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T. Rowe Price Group Reports Second Quarter 2008 Results

2008-07-25 06:31:00

T. Rowe Price Group Reports Second Quarter 2008 Results

    BALTIMORE, July 25 /EMWNews/ -- T. Rowe Price Group, Inc.

(Nasdaq: TROW) today reported its second quarter 2008 results, including

net revenues of nearly $587 million, net income of $162 million, and

diluted earnings per share of $.60, an increase of 3% from $.58 per share

in the comparable 2007 quarter. Net revenues were $551 million in the

second quarter of 2007 when net income was also $162 million. Weighted

average shares outstanding have decreased from the 2007 period due to the

ongoing common share repurchase program. Over the twelve month period ended

June 30, 2008, the firm has repurchased more than 4%, or 11.2 million, of

its outstanding common shares.

    Investment advisory revenues were up almost 7%, or $31.2 million, from

the comparable 2007 quarter. Assets under management increased 2.4% from

March 31, 2008, to $387.7 billion at June 30, including $233.3 billion in

the T. Rowe Price mutual funds distributed in the United States and $154.4

billion in other managed investment portfolios. Net cash inflows from

investors in the second quarter of 2008 totaled $8.1 billion. Changes in

market valuations and portfolio income in the 2008 quarter added $1.0

billion to assets under management.

    Results for the first half of 2008 include net revenues of more than

$1.1 billion, net income of nearly $314 million, and diluted earnings per

share of $1.15 - an increase of 5.5% from $1.09 per share in the 2007

period. Assets under management are down 3.1% from the beginning of 2008 as

cash inflows from investors of $17.8 billion have been more than offset by

market valuation declines of $30.1 billion during the period.

    Financial Highlights

    Investment advisory revenues earned from the T. Rowe Price mutual funds

distributed in the United States increased 4.0%, or $13.6 million, to

$349.5 million in the second quarter of 2008. Average mutual fund assets

were $242.6 billion in the 2008 quarter, an increase of 4.6% from the

average for the comparable 2007 quarter. Mutual fund assets at June 30,

2008 were up $2.8 billion or 1.2% from the end of March 2008, but down 5.2%

from the beginning of the year. Net inflows to the mutual funds were $2.4

billion during the second quarter of 2008. International and global stock

funds had net inflows of $1.2 billion, the U.S. stock funds added $.7

billion, and the bond and money funds added $.5 billion. The Emerging

Markets Stock Fund attracted $.6 billion of net inflows during the second

quarter of 2008. Income and changes in market valuations in the mutual

funds increased fund assets under management by $.4 billion during the 2008


    The target-date retirement investment portfolios, which provide

investors with single, diversified portfolios that invest in specific

underlying investment portfolios and automatically adjust asset allocations

as investors age, continue to be a significant source of assets under

management. During the 2008 quarter, net inflows of $2.3 billion originated

in target-date retirement portfolios, including net inflows of $1.1 billion

into the target- date funds after taking into account that $1.2 billion was

moved in June from the funds to target-date investments included in other

managed portfolios. Assets in target-date investment portfolios have grown

from $30.7 billion at March 31, 2008, to $32.9 billion at the end of June,

and now account for 8.5% of the firm's assets under management and 13.6% of

its mutual fund assets.

    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 annuity insurance portfolios, were $145.8 million in

the 2008 quarter, an increase of $17.6 million from the comparable period

last year. These portfolio assets were up $6.3 billion or 4.3% from the end

of March 2008. Net inflows for the 2008 quarter were $5.7 billion from U.S.

and international institutional investors and third-party financial

intermediaries, including the $1.2 billion from the target-date Retirement

Funds. Income earned in these portfolios and changes in market valuations

increased assets under management by $.6 billion during the 2008 quarter.

Investors outside the United States now account for more than 10% of assets

under management.

    Operating expenses were $328 million in the second quarter of 2008, up

$28 million from the 2007 quarter. The largest expense, compensation and

related costs, increased $21 million, or nearly 11%, over the comparable

2007 quarter, primarily due to increased staff size, higher salaries, and

the accrual for annual bonus expense. The firm has increased its staff to

handle increased volume-related activities and other business

opportunities, and at June 30, 2008, employed 5,308 associates.

    Advertising and promotion expenditures vary period-to-period in

response to investor interest and in the second quarter were down $1.7

million from the 2007 quarter. Investor sentiment in this uncertain market

environment has caused the firm to reduce its planned spending on

advertising and promotion over the balance of 2008. Spending in the third

and fourth quarters of 2008 is now expected to be comparable to the second

and first quarters of 2008, respectively. The firm varies its level of

spending based on market conditions and investor demand as well as its

efforts to expand the investor base in the United States and abroad.

    The provision for income taxes as a percentage of pretax income for the

first six months of 2008 is 38.6%. The second quarter and six-month

provisions include $2.5 million for prior years' estimated interest and

taxes. The firm's estimated effective tax rate for the full-year 2008 has

been increased from 38.2% to 38.5% to reflect these charges.

    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 at least 76% 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, 2008, and 57% outperforming for the one-year period. In addition, 81 of

the T. Rowe Price stock, bond and blended asset funds across their share

classes, which account for more than 62% of our rated funds' assets under

management, ended the quarter with an overall rating of four or five stars

from Morningstar. These four- and five-star-rated investments represent

57.0% of our rated funds and share classes, compared with 32.5% for the

overall industry.

    "Our second quarter performance was achieved during a tough market

environment in which major U.S. stock indexes experienced marked

volatility. Investor sentiment deteriorated amid sluggish economic growth,

rising food and commodity prices, and the continuing fallout from the

housing downturn and credit crunch. While the start of the third quarter

saw further financial market declines, by mid-July lower oil prices and

improving investor sentiment had produced some rebound in equity


    "Looking ahead, the credit crisis, deleveraging financial institutions,

and inflationary pressures continue to be a brake on the economic recovery.

However, for the long-term, market turbulence such as we've seen this year

often creates attractive buying opportunities.

    "In spite of a very unsettled financial environment, we remain

encouraged by our solid investment management results and the pace of net

cash inflows across our distribution channels. Our strong capital position

gives us the financial flexibility to weather turbulent markets and the

ability to continue to invest for the future.

    "Our expected capital expenditures for 2008 will be comparable to 2007

spending at approximately $150 million. We have expended $425 million so

far this year to repurchase 8.2 million of our common shares, compared to

share repurchases totaling $320 million for all of 2007. These expenditures

are being funded from our available cash positions. We remain debt-free

with substantial liquidity, including cash and investment holdings of $1.5


    In closing, Mr. Kennedy said: "We are proud of our associates for

staying focused on our clients during these turbulent times. We believe our

globally diversified investment and distribution expertise, and our

long-term investment perspective serve our clients and fund shareholders

quite well. The outlook for T. Rowe Price 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

second quarter of 2008 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


    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

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in millions, except per-share amounts) Three months ended Six months ended Revenues 6/30/2007 6/30/2008 6/30/2007 6/30/2008 Investment advisory fees $464.1 $495.3 $889.1 $965.4 Administrative fees 86.7 90.9 169.8 179.7 Investment income of savings bank subsidiary 1.5 1.5 3.0 3.0 Total revenues 552.3 587.7 1,061.9 1,148.1 Interest expense on savings bank deposits 1.2 1.2 2.4 2.5 Net revenues 551.1 586.5 1,059.5 1,145.6 Operating expenses Compensation and related costs 197.0 218.0 381.2 425.4 Advertising and promotion 21.9 20.2 53.7 56.7 Depreciation and amortization of property and equipment 14.0 15.6 27.7 30.6 Occupancy and facility costs 22.7 24.9 44.1 50.0 Other operating expenses 44.4 49.2 82.8 94.2 300.0 327.9 589.5 656.9 Net operating income 251.1 258.6 470.0 488.7 Net non-operating investment income 11.7 7.8 23.5 22.1 Income before income taxes 262.8 266.4 493.5 510.8 Provision for income taxes 100.6 104.2 188.4 197.1 Net income 162.2 162.2 305.1 313.7 Earnings per share Basic $.61 $.62 $1.15 $1.20 Diluted $.58 $.60 $1.09 $1.15 Dividends declared per share $.17 $.24 $.34 $.48 Weighted average shares Outstanding 265.4 259.6 265.5 260.7 Outstanding assuming dilution 280.0 272.4 280.0 273.0 Three months ended Six months ended 6/30/2007 6/30/2008 6/30/2007 6/30/2008 Investment Advisory Revenues (in millions) Sponsored mutual funds in the U.S. Stock and blended asset $290.6 $296.8 $553.7 $579.2 Bond and money market 45.3 52.7 88.0 103.9 335.9 349.5 641.7 683.1 Other portfolios 128.2 145.8 247.4 282.3 Total investment advisory fees $464.1 $495.3 $889.1 $965.4 Average Assets Under Management (in billions) Sponsored mutual funds in the U.S. Stock and blended asset $191.1 $194.4 $182.9 $189.5 Bond and money market 40.9 48.2 40.0 47.4 232.0 242.6 222.9 236.9 Other portfolios 138.9 157.4 134.4 152.6 $370.9 $400.0 $357.3 $389.5 12/31/2007 6/30/2008 Assets Under Management (in billions) Sponsored mutual funds in the U.S. Stock and blended asset $200.6 $185.0 Bond and money market 45.4 48.3 246.0 233.3 Other portfolios 154.0 154.4 $400.0 $387.7 Equity securities $321.6 $305.6 Debt securities 78.4 82.1 $400.0 $387.7 Six months ended 6/30/2007 6/30/2008 Condensed Consolidated Cash Flows Information (in millions) Cash provided by operating activities $421.8 $453.2 Cash used in investing activities, including ($53.5) for additions to property and equipment in 2008 (142.0) (43.2) Cash used in financing activities, including common stock repurchases of ($369.7) and dividends paid of ($188.4) in 2008 (157.6) (513.9) Net change in cash during the period $122.2 $(103.9) Condensed Consolidated Balance Sheet Information (in millions) 12/31/2007 6/30/2008 Cash and cash equivalents $785.1 $681.2 Investments in sponsored mutual funds 773.0 730.5 Property and equipment 358.3 382.7 Goodwill and other intangible assets 668.8 668.5 Accounts receivable and other assets 592.1 586.9 Total assets 3,177.3 3,049.8 Total liabilities 400.2 397.6 Stockholders' equity, 259.7 common shares outstanding in 2008, including net unrealized holding gains of $64.5 in 2008 $2,777.1 $2,652.2

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