Record Assets Under Management Reach Nearly $293 Billion; Reelection of
Directors Expected at Annual Meeting Today
BALTIMORE, April 26 /PRNewswire-FirstCall/ -- T. Rowe Price Group, Inc.
(Nasdaq: TROW) today reported record quarterly net revenues of $429 million
for the first quarter of 2006, net income of $116.7 million, and diluted
earnings per share of $.84, an increase of nearly 22% from the $.69 per
share reported for the first quarter of 2005. Comparable net revenues in
the first quarter of 2005 were $357 million and net income was $94 million.
Operating expenses for the 2006 quarter were up $41 million, or about
20%, to $251 million. On January 1, 2006, the firm adopted Statement of
Financial Accounting Standards No. 123R, Share-Based Payment, and, for the
first quarter of 2006, recognized $14.8 million of non-cash stock-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 the first quarter of 2005, compensation expense would have been
increased $13.7 million, and the comparable pro forma diluted earnings per
share would have been decreased to $.62 from the $.69 previously reported
for that period. The fair value provisions of the new accounting standard
have been applied on the modified prospective basis; accordingly, the
company's financial statements for any period prior to 2006 will not be
restated.
Assets under management increased to a record $292.9 billion at March
31, 2006, up $23.4 billion from the previous high of $269.5 billion at the
end of 2005, and up 24% from $235.9 billion at March 31, 2005. Net investor
inflows during the first quarter of 2006 were a record $9.6 billion.
Financial Highlights
Investment advisory revenues were up 22%, or $65 million versus the
2005 quarter. Record average assets under management were $282 billion,
more than $47 billion higher than the average of the 2005 first quarter.
Investment advisory revenues earned from the T. Rowe Price mutual funds
distributed in the United States increased nearly $51 million. Mutual fund
assets ended March 2006 at $185.2 billion, up $15 billion from the end of
2005. Net investor inflows added nearly $5.5 billion to mutual fund assets
during the quarter and market valuation increases and income added an
additional $9.5 billion to mutual fund assets. Net cash inflows were
broadly distributed as investors added $2.5 billion into the U.S. stock
funds, $1.9 billion into the international stock funds - primarily those
investing in emerging markets, and $1.1 billion into bond and money market
funds. The Growth Stock and Value funds together accounted for $1.7 billion
of the funds' total net inflows.
The series of target date Retirement Funds, which were started in 2002
to provide fund shareholders with single, diversified portfolios that
invest in underlying T. Rowe Price funds that automatically adjust fund
asset allocations as the investor ages, continue to be the source of a
significant part of mutual fund asset growth. Nearly $1.6 billion of net
inflows originated in the Retirement Funds during the first quarter of
2006. Total assets in these funds reached $10.4 billion at March 31, 2006,
an increase of $2 billion since the end of 2005.
Investment advisory revenues earned from other managed investment
portfolios, consisting of institutional separate accounts, sub-advised
funds, sponsored mutual funds that are offered to non-U.S. investors, and
variable insurance portfolios, increased $14 million to nearly $95 million.
Ending assets in these portfolios were $107.7 billion, up $8.4 billion from
the beginning of 2006. Market value gains increased these assets under
management $4.3 billion and net investments added to these portfolios were
$4.1 billion during the first quarter of 2006.
Operating expenses were $251 million in the first quarter of 2006, up
$41 million from the 2005 period. The company's largest expense,
compensation and related costs, increased $33 million, or 26% from last
year's quarter. The number of associates, their total compensation, and the
costs of their employee benefits have all increased. The largest portion of
the increase is attributable to the $14.8 million non-cash expense
recognized for stock-based compensation.
Expenses in the 2006 quarter also reflect an increase in the interim
accrual for bonus compensation, which is based on projected operating
results for 2006 that consider the firm's strong relative and risk-adjusted
investment performance, continued growth in assets under management
including new investment inflows, and sustained high-quality investor
services. Lastly, modest increases in base salaries are made at the
beginning of each year, and the average staff size increased about 5% over
the twelve months ended March 31, 2006, primarily to handle increased
volume-related activities and growth. At the end of the 2006 quarter, T.
Rowe Price employed 4,404 associates.
Advertising and promotion expenditures increased 19% or $4.5 million
versus the 2005 quarter. The company expects that its advertising and
promotion expenditures in the second quarter of 2006 will be down about $8
million from the 2006 first quarter. While market conditions will dictate
the exact level of future spending, advertising and promotion expenditures
for the year 2006 are expected to be 5% to 10% higher than 2005. The
company varies its level of spending based on market conditions and
investor demand as well as its efforts to expand its investor base in the
United States and abroad.
Net operating income was $179 million, up 21% or more than $31 million
from the 2005 period. Net non-operating income increased $5.6 million to
$7.6 million, primarily as the result of higher interest rates on larger
money market mutual fund balances.
Overall, net income for the first quarter of 2006 was $116.7 million,
$22.4 million more than the first quarter of 2005 when stock option-based
compensation expense was not recognized in the financial statements.
Chairman Commentary
George A. Roche, the company's chairman and president, commented: "The
firm's investment advisory results relative to our peers remain exemplary,
with at least 72% 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 March 31, 2006. Similarly,
the performance of our separately managed and sub-advised accounts has also
been strong when compared to their appropriate benchmarks. In addition,
more than 60 of the T. Rowe Price stock and bond funds and their share
classes, which account for nearly 76% of stock and bond fund assets under
management, ended the first quarter with an overall rating of four or five
stars from Morningstar. These four and five star-rated investments
represent 58% of our rated funds and share classes, compared with 32.5%
across the overall mutual fund industry.
"We continue to be encouraged by the healthy pace of net cash inflows
across our multiple distribution channels into our separate and sub-advised
accounts and mutual funds. Importantly, our sound financial position
enables us to invest further in our business and gives us the flexibility
to take advantage of industry or market opportunities. We are debt free and
have cash and net liquid investments of more than $1 billion.
"Our strong first quarter performance was achieved during a period in
which global equity markets overall produced solid gains. Although there
are several headwinds that could create a more challenging investment
environment moving forward, we are optimistic about the rest of 2006 and
believe the financial markets can make moderate progress."
In closing, Mr. Roche said: "We believe the outlook for our company
remains very strong. Our diversified business model and broad range of
investment portfolios are designed to compete well in a dynamic and
increasingly global marketplace. Our combination of investment management
excellence, world-class service focused on our clients' interests, and an
increasingly visible and respected brand, will serve to enhance our
competitive position in the months and years ahead."
Annual Meeting
During the Company's annual meeting, which is scheduled for 10 a.m.
today in Baltimore, stockholders are expected to reelect all 10 nominees to
the Board of Directors. Stockholders are also expected to ratify the
reappointment of KPMG LLP as the Company's independent registered public
accounting firm.
Other Matters
The financial results presented in this release are unaudited. The
company expects that it will file its Form 10-Q Report for the first
quarter of 2006 later today. The Form 10-Q will include more complete
information on the company's financial results.
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.
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 thousands, except per-share amounts)
Three months ended March 31,
Revenues 2006 2005
Investment advisory fees $353,885 $289,003
Administrative fees and other
income 75,163 67,955
Investment income of savings bank
subsidiary 1,255 1,003
Total revenues 430,303 357,961
Interest expense on savings bank
deposits 982 890
Net revenues 429,321 357,071
Operating expenses
Compensation and related costs 159,997 127,142
Advertising and promotion 27,988 23,471
Depreciation and amortization of
property and equipment 11,114 9,772
Occupancy and facility costs 19,573 18,319
Other operating expenses 32,125 31,086
250,797 209,790
Net operating income 178,524 147,281
Other investment income 7,653 2,055
Credit facility expenses 95 95
Net non-operating income 7,558 1,960
Income before income taxes 186,082 149,241
Provision for income taxes 69,388 54,944
Net income $116,694 $94,297
Earnings per share
Basic $0.88 $0.72
Diluted $0.84 $0.69
Dividends declared per share $0.28 $0.23
Weighted average shares outstanding 132,015 130,266
Weighted average shares outstanding
assuming dilution 138,981 136,742
Investment Advisory Revenues
(in thousands) Three months ended
3/31/2005 3/31/2006
Sponsored mutual funds in the U.S.
Stock $173,499 $222,842
Bond and money market 34,693 36,237
208,192 259,079
Other portfolios 80,811 94,806
$289,003 $353,885
Assets Under Management Average during
(in billions) the first quarter
2005 2006 12/31/2005 3/31/2006
Sponsored mutual
funds in the U.S.
Stock $115.2 $146.4 $137.7 $151.4
Bond and money market 31.5 33.1 32.5 33.8
146.7 179.5 170.2 185.2
Other portfolios 88.0 102.5 99.3 107.7
$234.7 $282.0 $269.5 $292.9
Equity securities $208.3 $230.4
Debt securities 61.2 62.5
$269.5 $292.9
Condensed Consolidated Cash Flows
Information (in thousands) Three months ended
3/31/2005 3/31/2006
Cash provided by operating
activities $149,481 $181,169
Cash used in investing activities,
including ($21,649) for additions
to property and equipment and
($25,039) for investments in
sponsored mutual funds in 2006 (20,673) (49,758)
Cash used in financing activities,
including stock options exercised
of $33,561 and dividends paid of
($36,870) in 2006 (46,067) (1,709)
Net increase in cash during the
period $82,741 $129,702
Condensed Consolidated Balance Sheet
Information (in thousands) 12/31/2005 3/31/2006
Cash and cash equivalents $803,589 $933,291
Investments in sponsored mutual funds 264,238 300,978
Goodwill 665,692 665,692
Other assets 577,027 594,363
Total liabilities (274,444) (322,916)
Stockholders' equity $2,036,102 $2,171,408
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, both of T. Rowe Price Group
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