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: JUNE 30, 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. 58,059,369 SHARES AT JULY 23,
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 06/30/97
________ ________
ASSETS
Cash and cash equivalents $114,551 $134,286
Accounts receivable 73,239 83,421
Investments in sponsored mutual funds held as
available-for-sale securities 143,410 166,634
Partnership and other investments 25,161 23,573
Property and equipment 101,207 122,495
Goodwill and other assets 21,266 15,260
________ ________
$478,834 $545,669
________ ________
________ ________
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable and accrued expenses $ 31,529 $ 36,376
Accrued compensation and retirement costs 41,523 46,324
Income taxes payable 14,464 14,212
Dividends payable 7,484 7,537
Minority interests in consolidated subsidiaries 38,168 40,870
________ ________
Total liabilities 133,168 145,319
________ ________
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 57,978,854 shares in 1997 11,514 11,596
Capital in excess of par value 7,823 9,922
Retained earnings 306,566 350,837
Unrealized security holding gains 19,763 27,995
________ ________
Total stockholders' equity 345,666 400,350
________ ________
$478,834 $545,669
________ ________
________ ________
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 Six months
ended ended
June 30, June 30,
__________________________________
1996 1997 1996 1997
________ ________________ ________
Revenues
Investment advisory fees $109,702 $141,549 $209,708 $270,846
Administrative fees 29,968 34,694 58,094 69,829
Investment and other income 4,018 3,845 8,298 7,372
________ ________ ________ ________
143,688 180,088 276,100 348,047
________ ________ ________ ________
Expenses
Compensation and related costs 43,165 55,788 85,151 109,866
Advertising and promotion 14,353 13,742 30,423 31,199
Depreciation, amortization and
operating rentals of property
and equipment 9,036 11,149 17,128 21,248
International investment
research fees 9,680 11,782 18,714 22,739
Administrative and general 20,222 24,545 38,514 45,572
________ ________ ________ ________
96,456 117,006 189,930 230,624
________ ________ ________ ________
Income before income taxes and
minority interests 47,232 63,082 86,170 117,423
Provision for income taxes 18,416 24,162 33,573 45,286
________ ________ ________ ________
Income from consolidated companies 28,816 38,920 52,597 72,137
Minority interests in consolidated
subsidiaries 4,366 5,138 7,728 9,808
________ ________ ________ ________
Net income $ 24,450 $ 33,782 $ 44,869 $ 62,329
________ ________ ________ ________
________ ________ ________ ________
Earnings per share $ .40 $ .53 $ .73 $ .98
________ ________ ________ ________
________ ________ ________ ________
Dividends declared per share $ .105 $ .13 $ .21 $ .26
________ ________ ________ ________
________ ________ ________ ________
Weighted average shares outstanding,
including share equivalents arising
from unexercised stock options 61,774 63,514 61,633 63,527
________ ________ ________ ________
________ ________ ________ ________
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)
Six months ended
__________________
06/30/96 06/30/97
________ ________
Cash flows from operating activities
Net income $ 44,869 $ 62,329
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization of property
and equipment 7,575 11,102
Minority interests in consolidated subsidiaries 7,728 9,808
Increase in accounts receivable (9,424) (10,182)
Increase in accounts payable and accrued liabilities 19,396 10,514
Other changes in assets and liabilities (1,526) 669
_________ ________
Net cash provided by operating activities 68,618 84,240
________ ________
Cash flows from investing activities
Investments in sponsored mutual funds (4,520) (10,026)
Partnership and other investments (2,808) (3,432)
Distributions from partnership investments 1,141 5,696
Additions to property and equipment (20,770) (29,827)
________ ________
Net cash used in investing activities (26,957) (37,589)
________ ________
Cash flows from financing activities
Purchases of stock (17,774) (9,655)
Receipts relating to stock issuances 1,703 5,117
Dividends paid to stockholders (12,031) (15,008)
Distributions to minority interests (45) (7,370)
________ ________
Net cash used in financing activities (28,147) (26,916)
________ ________
Cash and cash equivalents
Net increase during period 13,514 19,735
At beginning of year 81,431 114,551
________ ________
At end of period $ 94,945 $134,286
________ ________
________ ________
See the accompanying notes to the condensed consolidated financial
statements.
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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 June 30, 1997, the Company's assets
under management totaled $116.9 billion, including $75.3 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 six 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 636,063 128 8,711 8,839
Purchases of
common stock (230,000) (46) (6,612) (2,997) (9,655)
Net income 62,329 62,329
Dividends
declared (15,061) (15,061)
Increase in
unrealized
security
holding gains 8,232 8,232
__________ _______ _______ ________ _______ ________
Balance at
June 30,
1997 57,978,854 $11,596 $ 9,922 $350,837 $27,995 $400,350
__________ _______ _______ ________ _______ ________
__________ _______ _______ ________ _______ ________
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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 June 30, 1997, and the related
condensed consolidated statements of income and of cash flows for the three-
and six-month periods ended June 30, 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
July 23, 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 June 30, 1997, total assets under management were $116.9
billion, including $75.3 billion in the Funds. Equity investments comprise
approximately 70% of total assets under management.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1997 VERSUS 1996.
Net income increased $9.3 million or 38% to $33.8 million or $.53 per share
from $24.5 million or $.40 per share. Total revenues increased 25% from
$143.7 million to a record quarterly total of $180.1 million, led by an
increase of more than $31.8 million in investment advisory fees.
Investment advisory revenues from the Funds increased $20.8 million as
average fund assets under management were up $14.1 billion to $70.1 billion.
Fund assets totaled $75.3 billion at June 30, 1997, up $5.2 billion over the
quarterly average and up almost $8.7 billion from March 31, 1997, with stock
funds accounting for most of the increase. Net cash inflows to the Funds
during the second quarter totaled $1.9 billion. Advisory fees from private
accounts and other sponsored products contributed the balance of the
investment advisory revenue gains. These assets under management rose to
$41.6 billion at June 30, 1997, up $5.3 billion from March 31, 1997 and
almost $6.6 billion from December 31, 1996. Total assets under management
closed the quarter at $116.9 billion, up from $102.9 billion at March 31,
1997 and $99.4 billion at December 31, 1996.
Administrative fees, primarily from services to the Funds and their
shareholders, grew $4.7 million to $34.7 million; however, increases in
related operating expenses more than offset these revenue gains. Investment
income declined nearly $.2 million due to lower earnings recognized from
partnership investments.
Operating expenses increased 21% or almost $20.6 million to $117.0 million.
Greater compensation and related costs of $12.6 million were attributable to
a 22% increase in the number of employees during the past twelve months,
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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
slightly lower than the prior year's quarter. Depreciation, amortization and
operating rentals of property and equipment was up 23% or $2.1 million due to
expansion of facilities and recent equipment acquisitions, primarily
investments in technology assets. International investment research fees
increased $2.1 million as international assets under management by Rowe
Price-Fleming International (RPFI) rose to $33.8 billion at June 30, 1997.
Administrative and general expenses increased $4.3 million due mainly to
greater costs associated with the Company's growing administrative operations
including data processing and communications capabilities.
Increased earnings by RPFI on greater assets under management was responsible
for the increase in minority interests in consolidated subsidiaries.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1997 VERSUS 1996.
Net income increased $17.5 million or 39% to $62.3 million or $.98 per share
from $44.9 million or $.73 per share. Total revenues increased 26% from
$276.1 million to a record quarterly total of more than $348 million, led by
an increase of more than $61.1 million in investment advisory fees.
Investment advisory revenues from the Funds increased more than $42.8 million
as average fund assets under management rose $14.9 billion to $68.6 billion.
Net cash inflows to the Funds during the first six months of 1997 totaled
$5.3 billion. Advisory fees from private accounts and other sponsored
products contributed the balance of the investment advisory revenue gains.
Administrative fees, primarily from services to the Funds and their
shareholders, grew $11.7 million to $69.8 million; however, increases in
related operating expenses more than offset these revenue gains. Investment
income declined $.9 million due to lower earnings recognized from partnership
investments.
Operating expenses increased 21% or $40.7 million to $230.6 million. Greater
compensation and related costs were attributable to increases in the number
of employees and to higher rates of pay including performance-related
compensation accruals. Advertising and promotion expenditures were up 3% or
nearly $.8 million versus the first six months of 1996. Depreciation,
amortization and operating rentals of property and equipment was up $4.1
million due to expansion of facilities and recent equipment acquisitions,
primarily investments in technology assets. International investment
research fees increased $4.0 million based on the higher international assets
under management by RPFI. Administrative and general expenses increased
almost $7.1 million due mainly to greater costs of the Company's growing
administrative operations including data processing and communications
capabilities.
Increased earnings by RPFI on greater assets under management was responsible
for the increase in minority interests in consolidated subsidiaries.
10
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
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
11
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 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 July 24, 1997.
T. Rowe Price Associates, Inc.
/s/ Alvin M. Younger, Jr., Chief Financial & Accounting Officer