Record Net Income of $148.9 Million for the 4th Quarter and $530 Million
for 2006; Assets Under Management End Year at Record $334.7 Billion
BALTIMORE, Jan. 26 /PRNewswire-FirstCall/ -- T. Rowe Price Group, Inc.
(Nasdaq: TROW) today reported record quarterly results for its fourth
quarter 2006 that include net revenues of $489 million, net income of
nearly $149 million, and diluted earnings per share of $.53, an increase of
23% from $.43 per share in the fourth quarter of 2005. Comparable net
revenues in the fourth quarter of 2005 were $403 million, and net income
was $117.6 million.
Investment advisory revenues were up nearly $79 million or 24% from the
2005 quarter. Assets under management increased to a record $334.7 billion
at year-end 2006, up $26.6 billion since September 30, 2006, and $65.2
billion or 24% from the end of 2005. Net cash inflows from investors were
$6.3 billion during the fourth quarter of 2006.
For the year 2006, results include net revenues of $1.8 billion, net
income of nearly $530 million and diluted earnings per share of $1.90, an
increase of 20% from $1.58 per share for 2005. Annual net cash inflows from
investors were a record $27.8 billion in 2006 while market appreciation and
income added $37.4 billion.
The firm adopted Statement of Financial Accounting Standards No. 123R,
Share-Based Payment, in 2006 and, for the fourth quarter and annual 2006
periods, recognized $15.1 million and $59.2 million, respectively, of
non-cash stock option-based compensation expense using the fair value based
method. Had T. Rowe Price applied the fair value method to recognize stock
option- based compensation in 2005, compensation expense would have
increased $19.4 million in the fourth quarter and $59.8 million for the
year. The pro forma diluted earnings per share for 2005 would have been
reduced to $.38 for the fourth quarter and $1.43 for the year. On a
comparative basis, diluted earnings per share for 2006 would then represent
increases of 39% and 33% from the 2005 fourth quarter and annual periods.
The fair value provisions of the new accounting standard have been applied
on the modified prospective basis; accordingly, the company's financial
statements for 2005 have not been restated to reflect these amounts.
The company split its common shares 2-for-1 in June 2006, and all 2005
data in this release have been adjusted to reflect this split.
Financial Highlights
Investment advisory revenues earned from the T. Rowe Price mutual funds
distributed in the United States increased to $293 million for the fourth
quarter of 2006, up almost $50 million from the 2005 quarter. Mutual fund
assets increased $15.7 billion during the fourth quarter of 2006 and ended
the year at $206.5 billion. Investors added net inflows of $3.2 billion to
the mutual funds during the quarter while market appreciation and income
added $12.5 billion. Net cash inflows were spread among the funds, with the
U.S. stock funds adding $1.3 billion, the bond and money market funds
adding $1.3 billion and the international stock funds adding $.6 billion.
The series of target-date Retirement Funds, which provide fund
shareholders with single, diversified portfolios that invest in underlying
T. Rowe Price funds and automatically adjust fund asset allocations as
investors age, continue to be the source of a significant part of mutual
fund asset growth. Nearly $2.6 billion of net inflows originated in the
Retirement Funds during the fourth quarter of 2006, the largest quarterly
amount since this series of funds was launched in September 2002. Total
assets in the Retirement Funds reached $17.3 billion at December 31, 2006,
an increase of $8.9 billion from the end of 2005.
For the year, net inflows to the mutual funds were $12.9 billion,
including $6.6 billion that originated in the target-date Retirement Funds
and nearly $.8 billion from the merger of two fund groups into the Price
funds. The U.S. stock and balanced funds had net inflows of $6.3 billion,
while bond and money market funds added $3.8 billion, and international
stock funds added $2.8 billion. The Growth Stock Fund added $4.2 billion of
net investments this year while the Value Fund added more than $1.9
billion. Higher market valuations and income increased fund assets by $23.4
billion in 2006.
Investment advisory revenues earned from other managed investment
portfolios, consisting of institutional separate accounts, sub-advised
funds, sponsored mutual funds which are offered to non-U.S. investors, and
variable insurance portfolios, were nearly $117 million in the 2006
quarter, an increase of $29 million from the 2005 fourth quarter. Ending
assets in these portfolios were $128.2 billion, up $10.9 billion from
September 30, 2006 and $28.9 billion during the year. Market value
appreciation added $7.8 billion and net cash inflows from institutional
investors in the U.S. and other countries were $3.1 billion during the 2006
fourth quarter. For the year, net inflows to these portfolios from
institutional investors and through subadvised funds were a record $14.9
billion.
Operating expenses in the 2006 fourth quarter were almost $44 million
more than in the 2005 quarter. The largest expense, compensation and
related costs, increased $31 million from the fourth quarter of 2005,
including $15.1 million of stock-option based expense. Annual bonus
compensation was also higher based on the firm's strong operating results
for 2006 as well as the favorable relative and risk-adjusted investment
performance, growth in assets under management including new investor
inflows, and the high quality of its investor services. Additionally, the
firm increased its staff size by 5.3% during 2006 to accommodate increased
volume-related activities across the firm. At the end of 2006, the firm
employed 4,605 associates across the globe.
Advertising and promotion expenditures in the fourth quarter were up
$2.4 million versus the 2005 quarter. The firm varies its level of spending
based on market conditions and investor demand. Advertising and promotion
expenditures in 2007 are expected to be up about 10% versus 2006, and
spending in the first quarter of 2007 is expected to be about the same as
the $31 million expended in the fourth quarter of 2006.
Net non-operating income, which includes interest income as well as the
recognition of investment gains and losses, increased nearly $11 million in
the fourth quarter versus the prior year's quarter. Greater money market
mutual fund balances with higher yields and larger year-end dividends from
the mutual fund investment holdings were responsible for the income gains.
The provision for income taxes for the fourth quarter adjusted the
annual provision for income taxes as a percentage of pretax income to
38.3%. Because the 2006 annual provision includes an accrual for the
settlement of prior year taxes that was recognized earlier in the year, the
firm currently expects that the effective tax rate for the full year 2007
will be about 37.7%.
Management Commentary
James A.C. Kennedy, the company's recently-appointed Chief Executive
Officer and President, commented: "We are pleased to report excellent
results for T. Rowe Price Group in 2006, driven by steady growth and
continued healthy cash inflows to our funds and investment portfolios from
across our business. Despite a sharp decline from mid-May through mid-July,
stocks rose robustly for the year and the tailwind from strong second-half
investment markets helped the firm achieve record assets under management,
revenues, earnings, and stockholders' equity.
"The firm's investment advisory results relative to our peers remain
strong, with 80% of the T. Rowe Price funds across their share classes
surpassing their comparable Lipper averages on a total return basis for the
five-year period ended December 31, 2006, and at least 70% outperforming
the average for the one-, three-, and 10-year periods. In addition, 78 of
the T. Rowe Price stock and bond funds across their share classes, which
account for more than 77% of stock and bond fund assets under management,
ended the fourth quarter with an overall rating of four or five stars from
Morningstar. These four and five-star rated investments represent 66% of
our rated funds and share classes, compared with 32.5% for the overall
industry.
"While experiencing strong earnings and investor demand, the firm
proactively implemented a variety of initiatives in 2006 across all
distribution channels to strengthen our competitive position and prepare
for changing market and investment environments. We continued to invest in
our institutional business, which has seen significant penetration and
asset growth in the U.S. and internationally; our expansion initiatives in
Europe combined with inroads in Asia and the Middle East have expanded our
client base to more than 20 countries and investors outside the United
States now account for 7% of our assets under management. We augmented the
range of services and products we offer financial intermediaries and plan
sponsors. And to better meet the retirement needs of individual investors
and plan participants, we expanded our offerings of advisory planning
services, opened two new investor centers, and increased the number of
retirement plans offering the Retirement Funds and participant
auto-enrollment."
"Our strong capital position gives us substantial financial
flexibility," Mr. Kennedy added. "As a result, we have been able to invest
in our business and take advantage of new growth opportunities, increase
our dividend 21% to $.17 per quarter, and repurchase $171 million of our
common shares in 2006. We also remain debt free and have cash and
investment holdings of $1.4 billion at the beginning of 2007."
"We are optimistic about 2007 and believe it will offer a generally
favorable environment for global stocks and bonds," Mr. Kennedy said.
"Equity valuations seem reasonable and we are encouraged by good earnings
and dividend growth, strong cash flow and balance sheet improvement, and a
generally supportive economic backdrop. However, given that profit margins
have been at record highs, some slowdown in the rate of corporate earnings
growth is likely. As a result, investors should expect more conservative
returns in the near term."
In closing, Mr. Kennedy said: "While investment returns play a
significant role in the firm's short-term results, our success over the
long term has been, and will continue to be, determined by our ability to
help our clients reach their goals. Our competitive position and reputation
within the industry remains solid, reflecting the performance of the
investment portfolios that we manage, the services we offer to our clients,
and the hard work of our associates. As we grow our business, our overall
strategy for success will continue to build on our principled heritage,
investment management excellence, and world-class service."
Other Matters
The financial results presented in this release are unaudited. KPMG LLP
is currently completing its audits of the company's 2006 financial
statements and internal controls over financial reporting at December 31,
2006. The company expects that KPMG will complete their work in early
February and that it will then file its Form 10-K Annual Report for 2006
with the U.S. Securities and Exchange Commission. The Form 10-K will
include more complete information on the company's audited financial
results, management's report on internal controls over financial reporting
at December 31, 2006, and the reports of KPMG LLP.
Certain statements in this press release may represent "forward-looking
information," including information relating to anticipated growth in
revenues, net income and earnings per share, anticipated changes in the
amount and composition of assets under management, anticipated expense
levels, and expectations regarding financial and other market conditions.
For a discussion concerning risks and other factors that could affect
future results, see the company's Form 10-K and Form 10-Q reports.
Founded in 1937, Baltimore-based T. Rowe Price is a global investment
management organization that provides a broad array of mutual funds,
subadvisory services, and separate account management for individual and
institutional investors, retirement plans, and financial intermediaries.
The organization also offers a variety of sophisticated investment planning
and guidance tools. T. Rowe Price's disciplined, risk-aware investment
approach focuses on diversification, style consistency, and fundamental
research. More information is available at http://www.troweprice.com.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per-share amounts)
Three months ended Year ended
Revenues 12/31/2005 12/31/2006 12/31/2005 12/31/2006
Investment advisory fees $331.0 $409.7 $1,235.5 $1,508.5
Administrative fees and
other income 71.6 79.1 276.0 305.4
Investment income of savings
bank subsidiary 1.2 1.5 4.3 5.4
Total revenues 403.8 490.3 1,515.8 1,819.3
Interest expense on savings
bank deposits 0.9 1.2 3.6 4.3
Net revenues 402.9 489.1 1,512.2 1,815.0
Operating expenses
Compensation and related
costs 133.1 163.9 522.4 658.4
Advertising and promotion 28.4 30.8 86.1 97.3
Depreciation and amortization
of property and equipment 11.2 13.4 42.3 46.5
Occupancy and facility costs 19.3 21.8 74.4 82.5
Other operating expenses 38.5 44.3 132.0 143.4
230.5 274.2 857.2 1,028.1
Net operating income 172.4 214.9 655.0 786.9
Other investment income 12.7 23.3 24.8 71.7
Credit facility expenses 0.1 - 0.4 0.3
Net non-operating income 12.6 23.3 24.4 71.4
Income before income taxes 185.0 238.2 679.4 858.3
Provision for income taxes 67.4 89.3 248.4 328.7
Net income $117.6 $148.9 $431.0 $529.6
Earnings per share
Basic $0.45 $0.56 $1.65 $2.01
Diluted $0.43 $0.53 $1.58 $1.90
Dividends declared per share $0.14 $0.17 $0.485 $0.59
Weighted average shares
Outstanding 261.9 264.1 260.5 263.8
Assuming dilution 274.9 279.5 273.2 278.7
Investment Advisory Revenues (in millions)
Three months ended Year ended
12/31/2005 12/31/2006 2005 2006
Sponsored mutual funds in the
U.S.
Stock and balanced $207.3 $251.5 $758.3 $937.5
Bond and money market 36.1 41.5 142.1 155.6
243.4 293.0 900.4 1,093.1
Other portfolios 87.6 116.7 335.1 415.4
$331.0 $409.7 $1,235.5 $1,508.5
Assets Under Management (in
billions)
Average during Average during
the fourth quarter the year
2005 2006 2005 2006
Sponsored mutual funds in the
U.S.
Stock and balanced $133.8 $162.9 $124.1 $152.2
Bond and money market 32.4 37.1 32.1 35.4
166.2 200.0 156.2 187.6
Other portfolios 94.5 123.1 90.9 112.1
$260.7 $323.1 $247.1 $299.7
12/31/2005 12/31/2006
Sponsored mutual funds in the
U.S.
Stock and balanced $137.7 $168.5
Bond and money market 32.5 38.0
170.2 206.5
Other portfolios 99.3 128.2
$269.5 $334.7
Equity securities $208.3 $267.0
Debt securities 61.2 67.7
$269.5 $334.7
Condensed Consolidated Cash Flows
Information (in millions) Year ended
2005 2006
Cash provided by operating activities $539.5 $593.2
Cash used in investing activities,
including $94.4 for additions to
property and equipment and $311.8
for mutual fund and other
investments in 2006 (91.6) (421.2)
Cash used in financing activities,
including share repurchases of
$171.0 and dividends paid of $147.6
net of cash receipts of $105.1
related primarily to stock option
exercises in 2006 (144.0) (202.6)
Net change in cash during the year $303.9 $(30.6)
Condensed Consolidated Balance Sheet
Information (in millions) 12/31/2005 12/31/2006
Cash and cash equivalents $803.6 $773.0
Accounts receivable and accrued revenue 175.0 223.5
Investments in sponsored mutual funds 264.2 554.4
Property and equipment 214.8 264.9
Goodwill and other intangible assets 665.7 669.4
Other assets 187.2 280.1
Total assets 2,310.5 2,765.3
Total liabilities 274.4 338.4
Stockholders' equity, 264,959,903
common shares outstanding in 2006,
including net unrealized holding
gains of $69.3 in 2006 $2,036.1 $2,426.9
SOURCE T. Rowe Price Group, Inc.
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Related links:
http://www.troweprice.com
CONTACT:
Brian Lewbart, +1-410-345-2242, or Steve
Norwitz, +1-410-345-2124, and Robert Benjamin, +1-410-345-2205,
all of T. Rowe Price Group
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