1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 1998.
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) 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. 118,875,354 SHARES AT APRIL
15, 1998, RESTATED FOR THE TWO-FOR-ONE STOCK SPLIT TO BE EFFECTED AT APRIL
30, 1998.
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)
12/31/97 03/31/98
________ ________
ASSETS
Cash and cash equivalents $200,409 $215,793
Accounts receivable 86,795 94,255
Investments in sponsored mutual funds 173,729 200,604
Partnership and other investments 19,030 18,781
Property and equipment (Note 2) 142,497 142,737
Other assets 23,607 16,771
________ ________
$646,067 $688,941
________ ________
________ ________
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable and accrued expenses $ 30,722 $ 31,062
Accrued compensation and retirement costs 49,694 33,598
Income taxes payable 19,102 42,640
Dividends payable 10,039 10,088
Minority interests in consolidated subsidiaries 49,837 38,332
________ ________
Total liabilities 159,394 155,720
________ ________
Commitments and contingent liabilities (Note 2)
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 in 1997 and 500,000,000 shares
in 1998, including 300,000,000 shares authorized on
on April 16, 1998; issued 59,097,705 shares in
1997 and 118,705,104 shares in 1998, including
59,352,552 shares to be issued in the two-for-one
stock split at April 30, 1998 (Note 3) 11,819 23,741
Capital in excess of par value 30,707 23,330
Retained earnings 415,279 446,480
Accumulated other comprehensive income 28,868 39,670
________ ________
Total stockholders' equity 486,673 533,221
________ ________
$646,067 $688,941
________ ________
________ ________
See the accompanying notes to the condensed consolidated financial
statements.
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T. ROWE PRICE ASSOCIATES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per-share amounts)
Three months ended
___________________
03/31/97 03/31/98
________ ________
Revenues
Investment advisory fees $129,297 $163,717
Administrative fees 35,135 42,164
Investment and other income 3,527 4,553
________ ________
167,959 210,434
________ ________
Expenses
Compensation and related costs 59,182 70,400
Advertising and promotion 17,457 20,072
Occupancy and equipment 13,756 18,885
International investment research fees 10,957 12,560
Other operating expenses 12,266 12,921
________ ________
113,618 134,838
________ ________
Income before income taxes and minority interests 54,341 75,596
Provision for income taxes 21,124 28,927
________ ________
Income from consolidated companies 33,217 46,669
Minority interests in consolidated subsidiaries 4,670 5,379
________ ________
Net income $ 28,547 $ 41,290
________ ________
________ ________
Basic earnings per share $ .25 $ .35
________ ________
________ ________
Diluted earnings per share $ .22 $ .32
________ ________
________ ________
Dividends declared per share $ .065 $ .085
________ ________
________ ________
Weighted average shares outstanding 115,554 118,495
________ ________
________ ________
Weighted average shares outstanding -
assuming dilution 127,082 129,933
________ ________
________ ________
See the accompanying notes to the condensed consolidated financial
statements.
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T. ROWE PRICE ASSOCIATES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three months ended
__________________
03/31/97 03/31/98
________ ________
Cash flows from operating activities
Net income $ 28,547 $ 41,290
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization of property
and equipment 5,071 7,928
Minority interests in consolidated subsidiaries 4,670 5,379
Increase in accounts receivable (2,009) (7,460)
Change in accounts payable and accrued liabilities (4,858) (6,174)
Increase in accrued income taxes payable 15,031 19,632
Other changes in assets and liabilities (954) 314
_________ ________
Net cash provided by operating activities 45,498 60,909
________ ________
Cash flows from investing activities
Investments in sponsored mutual funds (2,292) (9,813)
Additions to property and equipment (14,247) (11,130)
________ ________
Net cash used in investing activities (16,539) (20,943)
________ ________
Cash flows from financing activities
Purchases of stock (6,465) --
Receipts relating to stock issuances 3,701 2,471
Dividends paid to stockholders (7,484) (10,039)
Distributions to minority interests -- (17,014)
________ ________
Net cash used in financing activities (10,248) (24,582)
________ ________
Cash and cash equivalents
Net increase during period 18,711 15,384
At beginning of period 114,551 200,409
________ ________
At end of period $133,262 $215,793
________ ________
________ ________
See the accompanying notes to the condensed consolidated financial
statements.
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T. ROWE PRICE ASSOCIATES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(dollars in thousands)
Accumu-
Capital lated
Common in other Total
stock excess compre- stock-
- par of par Retained hensive holders'
value value earnings income equity
_______ _______ ________ ________ ________
Balance at December 31, 1997,
59,097,705 common shares $11,819 $30,707 $415,279 $28,868 $486,673
Comprehensive income
Net income 41,290
Unrealized security
holding gains 10,802
Total comprehensive income 52,092
254,847 common shares
issued under stock-based
compensation plans 51 4,493 4,544
Dividends declared (10,088) (10,088)
59,352,552 shares issued in
2-for-1 split of common
stock at April 30, 1998 11,871 (11,870) (1) --
_______ _______ ________ _______ ________
Balance at March 31, 1998,
118,705,104 common shares $23,741 $23,330 $446,480 $39,670 $533,221
_______ _______ ________ _______ ________
_______ _______ ________ _______ ________
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
portfolios and to private accounts of other institutional and individual
investors, primarily domiciled in the United States of America. 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. Assets under management at March 31, 1998 total $139.3 billion,
including $90.6 billion in the sponsored T. Rowe Price mutual 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 1997 Annual Report to
Stockholders.
NOTE 2 - COMMITMENTS AND CONTINGENT LIABILITIES.
On February 11, 1998, the Company entered into an agreement to construct two
office buildings having a combined 360,000 square feet of floor space and two
parking garages for an aggregate price of $70.8 million. The facilities will
be erected on land owned in Owings Mills, Maryland.
NOTE 3 - SUBSEQUENT EVENT - COMMON STOCK.
On April 16, 1998, the Company's stockholders approved an amendment of the
Company's charter which increased the Company's authorized shares from
200,000,000 to 500,000,000 and split the outstanding common shares two-for-
one. Additional common shares ($.20 par value) resulting from the split will
be issued at the close of business on April 30, 1998. All per share and
share data in the accompanying unaudited condensed consolidated financial
statements have been adjusted to give retroactive effect to the stock split.
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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 financial statements of T. Rowe
Price Associates, Inc. and its subsidiaries as of March 31, 1998, and for the
three-month periods ended March 31, 1997 and 1998, appearing on pages two
through six of this Form 10-Q Quarterly Report. 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 accompanying condensed consolidated financial
statements 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, 1997, and the
related consolidated statements of income, of cash flows, and of stock-
holders' equity for the year then ended (not presented herein), and in our
report dated January 26, 1998 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,
1997, 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
April 22, 1998
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. and its consolidated subsidiaries (the
Company) derives its revenue primarily from investment advisory and
administrative services provided to the sponsored Price Mutual Funds (the
Funds), other sponsored investment portfolios, 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 portfolios which meet the varied needs and objectives of its
individual and institutional investment advisory clients. At March 31, 1998,
total assets under management are $139.3 billion, including $90.6 billion in
the Funds. Equity investments comprise 74% of total assets under management.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1998 VERSUS 1997.
Net income increased $12.7 million or 45% to $41.3 million or diluted
earnings per share of $0.32 from $28.5 million or diluted earnings per share
of $0.22. Earnings per share have been retroactively restated for the two-
for-one stock split to be effected at the end of April 1998. Total revenues
increased 25% from $168 million to more than $210 million, led by an increase
of $34.4 million in investment advisory fees.
Investment advisory fees from the Funds increased $23.9 million as the Fund's
average assets under management during the first quarter rose $18.0 billion
to $85.0 billion. Fund assets totaled $90.6 billion at March 31, 1998, up
$9.5 billion from December 31, 1997. Stock funds, which totaled $70.5
billion at March 31, 1998, accounted for most of the increase. Net cash
inflows to the Funds during first quarter of 1998 were nearly $1.9 billion
with the balance of Fund asset growth coming from market gains. Advisory
fees from private accounts and other sponsored investment portfolios
contributed the balance of the investment advisory revenue gains. These
assets under management rose to $48.7 billion at March 31, 1998, up $5.5
billion from December 31, 1997 and $12.4 billion from March 31, 1997. Total
assets under management closed the first quarter at $139.3 billion, up from
$124.3 billion at December 31, 1997 and $102.9 billion at March 31, 1997.
Administrative fees from services to the Funds and their shareholders grew
$7.0 million to $42.2 million. Revenue gains were primarily attributable to
the Company's defined contribution retirement plan recordkeeping services and
mutual fund transfer agent; however, increases in related operating expenses
offset these gains.
Investment and other income rose $1.0 million due to greater income from the
Company's larger money market fund holdings.
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Operating expenses increased 19% to $134.8 million. Greater compensation and
related costs, which were up $11.2 million, were attributable to a 20%
increase in the number of associates as well as the greater use of temporary
employees, primarily to support the Company's growing technology support and
administrative services operations. At the end of the first quarter, the
Company employed nearly 3,200 associates.
Advertising and promotion expenditures increased 15% to $20.1 million as the
Company endeavored to take advantage of favorable marketing conditions
including opportunities presented by the new Roth IRA. These expenditures
will vary over time as market conditions and cash flows to the Funds warrant.
Occupancy and equipment expense was up due to the expansion of operating
facilities and equipment acquisitions, primarily investments in technology.
International investment research fees increased 15% or $1.6 million as
international assets under management rose to $33.6 billion, including $18.3
billion in the Funds.
Higher net income reported on a separate company basis by the Company's 50%-
owned subsidiary, Rowe Price-Fleming International, Inc. (RPFI), resulted in
the increase in income attributable to minority interests.
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. 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
worldwide financial markets, including those in emerging countries, resulting
in appreciation or depreciation of assets under management; the relative
investment performance of the Company's sponsored investment portfolios and
private accounts as compared to competing offerings 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
portfolios; 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
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of new mutual funds and investment portfolios; the ability of the Company to
contract with the Funds for payment for administrative services offered to
the Funds and their 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
recognized on 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, including costs incurred with
respect to readiness for Year 2000 processing; unanticipated costs that may
be incurred by the Company from time to time to protect investor accounts and
client goodwill; and third-party noncompliance in Year 2000 processing.
The Company's revenues are substantially dependent on revenues from the
Funds, which could be adversely affected if the independent directors of one
or more of the Funds determined to terminate or significantly alter 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Because the Company's market capitalization on January 28, 1997 was less than
$2.5 billion, this item is not applicable until the filing of the 1998 Form
10-K Annual Report.
PART II. OTHER INFORMATION.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The 1998 annual meeting of the Company's stockholders was held on April 16,
1998. The Company's proxy statement and solicitation pertaining to this
meeting were previously filed with the Commission. Shares eligible to vote
were 59,254,226 as of the record date of February 13, 1998.
Management's 14 nominees for the Board of Directors were elected to hold
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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
________________ __________ _________
J.E. Halbkat, Jr. 51,122,088 650,059
H.H. Hopkins 51,105,120 707,027
J.A.C. Kennedy 51,014,787 797,360
J.H. Laporte 51,023,078 789,069
R.L. Menschel 51,102,802 709,345
W.T. Reynolds 51,095,336 716,812
J.S. Riepe 50,999,104 813,043
G.A. Roche 51,104,023 708,125
B.C. Rogers 51,123,144 689,004
J.W. Rosenblum 51,121,293 690,854
R.L. Strickland 51,104,458 707,689
M.D. Testa 51,121,771 690,376
P.C. Walsh 51,118,644 693,503
A.M. Whittemore 51,121,578 690,569
The charter amendment to effect a two-for-one stock split and to increase the
Company's authorized common shares to 500,000,000 was approved by a vote of
41,930,290 for; 9,757,992 against; and 45,089 abstentions. Broker non-votes
were 78,776.
The 1998 Director Stock Option Plan was approved by a vote of: 39,206,784
for; 12,256,330 against; and 349,032 abstentions.
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.(i) - Composite Restated Charter of T. Rowe Price Associates, Inc. as
of April 16, 1998.
15 - Letter from Price Waterhouse LLP, independent accountants, re
unaudited interim financial information.
27 - Financial Data Schedule.
All other items in Part II are omitted because they are not applicable or the
answers are none.
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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 23, 1998.
T. Rowe Price Associates, Inc.
/s/ Alvin M. Younger, Jr., Chief Financial & Accounting Officer