Record Assets Under Management Pass $308 Billion; Quarterly Net Revenues
Reach New High
BALTIMORE, Oct. 25 /PRNewswire-FirstCall/ -- T. Rowe Price Group, Inc.
(Nasdaq: TROW) today reported record quarterly net revenues of nearly $451
million in the third quarter of 2006, up 16% from the 2005 quarter. Net
income for the quarter was $128 million, and diluted earnings per share was
$.46, an increase of 7% from the $.43 per share reported for the third
quarter of 2005. Comparable net revenues in the third quarter of 2005 were
$389 million and net income was $116 million.
For the first nine months of 2006, results include net revenues of $1.3
billion, net income of nearly $381 million and diluted earnings per share
of $1.37, an increase of 19% from the $1.15 per share reported for the
comparable 2005 period.
On January 1, 2006, the firm adopted Statement of Financial Accounting
Standards No. 123R, Share-Based Payment, and, for the third quarter and
year-to-date 2006 periods, recognized $15.6 million and $45.1 million,
respectively, 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 2005, compensation expense
would have increased $13.4 million in the third quarter and $40.5 million
in the first nine months. The comparable pro forma diluted earnings per
share would have decreased from the reported $.43 to $.39 for the third
quarter, and from the reported $1.15 to $1.05 for the year-to-date period.
On a basis comparable with 2006 results, diluted earnings per share would
then have increased 18% and 30% from the 2005 third quarter and
year-to-date periods, respectively. 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.
The company split its common shares two-for-one in June 2006, and all
data in this release has been adjusted to reflect this split.
Investment advisory revenues were up 17% to $375 million from the 2005
quarter. Assets under management increased to a record $308.1 billion at
September 30, 2006, up $38.6 billion from the end of 2005, and an increase
of $14.4 billion since June 30, 2006. Net cash inflows from investors were
more than $4.2 billion in the third quarter and $21.5 billion thus far in
2006. Higher market valuations and income during the third quarter resulted
in a $10.2 billion increase in our assets under management and, for the
year-to-date period, market gains and income have added $17.1 billion to
our assets under management. Quarterly average assets under management were
a record $297.9 billion in the 2006 period, almost $44 billion higher than
the average of the 2005 quarter.
Financial Highlights
For the third quarter of 2006, investment advisory revenues earned from
the T. Rowe Price mutual funds distributed in the United States increased
$36 million to $271 million. Average mutual fund assets were $184.4
billion, 14% higher than the $161.6 billion average during the 2005 period.
Mutual fund assets ended the third quarter at $190.8 billion, up $7.6
billion from June 30, 2006, as higher market valuations and income added
$6.0 billion and net inflows were $1.6 billion, including $1 billion to the
stock and balanced funds and $.6 billion to the bond and money market
funds. The Growth Stock Fund accounted for $.9 billion of the net inflows.
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 third quarter of 2006. Total assets in these
funds reached $13.5 billion at September 30, 2006, a net increase of $1.9
billion since June 30, 2006, and a $7.1 billion increase over the last
twelve months.
Investment advisory revenues earned from other managed investment
portfolios, consisting of institutional separate accounts, sub-advised
funds, sponsored mutual funds that are offered to investors outside the
U.S., and variable insurance portfolios, increased $19 million to more than
$104 million. Ending assets in these portfolios were $117.3 billion at
September 30, 2006. Assets in these portfolios increased $6.8 billion
during the third quarter of 2006 from net inflows of $2.6 billion from
investors in the U.S. and other countries and higher market valuations of
more than $4.2 billion.
Operating expenses for the third quarter were up $41 million, or 20%,
to $250 million. The company's largest operating expense, compensation and
related costs, increased $36.7 million or 28% 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 $15.6 million non-cash expense recognized for
stock-based compensation. At September 30, 2006, T. Rowe Price employed
4,495 associates.
Advertising and promotion expenditures increased 13% or $2.1 million
versus the 2005 quarter. The company expects that its advertising and
promotion expenditures in the fourth quarter of 2006 will be up about 10%
versus the $28.4 million expended in the fourth quarter of 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 11.5% to more than $200 million from
$180 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 $12.6 million from the 2005
quarter, including a gain of $6.4 million that was realized upon the
realignment of a portion of the company's mutual fund holdings.
Additionally, larger money market mutual fund balances yielding higher
rates of return accounted for $5.2 million of the increase.
The third quarter 2006 income tax provision includes $2.4 million to
increase the estimated effective tax rate on pre-tax income for the year
2006 from 37.3% to 37.8%, and $5.3 million for additional prior years'
taxes. Together, these adjustments reduced reported diluted earnings per
share for the third quarter by $.03 per share. The estimated effective tax
rate for the full year 2006 will be about 38.4%, including the additional
prior years' tax accruals.
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 83% 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 September 30, 2006, and at least 73% outperforming the average
for the one-, three-, and 10-year periods. In addition, 65 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 third
quarter with an overall rating of four or five stars from Morningstar.
These four and five-star rated investments represent 60% of our rated funds
and share classes, compared with 32.5% for the overall 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. The broad diversification of our assets under
management, along with strong investment management results and brand
awareness, underpins the company's solid performance. Our global expansion
continues and investment advisory clients outside the United States now
account for more than 6% of our assets under management. In addition, our
corporate earnings and cash flows remain very strong and give us the
financial flexibility to invest further in our business and take advantage
of industry or market opportunities. In early July, we expended nearly $19
million to repurchase 500,000 shares of our common stock. This brings our
share repurchase activity for 2006 to $171 million, which is $75 million
more than we expended in any prior year. We are debt free and have net
liquid assets of $1.2 billion.
"Our strong third quarter performance was achieved during a period in
which the markets and investor sentiment were buoyed by declining commodity
prices and long-term interest rates, solid corporate earnings, and the
Federal Reserve's decision to forego another fed funds rate hike. Although
growth in the U.S. economy has slowed and we expect the pace of earnings
growth to decelerate over the next year, valuations appear to be
reasonable, corporate profits remain strong, and we remain generally
optimistic about the environment for stocks."
In closing, Mr. Roche said: "The outlook for our company remains very
strong as we continue to perform well for our clients and take steps to
strengthen our competitive position across distribution channels and across
the globe. Our combination of investment management excellence, world-class
service and guidance focused on our clients' interests, and a diversified
business model has positioned us for 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 third
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 Nine months ended
Revenues 9/30/2006 9/30/2005 9/30/2006 9/30/2005
Investment advisory
fees $375,223 $319,967 $1,098,877 $904,501
Administrative fees
and other income 75,140 68,561 226,268 204,397
Investment income of
savings bank
subsidiary 1,388 1,077 3,943 3,126
Total revenues 451,751 389,605 1,329,088 1,112,024
Interest expense on
savings bank
deposits 1,123 902 3,144 2,704
Net revenues 450,628 388,703 1,325,944 1,109,320
Operating expenses
Compensation and
related costs 168,750 132,011 494,469 389,276
Advertising and
promotion 17,464 15,394 66,514 57,688
Depreciation and
amortization of
property
and equipment 11,088 10,795 33,164 31,069
Occupancy and
facility costs 20,843 18,646 60,701 55,131
Other operating
expenses 31,964 32,005 99,134 93,502
250,109 208,851 753,982 626,666
Net operating income 200,519 179,852 571,962 482,654
Other investment
income 17,007 4,464 48,336 12,041
Credit facility
expenses 95 280 286
Net non-operating
income 17,007 4,369 48,056 11,755
Income before income
taxes 217,526 184,221 620,018 494,409
Provision for income
taxes 89,336 67,886 239,423 181,028
Net income $128,190 $116,335 $380,595 $313,381
Earnings per share
Basic $.49 $.45 $1.44 $1.21
Diluted $.46 $.43 $1.37 $1.15
Dividends declared per
share $.14 $.115 $.42 $.345
Weighted average
shares
Outstanding 262,343 260,012 263,707 260,056
Assuming dilution 277,630 272,865 278,424 272,591
Three months ended Nine months ended
9/30/2006 9/30/2005 9/30/2006 9/30/2005
Investment Advisory
Revenues (in
thousands)
Sponsored mutual
funds in the U.S.
Stock and
balanced $230,954 $198,379 $685,990 $551,026
Bond and money
market 39,800 36,246 114,104 105,926
270,754 234,625 800,094 656,952
Other portfolios 104,469 85,342 298,783 247,549
$375,223 $319,967 $1,098,877 $904,501
Average Assets
Under Management
(in billions)
Sponsored mutual
funds in the U.S.
Stock and
balanced $149.0 $129.0 $148.6 $120.9
Bond and money
market 35.4 32.6 34.3 32.0
184.4 161.6 182.9 152.9
Other portfolios 113.5 92.5 108.5 89.7
$297.9 $254.1 $291.4 $242.6
9/30/2006 12/31/2005
Assets Under
Management (in
billions)
Sponsored mutual
funds in the U.S.
Stock and
balanced $154.7 $137.7
Bond and money
market 36.1 32.5
190.8 170.2
Other portfolios 117.3 99.3
$308.1 $269.5
Stock and balanced
portfolios $242.7 $208.3
Fixed income
portfolios 65.4 61.2
$308.1 $269.5
Condensed Consolidated Balance Sheet
Information (in thousands)
Cash and cash
equivalents $876,208 $803,589
Investments in
sponsored mutual
funds 404,980 264,238
Property and
equipment 250,969 214,790
Goodwill and other
intangible assets 668,980 665,692
Other assets 454,570 362,237
Total assets 2,655,707 2,310,546
Total liabilities (389,220) (274,444)
Stockholders' equity,
263,464,234 common shares
outstanding in 2006,
including net unrealized
holding gains of $56,802 in 2006 $2,266,487 $2,036,102
Nine months ended
9/30/2006 9/30/2005
Condensed Consolidated Cash
Flows Information (in
thousands)
Cash provided by operating activities $524,317 $475,960
Cash used in investing activities,
including $175,257 for mutual fund and
other investments and $69,107 for
additions to property and equipment
in 2006 (254,768) (66,764)
Cash used in financing
activities, including
$170,968 for repurchases of
common stock and $110,767
for dividends, net of $77,460
from stock option exercises in 2006 (196,930) (136,572)
Net increase in cash during the period $72,619 $272,624
SOURCE T. Rowe Price Group, Inc.
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Related links:
http://www.troweprice.com
CONTACT:
Steve Norwitz, +1-410-345-2124; or Brian
Lewbart, +1-410-345-2242, both of T. Rowe Price Group, Inc.
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