01—Abstract
Summary
Summary of the 10-K filed February 6, 2009. Cited figures are marked; the original filing is the authoritative source.
T.
Rowe Price Group, Inc. (NASDAQ: TROW) is a financial services holding company whose revenues and net income derive primarily from investment advisory services to individual and institutional investors in the sponsored T. Rowe Price mutual funds and other investment portfolios. Total assets under management decreased $123.7 billiona during 2008 to end the year at $276.3 billion, including $164.4 billion in the T.
Rowe Price mutual funds distributed in the United States and $111.9 billionb in other investment portfolios. The firm still recorded net inflows of $17.1 billion for 2008, though net inflows were $17.8 billion in the first half and net outflows of $.7 billion in the second half. Financially, net revenues were $2.12 billion in 2008 compared with $2.23 billion in 2007 on a net revenue basis, net operating income fell 14.8% to $848.5 million, and the operating margin declined to 40.1% from 44.7%.
Net income fell 27% to $490.8 millionc, and diluted earnings per share were $1.82, down from $2.40. Non-operating investment losses of $52.3 million included $91.3 million of other-than-temporary impairments on sponsored mutual fund investments. The company stated it remains debt-free, with cash and mutual fund investments exceeding $1.1 billion, and it repurchased 12,948,037 shares during 2008.
Management expects 2009 operating expenses to fall below 2007 levels and plans quarterly dividends in 2009 that will exceed the $.96 per share paid in 2008. The filing also highlights concentration and market risks.
More than 30%d of assets under management come from third-party financial intermediaries, and a significant majority of revenues are based on contracts with the Price funds that can be terminated on 60-day notice. Because advisory fees are tied to asset values, management notes that continued market stress and lower equity valuations would reduce average assets, advisory fees and net income in future periods.
02—Key points
Key Highlights
- Total assets under management fell $123.7 billion in 2008 to $276.3 billion at year-end, including $196.9 billion in equity and blended asset portfolios and $79.4 billion in fixed income portfolios.
- Net inflows were $17.1 billion for 2008, but the second half produced net outflows of $.7 billion after $17.8 billion of first-half inflows.
- Net revenues were $2.12 billion in 2008, net operating income declined 14.8% to $848.5 million, and the operating margin fell to 40.1% from 44.7%.
- Net income declined 27% to $490.8 million and diluted EPS fell to $1.82 from $2.40, with other-than-temporary impairments reducing diluted EPS by $.21.
- Investment advisory revenues decreased 6.3% to $1.76 billion, reflecting average assets under management of $358.2 billion and a fee rate of 49.2 basis points versus 50.2 in 2007.
- The company remains debt-free with cash and mutual fund investments exceeding $1.1 billion, and it repurchased 12,948,037 shares during 2008.
- Quarterly dividends were increased to $.24 per share beginning in January 2008, totaling $.96 for the year, and 2009 dividends are planned to exceed that amount.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2008, Price T Rowe Group kept $0.23.
- Revenue$2.12B100.0%
- Cost of revenue−$5.0M0.2%
- Gross profit$2.12B99.8%
- Operating costs−$1.27B59.8%
- Operating income$848.5M40.0%
- Interest, other & tax−$357.7M16.9%
- Net income$490.8M23.1%
Where FY2008 revenue went
$2.12B- Operating costs: $1.27B, 60% of revenue
- Net income: $490.8M, 23% of revenue
- Interest, other & tax: $357.7M, 17% of revenue
- Cost of revenue: $5.0M, 0.2% of revenue
Kept 23% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2008filed February 6, 2009Financial Statements
FY2008 against FY2007
| Line item | FY2008FY2007 | Change |
|---|---|---|
| Revenue | $2.12B$2.23B | −5.0% |
| Gross Profit | $2.12B$2.23B | −5.0% |
| Operating Expenses | $1.27B$1.23B | +2.9% |
| Operating Income | $848.50M$996.40M | −14.8% |
| Net Income | $490.80M$670.60M | −26.8% |
| EPS (Basic) | $1.89— | — |
| EPS (Diluted) | $1.81— | — |
| Shares Outstanding (Basic) | 259.30M264.80M | −2.1% |
| Shares Outstanding (Diluted) | 269.90M279.10M | −3.3% |
05—Questions
Frequently Asked Questions
How much did assets under management decline in 2008 and what drove it?
Assets under management decreased $123.7 billion during 2008 to $276.3 billion. The filing attributes the decline mainly to net market losses of $140.3 billion, partly offset by net cash inflows of $17.1 billion, as financial markets fell sharply during the year.
Why did net income and earnings per share decline in 2008?
Net income fell 27% to $490.8 million and diluted EPS dropped to $1.82 from $2.40. The decline reflects lower advisory revenues from reduced asset values, higher operating expenses, and non-operating investment losses of $52.3 million, which included $91.3 million of other-than-temporary impairments on sponsored mutual fund investments.
How concentrated is the company's revenue base?
The filing states that a significant majority of revenues are based on contracts with the Price funds that are subject to termination without cause on short notice, and that more than 30% of assets under management come from third-party financial intermediaries, the largest distribution channel.
What is the company's financial position and capital return policy?
The company reported total assets of $2.82 billion and stockholders' equity of $2.49 billion at December 31, 2008, and stated it is debt-free. It repurchased 12,948,037 shares during 2008 and paid $.96 per share in dividends, with management planning 2009 dividends that exceed that level.
What does management expect for 2009?
Management expects 2009 operating expenses to fall below those of 2007 and does not expect the number of associates to increase. It states that 2009 will be a tough year for consumers and investors but expects the investment environment to improve in the latter half of the year, while also noting that continued market stress would lower average assets, advisory fees and net income.
06—Continue