Assets Under Management at September 30 Reach $396.8 Billion
BALTIMORE, Oct. 23 /PRNewswire-FirstCall/ -- T. Rowe Price Group, Inc.
(Nasdaq: TROW) today reported record quarterly results for the three months
ended September 30, 2007, including net revenues of $571 million, net
income of nearly $175 million, and diluted earnings per share of $.63, an
increase of 37% from $.46 per share in the comparable 2006 quarter. Net
revenues in the third quarter of 2006 were $452 million, and net income was
$128 million.
Investment advisory revenues were up nearly 29%, or $108 million, from
the 2006 third quarter. Record assets under management of $396.8 billion at
September 30 are up 4.5% from June 30, 2007. Net cash inflows from
investors totaled $7.2 billion while net market appreciation and income
added nearly $9.8 billion to assets under management during the quarter.
For the first nine months of 2007, results include net revenues of more
than $1.6 billion, net income of almost $480 million, and diluted earnings
per share of $1.72 - an increase of more than 25% from $1.37 per share in
the comparable 2006 interim period. Assets under management have increased
18.6% or $62.1 billion during the first nine months of 2007. Year-to-date,
net cash inflows from investors totaled $24.8 billion and net market
appreciation and income added $37.3 billion to assets under management.
Financial Highlights
Investment advisory revenues earned from the T. Rowe Price mutual funds
distributed in the United States increased to $348 million for the third
quarter of 2007, up $77.5 million from the comparable 2006 quarter. Mutual
fund assets increased $9.0 billion during the third quarter of 2007, and
ended the quarter at $246.3 billion. Market appreciation and income added
$5.3 billion to the mutual funds during the quarter, while investors added
net inflows of $3.7 billion. Net cash inflows were spread among the funds,
with the international and global stock funds adding $1.4 billion, the U.S.
stock and blended asset funds adding $1.2 billion, and the bond and money
market funds adding $1.1 billion. The New Asia, New Income, Growth Stock,
Blue Chip Growth and Equity Index 500 funds each added more than $.5
billion during the quarter.
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 a significant source of mutual fund asset
growth, increasing 11.5% or $2.8 billion during the third quarter to total
$27.1 billion at September 30, 2007. Mutual fund net inflows of $2.2
billion originated in the Retirement Funds during the third quarter of
2007.
Investment advisory revenues earned from other managed investment
portfolios, consisting of institutional separate accounts, sub-advised
funds, sponsored investment funds which are offered to investors outside
the U.S., and variable insurance portfolios, were $135 million in the 2007
quarter, an increase of nearly $31 million from the 2006 third quarter.
Ending assets in these portfolios were $150.5 billion, up $8.0 billion
since June 30. Higher market valuations added nearly $4.5 billion and net
cash inflows were $3.5 billion during the third quarter. Investors outside
the United States now account for more than 8% of assets under management.
Administrative fees increased $12 million to more than $87 million. The
change in these revenues includes $3.1 million from 12b-1 distribution fees
received on greater assets under management in the Advisor and R classes of
T. Rowe Price mutual fund shares. The balance of the increase is primarily
attributable to mutual fund servicing activities and defined contribution
plan recordkeeping services for the mutual funds and their investors.
Changes in administrative fees are generally offset by similar changes in
related operating expenses that are incurred to distribute the Advisor and
R class fund shares through third party financial intermediaries and to
provide services to the funds and their investors.
Operating expenses were $307 million in the third quarter of 2007, up
$57 million from the 2006 third quarter. The largest expense, compensation
and related costs, increased $40 million, or almost 24%, over the
comparable 2006 quarter, primarily due to higher salaries, bonus
compensation accruals and stock-based compensation expense. The firm has
increased its staff by 8% since the beginning of 2007, primarily to handle
increased volume-related activities and other growth. At September 30, the
firm employed 4,984 associates.
Advertising and promotion expenditures vary period-to-period in
response to investor interest and were up $1 million in the 2007 quarter
from the comparable period last year. The firm expects its advertising and
promotion expense for the fourth quarter of 2007 to be up about $8 million
from the comparable 2006 period.
Occupancy and facility costs together with depreciation expense
increased $5 million. The operating costs for technology and other
equipment, maintenance and other leased facility costs have increased along
with the firm's staff size and business needs.
Other operating expenses were up $11 million, including $3.1 million of
higher distribution expenses recognized on greater fund assets under
management that are sourced from financial intermediaries, which offsets
the same increase in administrative revenues from 12b-1 fees. Additionally,
consulting and professional fees, information services, travel, and other
costs have risen this year to meet increased business demands.
The third quarter 2007 provision for income taxes as a percentage of
pretax income has been recognized using a rate of 37.9% in order that the
provision for the first nine months of 2007 reflects a 38.1% rate. This new
estimate of our 2007 effective rate is down slightly from the 38.3% rate
for the year 2006. We currently estimate that our 2008 effective tax rate
will be in the range experienced in 2006 - 2007.
Management Commentary
James A.C. Kennedy, the company's Chief Executive Officer and
President, commented: "The firm's investment advisory results relative to
our peers remain strong, with 64% of the T. Rowe Price funds across their
share classes surpassing their comparable Lipper averages on a total return
basis for the one-year period ending September 30, 2007, at least 73% of
the funds surpassing their comparable Lipper averages for the three- and
five-year periods ending on the same date, and 81% for the ten-year period.
In addition, 82 of the T. Rowe Price stock and bond funds across their
share classes, which account for almost 69% of stock and bond fund assets
under management, ended the third quarter with an overall rating of four or
five stars from Morningstar. These four- and five-star-rated investments
represent 67.2% of our rated funds and share classes, compared with 32.5%
for the overall industry. We continue to receive strong net cash inflows
from our clients, reflecting our favorable portfolio performance.
"Our third-quarter performance was achieved during a period of high
market volatility. Major U.S. stock indexes again reached new all-time
highs in mid- July, then fell sharply through mid-August amid concerns that
increasing mortgage defaults and delinquencies, tighter lending conditions,
and severely constricted liquidity in the asset-backed commercial paper
market would lead to a significant economic slowdown. Stocks rebounded
strongly, however, after the Federal Reserve reduced short-term interest
rates in September and signaled its continuing readiness to inject
additional reserves into the U.S. banking system to boost liquidity and
dampen the impact of market disruptions on the economy. For the quarter,
major U.S. stock indexes ended mixed, while investment-grade U.S. bonds
produced stronger returns. Stocks outside the U.S. and bonds in both
developed and emerging markets fared better than their domestic
counterparts, as stronger overseas GDP growth and a significantly weaker
U.S. dollar increased the value of foreign holdings in dollar terms.
"Looking ahead, despite the recent market turmoil, we remain optimistic
about the prospects for stocks over the longer term. We believe that the
global economy will continue to grow at a reasonable rate and that the
weakness in U.S. housing will continue to work its way through the system.
Companies producing stable earnings growth will be afforded higher prices.
In our view, this environment should favor our focus on selecting stocks
with sound fundamentals and attractive valuations.
"T. Rowe Price's strong capital position gives us substantial financial
flexibility," Mr. Kennedy added. "In the third quarter, we used our strong
cash position to repurchase 2.9 million shares of our common stock. Through
the first nine months of the year, we now have expended $256 million to
repurchase nearly 5.1 million common shares. T. Rowe Price Group remains
debt free and we have cash and corporate investments of $1.7 billion at
September 30, 2007."
In closing, Mr. Kennedy said: "While market conditions significantly
influence our firm's short-term results, T. Rowe Price has achieved success
over the long term, and will continue to do so, by providing world-class
investment management and service to help our growing number of clients
around the world reach their goals. With our customer-focused heritage, a
strong balance sheet, diversified investment and distribution capabilities,
a solid position within the industry, and a record of attracting and
retaining talented and dedicated associates, the outlook for the company
remains very strong."
Other Matters
The financial results presented in this release are unaudited. The
company expects that it will file its Form 10-Q Quarterly Report for the
third quarter of 2007 with the U.S. Securities and Exchange Commission
later today. The Form 10-Q will include more information on the company's
unaudited 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, estimated tax rates, 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 Nine months ended
9/30/2006 9/30/2007 9/30/2006 9/30/2007
Revenues
Investment advisory fees $375.2 $483.4 $1,098.8 $1,372.5
Administrative fees 75.1 87.4 226.3 257.2
Investment income of savings bank
subsidiary 1.4 1.4 3.9 4.4
Total revenues 451.7 572.2 1,329.0 1,634.1
Interest expense on savings bank
deposits 1.1 1.2 3.1 3.6
Net revenues 450.6 571.0 1,325.9 1,630.5
Operating expenses
Compensation and related costs 168.8 208.8 494.5 590.0
Advertising and promotion 17.4 18.4 66.5 72.1
Depreciation and amortization of
property and equipment 11.0 12.0 33.1 39.7
Occupancy and facility costs 20.8 24.8 60.7 68.9
Other operating expenses 32.0 43.2 99.1 126.0
250.0 307.2 753.9 896.7
Net operating income 200.6 263.8 572.0 733.8
Other investment income 17.0 17.9 48.4 41.4
Credit facility expenses - - 0.3 -
Net non-operating income 17.0 17.9 48.1 41.4
Income before income taxes 217.6 281.7 620.1 775.2
Provision for income taxes 89.3 106.9 239.4 295.3
Net income $128.3 $174.8 $380.7 $479.9
Earnings per share
Basic $.49 $.66 $1.44 $1.81
Diluted $.46 $.63 $1.37 $1.72
Dividends declared per share $.14 $.17 $.42 $.51
Weighted average shares outstanding 262.3 264.2 263.7 265.1
Weighted average shares outstanding
assuming dilution 277.6 278.2 278.4 279.4
Three months ended Nine months ended
9/30/2006 9/30/2007 9/30/2006 9/30/2007
Investment Advisory Revenues
(in millions)
Sponsored mutual funds in the U.S.
Stock and blended asset $231.0 $301.0 $686.0 $854.8
Bond and money market 39.8 47.3 114.1 135.2
270.8 348.3 800.1 990.0
Other portfolios 104.4 135.1 298.7 382.5
$375.2 $483.4 $1,098.8 $1,372.5
Average Assets Under Management
(in billions)
Sponsored mutual funds in the U.S.
Stock and blended asset $149.0 $195.4 $148.6 $187.1
Bond and money market 35.4 42.5 34.3 40.8
184.4 237.9 182.9 227.9
Other portfolios 113.5 144.0 108.5 137.6
$297.9 $381.9 $291.4 $365.5
12/31/2006 9/30/2007
Assets Under Management (in billions)
Sponsored mutual funds in the U.S.
Stock and blended asset $168.5 $202.9
Bond and money market 38.0 43.4
206.5 246.3
Other portfolios 128.2 150.5
$334.7 $396.8
Stock and blended asset portfolios $267.0 $321.2
Fixed income portfolios 67.7 75.6
$334.7 $396.8
Nine months ended
9/30/2006 9/30/2007
Condensed Consolidated Cash Flows
Information (in millions)
Cash provided by operating activities $524.3 $687.2
Cash used in investing activities,
including ($102.8) for additions to
property and equipment and ($162.0)
for investments in sponsored mutual
funds in 2007 (254.8) (274.5)
Cash used in financing activities,
including common stock repurchases of
($256.0) and dividends paid of
($135.4) in 2007 (196.9) (338.0)
Net increase in cash during the period $72.6 $74.7
Condensed Consolidated Balance Sheet
Information (in millions) 12/31/2006 9/30/2007
Cash and cash equivalents $773.0 $847.7
Investments in sponsored mutual funds 554.4 780.1
Property and equipment 264.9 331.4
Goodwill and other intangible assets 669.4 668.9
Accounts receivable and other assets 503.6 520.1
Total assets 2,765.3 3,148.2
Total liabilities 338.4 473.7
Stockholders' equity, 263.9 common
shares outstanding in 2007, including
net unrealized holding gains of
$110.6 in 2007 $2,426.9 $2,674.5
SOURCE T. Rowe Price Group, Inc.
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Related links:
http://www.troweprice.com
CONTACT:
Steven Norwitz, +1-410-345-2124, or Brian
Lewbart, +1-410-345-2242, or Robert Benjamin, +1-410-345-2205,
all of T. Rowe Price Group, Inc.
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