How did market conditions affect T. Rowe Price's assets under management in 2001?

Investment portfolios experienced net market declines of $13.8 billion, or 8.3% of year-end 2000 assets under management. Investor sentiment was weak after the September 11 attacks, though some recovery occurred in the fourth quarter. Total assets under management ended the year at $156.3 billion, down from $166.7 billion.

Why did net income decline in 2001?

Net income fell $73.2 million, or 27%, to $195.9 million, primarily because lower assets under management reduced investment advisory revenues, which fell $101 million from the T. Rowe Price mutual funds. Lower investment income, which declined $26.3 million, also contributed. A full year of goodwill amortization from the 2000 acquisition of T. Rowe Price International added $17.0 million to expenses.

What changes does the company expect for goodwill accounting in 2002?

Under new accounting standards adopted January 1, 2002, the company will stop amortizing goodwill, which totaled $666 million at December 31, 2001, and will test it annually for impairment using a fair value approach. The company has not completed the transitional testing but does not believe it will recognize an impairment loss from adoption.

How is the company managing expenses and capital?

Management reduced headcount by more than 9% and operating expenses by more than 7% during 2001, and advertising and promotion expense fell almost 27% to $64.6 million. Operating cash flow was $290 million, and the company repurchased nearly 1.1 million shares and repaid $205 million of acquisition borrowings. Anticipated 2002 property and equipment acquisitions are approximately $30 million, expected to be funded from operating cash flow.

What is the company's expansion strategy outside the United States?

Following its 2000 acquisition of the 50% interest in T. Rowe Price International, the company received regulatory approval in January 2001 for its U.K. subsidiary, T. Rowe Price Global Investment Services, to expand into Europe. It offers separate account management to European institutional investors and Luxembourg-domiciled mutual funds. International client assets account for more than 1% of total assets under management, and the company notes that these expansion expenditures may be significant and will precede revenues.

TROW 10-K FY2001 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 14, 2002. Cited figures are marked; the original filing is the authoritative source.

Rowe Price Group, Inc. (Nasdaq: TROW) reported that 2001 was a difficult year for financial markets, the second consecutive year of declines. Total assets under management fell $10.4 billion^a, or 6%, to $156.3 billion at December 31, 2001, from $166.7 billion a year earlier. Net market declines of $13.8 billion reduced assets, while the company recorded net inflows of $2.9 billion into other investment portfolios and $514 million into mutual funds.

Revenues declined 15% to $1.03 billion^b from $1.21 billion, and net income decreased $73.2 million, or 27%, to $195.9 million. Diluted earnings per share fell from $2.08 to $1.52. Management cut costs in response: headcount was reduced by more than 9% to about 3,650 and operating expenses declined about 8% to $697 million, with advertising and promotion down almost 27%.

Stockholders' equity surpassed $1 billion^c for the first time, reaching $1.08 billion. Operating cash flow was $290 million, and the company repurchased about 1.1 million shares and reduced acquisition debt by $205 million, leaving $90 million outstanding under the credit facility. Looking ahead, the filing notes that goodwill amortization from the 2000 acquisition of the 50% interest in T.

Rowe Price International will cease after 2001 under new accounting standards, and management does not expect to recognize an impairment loss on adoption. The company also expanded into Europe through a U.K. subsidiary and introduced Section 529 college savings plans, and it expects first-half 2002 investment income and advertising spending to be lower than in the comparable 2001 period.

02—Key points

Key Highlights

Assets under management fell $10.4 billion, or 6%, to $156.3 billion at December 31, 2001, including $102.6 billion in retirement accounts and variable annuity portfolios.
Net income decreased $73.2 million, or 27%, to $195.9 million; diluted EPS declined from $2.08 to $1.52.
Total revenues declined 15% to $1,027.5 million from $1,212.3 million, reflecting lower average fund assets under management of $98.7 billion versus $113.9 billion in 2000.
Operating expenses fell about 8% to $696.9 million, with headcount reduced more than 9% to about 3,650 employees.
Stockholders' equity exceeded $1 billion for the first time, reaching $1,077.8 million at year-end 2001.
Net mutual fund inflows were $514 million, while other investment portfolios added $2.9 billion, driven by third-party distribution and institutional and European initiatives.
Debt was reduced to $103.9 million, including $205 million repaid in 2001, and about 1.1 million shares were repurchased.

03—Questions

Frequently Asked Questions

How did market conditions affect T. Rowe Price's assets under management in 2001?
Investment portfolios experienced net market declines of $13.8 billion, or 8.3% of year-end 2000 assets under management. Investor sentiment was weak after the September 11 attacks, though some recovery occurred in the fourth quarter. Total assets under management ended the year at $156.3 billion, down from $166.7 billion.
Why did net income decline in 2001?
Net income fell $73.2 million, or 27%, to $195.9 million, primarily because lower assets under management reduced investment advisory revenues, which fell $101 million from the T. Rowe Price mutual funds. Lower investment income, which declined $26.3 million, also contributed. A full year of goodwill amortization from the 2000 acquisition of T. Rowe Price International added $17.0 million to expenses.
What changes does the company expect for goodwill accounting in 2002?
Under new accounting standards adopted January 1, 2002, the company will stop amortizing goodwill, which totaled $666 million at December 31, 2001, and will test it annually for impairment using a fair value approach. The company has not completed the transitional testing but does not believe it will recognize an impairment loss from adoption.
How is the company managing expenses and capital?
Management reduced headcount by more than 9% and operating expenses by more than 7% during 2001, and advertising and promotion expense fell almost 27% to $64.6 million. Operating cash flow was $290 million, and the company repurchased nearly 1.1 million shares and repaid $205 million of acquisition borrowings. Anticipated 2002 property and equipment acquisitions are approximately $30 million, expected to be funded from operating cash flow.
What is the company's expansion strategy outside the United States?
Following its 2000 acquisition of the 50% interest in T. Rowe Price International, the company received regulatory approval in January 2001 for its U.K. subsidiary, T. Rowe Price Global Investment Services, to expand into Europe. It offers separate account management to European institutional investors and Luxembourg-domiciled mutual funds. International client assets account for more than 1% of total assets under management, and the company notes that these expansion expenditures may be significant and will precede revenues.

04—Continue

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