Record Net Income of $117.5 Million for the 4th Quarter and $431 Million for
2005;
Assets Under Management End Year at Record $269.5 Billion
BALTIMORE, Jan. 27 /PRNewswire-FirstCall/ -- T. Rowe Price Group, Inc.
(Nasdaq: TROW) today reported record quarterly results for its fourth quarter
2005 that include net revenues of $402.8 million, net income of $117.5
million, and diluted earnings per share of $.85, an increase of 20% from the
$.71 per share reported for the fourth quarter of 2004, and equal to the
record of $.85 achieved in the third quarter of 2005. Comparable net revenues
in the fourth quarter of 2004 were $345.5 million, and net income was $97.1
million.
Investment advisory revenues were up 18%, or about $51 million more than
the 2004 quarter. Assets under management increased to a record $269.5
billion at year-end 2005, up nearly 15% or $34.3 billion from the end of 2004,
and $11.9 billion since September 30, 2005, including net cash inflows from
investors of $5.2 billion during the fourth quarter. Record average assets
under management were $260.7 billion for the quarter, $37 billion higher than
the average of the 2004 quarter.
For the year 2005, results include net revenues of $1.5 billion, net
income of $431 million and diluted earnings per share of $3.15, an increase of
25% from the $2.51 per share reported for 2004. Net cash inflows from
investors were $16.1 billion in 2005 while market appreciation and income
added $18.2 billion.
Financial Highlights
Investment advisory revenues earned from the T. Rowe Price mutual funds
distributed in the United States increased nearly $44 million from the 2004
quarter. Mutual fund assets increased nearly $5 billion during the fourth
quarter of 2005 and ended the year at $170.2 billion. Investors added net
inflows of $.8 billion to the mutual funds during the quarter while market
appreciation and income added almost $4.2 billion. Net cash inflows were
spread among the funds, with the international stock funds adding nearly $1.0
billion, the U.S. stock funds adding $.3 billion, and the bond and money
market funds having net redemptions of $.5 billion. The Growth Stock Fund led
all funds with nearly $.8 billion of net inflows for the fourth quarter and
$3.2 billion for the year. The Capital Appreciation, Equity Income, New Era
and Value funds rounded out the top five funds, each adding more than $800
million of net inflows during the year and together accounting for $5.0
billion of the net inflows to the funds in 2005.
For the year, total net inflows to the T. Rowe Price mutual funds from the
financial intermediary, individual direct and defined contribution retirement
plan channels were $12.5 billion, with the U.S. stock funds adding $9.7
billion, the international stock funds adding $2.1 billion, and the bond and
money market funds adding $.7 billion. Cash inflows during 2005 also included
nearly $400 million resulting from the July merger of the TD Waterhouse Index
Funds into four of the T. Rowe Price index funds.
In addition, our series of target date Retirement Funds, which are
designed to provide shareholders with single, diversified portfolios that
invest in underlying T. Rowe Price funds and automatically shift asset
allocations between funds as the investor ages, continue to be a significant
part of asset growth. Growth in mutual fund assets under management included
net inflows originating in the Retirement Funds of nearly $1.7 billion during
the fourth quarter of 2005 and $4.3 billion for the full year. Total assets
in the Retirement Funds reached $8.4 billion at December 31, 2005, an increase
of $4.8 billion over the course of 2005.
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 $87.5 million in the 2005 quarter, an increase of
$7 million versus the 2004 fourth quarter. Ending assets in these portfolios
were $99.3 billion, up more than $6.9 billion from September 30, 2005. Net
cash inflows of $4.4 billion into these portfolios originated from financial
intermediaries, particularly through sub-advised relationships (including
assets transferred from the Price mutual funds), as well as from institutional
investors in U.S. equity securities. Market value appreciation added $2.5
billion to these portfolios during the quarter.
Operating expenses in the 2005 fourth quarter were $28.5 million more than
in the 2004 quarter. The largest expense, compensation and related costs,
increased $16 million from the fourth quarter of 2004. The number of
associates, their total compensation costs, and the costs of their employee
benefits have all increased. During 2005, the firm increased its average
staff size by 7% versus 2004 to accommodate increased volume-related
activities across the firm, and at year-end 2005 employed 4,372 associates
across the globe. On January 1, 2006, the firm adopted Statement of Financial
Accounting Standards (SFAS) No. 123R, Share-Based Payment. As a result,
compensation expense recognized in our statement of income will increase
approximately $48 million in 2006, including about $13 million in the first
quarter, based on stock options granted and outstanding, but not yet vested at
the end of 2005.
Advertising and promotion expenditures in the fourth quarter were up $4.3
million versus the 2004 period. The firm varies its level of spending based
on market conditions and investor demand. The firm currently expects first
quarter 2006 spending will be about $3 million higher than the comparable 2005
quarter, and annual spending in this area will be 5% to 10% higher than in
2005. The firm continues to monitor financial market conditions and will
adjust its future advertising and promotion spending accordingly.
Net non-operating income in the 2005 quarter increased $6.8 million over
the 2004 period as a result of larger invested cash balances, higher interest
rates, and greater returns from investments, including increased fourth
quarter mutual fund dividends and investment distributions of $4.7 million.
The 2005 provision for income taxes as a percentage of pretax income was
36.6%, unchanged from the rate applied at September 30 to the year-to-date
results. The firm estimates that its effective tax rate for the full year
2006 will rise to 37.2% with the adoption of SFAS No. 123R.
Chairman Commentary
George A. Roche, the company's chairman and president, commented: "We are
pleased to report that T. Rowe Price Group completed another very successful
year in 2005, despite choppy financial markets that faced significant
headwinds from rising short-term interest rates, devastating natural
disasters, high energy and other commodity prices, and ongoing geopolitical
instability. Our company showed steady growth throughout the year, with net
cash inflows combining with investment returns to generate record assets under
management, revenues, earnings, and stockholders' equity.
"The firm's investment advisory results relative to our peers remain
exemplary, with at least 70% of the T. Rowe Price funds across their share
classes surpassing their comparable Lipper averages on a total return basis
for the one-, three-, five-, and 10-year periods ended December 31, 2005. In
addition, 59% of our rated retail funds ended the year with an overall rating
of four or five stars from Morningstar, compared with 32.5% for the overall
industry. It was also another award-winning year, as Morningstar named Rob
Gensler, manager of the Global Equity portfolios, a finalist for its
'International Stock Manager of the Year.' Our world-class client service was
also recognized, as PlanSponsor magazine, based on surveys of more than 4,700
defined-contribution plan sponsors, honored T. Rowe Price with 27 'Best in
Class' awards in its annual Client Satisfaction Survey.
"Concurrent with our strong earnings and investor inflows, the firm
implemented a variety of positive initiatives across business channels during
2005. We have continued to invest in our distribution efforts through
financial intermediaries, including an expansion of our lineup of Advisor and
R Class funds for fee-based advisors and retirement plan providers. We
expanded our offerings of investment education materials and guidance
capabilities to assist individual investors and retirement plan participants.
We have also increased our rollover retention rates in our Retirement Plan
Services area. Our institutional business, which was recently lauded in a
cover story in Institutional Investor magazine, continues to grow, and
investors outside the United States account for 5% of our assets under
management."
"Our corporate earnings and cash flow remain very strong and give us
substantial financial flexibility," Mr. Roche added. "As a result we have
been able to invest in our business, increase our quarterly dividend 22% to
$.28 per share, and repurchase $76 million of our common shares in 2005. We
also remain debt free and have cash and liquid investments of more than $1
billion at the beginning of 2006."
"We are optimistic about 2006 and believe the financial markets can make
moderate progress," Mr. Roche said. "Although the market ended 2005 on a down
note after strengthening throughout the fourth quarter, largely because
investors grew concerned that narrowing bond yields were signaling that
economic growth could slow in 2006, the Federal Reserve appears to be nearing
the end of its rate hike cycle and the economy remains fundamentally sound,
with inflation contained and growth at sustainable levels."
In closing, Mr. Roche said: "While the financial markets heavily influence
our results over the short term, over the long term our success will be
determined by how we perform for our clients. As we grow our business, we
believe that a diversified business model that includes multiple distribution
channels and a diversified array of investment portfolios, combined with
investment management excellence, world-class service, and a disciplined
culture that is focused on our clients' interests, will continue to enhance
our competitive position and reputation within the industry."
Other Matters
The financial results presented in this release are unaudited. KPMG LLP
is currently completing its audits of the company's 2005 financial statements
and internal controls over financial reporting at December 31, 2005. The
company expects that their work will be completed in early February and that
it will file its Form 10-K Annual Report for 2005 with the U.S. Securities and
Exchange Commission by March 1. The Form 10-K will include more complete
audited information on the company's financial results, management's report on
internal controls over financial reporting at December 31, 2005, 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 "Forward-Looking Information" in Item 2 of the company's Form 10-
Q Report for the period ended September 30, 2005.
Founded in 1937, Baltimore-based T. Rowe Price is a global investment
management organization that provides a broad array of mutual funds,
sub-advisory 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 thousands, except per-share amounts)
Three months ended Year ended
Revenues 12/31/2004 12/31/2005 12/31/2004 12/31/2005
Investment advisory fees $280,131 $330,998 $1,028,831 $1,235,499
Administrative fees and
other income 65,329 71,640 247,743 276,037
Investment income of savings
bank subsidiary 905 1,153 3,775 4,279
Total revenues 346,365 403,791 1,280,349 1,515,815
Interest expense on savings
bank deposits 867 947 3,300 3,651
Net revenues 345,498 402,844 1,277,049 1,512,164
Operating expenses
Compensation and related
costs 117,086 133,098 457,905 522,374
Advertising and promotion 24,140 28,437 74,268 86,125
Depreciation and
amortization of property
and equipment 9,964 11,203 40,018 42,272
Occupancy and facility costs 17,269 19,299 66,420 74,430
Other operating expenses 33,549 38,433 113,159 131,935
202,008 230,470 751,770 857,136
Net operating income 143,490 172,374 525,279 655,028
Other investment income 5,885 12,703 9,496 24,744
Credit facility expenses 99 95 992 381
Net non-operating income 5,786 12,608 8,504 24,363
Income before income taxes 149,276 184,982 533,783 679,391
Provision for income taxes 52,144 67,434 196,523 248,462
Net income $97,132 $117,548 $337,260 $430,929
Earnings per share
Basic $0.75 $0.90 $2.65 $3.31
Diluted $0.71 $0.85 $2.51 $3.15
Dividends declared per share $0.23 $0.28 $0.80 $0.97
Weighted average shares
Outstanding 129,155 130,971 127,419 130,266
Assuming dilution 135,935 137,495 134,135 136,598
Investment Advisory Revenues (in thousands)
Three months ended Year ended
12/31/2004 12/31/2005 2004 2005
Sponsored mutual funds in the
U.S.
Stock $165,230 $207,320 $602,220 $758,346
Bond and money market 34,623 36,131 133,953 142,057
199,853 243,451 736,173 900,403
Other portfolios 80,278 87,547 292,658 335,096
$280,131 $330,998 $1,028,831 $1,235,499
Assets Under Management (in billions)
Average during Average during
the fourth quarter the year
2004 2005 2004 2005
Sponsored mutual funds in the
U.S.
Stock $107.1 $133.8 $98.1 $124.1
Bond and money market 30.9 32.4 30.0 32.1
138.0 166.2 128.1 156.2
Other portfolios 85.7 94.5 78.8 90.9
$223.7 $260.7 $206.9 $247.1
12/31/2004 12/31/2005
Sponsored mutual funds in the U.S.
Stock $114.3 $137.7
Bond and money market 31.2 32.5
145.5 170.2
Other portfolios 89.7 99.3
$235.2 $269.5
Equity securities $175.9 $208.3
Debt securities 59.3 61.2
$235.2 $269.5
Condensed Consolidated Cash Flows
Information (in thousands) Year ended
12/31/2004 12/31/2005
Cash provided by operating
activities $374,280 $539,482
Cash used in investing activities,
including ($51,802) for additions
to property and equipment in 2005 (75,865) (91,631)
Cash used in financing activities,
including stock options exercised
of $47,973 and common shares
repurchased of ($75,853) in 2005 (35,198) (144,012)
Net increase in cash during the year $263,217 $303,839
Condensed Consolidated Balance Sheet
Information (in thousands) 12/31/2004 12/31/2005
Cash and cash equivalents $499,750 $803,589
Accounts receivable and accrued
revenue 158,342 175,030
Investments in sponsored mutual funds 215,159 264,238
Property and equipment 203,807 214,790
Goodwill 665,692 665,692
Other assets, including savings bank
investments of $114,837 in 2005 186,075 187,207
Total assets 1,928,825 2,310,546
Total liabilities, including savings
bank deposits of $103,829 in 2005 231,525 274,444
Stockholders' equity, 131,678,371
common shares outstanding in 2005,
including net unrealized holding
gains of $48,544 in 2005 $1,697,300 $2,036,102
SOURCE T. Rowe Price Group, Inc.
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Related links:
http://www.troweprice.com
CONTACT:
Brian Lewbart, +1-410-345-2242, Steven
Norwitz, +1-410-345-2124, or Rajiv Vyas, +1-410-345-6559, all of
T. Rowe Price Group, Inc.
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