PRICE T ROWE GROUP INC - 10-Q Quarterly Report

Back to GetFilings.com

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended: MARCH 31, 2003.

Commission file number: 000-32191.

Exact name of registrant as specified in its charter: T. ROWE PRICE GROUP, INC.

State of incorporation: MARYLAND.

I.R.S. Employer Identification No.: 52-2264646.

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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X]. No [ ].

Indicate the number of shares outstanding of the issuer’s common stock ($.20 par value), as of the latest practicable date. 122,092,544 SHARES AT APRIL 28, 2003.

Exhibit index is at Item 6(a) on page 13.

PART I. FINANCIAL INFORMATION.

ITEM 1. FINANCIAL STATEMENTS.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)


			12/31/2002		03/31/2003

ASSETS

Cash and cash equivalents			$	111,418	$	132,872
Accounts receivable				96,787		96,211
Investments in sponsored mutual funds				123,172		121,718
Debt securities held by savings bank subsidiary				92,908		98,908
Property and equipment				215,590		208,735
Goodwill				665,692		665,692
Other assets				64,866		59,744

			$	1,370,433	$	1,383,880


LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities
	Accounts payable and accrued expenses		$	43,902	$	65,258
	Accrued compensation and related costs			34,640		32,737
	Dividends payable			20,860		20,779
	Customer deposits at savings bank subsidiary			81,292		86,231
	Debt and accrued interest			55,899		44,965

		Total liabilities		236,593		249,970


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 500,000,000 shares; issued 122,648,696 shares in 2002 and 122,039,544 shares in 2003			24,530		24,408
	Additional capital in excess of par value			80,744		79,572
	Retained earnings			1,019,925		1,020,988
	Accumulated other comprehensive income			8,641		8,942

		Total stockholders’ equity		1,133,840		1,133,910

			$	1,370,433	$	1,383,880

See the accompanying notes to the condensed consolidated financial statements.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per-share amounts)


		Three months ended

		03/31/02		03/31/03

Revenues
	Investment advisory fees	$	188,520	$	164,389
	Administrative fees and other income		53,322		54,145
	Investment income of savings bank subsidiary		455		980

	Total revenues		242,297		219,514
	Interest expense on savings bank deposits		289		796

	Net revenues		242,008		218,718


Operating expenses
	Compensation and related costs		94,373		92,147
	Advertising and promotion		16,911		16,345
	Depreciation and amortization of property and equipment		12,751		11,851
	Occupancy and facility costs		15,807		16,521
	Other operating expenses		16,016		17,410

			155,858		154,274


Net operating income			86,150		64,444


Investment loss			148		1,645
Other interest expense			796		500

Net non-operating expense			944		2,145


Income before income taxes			85,206		62,299
Provision for income taxes			32,182		23,525

Net income		$	53,024	$	38,774


Earnings per share
	Basic	$	.43	$	.32

	Diluted	$	.41	$	.31


Dividends declared per share		$	.16	$	.17


Weighted average shares outstanding			123,531		122,442

Weighted average shares outstanding assuming dilution			130,188		125,519

See the accompanying notes to the condensed consolidated financial statements.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)


			Three months ended

			03/31/02			03/31/03

Cash flows from operating activities
	Net income		$	53,024		$	38,774
	Adjustments to reconcile net income to net cash provided by operating activities
		Depreciation and amortization of property and equipment		12,751			11,851
		Income taxes accrued but unpaid		29,358			23,525
		Other changes in assets and liabilities		(7,341	)		4,236

	Net cash provided by operating activities			87,792			78,386


Cash flows from investing activities
	Investments in sponsored mutual funds			(10,022	)		(18	)
	Increase in debt securities held by savings bank subsidiary			(5,477	)		(6,318	)
	Additions to property and equipment			(5,501	)		(5,287	)
	Other investment activity			277			200

	Net cash used in investing activities			(20,723	)		(11,423	)


Cash flows from financing activities
	Repurchases of common shares			—			(19,963	)
	Stock options exercised			15,738			1,360
	Debt principal repaid			(33,366	)		(11,000	)
	Dividends paid to stockholders			(19,684	)		(20,845	)
	Savings bank subsidiary deposits			3,948			4,939

	Net cash used in financing activities			(33,364	)		(45,509	)


Cash and cash equivalents
	Net increase during period			33,705			21,454
	At beginning of year			79,741			111,418

	At end of period		$	113,446		$	132,872

See the accompanying notes to the condensed consolidated financial statements.

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY


						Additional						Accumu-
						capital						lated
						in						other		Total
						excess						compre-		stock-
			Common			of par			Retained			hensive		holders'
			stock			value			earnings			income		equity

			(in thousands)
Balance at December 31, 2002, 122,648,696 common shares			$	24,530		$	80,744		$	1,019,925		$	8,641	$	1,133,840
	Comprehensive income
		Net income								38,774
		Change in unrealized security holding gains, net of taxes											301
	Total comprehensive income														39,075
177,848 common shares issued under stock-based compensation plans				36			1,686								1,722
787,000 common shares repurchased				(158	)		(2,858	)		(16,947	)				(19,963	)
Dividends declared										(20,764	)				(20,764	)

Balance at March 31, 2003, 122,039,544 common shares			$	24,408		$	79,572		$	1,020,988		$	8,942	$	1,133,910

See the accompanying notes to the condensed consolidated financial statements.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — THE COMPANY AND BASIS OF PREPARATION.

T. Rowe Price Group derives its consolidated revenues and net income primarily from investment advisory services that its subsidiaries provide to individual and institutional investors in the sponsored T. Rowe Price mutual funds and other investment portfolios. We also provide our investment advisory clients with related administrative services, including mutual fund transfer agent, accounting and shareholder services; participant recordkeeping and transfer agent services for defined contribution retirement plans; discount brokerage; and trust services. The investors that we serve are primarily domiciled in the United States of America.

Investment advisory revenues depend largely on the total value and composition of assets under our management. Accordingly, fluctuations in financial markets and in the composition of assets under management impact our revenues and results of operations.

These unaudited condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of our results for the interim periods presented. All such adjustments are of a normal recurring nature.

The unaudited interim financial information contained in these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements contained in our 2002 Annual Report.

STOCK OPTION GRANTS.

Our stock-based compensation plans are accounted for using the intrinsic value based method. The exercise price of each option granted is equivalent to the market price of the common stock at the date of grant. Accordingly, no compensation expense related to stock option grants has been recognized in the consolidated statements of income.

Accounting principles require us to illustrate the effect on net income (in thousands) and earnings per share as if the fair value based method of accounting had been applied to our stock option grants after 1994.


		Three months ended

		03/31/02			03/31/03

Net income, as reported		$	53,024		$	38,774
Additional stock-option based compensation expense estimated using the fair value based method			(8,364	)		(9,373	)
Related income tax benefits			2,644			2,761

Pro forma net income		$	47,304		$	32,162


Earnings per share
	Basic — as reported	$	.43		$	.32

	Basic — pro forma	$	.38		$	.26


	Diluted — as reported	$	.41		$	.31

	Diluted — pro forma	$	.37		$	.26

It is important to note that the charge to compensation expense that results from using the fair value based method would also result in an equal and offsetting increase to our additional capital in excess of par value; accordingly, total stockholders’ equity is not diminished if the fair value method had been used to record compensation expense.

NOTE 2 — DEBT.

On April 2, 2003, we reduced our yen-denominated debt by 180,950,000 yen ($1.5 million). The interest rate on the remaining balance of 1,447,600,000 yen ($12,245,000) was reset to 1% for one month.

On April 18, 2003, we reduced our dollar-denominated debt by $10 million to $21 million. The debt bears interest at an annual rate of approximately 1.66% for the next two months.

NOTE 3 — COMMON STOCK.

Accounts payable and accrued expenses includes $1,392,000 at March 31, 2003 for pending settlements of common stock repurchases.

NOTE 4 — INFORMATION ABOUT REVENUES AND SERVICES.

Revenues (in thousands) from advisory services provided under agreements with sponsored U.S. mutual funds and other investment clients for the three months ended March 31 include:


		2002		2003

Sponsored U.S. mutual funds
	Stock	$	111,836	$	89,504
	Bond and money market		25,162		29,283

			136,998		118,787
Other portfolios			51,522		45,602

Total investment advisory fees		$	188,520	$	164,389

The following table summarizes the various investment portfolios and assets under management (in billions) on which advisory fees are earned.


		Average during
		first 3 months

		2002		2003		12/31/02		03/31/03

Sponsored U.S. mutual funds
	Stock	$	74.1	$	59.7	$	60.7	$	59.2
	Bond and money market		23.9		27.1		26.6		27.7

			98.0		86.8		87.3		86.9
Other portfolios			58.3		53.1		53.3		53.0

		$	156.3	$	139.9	$	140.6	$	139.9

Fees for advisory-related administrative services provided to our sponsored mutual funds were $39,673,000 and $41,916,000 in the first quarter of 2002 and 2003, respectively. Accounts receivable from the mutual funds aggregate $55,474,000 at December 31, 2002 and $54,896,000 at March 31, 2003.

INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

The Board of Directors and Stockholders of
T. Rowe Price Group, Inc.:

We have reviewed the condensed consolidated balance sheet of T. Rowe Price Group, Inc. and subsidiaries as of March 31, 2003, the related condensed consolidated statements of income and of cash flows for the three-month periods ended March 31, 2003 and 2002, and the related statement of stockholders’ equity for the three-month period ended March 31, 2003. These condensed consolidated financial statements are the responsibility of the Company’s management.

We conducted our reviews 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 auditing standards generally accepted in the United States of America, 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 accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of T. Rowe Price Group, Inc. and subsidiaries as of December 31, 2002, and the related consolidated statements of income, cash flows, and stockholders’ equity for the year then ended (not presented herein); and in our report dated January 30, 2003, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sh