1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q QUARTERLY REPORT Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended: SEPTEMBER 30, 1995.
Commission file number: 000-14282.
Exact name of registrant as specified in its charter:
T. ROWE PRICE ASSOCIATES, INC.
State of Incorporation: MARYLAND.
I.R.S. Employer Identification No.: 52-0556948.
Address and zip code of principal executive offices: 100 EAST PRATT
STREET, BALTIMORE, MARYLAND 21202.
Registrant's telephone number, including area code: (410) 547-2000.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) 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. YES [X]. No [ ].
Indicate the number of shares outstanding of the issuer's common stock ($.20
par value), as of the latest practicable date: 28,630,163 SHARES AT
NOVEMBER 10, 1995.
Exhibit index is at Item 6(a) on page 10.
2
PART I. FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
T. ROWE PRICE ASSOCIATES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
09/30/95
12/31/94 Unaudited
________ _________
ASSETS
Cash and cash equivalents $ 60,016 $ 98,688
Accounts receivable 46,722 54,268
Investments in sponsored mutual funds
held as available-for-sale securities 93,010 107,333
Partnership and other investments 28,657 27,836
Property and equipment 49,341 49,779
Goodwill and deferred expenses 7,811 6,494
Other assets 11,725 7,848
________ ________
$297,282 $352,246
________ ________
________ ________
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable and accrued expenses $ 17,741 $ 21,005
Accrued compensation and retirement costs 27,413 39,570
Income taxes payable 1,573 5,947
Dividends payable 4,575 4,573
Debt 13,410 797
Minority interests in consolidated subsidiaries 16,331 18,882
________ ________
Total liabilities 81,043 90,774
________ ________
Commitments and contingent liabilities
Stockholders' equity
Preferred stock, undesignated - authorized
20,000,000 shares in 1995 -- --
Common stock, $.20 par value - authorized
48,000,000 shares in 1994 and 100,000,000 shares
in 1995; issued and outstanding 28,569,419 shares
in 1994 and 28,580,686 in 1995 5,714 5,716
Capital in excess of par value 1,935 3,614
Unrealized security holding gains 2,554 12,437
Retained earnings 206,036 239,705
________ ________
Total stockholders' equity 216,239 261,472
________ ________
$297,282 $352,246
________ ________
________ ________
See the accompanying notes to the condensed consolidated financial
statements.
3
T. ROWE PRICE ASSOCIATES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per-share amounts)
Three months Nine months
ended ended
September 30, September 30,
__________________________________
1994 1995 1994 1995
________ ________________ ________
Revenues
Investment advisory fees $ 74,462 $ 87,019 $214,177 $240,619
Administrative fees 21,429 24,448 63,671 69,567
Investment and other income 1,052 1,759 3,490 5,675
________ ________ ________ ________
96,943 113,226 281,338 315,861
________ ________ ________ ________
Expenses
Compensation and related costs 32,721 35,973 96,663 104,760
Advertising and promotion 5,957 7,126 23,225 21,096
Depreciation, amortization and
operating rentals of property
and equipment 6,172 7,306 18,279 21,928
International investment
research fees 6,894 7,793 19,045 21,907
Administrative and general 12,620 14,783 34,719 41,354
________ ________ ________ ________
64,364 72,981 191,931 211,045
________ ________ ________ ________
Income before income taxes and
minority interests 32,579 40,245 89,407 104,816
Provision for income taxes 12,590 14,914 34,773 40,002
________ ________ ________ ________
Income from consolidated companies 19,989 25,331 54,634 64,814
Minority interests in consolidated
subsidiaries 3,727 3,780 9,570 10,050
________ ________ ________ ________
Income before extraordinary charge 16,262 21,551 45,064 54,764
Extraordinary charge from early
extinguishment of debt, net of
income tax benefit -- 1,049 -- 1,049
________ ________ ________ ________
Net income $ 16,262 $ 20,502 $ 45,064 $ 53,715
________ ________ ________ ________
________ ________ ________ ________
Earnings per share, including an
extraordinary charge of $.03 per
share in 1995 $ .53 $ .67 $ 1.47 $ 1.77
________ ________ ________ ________
________ ________ ________ ________
Dividends declared per share $ .13 $ .16 $ .39 $ .48
________ ________ ________ ________
________ ________ ________ ________
Weighted average shares outstanding,
including share equivalents arising
from unexercised stock options 30,421 30,706 30,679 30,365
________ ________ ________ ________
________ ________ ________ ________
See the accompanying notes to the condensed consolidated financial
statements.
4
T. ROWE PRICE ASSOCIATES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine months ended
__________________
09/30/94 09/30/95
________ ________
Cash flows from operating activities
Net income $ 45,064 $ 53,715
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization of property
and equipment 7,220 9,670
Minority interests in consolidated subsidiaries 9,570 10,050
Increase in accounts receivable (5,653) (7,546)
Increase in accounts payable and accrued
liabilities 16,600 16,831
Other changes in assets and liabilities 681 5,154
________ ________
Net cash provided by operating activities 73,482 87,874
________ ________
Cash flows from investing activities
Investments in sponsored mutual funds (21,159) (3,035)
Proceeds from liquidation of mutual fund investments -- 3,076
Partnership and other investments (6,252) (1,888)
Return of partnership investments 660 2,065
Additions to property and equipment (13,568) (10,846)
________ ________
Net cash used in investing activities (40,319) (10,628)
________ ________
Cash flows from financing activities
Purchases of stock (15,395) (7,489)
Receipts relating to stock issuances 3,310 2,808
Dividends paid to stockholders (11,339) (13,686)
Distributions to minority interests (6,320) (7,594)
Debt payments (227) (12,613)
________ ________
Net cash used in financing activities (29,971) (38,574)
________ ________
Cash and cash equivalents
Net increase during period 3,192 38,672
At beginning of period 46,218 60,016
________ ________
At end of period $ 49,410 $ 98,688
________ ________
________ ________
See the accompanying notes to the condensed consolidated financial
statements.
5
T. ROWE PRICE ASSOCIATES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY AND BASIS OF PREPARATION.
T. Rowe Price Associates, Inc. and its consolidated subsidiaries (the
Company) serve as investment adviser to the T. Rowe Price Mutual Funds (the
Price funds), other sponsored investment products, and private accounts of
other institutional and individual investors, including defined benefit and
defined contribution retirement plans, endowments, foundations, trusts, and
other mutual funds. The Company also provides various administrative
services to its clients, including mutual fund transfer agent, accounting and
shareholder services; participant recordkeeping and transfer agent services
for defined contribution retirement plans; discount brokerage; and trust
services. At September 30, 1995, the Company's assets under management
totaled $71.5 billion, including $45.9 billion in the Price funds.
The unaudited condensed consolidated financial statements reflect all
adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the interim periods presented. All such
adjustments are of a normal recurring nature.
The unaudited interim financial information contained in the condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements contained in the 1994 Annual Report to
Stockholders.
NOTE 2 - EARLY EXTINGUISHMENT OF DEBT.
On September 29, 1995, the Company settled its 9.77%, $12,375,000 promissory
note due in 2001 by making a cash payment of $13,875,000. In conjunction
with the settlement, the Company recognized an extraordinary charge equal to
the sum of the prepayment premium and the unamortized debt issuance costs of
$235,000, net of an income tax benefit of $686,000.
NOTE 3 - STOCK OPTIONS.
During 1995, the Company awarded options to purchase 20,000 shares of its
common stock to the independent members of its board of directors. The
options were granted at exercise prices equal to the then fair market values
of $38.375 and $45.75 per share and become exercisable one year after their
grant.
On November 1, 1995, the Company awarded options to purchase 1,217,500 shares
of its common stock to certain officers and employees. The options were
granted at an exercise price equal to the then fair market value of $52.25
per share and become exercisable over the next five years.
6
NOTE 4 - STOCKHOLDERS' EQUITY.
The following table details the changes in stockholders' equity (dollars in
thousands) during the first nine months of 1995.
Capital Unreal-
Common in ized Total
Common stock excess security stock-
stock - par of par holding Retained holders'
- shares value value gains earnings equity
__________ ______ _______ ________ ________ ________
Balance at
December 31,
1994 28,569,419 $5,714 $ 1,935 $ 2,554 $206,036 $216,239
Stock options
exercised 260,767 52 2,684 (2) 2,734
Purchases of
common stock (249,500) (50) (1,079) (6,360) (7,489)
Cash received
from holders of
Executive Stock 74 74
Net income 53,715 53,715
Dividends
declared (13,684) (13,684)
Unrealized hold-
ing gain on
available-for-
sale mutual fund
investments 9,883 9,883
__________ ______ _______ _______ ________ ________
Balance at
September 30,
1995 28,580,686 $5,716 $ 3,614 $12,437 $239,705 $261,472
__________ ______ _______ _______ ________ ________
__________ ______ _______ _______ ________ ________
NOTE 5 - COMMITMENTS.
On September 29, 1995, the Company entered into a contract which, if
consummated, would result in the acquisition of 32.7 acres of undeveloped
land in Owings Mills, Maryland and an option to acquire an additional 37.4
acres of adjacent land, and the extension of the land lease on its existing
facility in Owings Mills, Maryland from 2040 to 2089, for an aggregate
consideration of up to $7,600,000. The Company is entitled to cancel all
obligations under this contract by forfeiting deposits of up to $350,000.
The Company with the assistance of its real estate and architectural
consultants is currently examining the feasibility of the proposed expansion
of its operating facilities and expects to make a final decision late in the
fourth quarter of 1995. If the Company determines to proceed with the
proposed expansion, it would expect to settle on this contract by year-end
1995 and would likely commence construction of a new service facility in
1996.
7
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
T. Rowe Price Associates, Inc.
We have reviewed the condensed consolidated balance sheet of T. Rowe Price
Associates, Inc. and its subsidiaries as of September 30, 1995, and the
related condensed consolidated statements of income and cash flows for the
three- and nine-month periods ended September 30, 1994 and 1995. These
financial statements are the responsibility of the company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, 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 review, 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 generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1994, and the
related consolidated statements of income, cash flows, and stockholders'
equity for the year then ended (not presented herein), and in our report
dated January 25, 1995 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,
1994, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
/s/ PRICE WATERHOUSE LLP
Baltimore, Maryland
October 24, 1995
THE ABOVE REPORT IS NOT A "REPORT" WITHIN THE MEANING OF SECTIONS 7 AND 11 OF
THE SECURITIES ACT OF 1933 AND THE INDEPENDENT ACCOUNTANTS' LIABILITY
PROVISIONS OF SECTION 11 OF THE ACT DO NOT APPLY.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL.
T. Rowe Price Associates, Inc. (the Company) derives its revenue primarily
from investment advisory and administrative services provided to the Price
Mutual Funds (the Funds), private accounts, and other sponsored investment
products. Investment advisory fees are generally based on the net assets of
the portfolios managed. The majority of administrative revenues are earned
from contracted services provided to the Funds.
The Company believes its base of assets under management is well diversified
and relatively stable and that its broad range of investment products meets
the varied needs and objectives of most individual and institutional
investors. Company revenues are largely dependent on the total value and
composition of assets under management; accordingly, fluctuations in
financial markets and in the composition of assets under management impact
revenues and results of operations.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1995 VERSUS 1994.
Net income increased $4.2 million or 26% to $20.5 million or $.67 per share
from $16.3 million or $.53 per share. The 1995 results include an
extraordinary charge of $1.0 million or $.03 per share from the early
extinguishment of the Company's 9.77% fixed rate, $12.4 million promissory
note due in 2001. The Company's common stock repurchases resulted in a
decrease in weighted average shares outstanding and account for $.01 of the
increase in earnings per share. Total revenues for the third quarter
increased 17% from $96.9 million in 1994 to a record quarterly total of
$113.2 million, led by an increase of $12.6 million in investment advisory
revenues.
Investment advisory revenues from the Funds increased $11.0 million as
average assets under management rose $7.5 billion to $44.6 billion. Fund
assets totaled $45.9 billion at September 30, 1995, up $3.4 billion from
June 30, 1995, with stock funds accounting for $3.2 billion of the increase.
Net cash inflows to the Funds during the third quarter totaled almost $1.2
billion primarily to the stock funds. Private accounts and other sponsored
products contributed the balance of the investment advisory revenue gains.
Private account assets under management rose to $25.5 billion at
September 30, 1995, up $1.4 billion from June 30, 1995 and $5.2 billion from
September 30, 1994. Total assets under management at quarter end increased
to $71.5 billion from $66.6 billion at June 30, 1995 and $58.2 billion at
September 30, 1994.
Administrative fees from services to the Price Funds and their shareholders
grew $3.0 million to $24.4 million; however, increases in related operating
expenses largely offset these revenue gains.
Investment and other income rose more than $.7 million primarily due to
9
greater dividends received on larger money market fund balances.
Operating expenses increased 13% or $8.6 million to $73.0 million. Greater
compensation and related costs, which were up $3.3 million, were attributable
to increases in overall compensation rates and a 7% increase in the average
number of employees, primarily to support the Company's growing operations.
Advertising and promotion expenditures rose $1.2 million to attract
additional assets under management, especially from retirement plans and
their participants. Such expenditures vary over time as market conditions
and cash inflows to the Funds warrant. Depreciation, amortization, and
operating rentals of property and equipment increased $1.1 million as a
result of the Company's recent investments in computer and communications
equipment, office facilities and furnishings. International investment
research fees increased $.9 million as quarter-end international assets under
management rose to nearly $21.4 billion, up from $18.8 billion at September
30, 1994. Administrative and general expenses increased primarily as the
result of a greater accrual for charitable contributions.
Increased earnings by RPFI on greater assets under management was the reason
for the increase in minority interests in consolidated subsidiaries.
The provision for income taxes decreased as a percentage of income before
income taxes and minority interests primarily due to the recognition of
certain federal tax credits.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1995 VERSUS 1994.
Net income increased almost $8.7 million or 19% to $53.7 million. Earnings
per share grew more than 20%, or $.30 per share, to a record $1.77 for the
first nine months. The 1995 results include an extraordinary charge of $1.0
million or $.03 per share from the early extinguishment of the Company's
9.77% fixed rate, $12.4 million promissory note due in 2001. The Company's
common stock repurchases account for $.03 of the increase in earnings per
share. Total revenues increased 12% from $281.3 million in 1994 to a record
nine month total of $315.9 million, led by an increase of $26.4 million in
investment advisory revenues.
Investment advisory revenues from the Funds increased $23.7 million as
average assets under management rose $5.2 billion to $41.3 billion. Fund
assets closed the 1995 third quarter at $45.9 billion, up $8.6 billion from
December 31, 1994, with stock funds accounting for $7.3 billion of the
increase. Net cash inflows to the Funds during the first nine months of 1995
totaled more than $2.7 billion as net subscriptions to the stock funds were
almost $2.6 billion. Private accounts and other sponsored products
contributed the balance of the investment advisory revenue gains.
Administrative fees from services to the Price Funds and their shareholders
grew 9% to $69.6 million; however, increases in related operating expenses
more than offset these revenue gains.
Investment and other income rose almost $2.2 million primarily due to greater
10
dividends received on larger money market fund balances.
Operating expenses increased 10% or $19.1 million to $211.0 million from
$191.9 million. Greater compensation and related costs, which were up $8.1
million, were attributable to increases in overall compensation rates and an
8% increase in the average number of employees, primarily to support the
Company's growing operations. Advertising and promotion expenditures were
reduced from 1994 levels primarily as a result of very large expenditures in
the first quarter of 1994 when net cash inflows to the funds totaled $1.7
billion. Such expenditures vary over time as market conditions and cash
inflows to the Funds warrant. Depreciation, amortization, and operating
rentals of property and equipment increased $3.6 million as a result of the
Company's recent investments in computer and communications equipment, office
facilities and furnishings. International investment research fees increased
$2.9 million as international assets under management rose to nearly $21.4
billion at September 30, 1995. Administrative and general expenses increased
$6.6 million primarily due to greater costs associated with the Company's
growing operations and data processing capabilities.
Increased earnings by RPFI on higher assets under management was the primary
reason for the increase in minority interests in consolidated subsidiaries.
CAPITAL RESOURCES AND LIQUIDITY.
As discussed in Note 2 on page 5 of this Form 10-Q, the Company has
extinguished its fixed-rate long-term debt. The Company realized a
substantial savings by retiring the debt at market rates versus the terms of
the original borrowing. Current cash balances were used to fund the payoff.
As discussed in Note 5 on page 6 of this Form 10-Q, the Company is currently
evaluating the expansion of its service facilities in Owings Mills, Maryland.
If the Company proceeds to settlement of the land acquisition contract,
subsequent construction costs will be material; however, sufficient cash
balances and future operating cash inflows are expected to be available to
fund these cash outflows.
PART II. OTHER INFORMATION.
ITEM 5. OTHER INFORMATION.
On September 18, 1995, the board of directors increased the size of the board
to 13 and elected Richard L. Menschel and Anne Marie Whittemore to fill the
vacancies created by this action. The Company's directors have been elected
to serve until the next Annual Meeting of Stockholders and until their
respective successors are elected and qualified.
11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits required to be filed by Item 601 of Regulation S-K
are filed herewith and incorporated by reference herein:
3(ii) - Restated By-Laws including amendments through April 7, 1993.
15 - Letter from Price Waterhouse LLP, independent accountants, re
unaudited interim financial information.
27 - Financial Data Schedule.
All other items are omitted because they are not applicable or the answers
are none.
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 November 13, 1995.
T. Rowe Price Associates, Inc.
/s/ George A. Roche, Chief Financial Officer
/s/ Alvin M. Younger, Jr., Principal Accounting Officer