01—Abstract
Summary
Summary of the 10-K filed February 7, 2008. Cited figures are marked; the original filing is the authoritative source.
T.
Rowe Price Group, Inc. reported a record year in 2007, with total assets under management ending the year at $400.0 billiona, up $65.3 billion or 19.5% during 2007. Net inflows were nearly $34 billion, and market appreciation and income added more than $31 billion. Net revenues rose 23%, or $413.3 million, to $2.2 billion, and net income increased $141.0 million, or almost 27%, to $670.6 million.
Diluted earnings per share rose from $1.90 to $2.40b, and the operating margin improved to 44.7% from 43.4%. The filing emphasizes that revenues depend on the value and composition of assets under management, so market declines, investor withdrawals, or fee reductions by the Price funds could materially reduce revenues. Investment advisory revenues from the Price funds and other portfolios rose sharply, and more than 30% of assets under management come from third-party financial intermediaries.
The company also flagged risks from the subprime-driven market turmoil and the early-2008 market decline. Investors should weigh its strong 2007 performance against the concentration of revenue in fund-based advisory fees and the sensitivity of earnings to market conditions. The company's balance sheet grew to $3.18 billionc in total assets, with stockholders' equity of $2.78 billion and cash and investment holdings above $1.6 billion.
Management expects to pay quarterly dividends of $.24 per share in 2008 and projects property and equipment spending of nearly $200 milliond that year. Repurchases totaled $312.1 million in cash flows during 2007, and KPMG issued an unqualified opinion on both the financial statements and internal control over financial reporting.
02—Key points
Key Highlights
- Total assets under management reached a record $400.0 billion at year-end 2007, up $65.3 billion or 19.5% during the year.
- Net inflows of nearly $34 billion were driven by third-party intermediaries, institutional investors, and target-date Retirement Funds.
- Net revenues increased 23% to $2.2 billion, and net income rose almost 27% to $670.6 million.
- Diluted earnings per share increased from $1.90 in 2006 to $2.40 in 2007; operating margin rose to 44.7% from 43.4%.
- At least 72% of Price funds surpassed comparable Lipper averages over three-, five-, and 10-year periods, and 58.2% of rated funds carried four or five Morningstar stars versus 32.5% for the industry.
- Quarterly dividend rate increased to $.24 per share, with management expecting to pay that rate in 2008.
- More than 30% of assets under management come from third-party financial intermediaries, the largest distribution channel and a noted risk factor.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2007, Price T Rowe Group kept $0.30.
- Revenue$2.23B100.0%
- Cost of revenue−$4.8M0.2%
- Gross profit$2.23B99.8%
- Operating costs−$1.23B55.2%
- Operating income$996.4M44.6%
- Interest, other & tax−$325.8M14.6%
- Net income$670.6M30.0%
Where FY2007 revenue went
$2.23B- Operating costs: $1.23B, 55% of revenue
- Net income: $670.6M, 30% of revenue
- Interest, other & tax: $325.8M, 15% of revenue
- Cost of revenue: $4.8M, 0.2% of revenue
Kept 30% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2007filed February 7, 2008Financial Statements
| Revenue | $2.23B |
| Gross Profit | $2.23B |
| Operating Expenses | $1.23B |
| Operating Income | $996.40M |
| Net Income | $670.60M |
| Shares Outstanding (Basic) | 264.80M |
| Shares Outstanding (Diluted) | 279.10M |
05—Questions
Frequently Asked Questions
What drove the growth in assets under management in 2007?
Net inflows of $33.8 billion and net market appreciation and income of $32.4 billion together increased assets under management by $65.3 billion. Net inflows to the sponsored U.S. mutual funds were $20.2 billion, and other portfolios added $13.6 billion.
How much of the company's revenue depends on the Price funds?
A significant majority of revenues are based on contracts with the Price funds, which can be terminated without cause on 60-day notice. The filing also states that the six largest Price funds accounted for 27.5% of 2007 investment advisory revenues.
What are the main risks to future earnings?
Revenues depend on asset values, so market declines, investor withdrawals, underperformance, and changes in tax or regulatory rules could reduce fees. Because some expenses are fixed, net income would likely fall by a greater proportion than revenues if revenues declined.
What capital return and spending plans did management disclose?
The company repurchased 6,163,401 shares during 2007 and paid dividends that increased to $.75 per share for the year. It expects 2008 property and equipment expenditures of nearly $200 million, funded from cash balances.
How did the company view the 2007 market environment?
Management described 2007 as a reasonable year overall, with the S&P 500 returning 5.5% and emerging markets rising 39.8% per the MSCI index. It also noted that equities declined sharply in early January 2008 and cautioned investors to have modest return expectations.
06—Continue