T. Rowe Price Group, Inc.
PRICE T ROWE GROUP INC (Form: 10-Q, Received: 10/24/2012 12:46:19)

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________  
FORM 10-Q
______________________________________ 
QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2012
Commission File Number: 000-32191
______________________________________  
T. ROWE PRICE GROUP, INC.
(Exact name of registrant as specified in its charter)
______________________________________  
Maryland
 
52-2264646
(State of incorporation)
 
(I.R.S. Employer Identification No.)
100 East Pratt Street, Baltimore, Maryland 21202
(Address, including Zip Code, of principal executive offices)
(410) 345-2000
(Registrant's telephone number, including area code)
______________________________________ 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.     x   Yes     ¨   No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months.     x   Yes     ¨   No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer  x
 
Accelerated filer  ¨
Non-accelerated filer ¨
 
Smaller reporting company  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨   Yes     x   No
The number of shares outstanding of the issuer’s common stock ($.20 par value), as of the latest practicable date, October 22, 2012 , is 254,865,088 .
The exhibit index is at Item 6 on page 23 .
 


1


PART I – FINANCIAL INFORMATION

Item 1.
Financial Statements.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
 
 
12/31/2011
 
9/30/2012
ASSETS
 
 
 
Cash and cash equivalents
$
897.9

 
$
1,235.0

Accounts receivable and accrued revenue
304.5

 
332.2

Investments in sponsored mutual funds
764.5

 
1,024.2

Debt securities held by savings bank subsidiary
198.4

 
158.0

Other investments
206.3

 
290.4

Property and equipment
567.4

 
561.0

Goodwill
665.7

 
665.7

Other assets
165.6

 
139.1

Total assets
$
3,770.3

 
$
4,405.6

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Liabilities
 
 
 
Accounts payable and accrued expenses
$
82.9

 
$
90.7

Accrued compensation and related costs
63.2

 
274.4

Income taxes payable
30.0

 
20.9

Customer deposits at savings bank subsidiary
173.5

 
160.7

Total liabilities
349.6

 
546.7

 
 
 
 
Commitments and contingent liabilities

 

 
 
 
 
Stockholders’ equity
 
 
 
Preferred stock, undesignated, $.20 par value – authorized and unissued 20,000,000 shares

 

Common stock, $.20 par value - authorized 750,000,000; issued 253,272,000 shares in 2011 and 254,828,000 in 2012
50.7

 
50.9

Additional capital in excess of par value
502.0

 
544.0

Retained earnings
2,765.2

 
3,143.6

Accumulated other comprehensive income
102.8

 
120.4

Total stockholders’ equity
3,420.7

 
3,858.9

Total liabilities and stockholders’ equity
$
3,770.3

 
$
4,405.6


The accompanying notes are an integral part of these statements.
Page 2


UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per-share amounts)
 
 
Three months ended
 
Nine months ended
 
9/30/2011
 
9/30/2012
 
9/30/2011
 
9/30/2012
Revenues
 
 
 
 
 
 
 
Investment advisory fees
$
578.0

 
$
661.4

 
$
1,778.5

 
$
1,914.4

Administrative fees
80.3

 
83.4

 
240.9

 
249.0

Distribution and servicing fees
20.5

 
24.4

 
54.4

 
70.3

Net revenue of savings bank subsidiary
.6

 
.5

 
1.7

 
1.5

Net revenues
679.4

 
769.7

 
2,075.5

 
2,235.2

 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
Compensation and related costs
251.6

 
263.8

 
743.3

 
786.0

Advertising and promotion
19.0

 
17.5

 
65.0

 
63.1

Distribution and servicing costs
20.5

 
24.4

 
54.4

 
70.3

Depreciation and amortization of property and equipment
18.5

 
20.6

 
53.0

 
59.6

Occupancy and facility costs
29.2

 
31.0

 
85.8

 
92.5

Other operating expenses
45.4

 
53.5

 
140.7

 
160.6

Total operating expenses
384.2

 
410.8

 
1,142.2

 
1,232.1

 
 
 
 
 
 
 
 
Net operating income
295.2

 
358.9

 
933.3

 
1,003.1

 
 
 
 
 
 
 
 
Non-operating investment income
1.3

 
41.4

 
10.8

 
53.9

 
 
 
 
 
 
 
 
Income before income taxes
296.5

 
400.3

 
944.1

 
1,057.0

Provision for income taxes
111.0

 
153.0

 
359.3

 
405.4

Net income
$
185.5

 
$
247.3

 
$
584.8

 
$
651.6

 
 
 
 
 
 
 
 
Earnings per share on common stock
 
 
 
 
 
 
 
Basic
$
.73

 
$
.97

 
$
2.27

 
$
2.56

Diluted
$
.71

 
$
.94

 
$
2.20

 
$
2.48

 
 
 
 
 
 
 
 
Dividends declared per share
$
.31

 
$
.34

 
$
.93

 
$
1.02



The accompanying notes are an integral part of these statements.
Page 3


UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
 
 
Three months ended
 
Nine months ended
 
9/30/2011
 
9/30/2012
 
9/30/2011
 
9/30/2012
Net income
$
185.5

 
$
247.3

 
$
584.8

 
$
651.6

Other comprehensive income (loss)
 
 
 
 
 
 
 
Net unrealized holding gains (losses) on:
 
 
 
 
 
 
 
Investments in sponsored mutual funds
 
 
 
 
 
 
 
Net unrealized holding gains (losses)
(100.0
)
 
40.3

 
(71.5
)
 
81.1

Reclassification adjustment on net losses (gains) realized on dispositions in non-operating investment income

 
(31.2
)
 

 
(33.7
)
Investments in sponsored mutual funds
(100.0
)
 
9.1

 
(71.5
)
 
47.4

Debt securities held by savings bank subsidiary
.3

 
.4

 
.4

 
.8

Proportionate share of net unrealized holding gains (losses) on securities held by UTI Asset Management Company Limited

 
.1

 

 
.2

Total net unrealized holding gains (losses) recognized in other comprehensive income
(99.7
)
 
9.6

 
(71.1
)
 
48.4

Currency translation adjustment
(1.0
)
 
(11.8
)
 
(.6
)
 
(17.1
)
Total other comprehensive income (loss) before income taxes
(100.7
)
 
(2.2
)
 
(71.7
)
 
31.3

Deferred tax benefits (income taxes)
38.9

 
.4

 
27.7

 
(13.7
)
Total other comprehensive income (loss)
(61.8
)
 
(1.8
)
 
(44.0
)
 
17.6

Total comprehensive income
$
123.7

 
$
245.5

 
$
540.8

 
$
669.2



The accompanying notes are an integral part of these statements.
Page 4


UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
 
 
Nine months ended
 
9/30/2011
 
9/30/2012
Cash flows from operating activities
 
 
 
Net income
$
584.8

 
$
651.6

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Depreciation and amortization of property and equipment
53.0

 
59.6

Stock-based compensation expense
73.8

 
77.3

Intangible asset amortization
.3

 
.3

Changes in securities held by consolidated sponsored mutual funds

 
(91.1
)
Other changes in assets and liabilities
228.6

 
163.3

Net cash provided by operating activities
940.5

 
861.0

 
 
 
 
Cash flows from investing activities
 
 
 
Investments in sponsored mutual funds
(62.2
)
 
(342.2
)
Dispositions of sponsored mutual funds

 
165.6

Investments in debt securities held by savings bank subsidiary
(52.5
)
 
(31.1
)
Proceeds from debt securities held by savings bank subsidiary
38.2

 
70.2

Additions to property and equipment
(49.5
)
 
(55.7
)
Other investing activity
(5.9
)
 
(9.0
)
Net cash used in investing activities
(131.9
)
 
(202.2
)
 
 
 
 
Cash flows from financing activities
 
 
 
Repurchases of common stock
(461.6
)
 
(135.2
)
Common share issuances under stock-based compensation plans
41.1

 
52.3

Excess tax benefits from stock-based compensation plans
26.9

 
33.7

Dividends
(239.3
)
 
(259.7
)
Change in savings bank subsidiary deposits
12.6

 
(12.8
)
Net cash used in financing activities
(620.3
)
 
(321.7
)
 
 
 
 
Cash and cash equivalents
 
 
 
Net change during period
188.3

 
337.1

At beginning of year
813.1

 
897.9

At end of period
$
1,001.4

 
$
1,235.0



The accompanying notes are an integral part of these statements.
Page 5


UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(shares in thousands; dollars in millions)
 
 
Common
shares
outstanding
 
Common
stock
 
Additional
capital in
excess of
par value
 
Retained
earnings
 
Accumulated
other
comprehensive
income
 
Total
stockholders’
equity
Balances at December 31, 2011
253,272

 
$
50.7

 
$
502.0

 
$
2,765.2

 
$
102.8

 
$
3,420.7

Net income
 
 
 
 
 
 
651.6

 
 
 
651.6

Other comprehensive income, net of tax
 
 
 
 
 
 
 
 
17.6

 
17.6

Dividends
 
 
 
 
 
 
(259.8
)
 
 
 
(259.8
)
Common stock-based compensation plans activity
 
 
 
 
 
 
 
 
 
 
 
Shares issued upon option exercises
3,093

 
.6

 
51.7

 
 
 
 
 
52.3

Restricted shares issued, net of shares withheld for taxes
781

 
.1

 
(.3
)
 
 
 
 
 
(.2
)
Shares issued upon vesting of restricted stock units
5

 
.0

 
(.1
)
 
 
 
 
 
(.1
)
Forfeiture of restricted awards
(21
)
 
.0

 
.0

 
 
 
 
 

Net tax benefits
 
 
 
 
34.7

 
 
 
 
 
34.7

Stock-based compensation expense
 
 
 
 
77.3

 
 
 
 
 
77.3

Common shares repurchased
(2,302
)
 
(.5
)
 
(121.3
)
 
(13.4
)
 
 
 
(135.2
)
Balances at September 30, 2012
254,828

 
$
50.9

 
$
544.0

 
$
3,143.6

 
$
120.4

 
$
3,858.9



The accompanying notes are an integral part of these statements.
Page 6


NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1
– THE COMPANY AND BASIS OF PREPARATION.

T. Rowe Price Group derives its consolidated revenues and net income primarily from investment advisory services that its subsidiaries provide to individual and institutional investors in the sponsored T. Rowe Price mutual funds and other investment portfolios, including separately managed accounts, sub-advised funds, and other sponsored investment portfolios. We also provide our investment advisory clients with related administrative services, including mutual fund transfer agent, accounting and shareholder services; participant recordkeeping and transfer agent services for defined contribution retirement plans; brokerage; and trust services.

Investment advisory revenues depend largely on the total value and composition of assets under our management. Accordingly, fluctuations in financial markets and in the composition of assets under management impact our revenues and results of operations.

These unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require the use of estimates and reflect all adjustments that are, in the opinion of management, necessary to a fair statement of our results for the interim periods presented. All such adjustments are of a normal recurring nature. Actual results may vary from our estimates.

The unaudited interim financial information contained in these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements contained in our 2011 Annual Report. Prior-year amounts related to distribution and servicing fees, net revenue of savings bank subsidiary, and distribution and servicing costs have been reclassified to conform to current year presentation. The change in presentation is more fully discussed in our 2011 Annual Report.

On January 1, 2012, we adopted new financial reporting guidance related to the presentation of comprehensive income in our consolidated financial statements. The new guidance requires net income and other comprehensive income to be presented either in a single-continuous statement or in two separate, but consecutive, statements of income and comprehensive income. We elected to present comprehensive income in a separate statement following our unaudited condensed consolidated statements of income. Additional disclosures required by this new guidance are included in Note 9. We also adopted new financial reporting guidance that clarified how to measure financial instruments at fair value and expanded the required fair value measurement disclosures. The adoption of the new measurement guidance did not have an impact on our condensed consolidated financial statements. However, we now disclose in Note 6 the level of the fair value hierarchy in which the inputs used in determining the disclosed fair value of customer deposits at our savings bank subsidiary can be categorized.

NOTE 2
– INFORMATION ABOUT RECEIVABLES, REVENUES, AND SERVICES.

Accounts receivable from our sponsored mutual funds for advisory fees and advisory-related administrative services aggregate $155.9 million at December 31, 2011 , and $177.3 million at September 30, 2012 .

Revenues (in millions) from advisory services provided under agreements with our sponsored mutual funds and other investment clients include:
 
Three months ended
 
Nine months ended
 
9/30/2011
 
9/30/2012
 
9/30/2011
 
9/30/2012
Sponsored mutual funds in the U.S.
 
 
 
 
 
 
 
Stock and blended asset
$
321.5

 
$
368.1

 
$
989.7

 
$
1,059.6

Bond and money market
76.3

 
90.0

 
226.7

 
258.7

 
397.8

 
458.1

 
1,216.4

 
1,318.3

Other portfolios
 
 
 
 
 
 
 
Stock and blended asset
145.7

 
160.2

 
461.3

 
472.1

Bond, money market, and stable value
34.5

 
43.1

 
100.8

 
124.0

 
180.2

 
203.3

 
562.1

 
596.1

Total
$
578.0

 
$
661.4

 
$
1,778.5

 
$
1,914.4

 
The following table summarizes the various investment portfolios and assets under management (in billions) on which we earn advisory fees.
 
Average during
 
Average during
 
the third quarter of
 
the first nine months of
 
2011
 
2012
 
2011
 
2012
Sponsored mutual funds in the U.S.
 
 
 
 
 
 
 
Stock and blended asset
$
212.4

 
$
246.4

 
$
220.4

 
$
237.8

Bond and money market
75.9

 
86.1

 
73.9

 
83.3

 
288.3

 
332.5

 
294.3

 
321.1

Other portfolios
 
 
 
 
 
 
 
Stock and blended asset
145.0

 
159.2

 
152.5

 
156.9

Bond, money market, and stable value
57.2

 
66.1

 
54.5

 
64.2

 
202.2

 
225.3

 
207.0

 
221.1

Total
$
490.5

 
$
557.8

 
$
501.3

 
$
542.2

 
As of
 
12/31/2011
 
9/30/2012
Sponsored mutual funds in the U.S.
 
 
 
Stock and blended asset
$
211.7

 
$
254.7

Bond and money market
77.7

 
88.2

 
289.4

 
342.9

Other portfolios
 
 
 
Stock and blended asset
140.7

 
164.4

Bond, money market, and stable value
59.4

 
67.1

 
200.1

 
231.5

Total
$
489.5

 
$
574.4


Investors that we serve are primarily domiciled in the U.S.; investment advisory clients outside the U.S. account for nearly 10% of our assets under management at September 30, 2012 .

Fees for advisory-related administrative services provided to our sponsored mutual funds in the U.S. during the first nine months of the year were $186.2 million in 2011 and $193.6 million in 2012 . Fees for these services during the third quarter were $61.9 million in 2011 and $64.8 million in 2012 . Distribution and other servicing fees earned from certain classes of our sponsored mutual funds in the U.S. during the first nine months of the year were $54.4 million in 2011 and $70.3 million in 2012 . Such fees during the third quarter were $20.5 million in 2011 and $24.4 million in 2012 .

NOTE 3
– INVESTMENTS IN SPONSORED MUTUAL FUNDS.

These investments (in millions) include:
 
Aggregate
cost
 
Unrealized holding
 
Aggregate
fair value
 
 
gains
 
losses
 
December 31, 2011
 
 
 
 
 
 
 
Stock and blended asset funds
$
281.7

 
$
137.0

 
$
(.8
)
 
$
417.9

Bond funds
310.6

 
38.5

 
(2.5
)
 
346.6

Total
$
592.3

 
$
175.5

 
$
(3.3
)
 
$
764.5

 
 
 
 
 
 
 
 
September 30, 2012
 
 
 
 
 
 
 
Stock and blended asset funds
$
334.9

 
$
172.4

 
$
.0

 
$
507.3

Bond funds
469.7

 
48.0

 
(.8
)
 
516.9

Total
$
804.6

 
$
220.4

 
$
(.8
)
 
$
1,024.2


The unrealized holding losses at September 30, 2012 , are attributable to three fund holdings with an aggregate fair value of $92.3 million and are considered temporary.

NOTE 4
– DEBT SECURITIES HELD BY SAVINGS BANK SUBSIDIARY.

Our savings bank subsidiary holds investments in marketable debt securities, including mortgage- and other asset-backed securities, which are accounted for as available-for-sale. The following table (in millions) details the components of these investments.  
 
12/31/2011
 
9/30/2012
 
Fair
value
 
Unrealized
holding
gains
(losses)
 
Fair
value
 
Unrealized
holding
gains
(losses)
Investments with temporary impairment (14 securities in 2012) of
 
 
 
 
 
 
 
Less than 12 months
$
22.8

 
$
(.2
)
 
$
4.2

 
$
.0

12 months or more
6.3

 
(.2
)
 
1.1

 
.0

Total
29.1

 
(.4
)
 
5.3

 
.0

Investments with unrealized holding gains
169.3

 
3.5

 
152.7

 
3.9

Total
$
198.4

 
$
3.1

 
$
158.0

 
$
3.9

Aggregate cost
$
195.3

 
 
 
$
154.1

 
 

The unrealized losses in these investments were generally caused by changes in interest rates and market liquidity, and not by changes in credit quality. We intend to hold these securities to their maturities, which generally correlate to the maturities of our customer deposits, and believe it is more-likely-than-not that we will not be required to sell any of these securities before recovery of their amortized cost. Accordingly, impairment of these investments is considered temporary.

NOTE 5
– OTHER INVESTMENTS.

These investments (in millions) include:
 
12/31/2011
 
9/30/2012
Cost method investments
 
 
 
10% interest in Daiwa SB Investments Ltd. (Japan)
$
13.6

 
$
12.7

Other investments
39.9

 
47.0

Equity method investments
 
 
 
26% interest in UTI Asset Management Company Limited (India)
144.8

 
131.4

Other investments
2.6

 
4.7

Investments held as trading
 
 
 
Sponsored mutual fund investments
4.4

 
2.5

Securities held by consolidated sponsored mutual funds

 
91.1

U.S. Treasury note
1.0

 
1.0

Total
$
206.3

 
$
290.4


The securities held by consolidated sponsored mutual funds relate to newly formed funds in which we provided seed capital in the first half of 2012 and have a controlling financial interest.

NOTE 6
– FAIR VALUE MEASUREMENTS.

We determine the fair value of our investments using the following broad levels of inputs as defined by related accounting standards:

Level 1 – quoted prices in active markets for identical securities.
Level 2 – observable inputs other than Level 1 quoted prices including, but not limited to, quoted prices for similar securities, interest rates, prepayment speeds, and credit risk. These inputs are based on market data obtained from independent sources.
Level 3 – unobservable inputs reflecting our own assumptions based on the best information available. We do not value any investments using Level 3 inputs.

These levels are not necessarily an indication of the risk or liquidity associated with our investments. There have been no transfers in or out of the levels. The following table summarizes our investments (in millions) that are recognized in our balance sheet using fair value measurements determined based on the differing levels of inputs.
 
Level 1
 
Level 2
December 31, 2011
 
 
 
Cash equivalents
$
823.2

 
 
Investments in sponsored mutual funds
764.5

 
 
Investments held as trading
4.4

 
 
Debt securities held by savings bank subsidiary

 
$
198.4

Total
$
1,592.1

 
$
198.4

 
 
 
 
September 30, 2012
 
 
 
Cash equivalents
$
1,046.6

 
 
Investments in sponsored mutual funds
1,024.2

 
 
Investments held as trading
18.7

 
$
74.9

Debt securities held by savings bank subsidiary

 
158.0

Total
$
2,089.5

 
$
232.9


Customer deposits at our savings bank subsidiary are not measured at fair value in our consolidated balance sheet. The estimated fair value of these deposits, based on discounting expected cash outflows at maturity dates that range up to five years , using current interest rates offered for deposits with the same dates of maturity, was $176.9 million at December 31, 2011 , and $163.5 million at September 30, 2012 . The fair value was determined using Level 2 inputs.

NOTE 7
– STOCK-BASED COMPENSATION.

STOCK OPTIONS.

The following table summarizes the status of and changes in our stock option grants during the first nine months of 2012 .
 
 
Options
 
Weighted-
average
exercise
price
Outstanding at beginning of year
39,239,722

 
$
45.27

Semiannual grants
3,483,825

 
$
62.38

Reload grants
114,622

 
$
62.58

New hire grants
15,804

 
$
57.66

Non-employee director grants
8,000

 
$
63.23

Exercised
(4,698,931
)
 
$
32.82

Forfeited
(673,890
)
 
$
51.77

Expired
(62,211
)
 
$
63.17

Outstanding at end of period
37,426,941

 
$
48.35

Exercisable at end of period
20,110,214

 
$
44.10

 
STOCK AWARDS.

The following table summarizes the status of and changes in our nonvested restricted shares and restricted stock units during the first nine months of 2012 .
 
 
Restricted
shares
 
Restricted
stock
units
 
Weighted-average
fair value
Nonvested at beginning of year
637,393

 
351,017

 
$
51.83

Granted to employees and directors
784,090

 
384,075

 
$
62.37

Vested
(15,949
)
 
(11,595
)
 
$
56.33

Forfeited
(21,229
)
 
(7,900
)
 
$
54.24

Nonvested at end of period
1,384,305

 
715,597

 
$
57.60


FUTURE STOCK-BASED COMPENSATION EXPENSE.

The following table presents the compensation expense (in millions) to be recognized over the remaining vesting periods of the stock-based awards outstanding at September 30, 2012 . Estimated future compensation expense will change to reflect future option grants, including reloads; future awards of unrestricted shares, restricted shares, and restricted stock units; changes in estimated forfeitures; and adjustments for actual forfeitures.
 
Fourth quarter 2012
$
26.4

2013
85.4

2014 through 2017
87.3

Total
$
199.1


NOTE 8
– EARNINGS PER SHARE CALCULATIONS.

The following table presents the reconciliation (in millions) of our net income to net income allocated to our common stockholders and the weighted average shares (in millions) that are used in calculating the basic and diluted earnings per share on our common stock. Weighted average common shares outstanding assuming dilution reflects the potential additional dilution, determined using the treasury stock method that could occur if outstanding stock options were exercised.
 
Three months ended
 
Nine months ended
 
9/30/2011
 
9/30/2012
 
9/30/2011
 
9/30/2012
Net income
$
185.5

 
$
247.3

 
$
584.8

 
$
651.6

Less: net income allocated to outstanding restricted stock and stock unit holders
(.9
)
 
(1.6
)
 
(2.6
)
 
(3.8
)
Net income allocated to common stockholders
$
184.6

 
$
245.7

 
$
582.2

 
$
647.8

 
 
 
 
 
 
 
 
Weighted average common shares
 
 
 
 
 
 
 
Outstanding
253.7

 
253.0

 
256.7

 
253.2

Outstanding assuming dilution
260.0

 
260.3

 
265.0

 
260.7


The following table shows the weighted average outstanding stock options (in millions) and their average exercise price that are excluded from the calculation of diluted earnings per common share as the inclusion of such shares would be anti-dilutive.
 
Three months ended
 
Nine months ended
 
9/30/2011
 
9/30/2012
 
9/30/2011
 
9/30/2012
Weighted average outstanding stock options excluded
11.1

 
5.3

 
5.5

 
5.1

Average exercise price
$
58.64

 
$
66.33

 
$
61.58

 
$
65.85

 


Page 7


NOTE 9
– OTHER COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME.
The following table presents the deferred tax benefit (income tax) impact of the components (in millions) of other comprehensive income.
 
Three months ended
 
Nine months ended
 
9/30/2011
 
9/30/2012
 
9/30/2011
 
9/30/2012
Deferred tax benefit (income taxes) on
 
 
 
 
 
 
 
Net unrealized holding gains or losses
$
38.6

 
$
(15.8
)
 
$
27.5

 
$
(32.8
)
Reclassification adjustment on net gains or losses realized on dispositions in non-operating investment income

 
12.1

 

 
13.1

Deferred tax benefits (income taxes) on net unrealized holding gains or losses recognized in other comprehensive income
38.6

 
(3.7
)
 
27.5

 
(19.7
)
Deferred tax benefit (expense) on currency translation adjustment
.3

 
4.1

 
.2

 
6.0

Total deferred tax benefits (income taxes)
$
38.9

 
$
.4

 
$
27.7

 
$
(13.7
)
The changes in accumulated other comprehensive income (in millions), by component, for the first nine months of 2012 , are presented below.
 
12/31/2011
 
Other comprehensive income, net of tax
 
9/30/2012
Net unrealized holding gains on
 
 
 
 
 
Investments in sponsored mutual funds
$
172.2

 
$
47.4

 
$
219.6

Debt securities held by savings bank subsidiary
3.1

 
.8

 
3.9

Proportionate share of investments held by UTI
.4

 
.2

 
.6

 
175.7

 
48.4

 
224.1

Deferred income taxes
(67.3
)
 
(19.7
)
 
(87.0
)
Net unrealized holding gains, net of taxes
108.4

 
28.7

 
137.1

Currency translation adjustment, net of taxes
(5.6
)
 
(11.1
)
 
(16.7
)
Accumulated other comprehensive income
$
102.8

 
$
17.6

 
$
120.4



Page 8


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
T. Rowe Price Group, Inc.:

We have reviewed the condensed consolidated balance sheet of T. Rowe Price Group, Inc. and subsidiaries (“the Company”) as of September 30, 2012 , the related condensed consolidated statements of income and comprehensive income for the three- and nine-month periods ended September 30, 2012 and 2011 , the related condensed consolidated statements of cash flows for the nine -month periods ended September 30, 2012 and 2011 , and the related condensed consolidated statement of stockholders’ equity for the nine -month period ended September 30, 2012 . These condensed consolidated financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of T. Rowe Price Group, Inc. and subsidiaries as of December 31, 2011 , and the related consolidated statements of income, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated February 3, 2012 , we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2011 , is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/ s / KPMG LLP
Baltimore, Maryland
October 24, 2012
 


Page 9


Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.

GENERAL.

Our revenues and net income are derived primarily from investment advisory services provided to individual and institutional investors in our sponsored mutual funds and other investment portfolios. The other investment portfolios include separately managed accounts, subadvised funds, and other sponsored investment portfolios including common trust funds and mutual funds offered to investors outside the U.S. and through variable annuity life insurance plans. Investment advisory clients domiciled outside the U.S. account for nearly 10% of our assets under management at September 30, 2012 .

We manage a broad range of U.S., international and global stock, bond, and money market mutual funds and other investment portfolios, which meet the varied needs and objectives of individual and institutional investors. Investment advisory revenues depend largely on the total value and composition of assets under our management. Accordingly, fluctuations in financial markets and in the composition of assets under management affect our revenues and results of operations.

We remain debt-free with substantial liquidity and resources that allow us to take advantage of attractive growth opportunities, invest in key capabilities including investment professionals and technologies and, most importantly, provide our clients with strong investment management expertise and service both now and in the future.

BACKGROUND.

Most of the equity markets around the globe continued their upward momentum from the end of June posting strong returns for the third quarter of 2012. Against the backdrop of weakening global economic activity, equities were lifted by strong but slowing corporate earnings growth, and pledges by central banks to implement economic stimulus measures. In September, the European Central Bank unveiled a plan to purchase short-term debt of troubled countries that seek formal financial assistance and agree to implement reform. Also, the Federal Reserve announced an open-ended policy of buying agency mortgage-backed securities every month until the labor market outlook improved substantially, and confirmed that it would likely keep the federal funds rate at exceptionally low levels at least through mid-2015.

Results of several major equity market indexes for the three- and nine-month periods ended September 30, 2012 are as follows:
 
 
Three months ended
 
Nine months ended
Index
 
9/30/2012
 
9/30/2012
S&P 500 Index
 
6.4
%
 
16.4
%
NASDAQ Composite Index (1)
 
6.2
%
 
19.6
%
Russell 2000 Index
 
5.3
%
 
14.2
%
MSCI EAFE (Europe, Australasia, and Far East) Index
 
7.0
%
 
10.6
%
MSCI Emerging Markets Index
 
7.9
%
 
12.3
%
  (1) returns exclude dividends

U.S. Bonds produced positive returns in the third quarter of 2012, as Treasury bond yields remained near historic lows. The yield on the benchmark 10-year U.S. Treasury at September 30, 2012 , was 1.7% , flat to June 30, 2012 , and 24 basis points lower than the rate at the end of 2011. High yielding securities strongly outperformed the investment-grade bond market as bond investors sought riskier assets. Interest rate cuts in some prominent emerging markets, including Brazil and China, helped U.S. dollar-denominated emerging markets bonds generate very strong returns.



Page 10


Returns for several major bond market indexes for the three- and nine-month periods ended September 30, 2012 are as follows:
 
 
 
Three months ended
 
Nine months ended
Index
 
9/30/2012
 
9/30/2012
Barclays U.S. Aggregate Index
 
1.6
%
 
4.0
%
Credit Suisse High Yield Index
 
4.3
%
 
11.2
%
Barclays Municipal Bond Index
 
2.3
%
 
6.1
%
Barclays Global Aggregate Ex-U.S. Dollar Bond Index
 
4.4
%
 
5.2
%
JPMorgan Emerging Markets Bond Plus
 
6.9
%
 
14.3
%
 
ASSETS UNDER MANAGEMENT.

Our assets under management (in billions) have changed during 2012 as follows:
 
 
Quarter ended 3/31/2012
 
Quarter ended 6/30/2012
 
Quarter ended 9/30/2012
 
First nine months ended 9/30/2012
Assets under management at beginning of period
$
489.5

 
$
554.8

 
$
541.7

 
$
489.5

Net cash flows
 
 
 
 
 
 
 
Sponsored mutual funds in the U.S.
5.3

 
6.3

 
4.5

 
16.1

Other portfolios
7.1

 
(1.6
)
 
(.2
)
 
5.3

 
12.4

 
4.7

 
4.3

 
21.4

Market valuation changes and income
52.9

 
(17.8
)
 
28.4

 
63.5

Change during the period
65.3

 
(13.1
)
 
32.7

 
84.9

Assets under management at end of period
$
554.8

 
$
541.7

 
$
574.4

 
$
574.4


Assets under management at September 30, 2012 , include $419.1 billion in stock and blended asset investment portfolios and $155.3 billion in fixed income investment portfolios. The investment portfolios that we manage consist of $342.9 billion in the T. Rowe Price mutual funds distributed in the U.S. and $231.5 billion in other investment portfolios.

We incur significant expenditures to attract new investment advisory clients and additional investments from our existing clients. These efforts involve costs that generally precede any future revenues that we might recognize from additions to our assets under management.

RESULTS OF OPERATIONS.

Third quarter of 2012 versus third quarter of 2011 .

Investment advisory revenues were up 14.4% , or $83.4 million , to $661.4 million in the third quarter of 2012 , as average assets under our management increased $67.3 billion to $557.8 billion . The average annualized fee rate earned on our assets under management was 47.2 basis points during the third quarter of 2012 , which is unchanged from the annualized fee rate earned during the first half of 2012. We waived $8.9 million in money market advisory fees in the third quarter of 2012 , a decrease of $1.8 million from the comparable 2011 quarter, in order to maintain a positive yield for fund investors. These fee waivers represent about 1% of our total investment advisory revenues earned during the third quarter of 2012 . We have waived fees from each of our money market mutual funds and trusts, which have combined net assets of $15.0 billion at September 30, 2012 . We expect that these fee waivers will continue in the fourth quarter of 2012 and into 2013.

Net revenues increased $90.3 million , or 13.3% , to $769.7 million in the third quarter of 2012 . Operating expenses were $410.8 million in the third quarter of 2012 , an increase of $26.6 million or 6.9% . Overall, net operating income for the third quarter of 2012 increased $63.7 million to $358.9 million . The increase in our average assets under management and corresponding investment advisory revenues from higher market valuations lifted our operating margin in the third quarter of 2012 to 46.6% compared to 43.5% in the 2011 period. Net income increased $61.8 million to $247.3 million compared with $185.5 million in the third quarter of 2011 . Our diluted earnings per share on our common stock increased 32.4% to $.94 from the $.71 earned in


Page 11


the third quarter of 2011 . The 2012 results include realized gains of $31.2 million , or $.07 per share after income taxes, from the sale of certain of the firm's investments in sponsored mutual funds to seed other sponsored portfolios in support of the firm's distribution efforts outside the U.S.

Revenues

Investment advisory revenues earned from the T. Rowe Price mutual funds distributed in the U.S. were $458.1 million , an increase of $60.3 million , or 15.2% , on higher average assets under management. Average mutual fund assets under management in the third quarter of 2012 were $332.5 billion , an increase of 15.3% from the average in the third quarter of 2011 . Mutual fund assets at September 30, 2012 were $342.9 billion , an increase of $21.2 billion from June 30, 2012 . Net cash inflows into the mutual funds during the third quarter of 2012 were $4.5 billion , including $2.2 billion into the stock and blended asset funds, $2.1 billion into the bond funds, and $.2 billion into the money market funds. These net cash inflows include $2.1 billion originating in the target-date retirement funds, which in turn invest in a broadly diversified portfolio of other Price funds, and automatically rebalance to maintain their specific asset allocation weightings. Market appreciation and income increased mutual fund assets under management by $16.7 billion during the third quarter of 2012 .
 
Investment advisory revenues earned in the third quarter of 2012 on the other investment portfolios increased $23.1 million compared to the 2011 quarter to $203.3 million , as average assets under management increased $23.1 billion , or 11.4% , to $225.3 billion . Assets under management in these portfolios at September 30, 2012 were $231.5 billion , an increase of $11.5 billion from June 30, 2012 . Market appreciation and income of $11.7 billion during the third quarter of 2012 was slightly offset by $.2 billion in net cash outflows. While net cash flows from our institutional channel over the long-term have been strong, they are typically more variable over shorter periods, meaning some individual quarters can be much stronger or weaker than others.

Administrative fee revenues increased $3.1 million to $83.4 million in the third quarter of 2012 . The increase is primarily attributable to our mutual fund servicing activities and defined contribution recordkeeping services for the mutual funds and their investors. Changes in administrative fee revenues are generally offset by similar changes in related operating expenses that are incurred to provide services to the funds and their investors.

Distribution and servicing fee revenues earned from 12b-1 plans of the Advisor, R, and variable annuity class shares of our sponsored portfolios increased $3.9 million from the third quarter of 2011 on greater average assets under management in these share classes. The 12b-1 fees earned are offset entirely by the costs paid to third-party intermediaries who source these assets. These costs are reported as distribution and servicing costs on the face of the condensed consolidated income statements.

Operating expenses

Compensation and related costs were $263.8 million in the third quarter of 2012 , an increase of $12.2 million , or 4.8% , compared to the third quarter of 2011 . The largest part of the increase is attributable to $7.4 million in higher salaries and related benefits, which results from a modest increase in salaries at the beginning of 2012 combined with a 1.4% increase in our average staff size from the third quarter of 2011 . The remainder of the change from the third quarter of 2011 is attributable to a modest increase in the interim accrual for our annual variable compensation programs, increased use of temporary personnel, and other employee-related costs. At September 30, 2012 , we employed 5,295 associates.

Advertising and promotion expenditures were $17.5 million in the third quarter of 2012 compared to $19.0 million in the 2011 quarter. We currently expect that our advertising and promotion expenditures for the full year 2012 will be similar to 2011 levels. We vary our level of spending based on market conditions and investor demand as well as our efforts to expand our investor base in the U.S. and abroad.

Occupancy and facility costs together with depreciation and amortization expense were $51.6 million in the third quarter of 2012 , up $3.9 million compared to the third quarter of 2011 . The change includes the added costs incurred to expand our facilities around the world as well as update our technology capabilities, including related maintenance programs, to meet increasing business demands.

Other operating expenses were $53.5 million in the third quarter of 2012 , an increase of $8.1 million from the comparable 2011 period. The increase is primarily attributable to $5.4 million in certain third-party servicing costs incurred in the third quarter of 2012 in which the comparable 2011 period costs were reported as reductions of advisory and administrative fee revenues. The remainder of the change from the third quarter of 2011 is attributable to increases in other operating costs to meet increasing business demands.



Page 12


Non-operating investment income

Our non-operating investment income, which includes the recognition of investment gains and losses, was up $40.1 million from the third quarter of 2011 , including $31.2 million in gains realized from the sale of certain of the firm's investments in sponsored mutual funds to seed other sponsored portfolios in support of the firm's distribution efforts outside the U.S. We also recognized gains from our other investments of $4.0 million in 2012 quarter compared with losses of $1.2 million in the comparable 2011 quarter.

Provision for income taxes

The provision for income taxes as a percentage of pretax income for the third quarter of 2012 is 38.2% , slightly lower than the 38.4% effective tax rate for the first nine months of 2012 . We currently estimate our effective tax rate for the full year 2012 will be 38.4%. Our effective income tax rate reflects the relative contribution of pre-tax income generated by our non-U.S. subsidiaries that are subject to tax rates lower than our U.S. rates. Changes in the relative contribution of pre-tax income from U.S. and non-U.S. sources or changes in tax rates in relevant non-U.S. jurisdictions may affect our effective income tax rate and overall net income in the future.
 
First nine months of 2012 versus first nine months of 2011 .

Investment advisory revenues were up 7.6% , or $135.9 million , to about $1.9 billion in the first nine months of 2012 , as average assets under our management increased $40.9 billion to $542.2 billion . The average annualized fee rate earned on our assets under management was 47.2 basis points in the first nine months of 2012 , down slightly from the 47.3 basis points earned in the full-year 2011 . We waived $25.5 million in money market advisory fees in the first nine months of 2012 , a decrease of $.5 million from the $26.0 million waived in the 2011 period. The fee waivers in the first nine months of 2012 represent about 1% of our total investment advisory revenues earned during the same period.

Net revenues increased $159.7 million , or 7.7% , to about $2.2 billion . Operating expenses were about $1.2 billion in the first nine months of 2012 , an increase of $89.9 million , or 7.9% . Overall, net operating income for the first nine months of 2012 increased $69.8 million to $1.0 billion . Our operating margin in the first nine months of 2012 was 44.9% compared to 45.0% in the 2011 period. Non-operating investment income of $53.9 million for the first nine months of 2012 included $31.2 million , or $.07 per share after income taxes, in gains realized from the sale of certain of the firm's investments in sponsored mutual funds to seed other sponsored portfolios in support of the firm's distribution efforts outside the U.S. Net income, including these realized gains, increased $66.8 million to $651.6 million for the first nine months of 2012 , and our diluted earnings per share on our common stock increased 12.7% to $2.48 .

Revenues

Investment advisory revenues earned from the T. Rowe Price mutual funds distributed in the U.S. increased 8.4% , or $101.9 million , to $1.3 billion , on higher average mutual fund assets. Average mutual fund assets in the first nine months of 2012 were $321.1 billion , an increase of 9.1% from the average for the comparable 2011 period. Mutual fund assets of $342.9 billion at September 30, 2012 , increased $53.5 billion from $289.4 billion at the end of 2011 . Net cash inflows were $16.1 billion during the first nine months of 2012 , including $10.0 billion into the stock and blended asset funds and $6.8 billion into the bond funds. Our money market funds had net outflows of $.7 billion . Mutual fund net cash flows include $5.5 billion originating in the target-date retirement funds. These mutual fund net inflow amounts are presented net of $4.0 billion that was transferred to the other investment portfolios. These transfers were primarily from our target-date retirement funds to our target-date retirement trusts. Higher market appreciation and income in the first nine months of 2012 increased our mutual fund assets under management by $37.4 billion .

Investment advisory revenues earned on the other investment portfolios for the first nine months of 2012 were $596.1 million , an increase of $34.0 million , or 6.0% , from the $562.1 million earned in the comparable 2011 period. Average assets in these portfolios were $221.1 billion during the first nine months of 2012 , up $14.1 billion from the comparable 2011 period. Net inflows of $5.3 billion and market appreciation and income of $26.1 billion increased assets under management in these portfolios by $31.4 billion during the first nine months of 2012 to $231.5 billion at September 30, 2012 . Net inflows during the first nine months of 2012 include the $4.0 billion transferred from the mutual funds. Strong net inflows into our sub-advised funds from third-party financial intermediaries were partially offset by net outflows from institutional investors.



Page 13


Administrative fee revenues increased $8.1 million to $249.0 million in the first nine months of 2012 . The increase is attributable to our mutual fund servicing activities and defined contribution recordkeeping services for the mutual funds and their investors. As noted above, changes in administrative fee revenues are generally offset by similar changes in related operating expenses that are incurred to provide services to the funds and their investors.

Distribution and servicing fee revenues earned from 12b-1 plans of the Advisor, R, and variable annuity class shares of our sponsored portfolios were $70.3 million in the first nine months of 2012 , an increase of $15.9 million from the comparable 2011 period. The increase includes $7.0 million recognized on greater average assets under management in these share classes, and $8.9 million earned primarily on R class shares in the first quarter of 2012 for which the comparable fees for the first quarter of 2011 were netted against related distribution and servicing costs. The 12b-1 fees earned are offset entirely by the costs paid to third-party intermediaries who source these assets. These costs are reported as distribution and servicing costs on the face of the condensed consolidated income statements.

Operating expenses

Compensation and related costs were $786.0 million in the first nine months of 2012 , an increase of $42.7 million , or 5.7% , compared to the 2011 period. The largest part of the increase is attributable to a $25.6 million increase in salaries and related benefits and an $8.9 million increase in our interim accrual for our annual variable compensation programs. Our average staff size has increased 2.2% from the first nine months of 2011 . Higher non-cash stock-based compensation expense, temporary staff expenses, and other employee costs account for the remainder of the increase in compensation and related costs in the 2012 period.

Occupancy and facility costs together with depreciation expense increased $13.3 million , or 9.6% , compared to the first nine months of 2011 . The change includes the added costs incurred to expand our facilities around the world as well as update our technology capabilities, including related maintenance programs, to meet increasing business demands.
 
Other operating expenses were $160.6 million in the first nine months of 2012 , an increase of $19.9 million from the comparable 2011 period. The increase is primarily attributable to $15.6 million in certain third-party servicing costs incurred in the first nine months of 2012 , in which the comparable 2011 period costs were reported as reductions of advisory and administrative fee revenues. The remainder of the change from the 2011 period is attributable to increases in other operating costs to meet increasing business demands.

Non-operating investment income

Our non-operating investment income, which includes the recognition of investment gains and losses, was up $43.1 million from the first nine months of 2011 , including $33.7 million in gains realized from the sale of sponsored mutual fund investments. The increase also includes $5.1 million in higher net gains recognized on our cost-method and trading investments and $ 3.3 million in higher dividends earned on our money market investments.

CAPITAL RESOURCES AND LIQUIDITY.

Operating activities during the first nine months of 2012 provided cash flows of $861.0 million , a decrease of $79.5 million from the 2011 period, including $91.1 million related to the net purchase of securities held by consolidated sponsored mutual funds to which we provided seed capital during the first half of 2012 and have a controlling interest. Timing differences in the cash settlement of our assets and liabilities decreased our operating cash flows by $65.3 million compared to the first nine months of 2011 . These operating cash flow decreases are offset by increases in net income and non-cash expenses for depreciation, amortization, and stock-based compensation. Our interim operating cash flows do not include variable compensation that is accrued throughout the year before being substantially paid out in December.

Net cash used in investing activities totaled $202.2 million in the first nine months of 2012 , an increase of $70.3 million from the comparable 2011 period. We made $114.4 million more net investments in our sponsored mutual funds and increased our capital spending by $6.2 million in the first nine months of 2012 compared with the 2011 period. These increases were offset by greater net cash proceeds of $53.4 million in the first nine months of 2012 from the debt securities held by our savings bank subsidiary.

Net cash used in financing activities was $321.7 million in the first nine months of 2012 , a decrease of $298.6 million from the comparable 2011 period. During the first nine months of 2011 , we expended $326.4 million more in stock repurchases, including the purchase of 6.2 million more shares, than in the first nine months of 2012 . This reduction in cash used was partially offset by the change in customer deposits at our savings bank subsidiary during the first nine months of 2012


Page 14


compared to the 2011 period as well as a $20.4 million increase in dividends paid. The increase in dividends paid in the first nine months of 2012 is primarily due to the $.03 increase in our quarterly per-share dividend.

Our cash and mutual fund investments at September 30, 2012 were $2.3 billion , and we have no debt. We anticipate property and equipment expenditures for the full year 2012 to be about $100 million and expect to fund them from our cash balances. We generally repurchase shares of our common stock over time to offset the dilution created by our equity-based compensation plans. Given the availability of our financial resources, we do not maintain an available external source of liquidity.

NEW ACCOUNTING STANDARDS.

We have considered all other newly issued accounting guidance that is applicable to our operations and the preparation of our condensed consolidated statements, including that which we have not yet adopted. We do not believe that any such guidance will have a material effect on our financial position or results of operation.

FORWARD-LOOKING INFORMATION.

From time to time, information or statements provided by or on behalf of T. Rowe Price, including those within this report, may contain certain forward-looking information, including information or anticipated information relating to: our revenues, net income and earnings per share on common stock; changes in the amount and composition of our assets under management; our expense levels; our estimated effective income tax rate; and our expectations regarding financial markets, future transactions, investments, capital expenditures, and other market conditions. Readers are cautioned that any forward-looking information provided by or on behalf of T. Rowe Price is not a guarantee of future performance. Actual results may differ materially from those in forward-looking information because of various factors including, but not limited to, those discussed below and in Item 1A, Risk Factors, of our Form 10-K Annual Report for 2011 . Further, forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of unanticipated events.

Our future revenues and results of operations will fluctuate primarily due to changes in the total value and composition of assets under our management. Such changes result from many factors including, among other things: cash inflows and outflows in the T. Rowe Price mutual funds and other managed investment portfolios; fluctuations in global financial markets that result in appreciation or depreciation of the assets under our management; our introduction of new mutual funds and investment portfolios; and changes in retirement savings trends relative to participant-directed investments and defined contribution plans. The ability to attract and retain investors’ assets under our management is dependent on investor sentiment and confidence; the relative investment performance of the Price mutual funds and other managed investment portfolios as compared to competing offerings and market indexes; the ability to maintain our investment management and administrative fees at appropriate levels; competitive conditions in the mutual fund, asset management, and broader financial services sectors; and our level of success in implementing our strategy to expand our business. Our revenues are substantially dependent on fees earned under contracts with the Price funds and could be adversely affected if the independent directors of one or more of the Price funds terminated or significantly altered the terms of the investment management or related administrative services agreements. Non-operating investment income will also fluctuate primarily due to the size of our investments and changes in their market valuations.

Our future results are also dependent upon the level of our expenses, which are subject to fluctuation for the following or other reasons: changes in the level of our advertising expenses in response to market conditions, including our efforts to expand our investment advisory business to investors outside the U.S. and to further penetrate our distribution channels within the U.S.; variations in the level of total compensation expense due to, among other things, bonuses, stock option grants, other incentive awards, changes in our employee count and mix, and competitive factors; any goodwill or investment impairment that may arise; fluctuation in foreign currency exchange rates applicable to our investment in and the costs of our international operations; changes in our effective tax rate; expenses and capital costs, such as technology assets, depreciation, amortization, and research and development, incurred to maintain and enhance our administrative and operating services infrastructure; unanticipated costs that may be incurred to protect investor accounts and the goodwill of our clients; and disruptions of services, including those provided by third parties, such as facilities, communications, power, and the mutual fund transfer agent and accounting systems.

Our business is also subject to substantial governmental regulation, and changes in legal, regulatory, accounting, tax, and compliance requirements may have a substantial effect on our operations and results, including but not limited to effects on costs that we incur and effects on investor interest in mutual funds and investing in general, or in particular classes of mutual funds or other investments.



Page 15


Item 3.
Quantitative and Qualitative Disclosures About Market Risk.

There has been no material change in the information provided in Item 7A of the Form 10-K Annual Report for 2011 .

Item 4.
Controls and Procedures.

Our management, including our principal executive and principal financial officers, has evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2012 . Based on that evaluation, our principal executive and principal financial officers have concluded that our disclosure controls and procedures as of September 30, 2012 , are effective at the reasonable assurance level to ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, including this Form 10-Q quarterly report, is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Our management, including our principal executive and principal financial officers, has evaluated any change in our internal control over financial reporting that occurred during the third quarter of 2012 , and has concluded that there was no change during the third quarter of 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 


Page 16


PART II – OTHER INFORMATION
 
Item 1.
Legal Proceedings.

From time to time, various claims against us arise in the ordinary course of business, including employment-related claims. In the opinion of management, after consultation with counsel, the likelihood that an adverse determination in one or more pending claims would have a material adverse effect on our financial position or results of operations is remote.

Item 1A.
Risk Factors.

With the exception of the update provided below related to our legal and regulatory risk factors, there have been no material changes in the information provided in Item 1A of our Form 10-K Annual Report for 2011.

Our regulatory environment is frequently altered by new regulations and by revisions to, and evolving interpretations of, existing regulations. Future changes could require us to modify or curtail our investment offerings and business operations, or impact our expenses and profitability. For example, the Volcker Rule as currently proposed has led us to continue to evaluate whether it remains prudent to maintain our savings bank subsidiary in light of the potential restrictions the rule could place on our other business activities. Although our savings bank operation is not material to the operating results of the company, the final terms of the rule are not yet settled and uncertainty related to how it may apply to our funds and affiliates could negatively impact our ability to launch and seed new funds if we continue to maintain a savings bank affiliate. Additionally, aspects of the rule present the risk that liquidity in capital markets may be impacted, and it may be more difficult or costly to execute certain security transactions on behalf of our clients.

Potential impacts of other current or proposed legal or regulatory requirements include, without limitation, the following:

The Federal Reserve Board has adopted final regulations related to non-Bank Systemically Important Financial Institutions (“SIFIs”). It has been suggested by some that large mutual funds, particularly money market funds, should be designated as SIFIs. We do not believe that mutual funds should be deemed SIFIs. Further, we do not believe SIFI designation was intended for traditional asset management businesses. If, however, any T. Rowe Price fund or T. Rowe Price affiliate is deemed a SIFI, increased regulatory oversight would apply, which may include enhanced capital, liquidity, leverage, stress testing, resolution planning, and risk management requirements.

There continues to be speculation that additional money market fund reform will be proposed. Proposed reforms could require funds to adopt floating NAVs or various capital buffers or redemption restrictions. Adoption of any such reforms could have a negative impact on the attractiveness of such funds to investors, or the willingness of the firm to sponsor such products.

The Commodity Futures Trading Commission (“CFTC”) has adopted certain amendments to its rules that would limit the ability of mutual funds and certain other products we sponsor to use commodities, futures, swaps and other derivatives without additional registration. Although we do not anticipate the need to register at this time, if our use of these products on behalf of client accounts increases so as to require registration, we would be subject to additional regulatory requirements and costs associated with registration.

The SEC has proposed new municipal adviser registration rules as a result of Dodd-Frank. It is uncertain at this point what the full impact of these new rules will be on our business, but it is expected, if adopted as proposed, that certain affiliates would be subject to additional regulatory requirements and incur costs to ensure compliance with these requirements.

The U.K. Financial Services Bill will fundamentally transform financial services regulation in the U.K. Although the new regulatory architecture will likely have an impact on the manner in which our U.K. subsidiary is supervised, we do not believe there will be substantive changes to the conduct of business rules to which we are subject. However, the operations of our U.K. subsidiary could be impacted to the extent the nature of our supervision or the substance of such rules change.

There has been increased global regulatory focus on the manner in which intermediaries are paid for distribution of mutual funds. Changes to long-standing market practices related to fees or enhanced disclosure requirements may negatively impact sales of mutual funds by intermediaries, especially if such requirements are not applied to other investment products.
 
Global regulations on OTC derivatives are evolving, including proposed rules under Dodd-Frank and European Market Infrastructure Regulation (“EMIR”) relating to central clearing counterparties, trade reporting and repositories. There is uncertainty related to the requirements under these new regulations and the exact manner in which they will impact current trading strategies for our clients.


Page 17



We are subject to various laws and regulations in the jurisdictions where we operate outside the U.S., including pan-European Directives, such as the Alternative Investment Fund Management Directive (“AIFMD”). The AIFMD has not yet been implemented and interpretations of certain provisions are not yet final. Depending on such interpretations, the AIFMD may impact remuneration policies, capital requirements, and the manner in which affiliated entities provide services to funds covered by the Directive.

We cannot predict the nature of future changes to the legal and regulatory requirements applicable to our business, nor the extent of the impacts that will result from current or future proposals. However, any such changes are likely to increase the costs of compliance and the complexity of our operations. They may also result in changes to our product or service offerings. The changing regulatory landscape may also impact a number of our service providers to the extent such providers alter their services or increase their fees which may impact our expenses or those of the products we offer.

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.

(c) Repurchase activity during the third quarter of 2012 is as follows.
 
Month
 
Total Number of
Shares Purchased
 
Average Price
Paid per Share
 
Total Number of
Shares Purchased as
Part of Publicly
Announced Program
 
Maximum Number of Shares that May Yet Be Purchased Under the Program
July
 
143,959

 
$
62.81

 

 
11,513,467

August
 
115,204

 
$
59.41

 
100,000

 
11,413,467

September
 
201,254

 
$
64.78

 

 
11,413,467

Total
 
460,417

 
$
62.82

 
100,000

 
 

Shares repurchased by us in a quarter may include repurchases conducted pursuant to publicly announced board authorizations, and outstanding shares surrendered to the company to pay the exercise price in connection with swap exercises of employee stock options. The number of shares purchased during the quarter related to swap exercises was $.4 million . The maximum number of shares that may yet be purchased are available under the Board of Directors’ September 8, 2010 publicly announced authorization.

Item 4.
Mine Safety Disclosures.

Not applicable.

Item 5.
Other Information.

On October 24, 2012 , we issued a press release reporting our results of operations for the third quarter and the first nine months of 2012 . A copy of that press release is furnished herewith as Exhibit 99. This information shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933.

SEC FILINGS.
We make available free of charge through our Internet web site our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Act as soon as reasonably practicable after we electronically file them with, or furnish them to, the Securities and Exchange Commission. To obtain any of this information, access our web page at www.troweprice.com. We use our website as a channel of distribution for material company information.


 


Page 18


Item 6.
Exhibits.

The following exhibits required by Item 601 of Regulation S-K are furnished herewith.
 
3(i).1
 
Charter of T. Rowe Price Group, Inc., as Amended by Articles of Amendment dated April 10, 2008. (Incorporated by reference from Form 10-Q Report for the quarterly period ended June 30, 2008 filed on April 10, 2008; File No. 033-07012-99).
 
 
 
 
3(ii)
 
Amended and Restated By-Laws of T. Rowe Price Group, Inc. as of February 12, 2009. (Incorporated by reference from Form 8-K Current Report file on February 17, 2009; File No. 033-07012-99).
 
 
 
 
15
 
Letter from KPMG LLP, independent registered public accounting firm, re unaudited interim financial information.
 
 
 
 
31(i).1
 
Rule 13a-14(a) Certification of Principal Executive Officer.
 
 
 
 
31(i).2
 
Rule 13a-14(a) Certification of Principal Financial Officer.
 
 
 
 
32
 
Section 1350 Certifications.
 
 
 
 
99
 
Press release issued October 24, 2012, reporting our results of operations for the third quarter and first nine months of 2012.
 
 
 
 
101
 
The following series of unaudited XBRL-formatted documents are collectively included herewith as Exhibit 101. The financial information is extracted from T. Rowe Price Group’s unaudited condensed consolidated interim financial statements and notes that are included in this Form 10-Q Report.
 
 
 
 
 
 
101.INS  
XBRL Instance Document (File name: trow-20120930.xml).
 
 
 
 
 
 
101.SCH
XBRL Taxonomy Extension Schema Document (File name:
 
 
 
trow-20120930.xsd).
 
 
 
 
 
 
101.CAL
XBRL Taxonomy Calculation Linkbase Document (File name:
 
 
 
trow-20120930_cal.xml).
 
 
 
 
 
 
101.LAB
XBRL Taxonomy Label Linkbase Document (File name:
 
 
 
trow-20120930_lab.xml).
 
 
 
 
 
 
101.PRE
XBRL Taxonomy Presentation Linkbase Document (File name:
 
 
 
trow-20120930_pre.xml).
 
 
 
 
 
 
101.DEF
XBRL Taxonomy Definition Linkbase Document (File name:
 
 
 
trow-20120930_def.xml).



Page 19


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on October 24, 2012 .
T. Rowe Price Group, Inc.

by:    / s / Kenneth V. Moreland
Vice President, Chief Financial Officer and Treasurer

 


Page 20


Exhibit 15      Letter from KPMG LLP, independent registered public accounting firm,
re unaudited interim financial information


T. Rowe Price Group, Inc.
100 East Pratt Street
Baltimore, Maryland 21202


Re: Registration Statements on Form S-8: No. 33-7012 , No. 333-90967 , No. 333-59714 , No. 333-120882 , No. 333-120883 , No. 333-142092 , No. 333-167317 , and 333-180904 .


With respect to the subject registration statements, we acknowledge our awareness of the use therein of our report dated October 24, 2012 related to our review of interim financial information.

Pursuant to Rule 436 under the Securities Act of 1933 (the Act), such report is not considered part of a registration statement prepared or certified by an independent registered public accounting firm, or a report prepared or certified by an independent registered public accounting firm within the meaning of Sections 7 and 11 of the Act.


/ s / KPMG LLP

Baltimore, Maryland
October 24, 2012





Exhibit 31(i).1 Rule 13a-14(a) Certification of Principal Executive Officer
I, James A. C. Kennedy, certify that:
1.
I have reviewed this Form 10-Q Quarterly Report for the quarterly period ended September 30, 2012 , of T. Rowe Price Group, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
October 24, 2012
/ s / James A.C. Kennedy
Chief Executive Officer and President




Exhibit 31(i).2 Rule 13a-14(a) Certification of Principal Financial Officer
I, Kenneth V. Moreland, certify that:
1.
I have reviewed this Form 10-Q Quarterly Report for the quarterly period ended September 30, 2012 , of T. Rowe Price Group, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
October 24, 2012
/ s / Kenneth V. Moreland
Vice President, Chief Financial Officer and Treasurer




Exhibit 32
  
Section 1350 Certifications

We certify, to the best of our knowledge, based upon a review of the Form 10-Q Quarterly Report for the quarterly period ended September 30, 2012 , of T. Rowe Price Group, Inc., that:
(1) The Form 10-Q Quarterly Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Form 10-Q Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of T. Rowe Price Group, Inc.
October 24, 2012
/ s / James A.C. Kennedy
Chief Executive Officer and President
/ s / Kenneth V. Moreland
Vice President, Chief Financial Officer and Treasurer
A signed original of this written statement has been provided to T. Rowe Price Group, Inc. and will be retained by T. Rowe Price Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.




T. ROWE PRICE GROUP REPORTS THIRD QUARTER 2012 RESULTS

Assets Under Management Increase to $574.4 billion

BALTIMORE ( October 24, 2012 ) - T. Rowe Price Group, Inc. (NASDAQ-GS: TROW) today reported its third quarter of 2012 results, including net revenues of $769.7 million , net income of $247.3 million , and diluted earnings per common share of $.94 . These results include realized gains of $31.2 million, or
$.07 per share after income taxes, from the sale of certain of the firm's investments in sponsored mutual funds to seed sponsored portfolios in support of the firm's distribution efforts outside the United States. On a comparable basis, net revenues were $679.4 million , net income was $185.5 million , and diluted earnings per common share was $.71 in the third quarter of 2011 .

Investment advisory revenues for the third quarter of 2012 increased $83.4 million to $661.4 million from the comparable 2011 period, as average assets under management were up $67.3 billion , or 14% . Assets under management at September 30, 2012 totaled a record $574.4 billion , an increase of $32.7 billion from $541.7 billion at June 30, 2012 . Net cash inflows in the third quarter of 2012 were $4.3 billion , including $2.2 billion originating in the target-date retirement portfolios. Market appreciation and income increased assets under management by $28.4 billion .

At September 30, 2012 , assets under management included $342.9 billion in T. Rowe Price mutual funds distributed in the United States, and $231.5 billion in other managed investment portfolios. The firm's target-date retirement portfolios had assets under management at September 30, 2012 of $86.1 billion , including $77.6 billion in target-date retirement funds and $8.5 billion in target-date retirement trusts.

Results for the first nine months of 2012 include net revenues of $2.2 billion , net income of
$651.6 million , and diluted earnings per common share of $2.48 , an increase of 13% from the $2.20 per share in the first nine months of 2011 . Net cash inflows of $21.4 billion and market appreciation and income of $63.5 billion increased assets under management $84.9 billion , or 17% , from $489.5 billion at the end of 2011 .


1


From an investment performance standpoint, 76% of the T. Rowe Price mutual funds across their share classes outperformed their comparable Lipper averages on a total return basis for the three-year period ended September 30, 2012 , 82% outperformed for the five-year period, 77% outperformed for the 10-year period, and 77% outperformed for the one-year period. In addition, T. Rowe Price stock, bond and blended asset funds that ended the quarter with an overall rating of four or five stars from Morningstar account for 75% of the firm's rated funds' assets under management. The firm's target-date retirement funds - which are designed to provide straight-forward investment and retirement planning solutions for clients - continue to deliver very attractive long-term performance, with 97% of these funds outperforming their comparable Lipper averages on a total return basis for the three- and five-year periods ended September 30, 2012 .

Financial Highlights
Investment advisory revenues earned in the third quarter of 2012 from the T. Rowe Price mutual funds distributed in the United States were $458.1 million , an increase of $60.3 million , or 15% , from the comparable 2011 quarter. Average mutual fund assets under management in the third quarter of 2012 were $332.5 billion , an increase of 15% from the average for the third quarter of 2011 . Money market advisory fees voluntarily waived by the firm to maintain positive yields for fund investors in the third quarter of 2012 were $8.9 million , a decrease of $1.8 million from the comparable 2011 quarter. During the first nine months of 2012 , the firm waived $25.5 million in such fees compared with $26.0 million in the comparable 2011 period.

Mutual fund assets at September 30, 2012 were $342.9 billion , an increase of $21.2 billion from June 30, 2012 . Net cash inflows during the third quarter of 2012 were $4.5 billion , including $2.2 billion into the stock and blended asset funds, $2.1 billion into the bond funds, and $.2 billion into the money market funds. Market appreciation and income increased mutual fund assets under management by $16.7 billion during the third quarter of 2012 .

Investment advisory revenues earned in the third quarter of 2012 on the other investment portfolios increased $23.1 million compared to the 2011 quarter to $203.3 million , as average assets under management increased $23.1 billion , or 11% , to $225.3 billion . Assets under management in these portfolios at September 30, 2012 were $231.5 billion , an increase of $11.5 billion from June 30, 2012 . Market appreciation and income of $11.7 billion during the third quarter of 2012 was slightly offset by
$.2 billion in net cash outflows. Investors domiciled outside the United States accounted for nearly 10% of the firm's assets under management at September 30, 2012 .

2



Operating expenses were $410.8 million in the third quarter of 2012 , up $26.6 million from the 2011 quarter due primarily to increases in compensation and related costs, distribution and servicing costs and other operating expenses. Higher compensation and related costs of $12.2 million are primarily attributable to an increase in the firm's number of associates, base salaries and the cost of employee benefits. The firm has increased its average staff size by 1.4% from the third quarter of 2011 , and employed 5,295 associates at September 30, 2012 .

Advertising and promotion expenditures were $17.5 million in the third quarter of 2012 compared to $19.0 million in the comparable 2011 period. The firm currently expects that its advertising and promotion expenditures for the full year 2012 will be similar to 2011 levels. The firm varies its level of spending based on market conditions and investor demand as well as its efforts to expand its investor base in the United States and abroad.

Occupancy and facility costs together with depreciation and amortization expense were $51.6 million in the third quarter of 2012 , up $3.9 million compared to the third quarter of 2011 . The change includes the added costs incurred to expand our facilities around the world as well as update our technology capabilities to meet increasing business demands.

Other operating expenses were $53.5 million in the third quarter of 2012 , an increase of $8.1 million from the comparable 2011 period. The increase is primarily attributable to $5.4 million in certain third-party servicing costs incurred in the third quarter of 2012 in which the comparable 2011 period costs were reported as reductions of advisory and administrative fee revenues.

In addition to the $31.2 million in investment gains realized on the sale of certain sponsored mutual fund investments in the third quarter of 2012, the firm recognized $4.0 million in gains from other investments compared with losses of $1.2 million in the comparable 2011 quarter.

The provision for income taxes as a percentage of pretax income for the third quarter of 2012 is 38.2% , slightly lower than the 38.4% effective tax rate for the first nine months of 2012 . The firm currently estimates its effective rate for 2012 will be 38.4% .

T. Rowe Price remains debt-free with ample liquidity, including cash and mutual fund investment holdings of $2.3 billion . The firm has expended $135.2 million to repurchase 2.3 million shares of its

3


common stock and has invested $55.7 million in capitalized technology and facilities during the first nine months of 2012 . Total capital expenditures for property and equipment are expected to be about
$100 million in 2012 . These cash expenditures are being funded from operating resources.

Management Commentary
James A.C. Kennedy, the company's chief executive officer and president, commented: “Despite global economic worries, equity markets rose during the third quarter sparked by a wave of central bank actions and strong corporate earnings growth. Bond markets also posted solid gains amid demand for lower-risk assets. The resulting market appreciation, combined with healthy total net inflows, boosted the firm's ending and quarterly average assets under management to record highs for a quarter-end period.

“Corporate balance sheets generally remain healthy, equity valuations are largely reasonable, and U.S. economic growth, though subdued, is steady. Nevertheless, clarity on key fiscal issues in the U.S. and Europe and greater comfort about the global economic outlook are likely needed for stocks to extend their rally. Likewise, the environment of low yields and tighter credit spreads remains challenging for bond investors. While there is still value in some areas of the fixed income markets, total returns are likely to be lower in the coming years.

“Although it is difficult, if not impossible, to forecast global political and economic developments, we are cautiously optimistic that additional progress will be made on the eurozone sovereign debt front and can only hope that in the U.S. both parties begin to seriously address the country's looming fiscal challenges. Regardless of the outcome of the U.S. election, an agreement will need to be reached to delay major tax increases and spending reductions and for the time being keep the country from going over the proverbial 'fiscal cliff.' While this would prevent a very near-term hit to the economy, failing to address the fundamentals underlying the deficit would leave the federal government's budget on an unsustainable path for the long term and continue to weigh on business and investor sentiment.”

Other Matters
The financial results presented in this release are unaudited. The firm expects that it will file its
Form 10-Q Quarterly Report for the third quarter of 2012 with the U.S. Securities and Exchange Commission later today. The Form 10-Q Quarterly Report will include additional information on the firm's unaudited financial results at September 30, 2012 .

Certain statements in this press release may represent “forward-looking information,” including information relating to anticipated changes in revenues, net income and earnings per common share,

4


anticipated changes in the amount and composition of assets under management, anticipated expense levels, estimated tax rates, and expectations regarding financial results, future transactions, investments, capital expenditures, and other market conditions. For a discussion concerning risks and other factors that could affect future results, see the firm's 2011 Form 10-K Annual Report .

Founded in 1937, Baltimore-based T. Rowe Price ( troweprice.com ) 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.

5


UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 
 
 
 
(in millions, except per-share amounts)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended
 
Nine months ended
Revenues
9/30/2011
 
9/30/2012
 
9/30/2011
 
9/30/2012
 
Investment advisory fees
$
578.0

 
$
661.4

 
$
1,778.5

 
$
1,914.4

 
Administrative fees
80.3

 
83.4

 
240.9

 
249.0

 
Distribution and servicing fees
20.5

 
24.4

 
54.4

 
70.3

 
Net revenue of savings bank subsidiary
.6

 
.5

 
1.7

 
1.5

 
Net revenues
679.4

 
769.7

 
2,075.5

 
2,235.2

 
 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
 
Compensation and related costs
251.6

 
263.8

 
743.3

 
786.0

 
Advertising and promotion
19.0

 
17.5

 
65.0

 
63.1

 
Distribution and servicing costs
20.5

 
24.4

 
54.4

 
70.3

 
Depreciation and amortization of property and equipment
18.5

 
20.6

 
53.0

 
59.6

 
Occupancy and facility costs
29.2

 
31.0

 
85.8

 
92.5

 
Other operating expenses
45.4

 
53.5

 
140.7

 
160.6

 
Total operating expenses
384.2

 
410.8

 
1,142.2

 
1,232.1

 
 

 

 
 
 
 
Net operating income
295.2

 
358.9

 
933.3

 
1,003.1

Non-operating investment income
1.3

 
41.4

 
10.8

 
53.9

Income before income taxes
296.5

 
400.3

 
944.1

 
1,057.0

Provision for income taxes
111.0

 
153.0

 
359.3

 
405.4

Net income
$
185.5

 
$
247.3

 
$
584.8

 
$
651.6

 

 

 
 
 
 
Net income allocated to common stockholders
 
 
 
 
 
 
 
 
Net income
$
185.5

 
$
247.3

 
$
584.8

 
$
651.6

 
Less: net income allocated to outstanding restricted stock and stock unit holders
(.9
)
 
(1.6
)
 
(2.6
)
 
(3.8
)
 
Net income allocated to common stockholders
$
184.6

 
$
245.7

 
$
582.2

 
$