T. Rowe Price Group, Inc.
PRICE T ROWE GROUP INC (Form: 10-Q, Received: 04/24/2014 08:01:58)


 
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 March 31, 2014
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, April 22, 2014 , is 262,733,775 .
The exhibit index is at Item 6 on page 21 .
 




PART I – FINANCIAL INFORMATION

Item 1.
Financial Statements.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
 
 
12/31/2013
 
3/31/2014
ASSETS
 
 
 
Cash and cash equivalents
$
1,398.0

 
$
1,739.3

Accounts receivable and accrued revenue
398.8

 
419.7

Investments in sponsored funds
1,611.9

 
1,635.2

Other investments
313.6

 
349.0

Property and equipment
572.9

 
571.8

Goodwill
665.7

 
665.7

Other assets
72.2

 
82.2

Total assets
$
5,033.1

 
$
5,462.9

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Liabilities
 
 
 
Accounts payable and accrued expenses
$
103.9

 
$
119.4

Accrued compensation and related costs
72.4

 
133.1

Income taxes payable
38.7

 
173.2

Total liabilities
215.0

 
425.7

 
 
 
 
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 262,073,000 shares in 2013 and 262,839,000 in 2014
52.4

 
52.6

Additional capital in excess of par value
894.6

 
929.5

Retained earnings
3,682.8

 
3,871.1

Accumulated other comprehensive income
188.3

 
184.0

Total stockholders’ equity
4,818.1

 
5,037.2

Total liabilities and stockholders’ equity
$
5,033.1

 
$
5,462.9


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
 
3/31/2013
 
3/31/2014
Revenues
 
 
 
Investment advisory fees
$
702.9

 
$
826.4

Administrative fees
86.3

 
94.5

Distribution and servicing fees
26.2

 
33.7

Net revenue of savings bank subsidiary
.3

 

Net revenues
815.7

 
954.6

 
 
 
 
Operating expenses
 
 
 
Compensation and related costs
279.1

 
318.9

Advertising and promotion
25.1

 
22.6

Distribution and servicing costs
26.2

 
33.7

Depreciation and amortization of property and equipment
21.5

 
27.1

Occupancy and facility costs
33.0

 
35.4

Other operating expenses
58.2

 
67.8

Total operating expenses
443.1

 
505.5

 
 
 
 
Net operating income
372.6

 
449.1

 
 
 
 
Non-operating investment income
18.3

 
42.1

 
 
 
 
Income before income taxes
390.9

 
491.2

Provision for income taxes
149.0

 
186.9

Net income
$
241.9

 
$
304.3

 
 
 
 
Earnings per share on common stock
 
 
 
Basic
$
.93

 
$
1.16

Diluted
$
.91

 
$
1.12

 
 
 
 
Dividends declared per share
$
.38

 
$
.44



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



UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
 
 
Three months ended
 
3/31/2013
 
3/31/2014
Net income
$
241.9

 
$
304.3

Other comprehensive income (loss)
 
 
 
Net unrealized holding gains on available-for-sale investments
34.3

 
22.4

Reclassification adjustments related to net gains realized on dispositions recognized in non-operating investment income, determined using average cost
(11.4
)
 
(32.0
)
Total net unrealized holding gains (losses) recognized in other comprehensive income
22.9

 
(9.6
)
Currency translation adjustments
(5.2
)
 
2.5

Other comprehensive income (loss) before income taxes
17.7

 
(7.1
)
Deferred tax benefit (income taxes)
(7.6
)
 
2.8

Total other comprehensive income (loss)
10.1

 
(4.3
)
Total comprehensive income
$
252.0

 
$
300.0



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



UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
 
 
Three months ended
 
3/31/2013
 
3/31/2014
Cash flows from operating activities
 
 
 
Net income
$
241.9

 
$
304.3

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Depreciation and amortization of property and equipment
21.5

 
27.1

Stock-based compensation expense
23.7

 
29.2

Realized gains on dispositions of sponsored funds
(11.4
)
 
(32.0
)
Net gains recognized on other investments
(4.5
)
 
(6.3
)
Net change in trading securities held by consolidated sponsored investment portfolios

 
(25.1
)
Other changes in assets and liabilities
188.2

 
189.9

Net cash provided by operating activities
459.4

 
487.1

 
 
 
 
Cash flows from investing activities
 
 
 
Investments in sponsored funds
(33.9
)
 
(98.9
)
Dispositions of sponsored funds
23.9

 
97.9

Investments in debt securities held by savings bank subsidiary
(10.3
)
 

Proceeds from debt securities held by savings bank subsidiary
11.6

 

Additions to property and equipment
(22.8
)
 
(25.4
)
Other investing activity
(.1
)
 
(3.4
)
Net cash used in investing activities
(31.6
)
 
(29.8
)
 
 
 
 
Cash flows from financing activities
 
 
 
Repurchases of common stock

 
(31.3
)
Common share issuances under stock-based compensation plans
70.2

 
22.2

Excess tax benefits from stock-based compensation plans
12.7

 
8.9

Dividends
(98.7
)
 
(115.8
)
Change in savings bank subsidiary deposits
(5.2
)
 

Net cash used in financing activities
(21.0
)
 
(116.0
)
 
 
 
 
Cash and cash equivalents
 
 
 
Net change during period
406.8

 
341.3

At beginning of year
879.1

 
1,398.0

At end of period
$
1,285.9

 
$
1,739.3



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, 2013
262,073

 
$
52.4

 
$
894.6

 
$
3,682.8

 
$
188.3

 
$
4,818.1

Net income
 
 
 
 
 
 
304.3

 
 
 
304.3

Other comprehensive loss, net of tax
 
 
 
 
 
 
 
 
(4.3
)
 
(4.3
)
Dividends
 
 
 
 
 
 
(115.8
)
 
 
 
(115.8
)
Common stock-based compensation plans activity
 
 
 
 
 
 
 
 
 
 
 
Shares issued upon option exercises
883

 
.2

 
28.0

 
 
 
 
 
28.2

Restricted shares issued, net of shares withheld for taxes
371

 
.1

 
(.2
)
 
 
 
 
 
(.1
)
Shares issued upon vesting of restricted stock units, net of shares withheld for taxes
1

 

 

 
 
 
 
 

Forfeiture of restricted awards
(89
)
 

 

 
 
 
 
 

Net tax benefits
 
 
 
 
8.9

 
 
 
 
 
8.9

Stock-based compensation expense
 
 
 
 
29.2

 
 
 
 
 
29.2

Restricted stock units issued as dividend equivalents
 
 
 
 
.2

 
(.2
)
 
 
 

Common shares repurchased
(400
)
 
(.1
)
 
(31.2
)
 

 
 
 
(31.3
)
Balances at March 31, 2014
262,839

 
$
52.6

 
$
929.5

 
$
3,871.1

 
$
184.0

 
$
5,037.2



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 U.S. mutual funds and other investment portfolios, including separately managed accounts, subadvised funds, and other sponsored investment portfolios. We also provide our investment advisory clients with related administrative services, including distribution, 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. Certain prior year items have been reclassed to conform to current year presentation.

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 2013 Annual Report.

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

Accounts receivable from our sponsored mutual funds for advisory fees and advisory-related administrative services aggregate $221.9 million at December 31, 2013 , and $235.4 million at March 31, 2014 .

Revenues (in millions) from advisory services provided under agreements with our sponsored mutual funds and other investment clients include:
 
Three months ended
 
3/31/2013
 
3/31/2014
Sponsored U.S. mutual funds
 
 
 
Stock and blended asset
$
398.9

 
$
497.3

Bond and money market
91.7

 
93.5

 
490.6

 
590.8

Other investment portfolios
 
 
 
Stock and blended asset
171.1

 
196.9

Bond, money market, and stable value
41.2

 
38.7

 
212.3

 
235.6

Total
$
702.9

 
$
826.4

 


Page 7



The following table summarizes the investment portfolios and assets under management (in billions) on which we earn advisory fees.
 
Average during
 
 
 
 
 
the first quarter of
 
As of
 
2013
 
2014
 
12/31/2013
 
3/31/2014
Sponsored U.S. mutual funds
 
 
 
 
 
 
 
Stock and blended asset
$
273.4

 
$
346.1

 
$
341.7

 
$
351.9

Bond and money market
91.4

 
96.6

 
93.6

 
98.5

 
364.8

 
442.7

 
435.3

 
450.4

Other investment portfolios
 
 
 
 
 
 
 
Stock and blended asset
171.0

 
196.4

 
195.3

 
198.1

Bond, money market, and stable value
65.2

 
62.1

 
61.8

 
62.9

 
236.2

 
258.5

 
257.1

 
261.0

Total
$
601.0

 
$
701.2

 
$
692.4

 
$
711.4


Investors that we serve are primarily domiciled in the U.S.; investment advisory clients outside the U.S. account for 6.5% of our assets under management at March 31, 2014 .

The following table summarizes the other fees (in millions) earned from our sponsored U.S. mutual funds.
 
Three months ended
 
3/31/2013
 
3/31/2014
Administrative fees
$
67.8

 
$
74.9

Distribution and servicing fees
$
26.2

 
$
33.7


NOTE 3
– INVESTMENTS IN SPONSORED FUNDS - AVAILABLE-FOR-SALE.

We make investments in our sponsored funds for general corporate investment purposes or to provide seed capital for newly formed funds. These sponsored funds (in millions) are voting interest entities and include:
 
Aggregate
cost
 
Unrealized holding
 
Aggregate
fair value
 
 
gains
 
losses
 
December 31, 2013
 
 
 
 
 
 
 
Stock and blended asset funds
$
354.7

 
$
302.5

 
$

 
$
657.2

Bond funds
904.0

 
53.6

 
(2.9
)
 
954.7

Total
$
1,258.7

 
$
356.1

 
$
(2.9
)
 
$
1,611.9

 
 
 
 
 
 
 
 
March 31, 2014
 
 
 
 
 
 
 
Stock and blended asset funds
$
387.6

 
$
284.6

 
$

 
$
672.2

Bond funds
904.1

 
60.6

 
(1.7
)
 
963.0

Total
$
1,291.7

 
$
345.2

 
$
(1.7
)
 
$
1,635.2


The unrealized holding losses are attributable to six fund holdings with an aggregate fair value of $155.9 million at December 31, 2013 , and four fund holdings with an aggregate fair value of $108.1 million at March 31, 2014 . These unrealized losses are considered temporary.



Page 8



NOTE 4
– OTHER INVESTMENTS.

These investments (in millions) include:
 
12/31/2013
 
3/31/2014
Cost method investments
 
 
 
10% interest in Daiwa SB Investments Ltd. (Japan)
$
6.6

 
$
6.6

Other investments
53.5

 
56.3

Equity method investments
 
 
 
26% interest in UTI Asset Management Company Limited (India)
122.6

 
127.1

Sponsored fund investments
104.1

 
105.2

Other investments
4.8

 
5.2

Investments held as trading
 
 
 
Sponsored fund investments
8.5

 
8.6

Securities held by consolidated sponsored investment portfolios
12.5

 
39.0

U.S. Treasury note
1.0

 
1.0

Total
$
313.6

 
$
349.0


The securities held by consolidated sponsored investment portfolios relate to investment portfolios in which we provided initial seed capital at the time of its formation. We have determined at December 31, 2013 and March 31, 2014 , that these investment portfolios are voting interest entities and, as a result, have consolidated those sponsored portfolios in which we own a majority of the voting interest.

NOTE 5
– 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 between the levels. The following table summarizes our investments (in millions) that are recognized in our condensed consolidated balance sheets using fair value measurements determined based on the differing levels of inputs.
 
Level 1
 
Level 2
December 31, 2013
 
 
 
Cash equivalents
$
1,288.1

 
$

Investments in sponsored funds - available-for-sale
1,611.9

 

Investments held as trading
21.0

 

Total
$
2,921.0

 
$

 
 
 
 
March 31, 2014
 
 
 
Cash equivalents
$
1,579.4

 
$

Investments in sponsored funds - available-for-sale
1,635.2

 

Investments held as trading
22.5

 
25.1

Total
$
3,237.1

 
$
25.1




Page 9



NOTE 6
– STOCK-BASED COMPENSATION.

STOCK OPTIONS.

The following table summarizes the status of and changes in our stock option grants during the first quarter of 2014 .
 
 
Options
 
Weighted-
average
exercise
price
Outstanding at beginning of year
31,574,958

 
$
52.18

Semiannual grants
1,740,900

 
$
79.89

New hire grants
5,500

 
$
82.56

Exercised
(1,148,134
)
 
$
43.39

Forfeited
(286,320
)
 
$
59.46

Expired
(696
)
 
$
49.77

Outstanding at end of period
31,886,208

 
$
53.95

Exercisable at end of period
18,122,661

 
$
47.74

 
RESTRICTED SHARES AND STOCK UNITS.

The following table summarizes the status of and changes in our nonvested restricted shares and restricted stock units during the first quarter of 2014 .
 
 
Restricted
shares
 
Restricted
stock
units
 
Weighted-average
fair value
Nonvested at December 31, 2013
1,877,086

 
823,593

 
$
67.21

Granted to employees and non-employee directors - time-based
365,751

 
177,179

 
$
79.91

Granted to employees - performance-based
6,000

 
34,725

 
$
79.89

Vested
(1,087
)
 
(5,283
)
 
$
69.01

Forfeited
(89,203
)
 
(5,245
)
 
$
70.05

Nonvested at March 31, 2014
2,158,547

 
1,024,969

 
$
69.45


The nonvested at March 31, 2014 includes 49,200 performance-based restricted shares and 153,675 performance-based restricted stock units. These performance-based restricted shares and units include 31,200 restricted shares and 90,750 restricted stock units for which the performance period has lapsed and the performance threshold has been met.

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 March 31, 2014 . Estimated future compensation expense will change to reflect future option grants; future awards of unrestricted shares, restricted shares, and restricted stock units; changes in estimated forfeitures; changes in the probability of performance thresholds being met; and adjustments for actual forfeitures.
 
Second quarter 2014
$
33.3

Third quarter 2014
33.4

Fourth quarter 2014
29.4

2015
82.4

2016 through 2019
80.4

Total
$
258.9




Page 10



NOTE 7
– 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 dilution, determined using the treasury stock method, that could occur if outstanding stock options were exercised and non-participating stock awards vested.
 
Three months ended
 
3/31/2013
 
3/31/2014
Net income
$
241.9

 
$
304.3

Less: net income allocated to outstanding restricted stock and stock unit holders
(1.8
)
 
(3.2
)
Net income allocated to common stockholders
$
240.1

 
$
301.1

 
 
 
 
Weighted-average common shares
 
 
 
Outstanding
256.9

 
260.4

Outstanding assuming dilution
264.9

 
268.6


The following table shows the weighted-average outstanding stock options (in millions) 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
 
3/31/2013
 
3/31/2014
Weighted-average outstanding stock options excluded
3.6

 
3.3


NOTE 8 - OTHER COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME.

The following table presents the impact of the components (in millions) of other comprehensive income (loss) on deferred tax benefit (income tax).
 
Three months ended
 
3/31/2013
 
3/31/2014
Deferred tax benefit (income taxes) on:
 
 
 
Net unrealized holding gains
$
(13.8
)
 
$
(8.7
)
Reclassification adjustment recognized in the provision for income taxes related to net gains realized on dispositions
4.4

 
12.4

Deferred tax benefit (income taxes) on net unrealized holding gains or losses
(9.4
)
 
3.7

Deferred tax benefit (income taxes) on currency translation adjustments
1.8

 
(.9
)
Total net deferred tax benefit (income taxes)
$
(7.6
)
 
$
2.8



Page 11



The changes (in millions) in each component of accumulated other comprehensive income, including reclassification adjustments for the first quarter of 2014 are presented in the table below.
 
Net unrealized holding gains
 
 
 
 
 
Investments in sponsored funds
 
Equity share of UTI’s net unrealized holding gains
 
Total net unrealized holding gains
 
Currency translation adjustments
 
Total
Balances at December 31, 2013
$
215.9

 
$
.4

 
$
216.3

 
$
(28.0
)
 
$
188.3

Other comprehensive income before reclassifications and income taxes
22.3

 
.1

 
22.4

 
2.5

 
24.9

Reclassification adjustments related to net gains realized on dispositions recognized in non-operating investment income, determined using average cost
(32.0
)
 

 
(32.0
)
 

 
(32.0
)
 
(9.7
)
 
.1

 
(9.6
)
 
2.5

 
(7.1
)
Deferred tax benefit (income taxes)
3.8

 
(.1
)
 
3.7

 
(.9
)
 
2.8

Other comprehensive income (loss)
(5.9
)
 

 
(5.9
)
 
1.6

 
(4.3
)
Balances at March 31, 2014
$
210.0

 
$
.4

 
$
210.4

 
$
(26.4
)
 
$
184.0





Page 12



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 March 31, 2014 , the related condensed consolidated statements of income, comprehensive income and cash flows for the three month periods ended March 31, 2014 and 2013 , and the related condensed consolidated statement of stockholders’ equity for the three -month period ended March 31, 2014 . 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, 2013 , and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated February 4, 2014 , 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, 2013 , 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
April 24, 2014
 


Page 13



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 U.S. sponsored mutual funds and other investment portfolios. The other investment portfolios include separately managed accounts, subadvised funds, and other sponsored investment portfolios including collective investment trusts, target-date retirement trusts, Luxembourg-based funds offered to investors outside the U.S., and portfolios offered through variable annuity life insurance plans. Investment advisory clients domiciled outside the U.S. account for 6.5% of our assets under management at March 31, 2014 .

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, technologies, and new fund offerings; and, most importantly, provide our clients with strong investment management expertise and service both now and in the future. In the coming quarters, we expect to increase funding for long-term initiatives to sustain and deepen our investment talent, expand our capabilities through enhanced technology, and broaden our distribution reach globally, including into Italy and Germany.

BACKGROUND.

Most major U.S. equity indexes advanced in the first quarter of 2014 despite market declines in January and March. The market tumbled in January as the Federal Reserve started to taper its monthly purchases of Treasuries and agency mortgage-backed securities, and as emerging markets equities and currencies declined in anticipation of reduced global liquidity. Stocks rebounded strongly in February, however, amid stabilization in emerging markets and mostly favorable U.S. corporate earnings. Equities struggled somewhat in March due to Russia’s controversial annexation of Ukraine’s Crimean peninsula and retaliatory sanctions from the U.S. and the European Union. Concerns that the Federal Reserve might consider raising short-term interest rates sooner than previously expected also weighed on equities in March.

Developed non-U.S. stock markets generated positive returns but lagged U.S. shares during the quarter. Equities in Europe outperformed Asian stocks. Emerging markets equities in aggregate fell slightly against a backdrop of slowing growth in various economies, especially those that raised interest rates to defend their currencies and contain inflation, and geopolitical tensions related to Ukraine.

Returns of several major equity market indexes for the first quarter of 2014 are as follows:
 
 
Three months ended
Index
 
3/31/2014
S&P 500 Index
 
1.8%
NASDAQ Composite Index (1)
 
0.5%
Russell 2000 Index
 
1.1%
MSCI EAFE (Europe, Australasia, and Far East) Index
 
0.8%
MSCI Emerging Markets Index
 
-0.4%
  (1) returns exclude dividends

Overall, global bond returns were positive in the first quarter of 2014. In the U.S., high yield bonds generally outperformed investment-grade issues as investors continued to favor securities with a yield advantage. Among high-quality bond segments, long-term Treasuries fared best as yields declined from the two-and-a-half-year highs reached at the end of 2013, despite the Fed’s measured tapering of asset purchases. The 10-year Treasury yield fell from 3.0% at the end of 2013 to 2.7% at the end of March 2014. Municipal bonds also enjoyed a strong quarter amid falling rates, limited issuance, and modest demand.

Government bonds in developed non-U.S. markets produced good returns in dollar terms. Emerging markets debt outperformed developed-market issues, with dollar-denominated debt outperforming bonds denominated in local currencies.



Page 14



Returns for several major bond market indexes for the first quarter of 2014 are as follows:
 
 
 
Three months ended
Index
 
3/31/2014
Barclays U.S. Aggregate Index
 
1.8%
Credit Suisse High Yield Index
 
3.1%
Barclays Municipal Bond Index
 
3.3%
Barclays Global Aggregate Ex-U.S. Dollar Bond Index
 
2.8%
JPMorgan Emerging Markets Index Plus
 
3.5%
 

ASSETS UNDER MANAGEMENT.

Assets under management (in billions) as of December 31, 2013 and March 31, 2014 , are presented by investment portfolio and investment objective in the following table.

 
As of
 
12/31/2013
 
3/31/2014
Sponsored U.S. mutual funds
$
435.3

 
$
450.4

Other investment portfolios
257.1

 
261.0

Total
$
692.4

 
$
711.4

 
 
 
 
 
As of
 
12/31/2013
 
3/31/2014
Stock and blended asset portfolios
$
537.0

 
$
550.0

Fixed income portfolios
155.4

 
161.4

Total
$
692.4

 
$
711.4


The following table details the changes in our assets under management (in billions) during the first quarter of 2014 .
 
Quarter ended 3/31/2014
Assets under management at beginning of period
$
692.4

Net cash flows
 
Sponsored U.S. mutual funds
8.4

Other investment portfolios
0.4

 
8.8

Market valuation changes and income
10.2

Change during the period
19.0

Assets under management at end of period
$
711.4


Total cash inflows for the first quarter of 2014 include $6.0 billion in net cash inflows sourced from our target-date retirement portfolios. The target-date retirement portfolios in turn invest in a broadly diversified portfolio of other Price funds or Price trust funds, and automatically rebalance to maintain their specific asset allocation weightings. Assets under management in these retirement portfolios at March 31, 2014 , totaled $129.6 billion , including $111.6 billion in target-date retirement funds and $18.0 billion in target-date retirement trusts.

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.



Page 15



RESULTS OF OPERATIONS.

First quarter of 2014 versus first quarter of 2013 .

 
 
Three months ended
 
 
 
 
 
 
3/31/2014
 
3/31/2013
 
Dollar Change
 
Percent Change
(in millions, except per-share data)
 
 
 
 
 
 
 
 
Investment advisory fees
 
$
826.4

 
$
702.9

 
$
123.5

 
17.6
%
Net revenues
 
$
954.6

 
$
815.7

 
$
138.9

 
17.0
%
Operating expenses
 
$
505.5

 
$
443.1

 
$
62.4

 
14.1
%
Net operating income
 
$
449.1

 
$
372.6

 
$
76.5

 
20.5
%
Non-operating investment income
 
$
42.1

 
$
18.3

 
$
23.8

 
130.1
%
Net income
 
$
304.3

 
$
241.9

 
$
62.4

 
25.8
%
 
 
 
 
 
 
 
 
 
Diluted earnings per share
 
$
1.12

 
$
.91

 
$
.21

 
23.1
%

Investment advisory revenues in the first quarter of 2014 are up over the comparable 2013 quarter as average assets under our management increased $100.2 billion to $701.2 billion . In addition, the average annualized effective fee rate earned on our assets under management during the first quarter of 2014 increased to 47.8 basis points from the 47.4 basis points earned during the first quarter of 2013 , due primarily to asset growth in higher than average fee rate strategies. Our annualized effective fee rate earned in the first quarter of 2014 is virtually unchanged from the 47.7 basis points earned for the 2013 year. We voluntarily waived $14.3 million in money market related fees, including advisory fees and fund expenses, in the first quarter of 2014 , in order to maintain a positive yield for fund investors. The fee waivers in the first quarter of 2014 were up $3.3 million from the comparable 2013 quarter and represent about 2% of total investment advisory revenues earned during the first quarter of 2014 . Fees were waived from each of our money market mutual funds and trusts, which have combined net assets of $16.8 billion at March 31, 2014 . We expect that these fee waivers will continue for the remainder of 2014 .

Greater average assets under management and the higher annualized fee rate have increased our investment advisory revenues and helped lift our operating margin in the first quarter of 2014 to 47.0% compared to 45.7% in the 2013 period. Non-operating investment income in the first quarter of 2014 includes realized gains of $32.0 million, or $.07 per share after income taxes, from the sale of certain of our sponsored fund holdings to provide additional seed capital to other sponsored funds in support of our distribution efforts outside the United States.

Net revenues

Investment advisory revenues earned from the T. Rowe Price mutual funds distributed in the U.S. were $590.8 million , an increase of $100.2 million , or 20.4% , on higher average assets under management. Average mutual fund assets under management in the first quarter of 2014 were $442.7 billion , an increase of 21.4% from the average in the first quarter of 2013 .

Mutual fund assets increased $15.1 billion during the first quarter of 2014 , and ended the quarter at $450.4 billion . Investors added net inflows of $8.4 billion , including $5.3 billion into our stock and blended asset funds, $2.7 billion into our bond funds, and $.4 billion into our money market funds. These cash flow amounts for the first quarter of 2014 include $4.4 billion that originated in our target-date retirement funds. Market appreciation and income added $6.7 billion to mutual fund assets during the first quarter of 2014 .

Investment advisory revenues earned in the first quarter of 2014 on our other investment portfolios were $235.6 million , an increase of $23.3 million from the comparable 2013 quarter. Average assets under management were $258.5 billion , an increase of $22.3 billion , or 9.4% , from the average in the first quarter of 2013 . Net cash inflows of $.4 billion and $3.5 billion in higher market valuations and income, increased assets under management in these portfolios by $3.9 billion during the first quarter of 2014 to $261.0 billion at March 31, 2014 .

Administrative fee revenues increased $8.2 million to $94.5 million in the first quarter of 2014 . The increase is primarily attributable to transfer agent servicing activities provided to 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.


Page 16




Distribution and servicing fee revenues earned from 12b-1 plans of the Advisor, R, and variable annuity class shares of our sponsored funds and portfolios increased $7.5 million from the first quarter of 2013 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 statements of income.

Operating expenses

Compensation and related costs were $318.9 million in the first quarter of 2014 , an increase of $39.8 million , or 14.3% , compared to the first quarter of 2013 . The largest part of the change is attributable to a $14.2 million increase in the interim accrual for our annual variable compensation programs and $12.6 million in higher base salaries and related benefits, which results from a modest increase in salaries at the beginning of 2014 combined with a 5% increase in our average staff size from the first quarter of 2013 . The balance of the change from the 2013 quarter is attributable to an increase in non-cash stock-based compensation expense, an increase in temporary personnel to support our business growth, and higher other employee-related costs. At March 31, 2014 , we employed 5,692 associates.

Advertising and promotion costs were $22.6 million in the first quarter of 2014 , a decrease of $2.5 million from the comparable 2013 period. The decrease in cost is primarily due to process efficiencies realized through the realignment of certain marketing activities. We expect total advertising and promotion costs for 2014 to be about 10% less than such costs in 2013 , as we continue to repurpose this spending to other distribution activities.

Occupancy and facility costs, together with depreciation and amortization expense, were $62.5 million in the first quarter of 2014 , up $8.0 million compared to the first quarter of 2013 . Nearly half of this increase is attributable to the opening of two new buildings at our Owings Mills, Maryland campus in the fourth quarter of 2013. The increase also includes the added costs to renovate certain existing facilities, as well as update and enhance technology capabilities, including related maintenance programs.

Other operating expenses in the first quarter of 2014 were up $9.6 million from the comparable 2013 quarter due to increased business demands and our continued investment in our operating capabilities. These costs include those related to our defined contribution recordkeeping business, information and third-party service costs, consulting and professional fees, and travel costs.

Non-operating investment income

Non-operating investment income in the first quarter of 2014 of $42.1 million increased $23.8 million from the 2013 quarter due primarily to the larger gains realized from the sale of certain sponsored fund investments in the 2014 period.

Provision for income taxes

The effective tax rate for the first quarter of 2014 was 38.0% , down from the 38.4% for the full-year 2013 . We currently estimate that our effective tax rate for the full-year 2014 will be about 38.3% . 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 that are 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 the U.S. or relevant non-U.S. jurisdictions may affect our effective income tax rate and overall net income in the future.

CAPITAL RESOURCES AND LIQUIDITY.

Operating activities during the first quarter of 2014 provided cash flows of $487.1 million , up $27.7 million from the 2013 period, including a $62.4 million increase in net income and an $11.1 million increase in our non-cash expenses. These increases were offset by $25.1 million in cash used to seed a new sponsored investment portfolio that we are consolidating and classifying the underlying securities as trading at March 31, 2014 . Cash provided by operating activities in the first quarter of 2014 was also adjusted for the $32.0 million in gains realized from the sale of certain available-for-sale sponsored fund investments as the total proceeds are shown as an investing activity in our condensed consolidated statements of cash flows. Our interim operating cash flows do not include the cash impact of variable compensation that is accrued throughout the year before being substantially paid out in December.

Net cash used in investing activities totaled $29.8 million in the first quarter of 2014 , a decrease of $1.8 million from the comparable 2013 period. We utilized $9.0 million less cash to fund net investments in sponsored funds in the first quarter of


Page 17



2014 than in the 2013 period as existing investment holdings were sold to fund the investments in the 2014 period. This decrease in cash used was offset by a $2.6 million increase in property and equipment additions and a $3.3 million increase in the contributions made to various investment partnerships, in which we have outstanding commitments, in the first quarter of 2014 compared to the 2013 period. The first quarter of 2013 also included $1.3 million in net cash proceeds received from the debt securities held by our savings bank subsidiary that was sold in the fourth quarter of 2013 .

Net cash used in financing activities was $116.0 million in the first quarter of 2014 , up $95.0 million from the comparable 2013 period, including $31.3 million in cash used to repurchase 400,000 shares of our common stock and a $17.1 million increase in dividends paid during the 2014 quarter. The increase in dividends paid in the first quarter of 2014 is primarily due to the 16% increase in our quarterly per-share dividend. The remaining increase in net cash used in financing activities is due to a $48.0 million decrease in proceeds received from option exercises, as the number of options exercised during the first quarter of 2014 declined by about 1.2 million compared to the 2013 period.

Our cash and sponsored investment holdings at March 31, 2014 were $3.4 billion , and we have no debt. We anticipate property and equipment expenditures for the full year 2014 to be about $150 million and expect to fund them from our operating resources. 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 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 has or will have a material effect on our financial position or results of operations.

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, dividends, investments, capital expenditures, and other 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, our Form 10-K Annual Report for 2013 . 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 U.S. 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 T. Rowe Price U.S. 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, changes in their market valuations, and any other-than-temporary impairments that may arise, or in the case of our equity method investments, our proportionate share of the investee’s net income.

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 and other equity grants, other incentive awards, changes in our employee count and mix, and competitive factors; any goodwill or other asset


Page 18



impairment that may arise; fluctuation in foreign currency exchange rates applicable to our investment in and the costs of our international operations; 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.

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 2013 .

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 March 31, 2014 . Based on that evaluation, our principal executive and principal financial officers have concluded that our disclosure controls and procedures as of March 31, 2014 , 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 first quarter of 2014 , and has concluded that there was no change during the first quarter of 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 


Page 19


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.

There has been no material change in the information provided in Item 1A of our Form 10-K Annual Report for 2013 .

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

(c) Repurchase activity during the first quarter of 2014 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
January
 
137,980

 
$
81.07

 
50,000

 
11,163,467

February
 
351,558

 
$
77.86

 
300,000

 
10,863,467

March
 
119,588

 
$
81.27

 
50,000

 
10,813,467

Total
 
609,126

 
$
79.25

 
400,000

 
 

Shares repurchased by us in a quarter may include repurchases conducted pursuant to publicly announced board authorizations, outstanding shares surrendered to the company to pay the exercise price in connection with swap exercises of employee stock options, and shares withheld to cover the minimum tax withholding obligation associated with the vesting of restricted stock awards. Of the total number of shares purchased during the first quarter of 2014 , 208,776 were related to shares surrendered in connection with employee stock option exercises and 350 were related to shares withheld to cover tax withholdings associated with the vesting of restricted stock awards.

The 400,000 shares of our common stock were repurchased pursuant to the Board of Directors’ September 8, 2010 , publicly announced authorization.

Item 4.
Mine Safety Disclosures.

Not applicable.

Item 5.
Other Information.

On April 24, 2014 , we issued a press release reporting our results of operations for the first quarter of 2014 . 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 website 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 SEC. To obtain any of this information, access our website at troweprice.com. We use our website as a channel of distribution for material company information.



Page 20



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 April 24, 2014, reporting our results of operations for the first quarter of 2014.
 
 
 
 
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-20140331.xml).
 
 
 
 
 
 
101.SCH
XBRL Taxonomy Extension Schema Document (File name: trow-20140331.xsd).
 
 
 
 
 
 
101.CAL
XBRL Taxonomy Calculation Linkbase Document (File name: trow-20140331_cal.xml).
 
 
 
 
 
 
101.LAB
XBRL Taxonomy Label Linkbase Document (File name: trow-20140331_lab.xml).
 
 
 
 
 
 
101.PRE
XBRL Taxonomy Presentation Linkbase Document (File name: trow-20140331_pre.xml).
 
 
 
 
 
 
101.DEF
XBRL Taxonomy Definition Linkbase Document (File name: trow-20140331_def.xml).



Page 21



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 April 24, 2014 .
T. Rowe Price Group, Inc.

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

 


Page 22


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 April 24, 2014 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
April 24, 2014





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 March 31, 2014 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 (the registrant’s fourth fiscal quarter in the case of an annual report) 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.


April 24, 2014
/ 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 March 31, 2014 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 (the registrant’s fourth fiscal quarter in the case of an annual report) 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.


April 24, 2014
/ 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 March 31, 2014 of T. Rowe Price Group, Inc., that:
(1) The Form 10-Q Quarterly Report 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.

April 24, 2014

/ 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.



1 Contacts: Brian Lewbart 410.345.2242 Bill Benintende 410.345.3482 Heather McDonold 410.345.6617 Kylie Muratore 410.345.2533 T. ROWE PRICE GROUP REPORTS FIRST QUARTER 2014 RESULTS Assets Under Management Increase to $711.4 billion BALTIMORE (April 24, 2014) - T. Rowe Price Group, Inc. (NASDAQ-GS: TROW) today reported its 2014 first quarter results, including net revenues of $954.6 million, net income of $304.3 million, and diluted earnings per common share of $1.12. These results include realized gains of $32.0 million, or $.07 per share after income taxes, from the sale of certain of the firm’s investments in sponsored funds. On a comparable basis, net revenues were $815.7 million, net income was $241.9 million, and diluted earnings per common share was $.91 in the first quarter of 2013. Investment advisory revenues for the first quarter of 2014 were up $123.5 million to $826.4 million from the comparable 2013 period, as average assets under management increased $100.2 billion, or 17%. During the first quarter of 2014, market appreciation and income of $10.2 billion and net cash inflows from investors of $8.8 billion, including $6.0 billion that originated in the firm’s target-date retirement funds and trusts, lifted assets under management to a record $711.4 billion at March 31, 2014. The firm’s assets under management at March 31, 2014, include about $174 billion of asset allocation portfolios, of which $111.6 billion are in its target-date retirement funds and $18.0 billion in its target-date retirement trusts. From an investment performance standpoint, 78% 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 March 31, 2014, 76% outperformed for the five-year period, 85% outperformed for the 10-year period, and 71% 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 81% of the firm’s rated funds’ assets under management. The firm’s target-date retirement funds continue to deliver very attractive long- term performance, with 100% of these funds outperforming their comparable Lipper averages on a total return basis for the three- and five-year periods ended March 31, 2014. The performance of our institutional strategies against their benchmarks was substantially similar.


 
2 Financial Highlights Investment advisory revenues earned in the first quarter of 2014 from the T. Rowe Price mutual funds distributed in the United States were $590.8 million, an increase of 20% from the comparable 2013 quarter. Average mutual fund assets under management in the first quarter of 2014 were $442.7 billion, an increase of 21% from the average in the first quarter of 2013. Money market advisory fees and other fund expenses voluntarily waived by the firm to maintain positive yields for investors in the first quarter of 2014 were $14.3 million, an increase of $3.3 million from the comparable 2013 quarter. The firm expects it will continue to voluntarily waive such fees for the remainder of the year. Mutual fund assets increased $15.1 billion during the first quarter of 2014 and ended the quarter at $450.4 billion. Investors added net inflows of $8.4 billion, including $4.4 billion that originated in our target-date retirement funds. Market appreciation and income added $6.7 billion to mutual fund assets during the quarter. Investment advisory revenues earned in the first quarter of 2014 from the other investment portfolios were $235.6 million, an increase of $23.3 million from the comparable 2013 quarter. Average assets under management in the first quarter of 2014 were $258.5 billion, an increase of $22.3 billion, or 9%, from the average in the first quarter of 2013. Net cash inflows of $.4 billion, and $3.5 billion in higher market valuations and income, increased assets under management in these portfolios by $3.9 billion during the first quarter of 2014 to $261.0 billion at March 31, 2014. Investors domiciled outside the United States accounted for 6.5% of the firm’s assets under management at March 31, 2014. Operating expenses were $505.5 million in the first quarter of 2014, up $62.4 million from the comparable 2013 quarter. Compensation and related costs have increased $39.8 million from the first quarter of 2013, due primarily to an increase in the interim accrual for year-end bonus compensation, higher salaries and benefits from base salary increases and added headcount, and an increase in stock-based compensation. The firm has increased its average staff size by about 5% from the first quarter of 2013. At March 31, 2014, the firm employed 5,692 associates.


 
3 Occupancy and facility costs, together with depreciation and amortization expense, were $62.5 million in the first quarter of 2014, up $8.0 million compared to the first quarter of 2013. Nearly half of the increase is attributable to the opening of two new buildings at the firm’s Owings Mills, Maryland campus in the fourth quarter of 2013. The increase also includes the added costs to renovate certain existing facilities, as well as update and enhance technology capabilities, including related maintenance programs. Other operating expenses in the first quarter of 2014 were up $9.6 million from the comparable 2013 quarter, due to increased business demands and the firm’s continued investment in its operating capabilities. These costs include those related to the firm’s defined contribution recordkeeping business, information and third-party service costs, consulting and professional fees, and travel costs. Net non-operating investment income in the first quarter of 2014 of $42.1 million increased $23.8 million from the 2013 quarter as larger gains were realized from the sale of certain sponsored fund investments in the 2014 period to provide additional seed capital to other sponsored funds in support of the firm’s distribution efforts outside the United States. The firm’s effective tax rate for the first quarter of 2014 is 38.0%, down from the 38.4% for the full-year 2013. The firm currently estimates that its effective rate for the full-year 2014 will be about 38.3%. T. Rowe Price remains debt-free with ample liquidity, including cash and sponsored portfolio investment holdings of $3.4 billion. During the first quarter of 2014, the firm expended $31.3 million to repurchase 400,000 shares of its common stock, and invested $25.4 million in capitalized technology and facilities from existing cash balances. The firm currently expects total capital expenditures for property and equipment for 2014 to be approximately $150 million, which will be funded from operating resources. Management Commentary James A. C. Kennedy, the company's chief executive officer and president, commented: “The good news is there is general acceptance that the economic growth in the U.S. is stable and sustainable— subdued as it is. Corporate and consumer balance sheets have reduced leverage.


 
4 The fiscal drag from the government has largely been absorbed. Housing prices have rebounded, employment continues to rise, and bank lending is on the upturn. As confidence has risen, corporations and individuals have been more willing to spend. Meanwhile, the belief in sustained economic growth around the globe also continues to rise. “Within this economic framework, most world equity and fixed income indices produced modest gains in the first quarter. The major exceptions were the Japanese and the emerging market equity indices. Markets were volatile, however, as investors worried about geopolitical disruptions in Ukraine and possibly beyond, the pace of underlying growth in emerging market economies, and even the seasonal impact of a harsh winter in the U.S. These concerns triggered a move toward risk aversion in the markets; thus, interest rates temporarily declined and equities wavered. “Given that U.S. equity valuations appear reasonably full and the trend in long-term interest rates is higher, we continue to believe that return expectations in both equity and fixed income markets should be modest relative to recent years. Nevertheless, we continue to find attractive investment opportunities. “Our teams continue to perform well. The vast majority of our portfolios outperformed and our clients are generally very pleased with our service. We are financially very strong, and we continue to step up our investment in our capabilities. As always, we remain focused on adding value for our clients and resultantly for our shareholders.” 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 first quarter of 2014 with the U.S. Securities and Exchange Commission later today. The Form 10-Q will include additional information on the firm’s unaudited financial results at March 31, 2014. 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, anticipated changes in the amount and composition of assets under management, anticipated expense levels, estimated tax rates, and expectations regarding financial results,


 
5 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 2013 Form 10-K. 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.


 
6 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in millions, except per-share amounts) Three months ended Revenues 3/31/2013 3/31/2014 Investment advisory fees $ 702.9 $ 826.4 Administrative fees 86.3 94.5 Distribution and servicing fees 26.2 33.7 Net revenue of savings bank subsidiary .3 — Net revenues 815.7 954.6 Operating expenses Compensation and related costs 279.1 318.9 Advertising and promotion 25.1 22.6 Distribution and servicing costs 26.2 33.7 Depreciation and amortization of property and equipment 21.5 27.1 Occupancy and facility costs 33.0 35.4 Other operating expenses 58.2 67.8 Total operating expenses 443.1 505.5 Net operating income 372.6 449.1 Non-operating investment income 18.3 42.1 Income before income taxes 390.9 491.2 Provision for income taxes 149.0 186.9 Net income $ 241.9 $ 304.3 Net income allocated to common stockholders Net income $ 241.9 $ 304.3 Less: net income allocated to outstanding restricted stock and stock unit holders (1.8) (3.2) Net income allocated to common stockholders $ 240.1 $ 301.1 Earnings per share on common stock Basic $ .93 $ 1.16 Diluted $ .91 $ 1.12 Dividends declared per share $ .38 $ .44 Weighted-average common shares Outstanding 256.9 260.4 Outstanding assuming dilution 264.9 268.6


 
7 Investment Advisory Revenues (in millions) Three months ended 3/31/2013 3/31/2014 Sponsored U.S. mutual funds Stock and blended asset $ 398.9 $ 497.3 Bond and money market 91.7 93.5 490.6 590.8 Other portfolios Stock and blended asset 171.1 196.9 Bond, money market, and stable value 41.2 38.7 212.3 235.6 Total $ 702.9 $ 826.4 Assets Under Management (in billions) Average during the first quarter of As of 2013 2014 12/31/2013 3/31/2014 Sponsored U.S. mutual funds Stock and blended asset $ 273.4 $ 346.1 $ 341.7 $ 351.9 Bond and money market 91.4 96.6 93.6 98.5 364.8 442.7 435.3 450.4 Other portfolios Stock and blended asset 171.0 196.4 195.3 198.1 Bond, money market, and stable value 65.2 62.1 61.8 62.9 236.2 258.5 257.1 261.0 Total $ 601.0 $ 701.2 $ 692.4 $ 711.4 Stock and blended asset portfolios $ 537.0 $ 550.0 Fixed income portfolios 155.4 161.4 Total $ 692.4 $ 711.4 Condensed Consolidated Cash Flows Information (in millions) Three months ended 3/31/2013 3/31/2014 Cash provided by operating activities, including $29.2 of stock-based compensation in 2014 $ 459.4 $ 487.1 Cash used in investing activities, including ($25.4) for additions to property and equipment and ($1.0) for net sponsored fund investments in 2014 (31.6) (29.8) Cash used in financing activities, including dividends paid of ($115.8) in 2014 (21.0) (116.0) Net change in cash during the period $ 406.8 $ 341.3 Condensed Consolidated Balance Sheet Information (in millions) 12/31/2013 3/31/2014 Cash and cash equivalents $ 1,398.0 $ 1,739.3 Accounts receivable and accrued revenue 398.8 419.7 Investments in sponsored funds 1,611.9 1,635.2 Property and equipment 572.9 571.8 Goodwill 665.7 665.7 Other investments and other assets 385.8 431.2 Total assets 5,033.1 5,462.9 Total liabilities 215.0 425.7 Stockholders' equity, 262,839,000 common shares outstanding in 2014, including net unrealized holding gains of $210.4 in 2014 $ 4,818.1 $ 5,037.2