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: MARCH 31, 1997.
Commission file number: 0-14282.
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) 345-2000.
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. 57,920,848 SHARES AT MAY 6,
1997.
Exhibit index is at Item 6(a) on page 11.
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PART I. FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
T. ROWE PRICE ASSOCIATES, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
12/31/96 03/31/97
________ ________
ASSETS
Cash and cash equivalents $114,551 $133,262
Accounts receivable 73,239 75,248
Investments in sponsored mutual funds held as
available-for-sale securities 143,410 144,171
Partnership and other investments 25,161 26,063
Property and equipment 101,207 108,674
Goodwill and other assets 21,266 16,684
________ ________
$478,834 $504,102
________ ________
________ ________
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable and accrued expenses $ 31,529 $ 33,420
Accrued compensation and retirement costs 41,523 30,659
Income taxes payable 14,464 26,039
Dividends payable 7,484 7,524
Minority interests in consolidated subsidiaries 38,168 42,872
________ ________
Total liabilities 133,168 140,514
________ ________
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
200,000,000 shares; issued 57,572,791 shares
in 1996 and 57,827,919 shares in 1997 11,514 11,566
Capital in excess of par value 7,823 7,787
Retained earnings 306,566 325,494
Unrealized security holding gains 19,763 18,741
________ ________
Total stockholders' equity 345,666 363,588
________ ________
$478,834 $504,102
________ ________
________ ________
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 ended
___________________
03/31/96 03/31/97
________ ________
Revenues
Investment advisory fees $100,006 $129,297
Administrative fees 28,126 35,135
Investment and other income 4,280 3,527
________ ________
132,412 167,959
________ ________
Expenses
Compensation and related costs 41,986 54,078
Advertising and promotion 16,070 17,457
Depreciation, amortization and operating
rentals of property and equipment 8,092 10,099
International investment research fees 9,034 10,957
Administrative and general 18,292 21,027
________ ________
93,474 113,618
________ ________
Income before income taxes and minority interests 38,938 54,341
Provision for income taxes 15,157 21,124
________ ________
Income from consolidated companies 23,781 33,217
Minority interests in consolidated subsidiaries 3,362 4,670
________ ________
Net income $ 20,419 $ 28,547
________ ________
________ ________
Earnings per share $ .33 $ .45
________ ________
________ ________
Dividends declared per share $ .105 $ .13
________ ________
________ ________
Weighted average shares outstanding, including
share equivalents arising from unexercised
stock options 61,493 63,541
________ ________
________ ________
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)
Three months ended
__________________
03/31/96 03/31/97
________ ________
Cash flows from operating activities
Net income $ 20,419 $ 28,547
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization of property
and equipment 3,513 5,071
Minority interests in consolidated subsidiaries 3,362 4,670
Increase in accounts receivable (7,766) (2,009)
Change in accounts payable and accrued liabilities 3,884 (4,858)
Increase in accrued income taxes payable 13,386 15,031
Other changes in assets and liabilities (1,620) (875)
_________ ________
Net cash provided by operating activities 35,178 45,577
________ ________
Cash flows from investing activities
Investments in sponsored mutual funds (1,365) (2,292)
Partnership and other investments (1,049) (79)
Additions to property and equipment (7,499) (14,247)
________ ________
Net cash used in investing activities (9,913) (16,618)
________ ________
Cash flows from financing activities
Purchases of stock (13,116) (6,465)
Receipts relating to stock issuances 734 3,701
Dividends paid to stockholders (6,036) (7,484)
Distributions to minority interests (45) --
________ ________
Net cash used in financing activities (18,463) (10,248)
________ ________
Cash and cash equivalents
Net increase during period 6,802 18,711
At beginning of period 81,431 114,551
________ ________
At end of period $ 88,233 $133,262
________ ________
________ ________
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) derives its revenue primarily from investment advisory and
administrative services provided to sponsored mutual funds and investment
products and to private accounts of other institutional and individual
investors. Company revenues are largely dependent on the total value and
composition of assets under management, which include domestic and
international equity and debt securities; accordingly, fluctuations in
financial markets and in the composition of assets under management impact
revenues and results of operations. At March 31, 1997, the Company's assets
under management totaled $102.9 billion, including $66.7 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 1996 Annual Report to
Stockholders.
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NOTE 2 - STOCKHOLDERS' EQUITY.
The following table details the changes in stockholders' equity (dollars in
thousands) during the first three months of 1997.
Capital Unreal-
Common in ized Total
Common stock excess security stock-
stock - par of par Retained holding holders'
- shares value value earnings gains equity
__________ _______ _______ ________ ________ ________
Balance at
December 31,
1996 57,572,791 $11,514 $ 7,823 $306,566 $19,763 $345,666
Common stock
issued under
stock-based
compensation
plans 460,128 92 6,522 6,614
Purchases of
common stock (205,000) (40) (6,558) (2,095) (8,693)
Net income 28,547 28,547
Dividends
declared (7,524) (7,524)
Decrease in
unrealized
security
holding gains (1,022) (1,022)
__________ _______ _______ ________ _______ ________
Balance at
March 31,
1997 57,827,919 $11,566 $ 7,787 $325,494 $18,741 $363,588
__________ _______ _______ ________ _______ ________
__________ _______ _______ ________ _______ ________
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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 March 31, 1997, and the related
condensed consolidated statements of income and of cash flows for the three-
month periods ended March 31, 1996 and 1997. 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, 1996, and the
related consolidated statements of income, of cash flows, and of
stockholders' equity for the year then ended (not presented herein), and in
our report dated January 24, 1997 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, 1996, 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
May 9, 1997
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.
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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), other sponsored investment products, and private
accounts of other institutional and individual investors. Investment
advisory fees are generally based on the net assets of the portfolios
managed. The majority of administrative revenues are derived from services
provided to the Funds.
The Company's base of assets under management consists of a broad range of
domestic and international stock, bond and money market mutual funds and
other investment products which meet the varied needs and objectives of its
individual and institutional investors. During 1996 and 1997, there have
been significant net cash inflows to the stock mutual funds, particularly the
domestic funds. At March 31, 1997, total assets under management were $102.9
billion, including $66.7 billion in the Funds. Equity investments comprise
approximately two-thirds of total assets under management.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1997 VERSUS 1996.
Net income increased $8.1 million or 40% to $28.5 million or $.45 per share
from $20.4 million or $.33 per share. Total revenues increased 27% from
$132.4 million to a record quarterly total of nearly $168.0 million, led by
an increase of $29.3 million in investment advisory fees.
Investment advisory revenues from the Funds increased $22.0 million as
average fund assets under management rose $15.5 billion to $67.0 billion.
Fund assets totaled $66.7 billion at March 31, 1997, just under the quarterly
average, but up $2.3 billion from December 31, 1996, with stock funds
accounting for $2.0 billion of the increase. Net cash inflows to the Funds
during the first quarter totaled nearly $3.4 billion, more than $200 million
greater than the previous record set in the first quarter of 1996. Advisory
fees from private accounts and other sponsored products contributed the
balance of the investment advisory revenue gains which were split almost
equally between domestic and international products. These assets under
management rose to $36.2 billion at March 31, 1997, up $1.2 billion from
December 31, 1996 and more than $7.7 billion from March 31, 1996. Total
assets under management at quarter end crossed the $100 billion mark for the
first time closing the quarter at $102.9 billion, up from $99.4 billion at
December 31, 1996 and $82.0 billion at March 31, 1996.
Administrative fees, primarily from services to the Funds and their
shareholders, grew $7.0 million to $35.1 million; however, increases in
related operating expenses more than offset these revenue gains. Investment
income declined nearly $.8 million due to lower earnings recognized from
partnership investments.
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Operating expenses increased 22% or more than $20.1 million to $113.6
million. Greater compensation and related costs, which were up $12.1
million, were attributable to a 30% increase in the number of employees
during the past 12 months, primarily to support the Company's growing
administrative services and data processing operations, and to higher rates
of pay including performance-related compensation accruals. Advertising and
promotion expenditures were up modestly from both the first and fourth
quarters of 1996 due to strong investor interest in stock mutual funds.
Depreciation, amortization and operating rentals of property and equipment
was up 25% or $2.0 million due to expansion of facilities and recent
equipment acquisitions, primarily investments in technology assets.
International investment research fees increased 21% or $1.9 million as
international assets under management by Rowe Price - Fleming International
(RPFI) rose to $29.8 billion at March 31, 1997. Administrative and general
expenses increased $2.7 million due mainly to greater costs of the Company's
growing data processing and communications capabilities.
Increased earnings by RPFI on greater assets under management was the primary
reason for the increase in minority interests in consolidated subsidiaries.
FORWARD-LOOKING INFORMATION.
Information or statements provided by or on behalf of the Company from time
to time, including those within this Form 10-Q Quarterly Report, may contain
certain "forward-looking information", including information relating to
anticipated growth in revenues or earnings per share, anticipated changes in
the amount and composition of assets under management, anticipated expense
levels, and expectations regarding financial market conditions. The Company
cautions readers that any forward-looking information provided by or on
behalf of the Company is not a guarantee of future performance and that
actual results may differ materially from those in forward-looking
information as a result of various factors, including but not limited to
those discussed below. Further, such forward-looking statements speak only
as of the date on which such statements are made, and the Company undertakes
no obligation to update any forward-looking statement to reflect events or
circumstances after the date on which such statement is made or to reflect
the occurrence of unanticipated events.
The Company's future revenues may fluctuate due to factors such as: the
total value and composition of assets under management and related cash
inflows or outflows in mutual funds and private accounts; fluctuations in the
financial markets resulting in appreciation or depreciation of assets under
management; the relative investment performance of the Company's sponsored
investment products and private accounts as compared to competing products
and market indices; the extent to which performance-based investment advisory
fees are earned from private accounts; the expense ratios of the Company's
sponsored investment products; investor sentiment and investor confidence in
mutual funds; the ability of the Company to maintain investment management
fees at current levels; competitive conditions in the mutual funds industry;
the introduction of new mutual funds and investment products; the ability of
the Company to contract with the Price Funds for payment for administrative
10
services offered to the Price Funds and Price Fund shareholders; the
continuation of trends in the retirement plan marketplace favoring defined
contribution plans and participant-directed investments; and the amount and
timing of income from the Company's investment portfolio.
The Company's future operating results are also dependent upon the level of
operating expenses, which are subject to fluctuation for the following or
other reasons: changes in the level of advertising expenses in response to
market conditions or other factors; variations in the level of compensation
expense incurred by the Company, including performance-based compensation
based on the Company's financial results, as well as changes in response to
the size of the total employee population, competitive factors, or other
reasons; changes in the manner in which the Company provides international
investment services; expenses and capital costs, including depreciation,
amortization and other non-cash charges, incurred by the Company to maintain
its administrative and service infrastructure; and unanticipated costs that
may be incurred by the Company from time to time to protect investor accounts
and client goodwill.
The Company's revenues are substantially dependent on revenues from the Price
Funds, which could be adversely affected if the independent directors of one
or more of the Price Funds determined to terminate or renegotiate the terms
of one or more investment management agreements.
The Company's business is also subject to substantial governmental
regulation, and changes in legal, regulatory, accounting, tax, and compliance
requirements may have a substantial effect on the Company's business and
results of operations, including but not limited to effects on the level of
costs incurred by the Company and effects on investor interest in mutual
funds in general or in particular classes of mutual funds.
PART II. OTHER INFORMATION.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The 1997 annual meeting of the Company's stockholders was held on April 17,
1997. The Company's proxy statement and solicitation pertaining to this
meeting were previously filed with the Commission. Shares eligible to vote
were 57,752,569 as of the record date of February 14, 1997.
Management's 15 nominees for the Board of Directors were elected to hold
office until the next annual meeting of stockholders and until their
respective successors are elected and have qualified. The tabulation of
votes was:
Nominee For Withheld
________________ __________ _________
G.J. Collins 51,664,386 724,927
J.E. Halbkat, Jr. 51,687,045 702,268
H.H. Hopkins 51,663,081 726,232
J.A.C. Kennedy 51,666,326 722,987
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Nominee For Withheld
________________ __________ _________
J.H. Laporte 51,672,072 717,241
R.L. Menschel 51,357,929 1,031,384
W.T. Reynolds 51,673,869 715,444
J.S. Riepe 51,670,570 718,743
G.A. Roche 51,666,390 722,923
B.C. Rogers 51,667,603 721,710
J.W. Rosenblum 51,685,001 704,312
R.L. Strickland 51,680,482 708,831
M.D. Testa 50,509,223 1,880,090
P.C. Walsh 51,634,384 754,929
A.M. Whittemore 51,689,092 700,221
ITEM 5. OTHER INFORMATION.
On April 17, 1997, the Company's board of directors elected George A. Roche
President and Chairman of the Board. James S. Riepe was elected Vice
Chairman and M. David Testa was elected Vice Chairman and Chief Investment
Officer. Alvin M. Younger, Jr. was appointed Chief Financial Officer.
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) - Amended and Restated By-Laws of T. Rowe Price Associates, Inc.
as of April 17, 1997
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 May 12, 1997.
T. Rowe Price Associates, Inc.
/s/ Alvin M. Younger, Jr., Chief Financial & Accounting Officer