01—Abstract
Summary
Summary of the 10-K filed March 26, 2001. Cited figures are marked; the original filing is the authoritative source.
T.
Rowe Price Group, Inc. (Nasdaq: TROW) is a financial services holding company formed in 2000 that derives its consolidated revenues and net income primarily from investment advisory services provided to individual and institutional investors in the T. Rowe Price mutual funds and other investment portfolios. The company completed the share exchange with T.
Rowe Price Associates on December 28, 2000, and in 2000 it finished the most significant financial transaction in its history by acquiring Robert Fleming Holdings' 50% non-controlling interest in Rowe Price-Fleming International for $783 milliona, including $704 million of goodwill, financed with $483 million of cash and $300 million of borrowings. Revenues rose to a record $1.21 billion and net income to a record $269.0 million, or $2.08 diluted earnings per share, but total assets under management declined $13.2 billion during 2000 to $166.7 billion, the first annual decline in the company's fifteen years as a public company. The filing shows a mixed year for investors.
Market declines and net cash outflows reduced assets under management, with the Equity Income Fund experiencing $3.2 billionb of net redemptions, while the Science & Technology Fund drew $2.6 billion of net inflows. Operating expenses rose 21% to $754 million, driven by compensation, technology spending, and goodwill amortization, and management expects lower investment income and performance-related fees in 2001 as market conditions weakened. The company also reported that its quarterly dividend was raised to $.15 in December 2000, the fifteenth consecutive annual increase since its 1986 public offering.
The balance sheet changed materially, with goodwill rising to $695.0 million and debt to $312.3 millionc at year-end 2000, compared with $17.7 million in 1999. Stockholders' equity grew to $991.1 million, and operating cash flow was $322.7 million. Management plans to use available cash to reduce borrowings in 2001 and expects capital expenditures of approximately $57 million that will be funded from operating cash flow.
02—Key points
Key Highlights
- Record 2000 results: revenues of $1.21 billion (up from $1.04 billion in 1999) and net income of $269.0 million, with diluted EPS of $2.08 versus $1.85.
- Assets under management fell $13.2 billion to $166.7 billion at year-end 2000, the first annual decline since the company became public in 1986; mutual fund assets ended at $106.3 billion.
- Acquired Robert Fleming's 50% interest in Rowe Price-Fleming International on August 8, 2000 for $783 million, creating $704 million of goodwill amortized over 25 years.
- Financed the Fleming acquisition with $483 million of cash and a $300 million borrowing under a five-year, $500 million syndicated bank credit facility; debt was $312.3 million at year-end 2000.
- Net cash inflows concentrated in growth funds: Science & Technology drew $2.6 billion, while Equity Income had $3.2 billion of net redemptions.
- Operating expenses increased 21% to $754 million, and management expects 2001 spending to exceed 2000 levels.
- Management expects lower investment income and performance-related fees in 2001, given declining market conditions in late 2000 and early 2001; the quarterly dividend is $.15 per share.
03—Questions
Frequently Asked Questions
Why did T. Rowe Price's assets under management decline in 2000?
Financial markets were difficult in 2000, with stock valuations peaking in the first quarter and declining sharply in the fourth quarter. Investor sentiment was unfavorable, and value-oriented and international stock funds saw outflows. Fund assets also fell $5.5 billion from market declines, and a large defined contribution plan moved $2 billion to other advisors at year-end.
How was the Rowe Price-Fleming International acquisition financed and what does it mean for the company?
The $783 million purchase was funded with $483 million of existing cash and a $300 million borrowing under a five-year syndicated bank credit facility. The filing states that the acquisition allows the company to compete for investment advisory services for institutional and individual investors throughout the world, and that expansion into European institutions began in late 2000.
What is the company's dividend policy?
Cash dividends declared per share rose to $.54 in 2000 from $.43 in 1999. The quarterly rate was increased to $.15 in December 2000, the fifteenth consecutive annual increase since the company became public in April 1986, and the company expects to pay $.15 per quarter for the first three quarters of 2001.
How concentrated is the company's revenue base?
The filing states that the Price funds are the main source of revenue: about 75% of administrative revenues in 2000 came from services to the Price funds, and the three largest Price funds accounted for 25% of investment advisory revenues. The largest client account provided less than 4% of total investment advisory revenues in 2000.
What risks does the filing highlight for investors?
The filing notes that revenues depend largely on the value of assets under management, so market declines reduce revenues and income. It also notes that revenues are substantially dependent on contracts with the Price funds, which independent directors could terminate, and that the performance-related fees from venture capital disposition services and sponsored partnerships are expected to decline as those partnerships liquidate.
04—Continue