolidated T. Rowe Price investment products, the impact of market movements on the supplemental savings plan liability and related economic hedges, investment income related to certain other investments, and certain nonrecurring charges and gains.


							2020 compared with 2019				2019 compared with 2018
(in millions, except per-share data)	2020		2019		2018		$ Change		% Change		$ Change		% Change

U.S. GAAP basis
Investment advisory fees	$	5,693.1	$	5,112.5	$	4,850.6	$	580.6	11.4	%	$	261.9	5.4	%
Net revenues	$	6,206.7	$	5,617.9	$	5,372.6	$	588.8	10.5	%	$	245.3	4.6	%
Operating expenses	$	3,461.0	$	3,230.9	$	3,011.2	$	230.1	7.1	%	$	219.7	7.3	%
Net operating income	$	2,745.7	$	2,387.0	$	2,361.4	$	358.7	15.0	%	$	25.6	1.1	%
Non-operating income(1)	$	496.5	$	540.3	$	23.2	$	(43.8)	n/m		$	517.1	n/m
Net income attributable to T. Rowe Price Group	$	2,372.7	$	2,131.3	$	1,837.5	$	241.4	11.3	%	$	293.8	16.0	%
Diluted earnings per common share	$	9.98	$	8.70	$	7.27	$	1.28	14.7	%	$	1.43	19.7	%
Weighted average common shares outstanding assuming dilution	231.2		238.6		246.9		(7.4)		(3.1)	%	(8.3)		(3.4)	%

Adjusted non-GAAP basis(2)
Operating expenses	$	3,342.7	$	3,149.8	$	3,025.5	$	192.9	6.1	%	$	124.3	4.1	%
Net income attributable to T. Rowe Price Group	$	2,276.8	$	1,975.6	$	1,807.4	$	301.2	15.2	%	$	168.2	9.3	%
Diluted earnings per common share	$	9.58	$	8.07	$	7.15	$	1.51	18.7	%	$	.92	12.9	%

Assets under management (in billions)
Average assets under management	$	1,247.9	$	1,109.3	$	1,036.5	$	138.6	12.5	%	$	72.8	7.0	%
Ending assets under management	$	1,470.5	$	1,206.8	$	962.3	$	263.7	21.9	%	$	244.5	25.4	%

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

(2) 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.

Results Overview - 2020 as compared to 2019

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 2020 increased 11.4% over the comparable 2019 period as average assets under our management increased $138.6 billion, or 12.5%, to $1,247.9 billion. In 2020, we voluntarily waived $20.4 million, or less than 1%, of our investment advisory fees from certain of our money market mutual funds, trusts, and other investment portfolios in order to maintain a positive yield for investors. At December 31, 2020, combined net assets of the investment portfolios in which we waived fees in 2020 were $23.9 billion. We expect to continue to waive fees in 2021, and we currently anticipate that the waivers for the first quarter of 2021 will be at or slightly

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above the level of waivers experienced in the fourth quarter of 2020. We also expect that the fee waivers for the first quarter of 2021 will represent a high-water mark for fee waivers issued.

The average annualized fee rate earned on our assets under management was 45.6 basis points in 2020, compared with 46.1 basis points earned in 2019. Our effective fee rate has declined largely due to client transfers within the complex to lower fee vehicles or share classes over the last year and the money market fee waivers. These declines were partially offset by performance-based fees earned in 2020.

Operating expenses. Operating expenses were $3,461.0 million in 2020, an increase of 7.1% over the comparable 2019 period. The increase in operating expenses was primarily due to a $38.6 million increase in expense related to the supplemental savings plan from higher market returns, higher compensation expenses and our continued strategic investments.

On a non-GAAP basis, our operating expenses in 2020 increased 6.1% to $3,342.7 million compared with 2019. Our non-GAAP operating expenses do not include the impact of our supplemental savings plan and our consolidated T. Rowe Price investment products. See our non-GAAP reconciliations later in this Management's Discussion and Analysis section.

In 2021 and beyond, we expect to advance our strategic priorities to maintain our position as a global and diversified asset manager, a global partner for retirement investors and a provider of integrated investment solutions; to embed environmental, social and governance principles across the firm; to maintain effective processes and controls while becoming an adaptive and agile firm; and to become a destination of choice for top talent with a diverse workforce and inclusive culture. We have increased our 2021 non-GAAP operating expense growth range to 8%-12%, from the 6%-9% provided in October 2020, as sharp market returns in the fourth quarter of 2020 and current AUM levels increased our expectations for AUM-driven expenses. We could elect to adjust our expense growth should unforeseen circumstances arise, including significant market movements.

Operating margin. Our operating margin in 2020 was 44.2%, compared with 42.5% in 2019. The increase in our operating margin in 2020 compared with 2019 is primarily driven by higher net revenues, partially offset by higher compensation-related expenses.

Diluted earnings per share. Diluted earnings per share was $9.98 in 2020 as compared to $8.70 in 2019. The 14.7% increase in diluted earnings per share in 2020 compared to 2019 was primarily driven by higher operating income, lower weighted average outstanding shares, and a lower effective tax rate. These drivers of the increase were partially offset by lower net investment gains recognized in 2020 than in 2019.

On a non-GAAP basis, diluted earnings per share was $9.58 in 2020 as compared to $8.07 for 2019. The increase in adjusted diluted earnings per share was primarily due to higher operating income, lower weighted average outstanding shares, and a lower effective tax rate. The impact of these drivers were partially offset by lower net investment gains recognized in 2020 than in 2019. See our non-GAAP reconciliations later in this Management's Discussion and Analysis section.

Results Overview - 2019 as compared to 2018

Investment advisory revenues. In 2019, investment advisory revenues increased 5.4% over the comparable 2018 period as average assets under our management increased $72.8 billion, or 7.0%, to $1,109.3 billion.

The average annualized fee rate earned on our assets under management was 46.1 basis points in 2019, compared with 46.8 basis points earned in 2018. Our effective fee rate declined in part due to client transfers within the complex to lower fee vehicles or share classes and, to a lesser extent, fee reductions we made to certain mutual funds and other products since 2018. Further contributing to our lower effective fee rate in 2019 was a greater percentage of our assets under management in lower fee products due to lower equity valuations in the fourth quarter of 2019.

Operating expenses. For 2019, operating expenses were $3,230.9 million as compared with $3,011.2 million in the 2018 period. The increase in operating expenses was primarily due to our continued strategic investments and higher bonus and stock-based compensation, which were driven by our 2019 operating results. The 2018 period also includes the non-recurring $15.2 million reduction in operating expenses related to the conclusion of the Dell appraisal rights matter.

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In 2019, our non-GAAP operating expenses increased 4.1% to $3,149.8 million compared with 2018. See our non-GAAP reconciliations later in this Management's Discussion and Analysis section.

Operating margin. Our operating margin in 2019 was 42.5%, compared with 44.0% in 2018. The decrease in our operating margin in 2019 compared to 2018 was driven by the higher percentage growth in operating expenses related to our supplemental savings plan as compared with the percentage growth in net revenues during 2019.

Diluted earnings per share. Diluted earnings per share was $8.70 in 2019 as compared with $7.27 in 2018. The 19.7% increase in diluted earnings per share in 2019 compared to 2018 was primarily driven by higher non-operating income, the benefit realized from increased share buybacks, which lowered the weighted-average shares outstanding, and a lower effective tax rate.

On a non-GAAP basis, diluted earnings per share were $8.07 in 2019 as compared with $7.15 in 2018. The 12.9% increase in non-GAAP diluted earnings per share in 2019 compared to 2018 was primarily driven by higher operating income, higher investment income earned on our cash and discretionary investment portfolio, and lower weighted-average shares outstanding. See our non-GAAP reconciliations later in this Management's Discussion and Analysis section.

Net revenues


							2020 compared with 2019				2019 compared with 2018
(in millions)	2020		2019		2018		$ Change		% Change		$ Change		% Change
Investment advisory fees
U.S. mutual funds	$	3,639.9	$	3,452.5	$	3,375.0	$	187.4	5.4	%	$	77.5	2.3	%
Subadvised funds, separate accounts, collective investment trusts, and other investment products	2,053.2		1,660.0		1,475.6		393.2		23.7	%	184.4		12.5	%
	5,693.1		5,112.5		4,850.6		580.6		11.4	%	261.9		5.4	%
Administrative, distribution, and servicing fees
Administrative fees	402.3		385.4		384.0		16.9		4.4	%	1.4		0.4	%
Distribution and servicing fees	111.3		120.0		138.0		(8.7)		(7.3)	%	(18.0)		(13.0)	%
	513.6		505.4		522.0		8.2		1.6	%	(16.6)		(3.2)	%
Net revenues	$	6,206.7	$	5,617.9	$	5,372.6	$	588.8	10.5	%	$	245.3	4.6	%

Investment advisory fees. The relationship between the change in average assets under management and the change in investment advisory fee revenue for 2020, 2019 and 2018 are presented below.


	2020 compared with 2019				2019 compared with 2018
	Increase in average assets under management		Increase in investment advisory fees		Increase in average assets under management		Increase in investment advisory fees
U.S. mutual funds	7.4	%	5.4	%	3.0	%	2.3	%

Subadvised funds, separate accounts, collective investment trusts, and other investment products	19.5	%	23.7	%	13.1	%	12.5	%

Total investment advisory fees	12.5	%	11.4	%	7.0	%	5.4	%

In general, strong market returns in 2020 shifted the asset and share class mix among different fee rates and products including those with tiered-fee structures. Additionally, we have reduced the management fees of certain products over the last few years.

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In 2020, the relationship between U.S. mutual funds' average assets under management and investment advisory fee growth was impacted by the money market fees waivers and client transfers within the complex to lower fee vehicles or share classes.

For the subadvised funds, separate accounts, collective investment trusts, and other investment products, 2020 inflows into our international products, which have a higher fee rate relative to other products, and performance-based fees earned on certain separate accounts drove investment advisory revenues to outpace the increase in average assets under management. These investment advisory revenues include distribution-related services we provide to the international products and then contract with third-party intermediaries to distribute these products. The costs we incur to pay the third-party intermediaries are recorded as part of distribution and servicing expenses.

In 2019, equity markets outperformed fixed income markets resulting in a shift of the U.S. mutual fund average asset mix to higher fee equity products over 2018. Strong market returns in 2019 and U.S. mutual fund to trust transfers have primarily increased average assets under management for our subadvised funds, separate accounts, collective investment trusts, and other products. However, lower incremental fee rates on higher average assets and growth in lower fee share classes resulted in slower revenue growth in 2019 over 2018.

Administrative, distribution, and servicing fees. Administrative, distribution, and servicing fees in 2020 were $513.6 million, an increase of $8.2 million from 2019. The higher expense was primarily due to increased transfer agent servicing activities provided to our U.S. mutual funds. This increase was partially offset by lower 12b-1 revenue earned on certain share classes, including the Advisor and R classes, of the U.S. mutual funds, as compared to 2019, as well as client transfers to lower fee vehicles and share classes have reduced assets under management in these share classes. The decrease in 12b-1 revenue is offset entirely by a reduction in the costs paid to third-party intermediaries that source these assets and is reported in distribution and servicing expense.

For 2019, administrative, distribution, and servicing fees were $505.4 million, a decrease of $16.6 million from the comparable 2018 period. The decrease was primarily attributable to lower 12b-1 revenue earned on certain share classes, including the Advisor and R classes, of the U.S. mutual funds as client transfers to lower fee vehicles and share classes have reduced assets under management in these share classes.

Net revenues are presented after the elimination of $9.9 million for 2020, $6.8 million for 2019, and $6.2 million for 2018, earned from our consolidated T. Rowe Price investment products. The corresponding expenses recognized by these consolidated products were also eliminated from operating expenses.

Operating expenses


							2020 compared with 2019				2019 compared with 2018
(in millions)	2020		2019		2018		$ Change		% Change		$ Change		% Change
Compensation and related costs	$	2,182.4	$	1,969.2	$	1,808.6	$	213.2	10.8	%	$	160.6	8.9	%
Distribution and servicing costs	278.5		262.5		281.2		16.0		6.1	%	(18.7)		(6.7)	%
Advertising and promotion	83.7		96.8		99.6		(13.1)		(13.5)	%	(2.8)		(2.8)	%
Product-related costs	155.5		153.2		157.1		2.3		1.5	%	(3.9)		(2.5)	%
Technology, occupancy, and facility costs	444.8		427.3		383.9		17.5		4.1	%	43.4		11.3	%
General, administrative, and other	316.1		321.9		296.0		(5.8)		(1.8)	%	25.9		8.8	%
Nonrecurring net recoveries related to Dell appraisal rights matter(1)	—		—		(15.2)		—		n/m		15.2		n/m
Total operating expenses	$	3,461.0	$	3,230.9	$	3,011.2	$	230.1	7.1	%	$	219.7	7.3	%

(1) The percentage change in nonrecurring net recoveries related to Dell appraisal rights matter is not meaningful (n/m).

Compensation and related costs. Compensation and related costs increased $213.2 million, or 10.8%, for 2020 as compared with 2019. The increase in compensation and related costs was primarily due to an $83.0 million increase in salaries, benefits and related employee costs, as our average staff size increased 5.8% from prior year and we made modest increases to base salaries at the beginning of the year. Strong 2020 operating results led to a $65.5 million increase in our annual variable compensation, primarily bonus compensation, and higher stock-based

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compensation expense. These increases in compensation and related costs were partially offset by $30.4 million in higher labor capitalization related to internally developed software in 2020. The $38.6 million in higher expense related to our supplemental savings plan from strong market returns is partially offset by the non-operating gains on the investments used to economically hedge the related liability.

For 2019, compensation and related costs increased $160.6 million, or 8.9%, as compared with 2018. Nearly half of the increase in compensation and related costs is attributable to $78.8 million in higher expense related to our supplemental savings plan given the strong equity market returns experienced in 2019 compared with the sharp equity market declines in late 2018. The higher expense related to the supplemental savings plan is partially offset by the non-operating gains earned on the investments used to economically hedge the related liability. We also experienced increases in base salaries, benefits, and related employee costs of $66.0 million, as our average staff size grew 3.1% in 2019 and we modestly increased base salaries at the beginning of 2019. Our 2019 operating results led to a $28.8 million increase in annual variable compensation, primarily bonus compensation, as well as a $9.5 million increase in non-cash stock-based compensation expense. These increases in compensation and related costs were offset in part by the absence of the one-time $9.0 million bonus paid to certain associates in the second quarter of 2018 and $10.0 million in higher labor capitalization related to internally developed software in 2019.

Distribution and servicing costs. Distribution and servicing costs were $278.5 million for 2020, an increase of $16.0 million, or 6.1%, compared to 2019. The increase was primarily driven by higher distribution costs as a result of continued inflows into our international products, including our Japanese ITMs and SICAVs. These higher distribution costs were partially offset by client transfers, largely from Advisor and R classes, to vehicles that don't pay distribution and servicing costs.

Distribution and servicing costs were $262.5 million for 2019, a decrease of $18.7 million, or 6.7%, compared with 2018. The decrease was primarily driven by client transfers, largely from Advisor and R classes, to vehicles that don't pay distribution and servicing costs.

Distribution and servicing costs paid to third-party intermediaries that source the assets of certain share classes of our U.S. mutual funds and our international products, such as our Japanese ITMs and SICAVs, are recognized in this expense. Both of these costs are offset entirely by the revenue we earn and report in net revenues: 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. Advertising and promotion costs were $83.7 million for 2020, a decrease of $13.1 million, or 13.5%, compared with 2019. The decrease was primarily driven by lower media costs and fewer conference and promotional events in 2020 as a result of cancellations arising from the coronavirus pandemic in 2020.

For 2019, advertising and promotion costs were $96.8 million, a decrease of $2.8 million, or 2.8%, compared with 2018. The decrease in advertising and promotion costs for 2019 from 2018 is primarily driven by the absence in 2019 of the creation and launch of a media advertising campaign in 2018.

Product-related costs. Product-related costs were $155.5 million for 2020, an increase of $2.3 million, or 1.5%, compared with 2019. The increase is primarily due to higher expenses related to servicing retirement plan products, partially offset by lower costs incurred to provide administrative services to the U.S. mutual funds.

Product-related costs were $153.2 million for 2019, a decrease of $3.9 million, or 2.5%, compared with 2018. The decrease is primarily due to lower costs incurred to provide administrative services to the U.S. mutual funds, partially offset by higher operating costs of our collective investment trusts as client transfers have increased the number of trusts and their average net assets over the last year.

Technology, occupancy, and facility costs. Technology, occupancy, and facility costs were $444.8 million for 2020, $427.3 million for 2019, and $383.9 million for 2018. The increases over the last two years were due primarily to ongoing investment in our technology capabilities, including related depreciation and hosted solution licenses, as well as office expansion costs. The 2019 year included certain non-recurring office facility costs.

General, administrative, and other costs. General, administrative, and other costs were $316.1 million for 2020, $321.9 million for 2019, and $296.0 million for 2018. Higher third-party investment research costs, professional fees,

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and other administrative related costs in 2020 were more than offset by lower travel-related expenses.

For 2019, the increase in general, administrative, and other costs from 2018 was a result of continued investment in our strategic initiatives, higher third-party investment research costs, and other growing operational and regulatory demands on the business.

Non-operating income

Net non-operating investment income decreased $43.8 million in 2020 compared with 2019 and increased $517.1 million in 2019 compared with 2018. Net non-operating investment activity for the years ended December 31, 2020, 2019 and 2018 comprised the following:


							2020 compared with 2019		2019 compared with 2018
(in millions)	2020		2019		2018		$ Change		$ Change
Net gains (losses) from non-consolidated T. Rowe Price investment products
Cash and discretionary investments
Dividend income	$	25.2	$	67.6	$	48.8	$	(42.4)	$	18.8
Market related gains (losses) and equity in earnings (losses)	67.5		58.4		(16.0)		9.1		74.4
Total cash and discretionary investments	92.7		126.0		32.8		(33.3)		93.2
Seed capital investments
Dividend income	2.2		2.3		3.9		(.1)		(1.6)
Market related gains (losses) and equity in earnings (losses)	32.2		42.7		(22.5)		(10.5)		65.2
Net gain recognized upon deconsolidation	.7		.1		3.6		.6		(3.5)
Investments used to hedge the supplemental savings plan liability	91.1		67.9		(6.1)		23.2		74.0
Total net gains from non-consolidated T. Rowe Price investment products	218.9		239.0		11.7		(20.1)		227.3
Other investment income	27.9		21.4		107.5		6.5		(86.1)
Net gains on investments	246.8		260.4		119.2		(13.6)		141.2
Net gains (losses) on consolidated sponsored investment portfolios	251.7		272.9		(92.9)		(21.2)		365.8
Other income (loss), including foreign currency gains and losses	(2.0)		7.0		(3.1)		(9)		10.1
Non-operating income	$	496.5	$	540.3	$	23.2	$	(43.8)	$	517.1

Despite the global economies and market disruptions caused by the coronavirus pandemic in the first quarter of 2020, strong markets for the remainder of 2020 reversed net investment losses experienced in the first quarter and generated significant gains by the end of 2020. Our consolidated investment products and supplemental savings plan hedge portfolio comprised almost 70% of the net gains recognized in 2020. Our cash and discretionary investments generated income of $92.7 million in 2020 as compared to $126.0 million in 2019 as the very low interest environment reduced the dividends earned from our money market fund investments.

During 2019, non-operating income reflected the sharp market returns which resulted in significant unrealized gains on our investment portfolio, including our consolidated investment portfolios, compared with losses in 2018. Partially offsetting the market increases was the absence in 2019 of the realized gain from the sale of our 10% holding in Daiwa SB Investments Ltd. that was recognized in 2018. Our cash and discretionary investments generated income of $126.0 million in 2019 as compared to $32.8 million in 2018.

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The impact of consolidating certain T. Rowe Price investment products on the individual lines of our consolidated statements of income for 2020, 2019, and 2018 is as follows:


							2020 compared with 2019		2019 compared with 2018
(in millions)	2020		2019		2018		$ Change			$ Change
Operating expenses reflected in net operating income	$	(16.4)	$	(14.7)	$	(12.7)	$	(1.7)		$	(2.0)
Net investment income (loss) reflected in non-operating income	251.7		272.9		(92.9)		(21.2)			365.8
Impact on income before taxes	$	235.3	$	258.2	$	(105.6)	$	(22.9)		$	363.8

Net income (loss) attributable to our interest in the consolidated T. Rowe Price investment products	$	84.7	$	140.6	$	(36.8)	$	(55.9)		$	177.4
Net income (loss) attributable to redeemable non-controlling interests (unrelated third-party investors)	150.6		117.6		(68.8)		33.0			186.4
Impact on income before taxes	$	235.3	$	258.2	$	(105.6)	$	(22.9)		$	363.8

Provision for income taxes

Our effective tax rate for 2020 was 22.2%, compared with 23.2% for 2019 and 25.8% for 2018. The decrease in our effective tax rate in 2020 from 2019 was primarily due to a lower effective state tax rate as we continue to see phased-in benefit of the 2018 Maryland state tax legislation and higher discrete tax benefits associated with the settlement of stock-based awards given the rise in our stock price in 2020.

For 2019, the decrease in the effective tax rate from 2018 was primarily due to higher net income attributable to redeemable non-controlling interests related to our consolidated T. Rowe Price investment products, as these earnings are not taxable to us, as well as a lower state tax rate from the Maryland state legislation in 2018, and the absence in 2019 of the 2018 nonrecurring charges related to the enactment of U.S. tax reform.

On April 24, 2018, the state of Maryland enacted new state tax legislation. This new state tax legislation, effective in 2018, adopted a five-year phase-in of the single sales factor method of apportionment for calculating income tax for multi-state companies doing business in Maryland and is expected to result in a net benefit over time. Accordingly, we recognized a nonrecurring charge of $7.9 million during 2018 for the re-measurement of our deferred tax assets and liabilities to reflect the effect of this Maryland state tax legislation. Based on information currently available, we expect that the Maryland state tax legislation will reduce our effective state tax rate over the five-year phase-in period to less than 3%.

The following table reconciles the statutory federal income tax rate to our effective tax rate for the years ended December 31, 2020, 2019, and 2018:


	2020		2019		2018
Statutory U.S. federal income tax rate	21.0	%	21.0	%	21.0	%
Impact of nonrecurring charge relating to U.S. tax reform	—		—		.8
Impact of nonrecurring charge related to Maryland state tax legislation	—		—		.3
State income taxes for current year, net of federal income tax benefits(1)	3.8		4.3		4.6
Net income attributable to redeemable non-controlling interests	(1.2)		(1.0)		.7
Net excess tax benefits from stock-based compensation plans activity	(1.9)		(1.5)		(1.7)
Other items	.5		.4		.1
Effective income tax rate	22.2	%	23.2	%	25.8	%

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

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

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

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 2020, 2019, and 2018 were 23.3% for 2020, 24.0% for 2019, 24.1% for 2018. Similar to our GAAP rate, the decrease in our 2020 non-GAAP effective tax rate from 2019 is due primarily to a lower effective state tax rate and higher discrete tax benefits associated with option exercises.

We currently estimate our GAAP effective tax rate for the full-year 2021 will be in the range of 22% to 25% and our non-GAAP effective tax rate for the full-year 2021 will be in the range of 23% to 25%.

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 five years.


	2020
(in millions)	Operating expenses		Net operating income		Non-operating income		Provision (benefit) for income taxes(7)		Net income attributable to T. Rowe Price Group		Diluted earnings per share(8)
U.S. GAAP Basis	$	3,461.0	$	2,745.7	$	496.5	$	718.9	$	2,372.7	$	9.98
Non-GAAP adjustments:
Consolidated T. Rowe Price investment products(1)	(6.5)		16.4		(251.7)		(19.5)		(65.1)		(.27)
Supplemental savings plan liability(2)	(111.8)		111.8		(91.1)		7.2		13.5		.06
Other non-operating income(3)	—		—		(61.0)		(16.8)		(44.3)		(.19)


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


	2019
(in millions)	Operating expenses		Net operating income		Non-operating income		Provision (benefit) for income taxes(7)		Net income attributable to T. Rowe Price Group		Diluted earnings per share(8)
U.S. GAAP Basis	$	3,230.9	$	2,387.0	$	540.3	$	678.4	$	2,131.3	$	8.70
Non-GAAP adjustments:
Consolidated T. Rowe Price investment products(1)	(7.9)		14.7		(272.9)		(35.7)		(104.9)		(.42)
Supplemental savings plan liability(2)	(73.2)		73.2		(67.9)		1.3		4.0		.02
Other non-operating income(3)	—		—		(73.5)		(18.7)		(54.8)		(.23)



Adjusted Non-GAAP Basis	$	3,149.8	$	2,474.9	$	126.0	$	625.3	$	1,975.6	$	8.07

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	2018
(in millions)	Operating expenses		Net operating income		Non-operating income		Provision (benefit) for income taxes(7)		Net income attributable to T. Rowe Price Group		Diluted earnings per share(8)
U.S. GAAP Basis	$	3,011.2	$	2,361.4	$	23.2	$	615.9	$	1,837.5	$	7.27
Non-GAAP adjustments:
Consolidated T. Rowe Price investment products(1)	(6.5)		12.7		92.9		6.5		30.3		.12
Supplemental savings plan liability(2)	5.6		(5.6)		6.1		.1		.4		—
Other non-operating income(3)	—		—		(93.7)		(16.7)		(77.0)		(.30)
Nonrecurring charge related to enactment of U.S. tax reform(4)	—		—		—		(20.8)		20.8		.08
Nonrecurring charge related to enactment of Maryland state tax legislation(5)	—		—		—		(7.9)		7.9		.03
Nonrecurring net charge (recoveries) related to Dell appraisal rights matter(6)	15.2		(15.2)		—		(2.7)		(12.5)		(.05)

Adjusted Non-GAAP Basis	$	3,025.5	$	2,353.3	$	28.5	$	574.4	$	1,807.4	$	7.15


	2017
(in millions)	Operating expenses		Net operating income		Non-operating income		Provision (benefit) for income taxes(7)		Net income attributable to T. Rowe Price Group		Diluted earnings per share(8)
U.S. GAAP Basis	$	2,746.1	$	2,108.8	$	396.3	$	923.9	$	1,497.8	$	5.97
Non-GAAP adjustments:
Consolidated T. Rowe Price investment products(1)	(6.7)		12.3		(193.9)		(37.8)		(60.3)		(.24)
Supplemental savings plan liability(2)	(11.7)		11.7		(12.3)		(.3)		(.4)		—
Other non-operating income(3)	—		—		(190.1)		(73.4)		(116.7)		(.46)
Nonrecurring charge related to enactment of U.S. tax reform(4)	—		—		—		(71.1)		71.1		.28
Nonrecurring net charge (recoveries) related to Dell appraisal rights matter(6)	50.0		(50.0)		—		(19.6)		(30.4)		(.12)
Adjusted Non-GAAP Basis	$	2,777.7	$	2,082.8	$	—	$	721.7	$	1,361.1	$	5.43


	2016
(in millions)	Operating expenses		Net operating income		Non-operating income		Provision (benefit) for income taxes(7)		Net income attributable to T. Rowe Price Group		Diluted earnings per share(8)
U.S. GAAP Basis	$	2,551.4	$	1,733.4	$	227.1	$	706.5	$	1,215.0	$	4.75
Non-GAAP adjustments:
Consolidated T. Rowe Price investment products(1)	(6.5)		13.0		(121.1)		(27.1)		(42.0)		(.16)

Other non-operating income(3)	—		—		(106.0)		(41.7)		(64.3)		(.25)
Nonrecurring net charge (recoveries) related to Dell appraisal rights matter(6)	(66.2)		66.2		—		26.0		40.2		.15


Adjusted Non-GAAP Basis	$	2,478.7	$	1,812.6	$	—	$	663.7	$	1,148.9	$	4.49

(1) These non-GAAP adjustments remove the impact that the consolidated T. Rowe Price investment products have on our U.S. GAAP consolidated statements of income. Specifically, we add back the operating expenses and subtract the investment income of the consolidated T. Rowe Price investment products. The adjustment to our operating expenses represents the operating expenses of the consolidated products, net of the elimination of related management and administrative fees. The adjustment to net income attributable to T. Rowe Price Group represents the net income of the consolidated products, net of redeemable non-controlling interest. We remove the impact of the

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consolidated T. Rowe Price investment products as we believe they impact the reader’s ability to understand our core operating results.

(2) These non-GAAP adjustments remove the compensation expense 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) realized on the hedges against the related compensation expense and remove the net impact to help the reader's ability to understand our core operating results and to increase comparability period to period.

(3) This non-GAAP adjustment represents the other non-operating income (loss) and the net gains (losses) earned on our non-consolidated investment portfolio that are not designated as economic hedges of the supplemental savings plan liability, and, beginning in the second quarter of 2018, non-consolidated seed investments and other investments that are not part of the cash and discretionary investment portfolio. In the second quarter of 2018, we decided to retain the investment gains recognized on our non-consolidated cash and discretionary investments as these assets and related income (loss) are considered part of our core operations. The impact on previously reported non-GAAP measures is immaterial. We believe adjusting for these non-operating income (loss) items helps the reader’s ability to understand our core operating results and increases comparability to prior years. Additionally, we do not emphasize the impact of the portion of non-operating income (loss) removed when managing and evaluating our core performance.

(4) During the second quarter of 2018, we recognized a nonrecurring charge of $20.8 million for an adjustment made to the charge taken in 2017 related to the enactment of U.S. tax reform. We believe it is useful to readers of our consolidated statements of income to adjust for this nonrecurring charge in arriving at net income attributable to

T. Rowe Price Group and diluted earnings per share.

(5) During the second quarter of 2018, we recognized a nonrecurring charge of $7.9 million for the remeasurement of our deferred tax assets and liabilities to reflect the effect of Maryland state tax legislation enacted on April 24, 2018. We believe it is useful to readers of our consolidated statements of income to adjust for this nonrecurring charge in arriving at net income attributable to T. Rowe Price Group and diluted earnings per share.

(6) In 2016, we recognized a nonrecurring charge, net of insurance recoveries, of $66.2 million related to our decision to compensate certain clients in regard to the Dell appraisal rights matter. In 2017, we recognized additional insurance recoveries of $50 million as a reduction in operating expenses. During 2018, we recognized an additional reduction in operating expenses of $15.2 million upon recovering a portion of the payments we made to our clients in 2016. We believe it is useful to our readers of our consolidated statements of income to adjust for these charges and nonrecurring recoveries in arriving at adjusted operating expenses, net operating income, provision for income taxes, net income attributable to T. Rowe Price Group and diluted earnings per share.

(7) The income tax impacts were calculated in order to achieve an overall non-GAAP effective tax rate of 23.3% for 2020, 24.0% for 2019, 24.1% for 2018, 34.7% for 2017, and 36.6% for 2016. We estimate that our effective tax rate for the full-year 2021 on a non-GAAP basis will be in the range of 23% to 25%.

(8) This non-GAAP measure was calculated by applying the two-class method to adjusted net income attributable to

T. Rowe Price Group divided by the weighted-average common shares outstanding assuming dilution. The calculation of net income allocated to common stockholders is as follows:


	Year ended
(in millions)	2020		2019		2018		2017		2016
Adjusted net income attributable to T. Rowe Price Group	$	2,276.8	$	1,975.6	$	1,807.4	$	1,361.1	$	1,148.9
Less: net income allocated to outstanding restricted stock and stock unit holders	62.4		50.9		42.5		30.5		24.2
Adjusted net income allocated to common stockholders	$	2,214.4	$	1,924.7	$	1,764.9	$	1,330.6	$	1,124.7

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CAPITAL RESOURCES AND LIQUIDITY.

During 2020, stockholders’ equity increased from $7.1 billion to $7.7 billion. Tangible book value increased to $7.0 billion at December 31, 2020.

Sources of Liquidity

We remain debt-free with ample liquidity, including cash and investments in T. Rowe Price products as follows:


(in millions)	12/31/2020		12/31/2019
Cash and cash equivalents	$	2,151.7	$	1,781.8
Discretionary investments	2,095.7		1,899.6
Total cash and discretionary investments	4,247.4		3,681.4
Redeemable seed capital investments	1,219.1		1,325.6
Investments used to hedge the supplemental savings plan liability	768.1		561.1
Total cash and investments in T. Rowe Price products	$	6,234.6	$	5,568.1

Our discretionary investment portfolio is comprised primarily of short duration bond funds, which typically yield higher than money market rates, and asset allocation products. Of these cash and discretionary investments, $675.8 million at December 31, 2020, and $665.8 million at December 31, 2019 were held by our subsidiaries located outside the U.S. Cash and discretionary investment portfolio returned gains of $92.8 million in 2020 as compared to $126.0 million in 2019 as the very low interest rate environment reduced the dividend income earned on our money market investments. 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.

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 T. Rowe Price Group’s interests in cash and T. Rowe Price investment products relate to where they are presented in the consolidated balance sheet as of December 31, 2020.


(in millions)	Cash and cash equivalents		Investments		Net assets of consolidated T. Rowe Price investment products(1)		Total
Cash and discretionary investments	$	2,151.7	$	1,890.6	$	205.1	$	4,247.4
Seed capital investments	—		348.1		871.0		1,219.1
Investments used to hedge the supplemental savings plan liability	—		768.1		—		768.1
Total cash and investments in T. Rowe Price products attributable to T. Rowe Price Group	2,151.7		3,006.8		1,076.1		6,234.6
Investment in UTI and other investments	—		244.0		—		244.0
Total cash and investments attributable to T. Rowe Price Group	2,151.7		3,250.8		1,076.1		6,478.6
Redeemable non-controlling interests	—		—		1,561.7		1,561.7
As reported on unaudited condensed consolidated balance sheet at December 31, 2020	$	2,151.7	$	3,250.8	$	2,637.8	$	8,040.3

(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. These products generally represent U.S. mutual funds as well as those funds regulated outside the U.S. The $205.1 million and the $871.0 million represent the total value at December 31, 2020 of our interest in the consolidated T. Rowe Price investment products. The total net assets of consolidated T. Rowe Price investment products at December 31, 2020 of $2,637.8 million includes assets of $2,695.5 million less liabilities of $57.7 million as reflected in the consolidated balance sheet in Item 8. Financial Statements and Supplementary Data of this Form 10-K.

Our consolidated balance sheet reflects the cash and cash equivalents, investments, other assets and liabilities of those T. Rowe Price investment products we consolidate, as well as redeemable non-controlling interests for the

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portion of these T. Rowe Price investment products that are held by unrelated third-party investors. Although we can redeem our net interest in these T. Rowe Price investment products at any time, we cannot directly access or sell the assets held by the products to obtain cash for general operations. Additionally, the assets of these T. Rowe Price investment products are not available to our general creditors. Our interest in these T. Rowe Price investment products was used as initial seed capital and is recategorized as discretionary when it is determined by management that the seed capital is no longer needed. 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.

Additionally, in October 2020, UTI Asset Management Company Limited (India), one of our equity method investments,held an initial public offering in India. As part of the offering, we sold a portion of our 26% interest and received net proceeds of approximately $28.0 million and recorded a net gain on the sale of approximately $2.8 million in the fourth quarter of 2020. Subsequent to the sale, we have an ownership interest of 23% of UTI Asset Management Company (India).

Uses of Liquidity

We paid $3.60 per share in regular dividends in 2020, an increase of 18.4% over the $3.04 per share paid in 2019. Additionally, we expended $1,192.2 million in 2020 to repurchase 10.9 million shares, or 4.6%, of our outstanding common stock at an average price of $109.30 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.

Since the end of 2017, we have returned $5.3 billion to stockholders through stock repurchases and our regular quarterly dividends, as follows:


(in millions)	Recurring dividend		Stock repurchases		Total cash returned to stockholders
2018	$	694.7	$	1,099.6	$	1,794.3
2019	733.6		708.8		1,442.4
2020	846.0		1,192.2		2,038.2
Total	$	2,274.3	$	3,000.6	$	5,274.9

We anticipate property and equipment expenditures for the full-year 2021 to be about $265 million, of which more than three-quarters is planned for technology initiatives. We expect to fund our anticipated capital expenditures with operating cash flows and other available resources.

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The following tables summarize the cash flows for 2020, 2019 and 2018, that are attributable to T. Rowe Price Group, our consolidated T. Rowe Price investment products, and the related eliminations required in preparing the statement.


	2020
	Cash flow attributable to:
(in millions)	T. Rowe Price Group		Consolidated T. Rowe Price investment products		Elims		As reported
Cash flows from operating activities
Net income	$	2,372.7	$	235.3	$	(84.7)	$	2,523.3
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation, amortization and impairments of property and equipment	189.6		—		—		189.6
Stock-based compensation expense	246.2		—		—		246.2


Net gains recognized on investments	(274.3)		—		84.7		(189.6)
Net investments in T. Rowe Price investment products used to economically hedge supplemental savings plan liability	(142.9)		—		—		(142.9)
Net change in trading securities held by consolidated T. Rowe Price investment products	—		(798.8)		—		(798.8)


Other changes in assets and liabilities	87.7		6.8		(3.4)		91.1
Net cash provided by (used in) operating activities	2,479.0		(556.7)		(3.4)		1,918.9
Net cash provided by (used in) investing activities	(65.3)		(53.9)		82.9		(36.3)
Net cash provided by (used in) financing activities	(2,043.8)		637.0		(79.5)		(1,486.3)
Effect of exchange rate changes on cash and cash equivalents of consolidated T. Rowe Price investment products	—		1.9		—		1.9
Net change in cash and cash equivalents during period	369.9		28.3		—		398.2
Cash and cash equivalents at beginning of year	1,781.8		76.5		—		1,858.3
Cash and cash equivalents at end of period	$	2,151.7	$	104.8	$	—	$	2,256.5


	2019
	Cash flow attributable to:
(in millions)	T. Rowe Price Group		Consolidated T. Rowe Price investment products		Elims		As reported
Cash flows from operating activities
Net income	$	2,131.3	$	258.2	$	(140.6)	$	2,248.9
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation, amortization and impairments of property and equipment	190.8		—		—		190.8
Stock-based compensation expense	206.6		—		—		206.6


Net gains recognized on investments	(316.9)		—		140.6		(176.3)
Net investments in T. Rowe Price investment products used to economically hedge supplemental savings plan liability	(126.0)		—		—		(126.0)
Net change in trading securities held by consolidated T. Rowe Price investment products	—		(930.9)		—		(930.9)


Other changes in assets and liabilities	116.5		1.9		(8.8)		109.6
Net cash provided by (used in) operating activities	2,202.3		(670.8)		(8.8)		1,522.7
Net cash provided by (used in) investing activities	(489.3)		(18.4)		183.2		(324.5)
Net cash provided by (used in) financing activities	(1,356.4)		698.1		(174.4)		(832.7)
Effect of exchange rate changes on cash and cash equivalents of consolidated T. Rowe Price investment products	—		(2.5)		—		(2.5)
Net change in cash and cash equivalents during period	356.6		6.4		—		363.0
Cash and cash equivalents at beginning of year	1,425.2		70.1		—		1,495.3
Cash and cash equivalents at end of period	$	1,781.8	$	76.5	$	—	$	1,858.3

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	2018
	Cash flow attributable to:
(in millions)	T. Rowe Price Group		Consolidated T. Rowe Price investment products		Elims		As reported
Cash flows from operating activities
Net income	$	1,837.5	$	(105.6)	$	36.8	$	1,768.7
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation, amortization and impairments of property and equipment	159.5		—		—		159.5
Stock-based compensation expense	197.1		—		—		197.1


Net gains recognized on investments	(13.7)		—		(36.8)		(50.5)
Net investments in T. Rowe Price investment products used to economically hedge supplemental savings plan liability	(129.5)						(129.5)
Net change in trading securities held by consolidated T. Rowe Price investment products	—		(437.0)		—		(437.0)


Other changes in assets and liabilities	127.2		(6.5)		(9.1)		111.6
Net cash provided by (used in) operating activities	2,178.1		(549.1)		(9.1)		1,619.9
Net cash provided by (used in) investing activities	(945.7)		(23.8)		94.0		(875.5)
Net cash Provided by (used in) financing activities	(1,709.9)		555.3		(84.9)		(1,239.5)
Effect of exchange rate changes on cash and cash equivalents of consolidated T. Rowe Price investment products	—		(15.4)		—		(15.4)
Net change in cash and cash equivalents during period	(477.5)		(33.0)		—		(510.5)
Cash and cash equivalents at beginning of year	1,902.7		103.1		—		2,005.8
Cash and cash equivalents at end of period	$	1,425.2	$	70.1	$	—	$	1,495.3

Operating activities

Operating activities attributable to T. Rowe Price Group during 2020 provided cash flows of $2,479.0 million as compared to $2,202.3 million during 2019. Operating cash flows attributable to T. Rowe Price Group increased $276.7 million, including a $241.4 million in increased net income and a $81.0 million incremental add-back from higher non-cash adjustments, including unrealized investment gains/losses, depreciation, and stock-based compensation expense. Additionally, in 2020, we invested $142.9 million in certain investment products to economically hedge our supplemental savings plan liability. This level of investment is slightly higher than the $126.0 million invested in 2019. These increases were partially offset by the timing differences on the cash settlement of our assets and liabilities which lowered operating cash flows by $28.8 million. The change in the non-cash adjustments from 2019 were driven primarily by a $42.6 million decrease in net investment gains and a $39.6 million increase in stock-based compensation expense. The 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 2019 provided cash flows of $2,202.3 million as compared to $2,178.1 million during 2018. Operating cash flows attributable to T. Rowe Price Group increased $24.2 million, including the $293.8 million increase in net income from 2018, and partially offset by lower non-cash adjustments, which include unrealized investment gains/losses, depreciation, and stock-based compensation expense of $258.9 million and timing differences on the cash settlement of our assets and liabilities of $10.7 million. The non-cash adjustments were driven by a $303.2 million increase in net investment gains in 2019 compared with 2018. During 2019, we invested an additional $126.0 million in certain investment products that act as an economic hedge of our supplemental savings plan liability. This level of investment is comparable to the amount invested in 2018. 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 $65.3 million in 2020, a decrease of $424.0 million compared with 2019. During 2020, we received net proceeds from the sale of certain discretionary investments of $181.7 million compared to net dispositions of $108.3 million during 2019. In addition, we increased our property and equipment expenditures by $10.0 million and increased the level of seed capital provided by $100.3 million. We eliminate our seed capital in those T. Rowe Price investment products we consolidate in preparing our consolidated statements of cash flows. The $35.5 million change in reported cash flows

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from investing activities is 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 $489.3 million in 2019, an increase of $456.4 million compared to 2018. During 2018, we rebalanced our cash and discretionary investments portfolio resulting in the reallocation of cash and cash equivalents of $1.0 billion to certain T. Rowe Price fixed income funds. Such rebalancing did not recur in 2019. Excluding the impact of the reallocation in 2018, there were net purchases of discretionary investment products of $108.3 million during 2019 compared to net proceeds of $228.4 million. Also contributing to the decrease in 2019 reported cash flows used in investing activities were higher property and equipment expenditures of $36.1 million, an $89.2 million increase in the level of seed capital provided, and the absence of the proceeds from the sale of our 10% interest in Daiwa SB Investments Ltd. received in 2018 and included in other investing activity. Since we consolidate the seed capital in T. Rowe Price investment products, our seed capital was eliminated in preparing our consolidated statement of cash flows.

Financing activities

Net cash used in financing activities attributable to T. Rowe Price Group were $2,043.8 million in 2020 compared with $1,356.4 million in 2019. During 2020, there was a $496.1 million increase in cash paid for common stock repurchases as we repurchased 3.9 million more shares of common stock in 2020 than in 2019. Additionally, there was a $111.9 million increase in dividends paid in 2020 as a result of an 18.4% increase in our quarterly dividend per share. The remaining change in reported cash flows from financing activities is primarily attributable to a $79.4 million decrease in cash flow related to common stock issued under stock compensation plans and a $33.8 million decrease in net subscriptions received from redeemable non-controlling interest holders of our consolidated investment products during 2020 compared to 2019.

Net cash used in financing activities attributable to T. Rowe Price Group totaled $1,356.4 million in 2019, a decrease of $353.3 million compared with $1,709.9 million in 2018. The decrease in cash used in financing activities was primarily driven by a $384.6 million decrease in the number of common stock repurchases we made in 2019 due to the stronger equity markets. The decrease was partially offset by a $39.6 million increase in dividends paid in 2019 as a result of an 8.6% increase in our quarterly dividend per share from 2018. The remaining change in reported cash flows from financing activities was primarily attributable to a $53.3 million increase in net subscriptions received from redeemable non-controlling interest holders of our consolidated investment products during 2019 compared to 2018.

CONTRACTUAL OBLIGATIONS.

The following table presents a summary of our future obligations under the terms of our supplemental savings plan, existing operating leases, and other contractual cash purchase commitments at December 31, 2020. The information presented does not include operating expenses or capital expenditures that will be committed in the normal course of operations in 2021 and future years. The information also excludes the $26.7 million of unrecognized tax benefits discussed in Note 9 to our consolidated financial statements because it is not possible to estimate the time period in which a payment might be made to the tax authorities.


	Total		2021		2022-2023		2024-2025		Thereafter
(in millions)
Supplemental savings plan liability(1)	$	772	$	29	$	103	$	151	$	489
Noncancelable operating leases	168		35		63		58		12
Other purchase commitments(2)	316		223		72		21		—
Total	$	1,256	$	287	$	238	$	230	$	501

(1) These obligations represent the amount of future expected funding requirements related to our supplemental savings plan. Payment periods are based on deferral elections made by participants. If no deferral election has been made, the obligation has been included in the "Thereafter" column as the timing of distributions will be determined upon termination of employment. We economically hedge this liability and the related market exposure with investments in certain T. Rowe Price products. The carrying value of these investments at December 31, 2020 was $768.1 million and was reported within the Investments line on our consolidated balance sheet. Either these investments or future cash flows from operations are expected to be used to fund the future liability payments.

(2) Other purchase commitments include contractual amounts that will be due for the purchase of goods or services to be used in our operations and may be cancelable at earlier times than those indicated, under certain conditions that may involve termination fees. Because these obligations are generally of a normal recurring nature, we expect that we will fund them from future cash flows from operations.

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We also have outstanding commitments to fund additional contributions to investment partnerships totaling $12.3 million at December 31, 2020. 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.

CRITICAL ACCOUNTING POLICIES.

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. 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 2020 Annual Report on Form 10-K. In the following discussion, we highlight and explain further certain of those policies that are most critical to the preparation and understanding of our financial statements.

Consolidation

We consolidate all subsidiaries and T. Rowe Price investment products in which we have a controlling 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 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 T. Rowe Price 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 T. Rowe Price investment products regulated outside the U.S. are determined to be VIEs. At December 31, 2020, we consolidated VIEs with net assets of $2.4 billion.

Other-than-temporary impairments of equity method investments

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

Goodwill

We internally conduct, manage, and report our operations as one investment advisory business. We do not have distinct operating segments or components that separately constitute a business. Accordingly, we attribute goodwill to a single reportable business segment and reporting unit—our investment advisory business.

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

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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, $665.7 million as of December 31, 2020.

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.

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 and Supplementary Data for a discussion of newly issued but not yet adopted accounting guidance.

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 on common stock; changes in the amount and composition of our assets under management; our expense levels; our tax rate; and our expectations regarding financial markets, future transactions, dividends, stock repurchases, investments, new products and services, capital expenditures, changes in our effective fee rate, the impact of the coronavirus pandemic, and other market conditions. Readers are cautioned that any forward-looking information provided by or on behalf of T. 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: cash inflows and outflows in the U.S. mutual funds, subadvised funds, separately managed accounts, collective investment trusts, and other investment products, fluctuations in global financial markets that result in appreciation or depreciation of the assets under our management, our introduction of new mutual funds and investment products, changes in retirement savings trends relative to participant-directed investments and defined contribution plans, and the impact of the coronavirus outbreak. The ability to attract and retain investors’ assets under our management is dependent on investor sentiment and confidence; the relative investment performance of the T. Rowe Price funds and other managed investment products as compared with competing offerings and market indexes; the ability to maintain our investment management and administrative fees at appropriate levels; competitive conditions in the mutual fund, asset management, and broader financial services sectors; and our level of success in implementing our strategy to expand our business, including our recently announced plan to establish T. Rowe Price Investment Management as a separate registered investment adviser. 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

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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 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.

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

Previous: Item 6. Selected Financial Data. · Next: Item 7A. Quantitative and Qualitative Disclosures About Market Risk.