-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HiJj6iASNBOQhTYtGtw+ZWdCHV33CZOmchmT8w31ukv6cvetTlep1y0axhI36fGI QkuHy7g+Kyd6H5LoirQ/eg== 0000080255-98-000375.txt : 19980723 0000080255-98-000375.hdr.sgml : 19980723 ACCESSION NUMBER: 0000080255-98-000375 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980722 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRICE T ROWE ASSOCIATES INC /MD/ CENTRAL INDEX KEY: 0000080255 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 520556948 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14282 FILM NUMBER: 98669466 BUSINESS ADDRESS: STREET 1: 100 EAST PRATT ST CITY: BALTIMORE STATE: MD ZIP: 21202 BUSINESS PHONE: (410) 345-2000 MAIL ADDRESS: STREET 1: P.O. BOX 89000 CITY: BALTIMORE STATE: MD ZIP: 21289 10-Q 1 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: JUNE 30, 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. 119,535,933 SHARES AT JULY 21, 1998. Exhibit index is at Item 6(a) on page 12. 2 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 06/30/98 ________ ________ ASSETS Cash and cash equivalents $200,409 $248,731 Accounts receivable 86,795 96,404 Investments in sponsored mutual funds 173,729 197,473 Partnership and other investments 19,030 15,836 Property and equipment (Note 2) 142,497 149,685 Other assets 23,607 16,540 ________ ________ $646,067 $724,669 ________ ________ ________ ________ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Accounts payable and accrued expenses $ 30,722 $ 30,421 Accrued compensation and retirement costs 49,694 52,078 Income taxes payable 19,102 14,096 Dividends payable 10,039 10,157 Minority interests in consolidated subsidiaries 49,837 43,432 ________ ________ Total liabilities 159,394 150,184 ________ ________ 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; issued 59,097,705 shares in 1997 and 119,504,242 shares in 1998 (Note 3) 11,819 23,901 Capital in excess of par value 30,707 31,269 Retained earnings 415,279 481,192 Accumulated other comprehensive income 28,868 38,123 ________ ________ Total stockholders' equity 486,673 574,485 ________ ________ $646,067 $724,669 ________ ________ ________ ________ 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, __________________________________ 1997 1998 1997 1998 ________ ________________ ________ Revenues Investment advisory fees $141,549 $176,750 $270,846 $340,467 Administrative fees 34,694 43,361 69,829 85,525 Investment and other income 3,845 2,198 7,372 6,751 ________ ________ ________ ________ 180,088 222,309 348,047 432,743 ________ ________ ________ ________ Expenses Compensation and related costs 62,257 75,906 121,439 146,306 Advertising and promotion 13,742 16,983 31,199 37,055 Occupancy and equipment 14,989 20,071 28,745 38,956 International investment research fees 11,782 12,553 22,739 25,113 Other operating expenses 14,236 15,042 26,502 27,963 ________ ________ ________ ________ 117,006 140,555 230,624 275,393 ________ ________ ________ ________ Income before income taxes and minority interests 63,082 81,754 117,423 157,350 Provision for income taxes 24,162 31,602 45,286 60,529 ________ ________ ________ ________ Income from consolidated companies 38,920 50,152 72,137 96,821 Minority interests in consolidated subsidiaries 5,138 5,283 9,808 10,662 ________ ________ ________ ________ Net income $ 33,782 $ 44,869 $ 62,329 $ 86,159 ________ ________ ________ ________ ________ ________ ________ ________ Basic earnings per share $ .29 $ .38 $ .54 $ .72 ________ ________ ________ ________ ________ ________ ________ ________ Diluted earnings per share $ .27 $ .34 $ .49 $ .66 ________ ________ ________ ________ ________ ________ ________ ________ Dividends declared per share $ .065 $ .085 $ .13 $ .17 ________ ________ ________ ________ ________ ________ ________ ________ Weighted average shares outstanding 115,818 119,209 115,687 118,854 ________ ________ ________ ________ ________ ________ ________ ________ Weighted average shares outstanding- assuming dilution 127,028 130,598 127,055 130,267 ________ ________ ________ ________ ________ ________ ________ ________ 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 __________________ 06/30/97 06/30/98 ________ ________ Cash flows from operating activities Net income $ 62,329 $ 86,159 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization of property and equipment 11,102 15,900 Minority interests in consolidated subsidiaries 9,808 10,662 Increase in accounts receivable (10,182) (9,609) Change in accounts payable and accrued liabilities 10,514 7,759 Other changes in assets and liabilities 669 2,463 _________ ________ Net cash provided by operating activities 84,240 113,334 ________ ________ Cash flows from investing activities Investments in sponsored mutual funds (10,026) (13,330) Proceeds from disposition of sponsored mutual funds -- 3,957 Partnership and other investments (3,432) (579) Liquidation of partnership and other investments 5,696 2,116 Additions to property and equipment (29,827) (24,874) ________ ________ Net cash used in investing activities (37,589) (32,710) ________ ________ Cash flows from financing activities Purchases of stock (9,655) -- Receipts relating to stock issuances 5,117 4,855 Dividends paid to stockholders (15,008) (20,127) Distributions to minority interests (7,370) (17,030) ________ ________ Net cash used in financing activities (26,916) (32,302) ________ ________ Cash and cash equivalents Net increase during period 19,735 48,322 At beginning of year 114,551 200,409 ________ ________ At end of period $134,286 $248,731 ________ ________ ________ ________ See the accompanying notes to the condensed consolidated financial statements. 5 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 86,159 Unrealized security holding gains 9,255 Total comprehensive income 95,414 812,249 common shares issued under stock-based compensation plans 163 12,481 12,644 Dividends declared (20,246) (20,246) 59,594,288 shares issued in 2-for-1 split of common stock at April 30, 1998 11,919 (11,919) -- _______ _______ ________ _______ ________ Balance at June 30, 1998, 119,504,242 common shares $23,901 $31,269 $481,192 $38,123 $574,485 _______ _______ ________ _______ ________ _______ _______ ________ _______ ________ See the accompanying notes to the condensed consolidated financial statements. 6 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 June 30, 1998 total $141.9 billion, including $91.4 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. On June 17, 1998, the agreement was amended to include an aggregate guaranteed maximum price of $70,840,000. The facilities will be erected on land owned in Owings Mills, Maryland. NOTE 3 - COMMON STOCK SPLIT. On April 30, 1998, the Company's outstanding common shares split two-for-one. All per share and share data in the accompanying unaudited condensed consolidated statements of income have been adjusted to give retroactive effect to the stock split. 7 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 June 30, 1998, and for the three- and six-month periods ended June 30, 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/ PricewaterhouseCoopers LLP Baltimore, Maryland July 21, 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. 8 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 June 30, 1998, total assets under management are $141.9 billion, including $91.4 billion in the Funds. Equity investments compose nearly 74% of total assets under management. RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1998 VERSUS 1997. Net income increased $11.1 million or 33% to $44.9 million or diluted earnings per share of $0.34 from $33.8 million or diluted earnings per share of $0.27. Earnings per share have been retroactively restated for the two- for-one stock split effected at April 30, 1998. Total revenues increased 23% from $180 million to $222 million, led by an increase of $35.2 million in investment advisory fees. Investment advisory fees from the Funds increased nearly $27.8 million as the Fund's average assets under management during the second quarter rose $20.6 billion to $91.1 billion. Fund assets totaled $91.4 billion at June 30, 1998, up $10.3 billion from December 31, 1997. Stock funds, which totaled $70.7 billion at June 30, 1998, accounted for approximately 85% of the increase. Net cash inflows to the Funds during the second quarter of 1998 were nearly $1.4 billion with the balance of the change in Fund assets coming primarily from declines in value of the funds' investment portfolios. As of July 19, fund assets had risen nearly $3.0 billion since June 30, including net cash inflows of about $430 million. 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 $50.5 billion at June 30, 1998, up $7.4 billion from December 31, 1997 and $9.0 billion over the past twelve months. Total assets under management closed the second quarter at $141.9 billion, up from $124.3 billion at December 31, 1997 and $116.9 billion at June 30, 1997. Administrative fees from services to the Funds and their shareholders grew $8.7 million to $43.4 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 9 offset these gains. Investment and other income fell $1.6 million due primarily to a decline in value of investment portfolios held by certain partnerships in which the company invests. Operating expenses increased 20% to $140.6 million. Compensation and related costs were up $13.6 million due to higher rates of compensation including performance-based bonus accruals and a 16% increase in the number of associates as well as the greater use of temporary employees, primarily in the Company's growing technology support and administrative services operations. At the end of the second quarter, the Company employed more than 3,250 associates. Advertising and promotion expenditures increased 24% to $17.0 million as the Company continued to take advantage of favorable marketing conditions for its investment portfolios. These expenditures will vary over time as market conditions and cash flows to the Funds warrant. Occupancy and equipment expense was up 34% due to the recent expansion of operating facilities and equipment acquisitions, primarily investments in technology. RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1998 VERSUS 1997. Net income increased $23.8 million or 38% to $86.2 million or diluted earnings per share of $0.66 versus $0.49 in 1997. Total revenues increased 24% from $348 million to almost $433 million, led by an increase of $69.6 million in investment advisory fees. Investment advisory fees from the Funds increased nearly $51.7 million as the Fund's average assets under management during the first half rose $19.5 billion to $88.1 billion. Net cash inflows to the Funds during the first half of 1998 were more than $3.2 billion with the balance of Fund asset growth coming from market gains. Approximately 70% of the net inflows were to stock funds. Advisory fees from private accounts and other sponsored investment portfolios contributed the balance of the investment advisory revenue gains. Administrative fees from services to the Funds and their shareholders grew $15.7 million to $85.5 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. Operating expenses increased 19% to $275.4 million. Compensation and related costs were up nearly $24.9 million while occupancy and equipment costs rose $10.2 million or 36%. Growth in technology support and administrative services operations contributed significantly to these increases. International investment research fees increased 10% or $2.4 million. During the first half of 1997, international assets under management grew from $29.2 billion to $33.8 billion while 1998 totals have been flat on both March 31 10 and June 30, at $33.6 billion including $18 billion in the Funds. International assets are managed by the Company's 50%-owned subsidiary, Rowe Price-Fleming International, Inc. (RPFI). 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 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 11 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 1. LEGAL PROCEEDINGS. On July 6, 1998, RPFI, the T. Rowe Price International Stock Fund (the Fund) and the Fund's five directors were named as defendants in an action, Migdal v. Rowe Price-Fleming International, Inc., et al., filed in the United States District Court for the District of Maryland. The Complaint seeks to invalidate the advisory agreement between RPFI and the Fund, and seeks recovery of an unspecified amount of advisory fees paid by the Fund to RPFI. This relief is sought based on an allegation that the Fund does not have a sufficient number of independent directors, as required by the Investment Company Act of 1940, as amended, because the Fund's independent directors serve on multiple boards of directors within the T. Rowe Price mutual fund complex and receive substantial compensation in the form of director fees. The Company and RPFI believe that the factual and legal basis on which the complaint is based is wholly unfounded, and RPFI and the other defendants intend to defend the case vigorously. Among other things, the Company has been advised that the structure of the board of the Fund complies with all applicable federal and state legal and regulatory requirements and practices, as well as with established industry norms. Accordingly, the Company does not believe that the ultimate resolution of this matter will have a material adverse effect on the financial condition or results of operations of the Company. 12 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: 15 - Letter from PricewaterhouseCoopers 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. 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 22, 1998. T. Rowe Price Associates, Inc. /s/ Alvin M. Younger, Jr., Chief Financial & Accounting Officer EX-15 2 EXHIBIT 15 July 21, 1998 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Dear Sirs: We are aware that our report dated July 21, 1998 (issued pursuant to the provisions of Statement on Auditing Standards No. 71) is incorporated by reference in the Prospectuses constituting parts of T. Rowe Price Associates, Inc.'s Registration Statements on Form S-8 (No. 033-07012, No. 033-08672, No. 033-37573, No. 033-72568, No. 033-58749 and No. 333-20333). We are also aware of our responsibilities under the Securities Act of 1933. Yours very truly, /s/ PricewaterhouseCoopers LLP EX-27 3
5 This schedule contains summary financial information extracted from the unaudited condensed consolidated financial statements of T. Rowe Price Associates, Inc. included in Part I, Item 1 of the accompanying Form 10-Q Quarterly Report for the period ended June 30, 1998 and is qualified in its entirety by reference to such financial statements. 0000080255 T. ROWE PRICE ASSOCIATES, INC. 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 248,731,000 197,473,000 96,404,000 0 0 0 149,685,000 0 724,669,000 0 0 0 0 23,901,000 550,584,000 724,669,000 0 432,743,000 0 275,393,000 0 0 0 157,350,000 60,529,000 86,159,000 0 0 0 86,159,000 .72 .66 Item is not contained in registrant's unclassified balance sheet. Item is reported net of accumulated depreciation at interim. Not reported at interim. Basic earnings per share.
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