Record Assets Under Management Reach Nearly $294 Billion; Quarterly Net
Income and Earnings Per Share Reach New Highs
BALTIMORE, July 27 /PRNewswire-FirstCall/ -- T. Rowe Price Group, Inc.
(Nasdaq: TROW) today reported record quarterly net revenues of $446 million
for the second quarter of 2006, net income of $136 million, and diluted
earnings per share of $.49, an increase of 29% from the $.38 per share
reported for the second quarter of 2005. Comparable net revenues in the
second quarter of 2005 were $364 million and net income was $103 million.
For the first six months of 2006, results include net revenues of $875
million, net income of $252 million and diluted earnings per share of $.91,
an increase of 26% from the $.72 per share reported for the comparable 2005
period.
The company split its common shares two-for-one in June 2006, and all
share and per-share data in this release has been adjusted to reflect this
split.
Investment advisory revenues were up 25% to $370 million from the 2005
quarter. Assets under management increased to a record $293.7 billion at
June 30, 2006, up $24.2 billion from the end of 2005, and an increase of
$.8 billion since March 31, 2006. Net cash inflows from investors were $7.7
billion in the 2006 quarter and nearly $17.3 billion for the first six
months of the year. These net inflows include $615 million from the merger
of the Preferred Group of Mutual Funds into the T. Rowe Price funds and the
acquisition of $115 million of separate account assets in June. Net cash
inflows for the second quarter were substantially offset by market
depreciation of $6.9 billion. For the 2006 year-to-date period, market
gains and income have added more than $6.9 billion to assets under
management. Quarterly average assets under management were a record $294.1
billion in the 2006 period, $55 billion higher than the average of the 2005
quarter.
Operating expenses for the second quarter were up $45 million, or 22%,
to $253 million. On January 1, 2006, the firm adopted Statement of
Financial Accounting Standards No. 123R, Share-Based Payment, and, for the
second quarter of 2006, recognized $14.7 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 second quarter of 2005, compensation expense would have been
increased $13.3 million, and the comparable pro forma diluted earnings per
share would have been decreased to $.34 from the $.38 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 all periods prior to 2006 have not been
restated.
Financial Highlights
For the second quarter of 2006, investment advisory revenues earned
from the T. Rowe Price mutual funds distributed in the United States
increased $56 million to $270 million. Average mutual fund assets were
$184.7 billion, 23% higher than the $150.1 billion average during the 2005
period. Net inflows to the U.S. mutual funds were $2.6 billion during the
second quarter of 2006, including $.6 billion from the fund mergers with
the Preferred Group. The U.S. stock and balanced funds added $1.6 billion,
the bond and money market funds added more than $.8 billion, and the
international stock funds added $.2 billion. The Growth Stock Fund
accounted for $840 million of the funds' net inflows. Lower market
valuations reduced fund assets by $4.6 billion from the beginning of the
2006 quarter, more than offsetting the net fund inflows. Ending assets in
the funds were $183.2 billion, down $2.0 billion from March 31, 2006.
The series of target date Retirement Funds, which provide fund
shareholders with single, diversified portfolios that invest in underlying
T. Rowe Price funds that automatically adjust fund asset allocations as
investors age, continue to be the source of a significant part of mutual
fund asset growth. Nearly $1.3 billion of net inflows originated in the
Retirement Funds during the second quarter of 2006. Total assets in these
funds reached $11.6 billion at June 30, 2006, a net increase of $1.2
billion since March 31, 2006.
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 $18 million to more than $99
million. Investors from both the U.S. and other countries added net
investments of $5.1 billion to these portfolios during the second quarter
of 2006, primarily into separate accounts and sub-advised funds. This was
partially offset by a decline of $2.3 billion in assets under management
during the 2006 quarter resulting from lower market valuations. Ending
assets in these portfolios were $110.5 billion, up $2.8 billion from March
31, 2006.
The company's largest operating expense, compensation and related
costs, increased nearly $36 million, or 27% 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 $14.7 million non-cash expense recognized for
stock-based compensation. At June 30, 2006, T. Rowe Price employed 4,502
associates.
Advertising and promotion expenditures increased 12% or $2.2 million
versus the 2005 quarter. The company expects that its advertising and
promotion expenditures in the third quarter of 2006 will be down almost $5
million from the second quarter this year. While market conditions will
dictate the exact level of future spending, advertising and promotion
expenditures for the year 2006 are expected to be about 10% higher than in
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 increased 24% to nearly $193 million from $155.5
million in the 2005 quarter. Net non-operating income, which includes
interest income as well as the recognition of investment gains and losses
and credit facility expenses, increased $18.1 million to $23.5 million,
including a realized gain of $11.5 million upon the liquidation of a
sponsored collateralized bond obligation in June 2006. Additionally, larger
money market mutual fund balances yielding higher rates of return added
$5.8 million of the increase.
Overall, net income for the second quarter of 2006 was $135.7 million,
$18.2 million more than the prior record quarterly net income achieved in
the fourth quarter of 2005 when stock option-based compensation expense was
not recognized in our 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 75% of the T. Rowe Price funds across their share classes
surpassing their comparable Lipper averages on a total return basis for the
three-, five-, and 10-year periods ended June 30, 2006, and 65%
outperforming the average for the one-year period. Similarly, the
performance of our separately managed and sub-advised accounts has also
been strong when compared to their appropriate benchmarks. In addition, 59
of the T. Rowe Price stock and bond funds and their share classes, which
account for more than 75% of stock and bond fund assets under management,
ended the second quarter with an overall rating of four or five stars from
Morningstar. These four and five star-rated investments represent nearly
55% 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 sponsored 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. As
evidenced by the recently completed asset acquisitions, the firm is
interested in transactions where we believe there is a good fit, our fund
shareholders and institutional clients will be well served, and the cost is
reasonable.
"We are debt free and have cash and net liquid investments of $1.2
billion. With the recent market driven decline in our common stock price,
we took the opportunity to repurchase four million shares for $152 million
in the latter half of the second quarter, and another 500,000 shares for
nearly $19 million in the first week of July.
"Our strong second-quarter performance was achieved during a period of
increasing stock market volatility in which global equity markets swung
considerably and the decline in U.S. stocks erased a large portion of their
gains from the first quarter of the year. Although investors' appetite for
risk has certainly been diminished and there are several headwinds such as
increased tension in the Middle East and rising global interest rates 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. Nevertheless, equity investing in the near-term may
be less rewarding than investors had become accustomed to in recent years."
In closing, Mr. Roche said: "We believe the outlook for our company
remains strong as we continue to take steps to strengthen our competitive
position. Although the financial markets heavily influence our results over
the short term, the combination of investment management excellence, world-
class service and guidance, and a diversified business model has positioned
us for continued growth in the months and years ahead."
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 second
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 Six months ended
Revenues 6/30/2006 6/30/2005 6/30/2006 6/30/2005
Investment advisory
fees $369,769 $295,531 $723,654 $584,534
Administrative fees
and other income 75,965 67,881 151,128 135,836
Investment income of
savings bank subsidiary 1,300 1,046 2,555 2,049
Total revenues 447,034 364,458 877,337 722,419
Interest expense on
savings bank deposits 1,039 912 2,021 1,802
Net revenues 445,995 363,546 875,316 720,617
Operating expenses
Compensation and related
costs 165,722 130,123 325,719 257,265
Advertising and
promotion 21,062 18,823 49,050 42,294
Depreciation and
amortization of property
and equipment 10,962 10,502 22,076 20,274
Occupancy and facility
costs 20,285 18,166 39,858 36,485
Other operating expenses 35,045 30,411 67,170 61,497
253,076 208,025 503,873 417,815
Net operating income 192,919 155,521 371,443 302,802
Other investment income 23,676 5,522 31,329 7,577
Credit facility expenses 185 96 280 191
Net non-operating income 23,491 5,426 31,049 7,386
Income before income taxes 216,410 160,947 402,492 310,188
Provision for income taxes 80,699 58,198 150,087 113,142
Net income $135,711 $102,749 $252,405 $197,046
Earnings per share
Basic $.51 $.40 $.95 $.76
Diluted $.49 $.38 $.91 $.72
Dividends declared per share $.14 $.115 $.28 $.23
Weighted average shares
Outstanding 264,767 259,630 264,400 260,079
Assuming dilution 279,684 271,431 278,827 272,451
Three months ended Six months ended
6/30/2006 6/30/2005 6/30/2006 6/30/2005
Investment Advisory
Revenues (in thousands)
Sponsored mutual funds
in the U.S.
Stock and balanced $232,194 $179,148 $455,036 $352,647
Bond and money market 38,067 34,987 74,304 69,680
270,261 214,135 529,340 422,327
Other portfolios 99,508 81,396 194,314 162,207
$369,769 $295,531 $723,654 $584,534
Average Assets Under
Management (in billions)
Sponsored mutual funds
in the U.S.
Stock and balanced $150.4 $118.2 $148.4 $116.7
Bond and money market 34.3 31.9 33.7 31.7
184.7 150.1 182.1 148.4
Other portfolios 109.4 88.6 106.0 88.3
$294.1 $238.7 $288.1 $236.7
6/30/2006 12/31/2005
Assets Under Management
(in billions)
Sponsored mutual funds
in the U.S.
Stock and balanced $148.5 $137.7
Bond and money market 34.7 32.5
183.2 170.2
Other portfolios 110.5 99.3
$293.7 $269.5
Stock and balanced portfolios $230.3 $208.3
Fixed income portfolios 63.4 61.2
$293.7 $269.5
Condensed Consolidated Balance
Sheet Information (in thousands)
Cash and cash equivalents $814,445 $803,589
Investments in sponsored mutual funds 387,186 264,238
Property and equipment 238,843 214,790
Goodwill and other intangible assets 669,122 665,692
Other assets 388,630 362,237
Total assets 2,498,226 2,310,546
Total liabilities (352,348) (274,444)
Stockholders' equity $2,145,878 $2,036,102
Six months ended
6/30/2006 6/30/2005
Condensed Consolidated Cash Flows
Information (in thousands)
Cash provided by operating activities $356,072 $290,753
Cash used in investing activities,
including $149,096 for mutual
fund and other investments
and $45,029 for additions to
property and equipment in 2006 (199,883) (52,966)
Cash used in financing activities,
including $125,007 for repurchases of
common stock and $73,934 for dividends,
net of $50,052 from stock option exercises
in 2006 (145,333) (113,503)
Net increase in cash during the period $10,856 $124,284
SOURCE T. Rowe Price Group, Inc.
 back to top
Related links:
http://www.troweprice.com
CONTACT:
Brian Lewbart, T. Rowe Price Group, Inc.,
+1-410-345-2242
|
