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, 1999.MARCH 31, 2000.
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. 121,390,478120,764,714 SHARES AT
JULY 26, 1999.APRIL 25, 2000.
Exhibit index is at Item 6(a) on page 14.pages 14 - 15.
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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)
12/31/98 06/30/99 03/31/00
________ __________________
ASSETS
Cash and cash equivalents $283,838 $361,584$358,472 $ 438,435
Accounts receivable 100,702 108,530121,637 144,841
Investments in sponsored mutual funds 192,914 208,290233,924 250,260
Other investments 26,597 33,01644,986 54,639
Property and equipment 166,612 186,710210,302 217,867
Other assets 26,121 22,89928,718 19,217
________ __________
$998,039 $1,125,259
________ $796,784 $921,029__________
________ ________
________ __________________
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable and accrued expenses $ 45,73737,712 $ 32,83548,467
Accrued compensation and related costs 56,757 65,31864,774 54,899
Income taxes payable 15,308 18,32731,819 78,864
Dividends payable 12,012 12,13015,614 15,688
Debt -- 15,01417,716 17,632
Minority interests in consolidated subsidiaries 52,666 63,58160,220 66,454
________ __________________
Total liabilities 182,480 207,205227,855 282,004
________ __________________
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 120,183,266 shares in
1998 and 121,353,820120,107,818 shares in
1999 24,037 24,271and 120,708,284 shares in 2000 24,022 24,142
Capital in excess of par value 41,073 48,27348,057 54,272
Retained earnings 517,631 600,516649,378 708,724
Accumulated other comprehensive income 31,563 40,76448,727 56,117
________ __________________
Total stockholders' equity 614,304 713,824770,184 843,255
________ __________
$998,039 $1,125,259
________ $796,784 $921,029__________
________ ________
________ __________________
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
_________________ _________________
06/30/98 06/30/___________________
03/31/99 06/30/98 06/30/99
________ ________03/31/00
________ ________
Revenues
Investment advisory fees $176,750 $191,545 $340,467 $382,423$190,878 $234,161
Administrative fees 43,361 48,379 85,525 97,59649,217 60,847
Investment and other income 2,198 5,847 6,751 11,5785,731 21,323
________ ________
________ ________
222,309 245,771 432,743 491,597
________ ________245,826 316,331
________ ________
Expenses
Compensation and related costs 75,906 82,932 146,306 164,39581,463 92,967
Advertising and promotion 16,983 16,268 37,055 36,49320,225 25,110
Occupancy and equipment 20,071 21,402 38,956 42,34920,947 25,906
International investment research fees 12,553 12,581 25,113 24,72512,144 16,014
Other operating expenses 15,042 17,115 27,963 32,92515,810 25,543
________ ________
________ ________
140,555 150,298 275,393 300,887
________ ________150,589 185,540
________ ________
Income before income taxes and minority interests 81,754 95,473 157,350 190,71095,237 130,791
Provision for income taxes 31,602 36,657 60,529 72,945
________ ________36,288 49,204
________ ________
Income from consolidated companies 50,152 58,816 96,821 117,76558,949 81,587
Minority interests in consolidated subsidiaries 5,283 5,126 10,662 10,662
________ ________5,536 6,553
________ ________
Net income $ 44,86953,413 $ 53,690 $ 86,159 $107,103
________ ________ ________ ________75,034
________ ________
________ ________
Basic earnings per share $ .38 $ .44 $ .72 $ .89
________ ________ ________ ________.62
________ ________
________ ________
Diluted earnings per share $ .34 $ .41 $ .66 $ .82
________ ________ ________ ________.58
________ ________
________ ________
Dividends declared per share $ .085 $ .10 $ .17 $ .20
________ ________ ________ ________.13
________ ________
________ ________
Weighted average shares outstanding 119,209 121,152 118,854 120,834
________ ________ ________ ________120,512 120,419
________ ________
________ ________
Weighted average shares outstanding-outstanding assuming dilution 130,598 130,062 130,267 129,827
________ ________ ________ ________129,589 128,399
________ ________
________ ________
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
__________________
06/30/98 06/30/03/31/99 03/31/00
________ ________
Cash flows from operating activities
Net income $ 86,159 $107,10353,413 $ 75,034
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization of property
and equipment 15,900 15,4217,600 9,474
Minority interests in consolidated subsidiaries 10,662 10,6625,536 6,553
Increase in accounts receivable (4,397) (22,783)
Income taxes accrued but not paid 36,073 45,273
Other changes in assets and liabilities 613 (1,545)(6,561) (8,856)
________ ________
Net cash provided by operating activities 113,334 131,64191,664 104,695
________ ________
Cash flows from investing activities
Investments in sponsored mutual funds (13,330) (1,018)
Proceeds from disposition of sponsored mutual funds 3,957 --(664) (4,654)
Other investments (579) (23,792)(7,541) (380)
Distributions from other investments 2,116 10,0024,368 9,928
Additions to property and equipment (24,874) (31,500)(15,209) (18,040)
________ ________
Net cash used in investing activities (32,710) (46,308)(19,046) (13,146)
________ ________
Cash flows from financing activities
Purchases of stock (1,007) -- (3,669)
Receipts relating to stock issuances 4,855 5,186
Proceeds of bank borrowing -- 15,0193,393 4,028
Dividends paid to stockholders (20,127) (24,100)
Distributions to minority interests (17,030) (23)(12,012) (15,614)
________ ________
Net cash used in financing activities (32,302) (7,587)(9,626) (11,586)
________ ________
Cash and cash equivalents
Net increase during period 48,322 77,74662,992 79,963
At beginning of year 200,409 283,838 358,472
________ ________
At end of period $248,731 $361,584$346,830 $438,435
________ ________
________ ________
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, 1998,
120,183,2661999,
120,107,818 common shares $24,037 $41,073 $517,631 $31,563 $614,304$24,022 $48,057 $649,378 $48,727 $770,184
Comprehensive income
Net income 107,10375,034
Change in unrealized
security holding gains 9,2017,390
Total comprehensive income 116,304
1,284,05482,424
600,466 common shares
issued under stock-based
compensation plans 257 10,847 11,104
113,500 common shares
repurchased (23) (3,647) (3,670)120 6,215 6,335
Dividends declared (24,218) (24,218)(15,688) (15,688)
_______ _______ ________ _______ ________
Balance at June 30, 1999,
121,353,820March 31, 2000,
120,708,284 common shares $24,271 $48,273 $600,516 $40,764 $713,824$24,142 $54,272 $708,724 $56,117 $843,255
_______ _______ ________ _______ ________
_______ _______ ________ _______ ________
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. andderives its consolidated subsidiaries (the
Company) derives its revenuerevenues and net income
primarily from investment advisory services provided to individual and
institutional investors in the Company's sponsored T. Rowe Price mutual funds and
private accountother investment portfolios. The CompanyWe also providesprovide 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 plan recordkeeping,plans; discount
brokerage,brokerage; and trust services. The Company's clientsinvestors that we serve are primarily
domiciled in the United States
of America.States.
Investment advisory revenues aredepend largely dependent on the total value and
composition of assets under management; accordingly,management. Accordingly, fluctuations in
financial markets and in the composition of assets under management impact
our revenues and results of operations.
TheThese unaudited condensed consolidated financial statements reflect all
adjustments which are, in the opinion of management, necessary to a fair
statement of theour results for the interim periods presented. All such
adjustments are of a normal recurring nature.
The unaudited interim financial information contained in thethese condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements contained in the 1998our 1999 Annual Report.
NOTE 2 - CHANGE IN ACCOUNTING PRINCIPLE.
On January 1, 1999, the Company prospectively adopted a new accounting
principle requiring the capitalization and subsequent amortization of certain
costs of computer software developed or obtained for internal use. This
change is not material to the Company's 1999 results of operations.
NOTE 3 - OTHER INVESTMENTS.
On April 5, 1999, the Company acquired a 10% interest in Daiwa SB Investments
Ltd., a Japan-based investment management venture with Sumitomo Bank and
Daiwa Securities. The Company accounts for this $15,019,000 investment using
the cost method.
NOTE 4 - DEBT.
On April 2, 1999, the Company borrowed 1,809,500,000 yen ($15,019,000) from a
bank under a five-year promissory note due in installments of 180,950,000 yen
in each of 2002 and 2003 and the balance of 1,447,600,000 yen in 2004.
Interest is due quarterly at LIBOR for yen-denominated transactions plus .95%
and is fixed for the first two years of the borrowing at 1.42%. Foreign
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currency transaction gains or losses related to this borrowing are included
in investment and other income.
NOTE 5 - INFORMATION ABOUT REVENUES AND SERVICES.
The Company'sOur first quarter revenues (in thousands) from advisory services provided
under agreements with itsour sponsored mutual funds and other investment
clients during the first six months include:
1998were:
1999 2000
________ ________
Sponsored mutual funds
Stock and balancedblended
Domestic $148,392 $167,659$ 80,681 $104,373
International 59,476 57,19927,940 38,999
Bond and money market 44,383 48,85524,323 23,425
________ ________
252,251 273,713132,944 166,797
Other portfolios 88,216 108,71057,934 67,364
________ ________
Total investment advisory fees $340,467 $382,423$190,878 $234,161
________ ________
________ ________ 7
The following table summarizes the various investment portfolios and assets
under management (in billions) on which the Company earns itswe earn advisory fees.
Average during
first 6 monthsquarter
_______________
1998 1999 2000 12/31/98 06/30/99 03/31/00
______ ______ ________ ________
Sponsored mutual funds
Stock and balancedblended
Domestic $ 51.256.2 $ 58.471.5 $ 55.971.2 $ 63.975.3
International 16.8 16.3 16.4 16.616.0 21.7 21.4 22.1
Bond and money market 20.1 22.3 22.1 22.122.2 21.7 21.9 22.0
______ ______ ______ ______
88.1 97.0 94.4 102.6114.9 114.5 119.4
Other portfolios 47.7 54.4 53.4 56.665.5 65.4 65.8
______ ______ ______ ______
$135.8 $151.4 $147.8 $159.2$180.4 $179.9 $185.2
______ ______ ______ ______
______ ______ ______ ______
Fees for advisory-related administrative services provided to the funds were
$63,403,000$36,222,000 and $72,137,000 in$44,309,000 for the first six monthsquarter of 19981999 and 1999,2000,
respectively. Accounts receivable from the funds aggregate $59,700,000totaled $74,427,000 at
June 30, 1999.March 31, 2000.
NOTE 3 - SUBSEQUENT EVENT.
On April 11, 2000, we entered into an agreement with Robert Fleming Holdings
Limited to purchase its 50% interest in Rowe Price-Fleming International for
a fixed price of $780 million. Rowe Price-Fleming was formed in 1979 and is
a 50% owned consolidated subsidiary of T. Rowe Price Associates. It
primarily provides U.S. investors with international investment advisory
services and, at March 31, 2000, managed $42.8 billion. Our acquisition of
the remaining interest in Rowe Price-Fleming is subject to receipt of
requisite regulatory approvals and is expected to close in the third quarter
of 2000 after The Chase Manhattan Corporation completes its announced
acquisition of Robert Fleming Holdings. In any event, closing of our
transaction will occur no later than December 31, 2000. The acquisition
will likely be modestly dilutive to earnings per share near-term and
somewhat accretive to income before goodwill charges. We expect to finance
this acquisition with available cash resources including the proceeds of a
five-year, $600 million syndicated bank credit facility that we are
currently negotiating.
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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 June 30, 1999March 31, 2000 and for the
three- and six-monththree-month periods ended June 30, 1998March 31, 1999 and 1999,March 31, 2000, appearing on
pages two through seven of this Form 10-Q Quarterly Report. These financial
statements are the responsibility of the company'sCompany'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 auditing standards generally accepted auditing standards,in the
United States, 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 accounting principles generally
accepted accounting
principles.in the United States.
We previously audited, in accordance with auditing standards generally
accepted auditing
standards,in the United States, the consolidated balance sheet as of December
31, 1998,1999, and the related consolidated statements of income, of cash flows,
and of stock-
holders'stockholders' equity for the year then ended (not presented herein),
and in our report dated January 26, 199925, 2000, 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, 1998,1999, 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 23, 1999April 24, 2000
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.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL.
The Company derives its revenueOur revenues and net income are derived primarily from investment advisory
services provided to U.S. individual and institutional investors in the
Company'sour
sponsored mutual funds and private accountother investment portfolios.
The Company also provides investment advisory clients with related
administrative services, including mutual fund transfer agent, defined
contribution retirement plan recordkeeping, discount brokerage, and trust
services. The Company's clients are primarily domiciled in the United
States.
The Company's base of assets under management consists ofWe manage 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.investors. Investment
advisory revenues aredepend largely dependent on the total value and composition of
assets under management; accordingly,management. Accordingly, fluctuations in financial markets and
in the composition of assets under management impact our revenues and
results of operations. At June 30, 1999,Total assets under our management totaled $159.2were $185.2
billion at March 31, 2000, including $102.6$144.8 billion in the mutual funds. Equity investments
comprise 74% of all assets under management at the end of June 1999.
This management's discussion and analysis should be read in conjunction with
that contained in the 1998 Annual Report.equity securities.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1999MARCH 31, 2000 VERSUS 1998.1999.
Net income increased $8.8$21.6 million or 20%40% to $53.7$75.0 million orand diluted
earnings per share of $0.41,rose from $44.9 million or diluted earnings per share
of $0.34.$.41 to $.58. Total revenues increased almost 11%29%
from $222$246 million to nearly
$246a quarterly record $316 million, led by an increaseincreases of
nearly $15$43.3 million in investment advisory fees.fees and $15.6 million in investment
income.
Investment advisory revenues earned from the T. Rowe Price mutual fund investment
portfoliosfunds
increased $10.0$33.9 million as average mutual fund assets under management during the
quarter were $99.5$114.9 billion, up $8.4$20.5 billion frommore than in the 1998 period.first quarter of
1999. Fund assets rose $7.1increased $4.9 billion during the second quarterfirst three months of
2000 and totaled more than
$102.6$119.4 billion at June 30, 1999,March 31, including $80.5$97.4 billion in
stock and balancedblended assets funds. The most significant increase in fund
assets during the quarter was attributable to market appreciation and income
reinvested in the stock and blended funds totaling $4.4 billion. Net cash
inflows to the funds during the quarter totaled $324$173 million, including
net inflows of $799$378 million into domestic stock and blended funds, offset in part by net$205
million of outflows of $219 million from bond and money market funds. Growth stock funds
and $256 million from international stock funds. The balance of the
increasegenerally had net inflows while value funds had net outflows.
Greater assets in mutual fund assets was due to appreciation and reinvested income.
Fees earned from other investment portfolios, including subadvised variable annuity
and other subadvised funds, contributedresulted in the balance of theour advisory revenue
gains.gains totaling $9.4 million. Performance-related advisory fees were $6.4
million this quarter, still high compared to historical levels, but down
$1.5 million from the 1999 first quarter. We earn these performance-related
fees on venture capital investments that we manage and, though recurring,
these fees will vary significantly as market conditions change. Assets
under management in the other investment portfolios rose to $56.6that we manage were
$65.8 billion at June
30, 1999,March 31, 2000, up $2.9$12.1 billion sincefrom March 31, 1999. Total assets under
management closed the quarter at $159.2 billion, up from $149.2 billion at
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March 31, 1999. International assets under management by the Company's 50%
owned consolidated subsidiary, Rowe Price-Fleming International, were up
modestly to end the quarter at $33.3 billion, including $17.7 billion in the
mutual funds.
Administrative fees from advisory-related services that we provide to the
funds and their shareholders rose $5$11.6 million from the first quarter of
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1999 to $48.4$60.8 million. These increases were
primarilyAbout $9.4 million of this increase is attributable
to transfer agency and recordkeeping services that we provide to defined
contribution retirement plan recordkeeping
services; however, increased operating expenses, including preparations for
Year 2000 processing,plans and the T. Rowe Price mutual funds. These
revenues are largely offset these gains.by the costs that we incur in providing the
services. Commissions earnedthat we earn on greaterdiscount brokerage trading volume
in discount brokerage contributed $1.7$2.2 million of the revenue increase and now account for
approximately one-eighth of administrative revenues increase.revenues.
Investment and other income was up $3.7rose $15.6 million including $1.5 million of
additional income from the Company's greaterfirst quarter of
1999, including $2.6 million from our larger money market mutual fund balances and
$12.8 million from our venture capital investments. Losses recognized in 1998The strong IPO markets
of late 1999 and early 2000 produced significant market gains and
distributions from the decline in value of
investment portfolios held by certain partnerships in which the Company
invests did not recur in 1999.our venture investments this year.
Operating expenses increased 7%23% to $150.3about $186 million. Greater
compensation and related costs, which were up $7.0$11.5 million or 14%, were
attributable to increases in our rates of compensation, including
performance-related bonuses, and ana 4% increase in our staff size primarily
to support the Company's growing investment-related administrative services and
technology supporttechnology-based operations. At June 30, 1999,
the CompanyAs of March 31, 2000, we employed nearly 3,6003,700
associates. Our advertising and promotion expenditures increased 24% to $25
million. We expect that our promotional spending will decline in the second
and third quarters of 2000, though remain at levels higher than the
comparable 1999 periods. Occupancy and equipment expense was upnearly $5
million higher due to the expansion of our operating facilities in Owings
Mills and equipment
acquisitions, primarily investmentsColorado Springs in technology. Other expenses increased
largely in support of the Company's growing operations.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1999 VERSUS 1998.
Net income increased $20.9 million or 24% to $107.1 million, or diluted
earnings per share of $0.82, from $86.2 million or diluted earnings per share
of $0.66. Total revenues increased about 14% from $433 million to nearly
$492 million, led by an increase of $42 million in1999. International investment advisory fees.
Investment advisory revenues earned from the mutual fund investment
portfolios increased $21.5research fees
were up $3.9 million as average mutual fundinternational assets under management were $97.0increased
$10.4 billion $8.9 billion more than during the 1998 period.
Net cash inflows to the funds during the first half totaled $571 million,
including inflows of $1.2 billion into domestic stock funds and nearly $200
million into money market funds, offset in part by outflows of $750 million
from international funds. The balance of the increase in mutual fund assets
was due to appreciation and reinvested income. Fees earned from other
investment portfolios, including subadvised variable annuity funds,
contributed the balance of the advisory revenue gains, including $7.1 million
of increased performance-based advisory fees earned primarily on assets
managed in sponsored partnerships. Total assets under management closed the
quarter at $159.2 billion, up from $147.8 billion at the end of 1998.
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Administrative fees from advisory-related services to the funds and their
shareholders rose $12.1 million to $97.6 million. These increases were
primarily attributable to defined contribution retirement plan recordkeeping
services; however, increasedMarch 31, 1999. Other operating expenses including preparations for
Year 2000 processing, offset these gains. Commissions earned on greater
trading volumeincreased $9.7
million due largely to professional fees that we incurred in discount brokerage contributed $3.7 million of the revenue
increase.
Investmenttechnology and
other income rose $4.8 million, largely from greater income on
the Company's larger money market mutual fund investments and gains
recognized by certain sponsored partnerships in which the Company invests.
Operating expenses increased 9% to $300.9 million. Greater compensation and
related costs, which were up $18.1 million, were attributable to increases in
rates of compensation, including performance-related bonuses, and the
increase in staff size. Occupancy and equipment expense was up due to the
expansion of operating facilities and equipment acquisitions, primarily
investments in technology. Other expenses increased $5.0 million in support
of the Company's growing operations.services development activities.
CAPITAL RESOURCES AND LIQUIDITY.
See NotesWe expect to finance the Rowe Price-Fleming International acquisition
discussed in Note 3 and 4 on page 67 of this Quarterly Report for a discussion
concerning borrowings and investments made in April 1999.
YEAR 2000 PROCESSING ISSUE UPDATE.
In April 1999,Form 10-Q from available cash
resources including the Company completed its participation in the street-wide
testing conducted by the Securities Industry Association (SIA) and securities
industry firms, and experienced no Year 2000-related errors in its testing.
The SIA's report on the testing noted that "industry-wide testing results are
encouraging and support the conclusion that the U.S. securities industry as a
whole is well positioned to achieve Year 2000 compliance."
At June 30, 1999, the Company's mission critical systems efforts were
complete. The Company expects that non-mission critical systems efforts will
be completed during the third quarter of 1999.
The Company periodically reviews its contingency plan for mission critical
systems and external dependencies and, from time-to-time, updates it as
necessary. However, in an operation as complex as providing global
investment advisory services, there are limited alternatives to certain
mission critical systems and third-party providers, including electrical
power and communications services. If these services or mission critical
systems such as the mutual fund transfer agent system fail for an extended
period of time, there would likely be a material adverse effect on the
Company's business, results of operations and financial condition. Although
the Company is investigating alternative solutions, it is unlikely that any
adequate contingency plan can be developed for any prolonged failure of these
mission critical services and systems.
12
Additionally, the investment portfolios from which the Company derives the
majority of its revenues could be subject to increased credit, market and
liquidity risk arising from the impact of Year 2000 issues on the issuers of
individual securities. The Company's investment staff are assessing the Year
2000 risks in the investment portfolios with particular attention to the more
significant holdings. Their findings are included in the information used in
making investment decisions. This process applies to actively managed
portfolios, but not to the index-based investment portfolios where
investments are generally determined by the compositionproceeds of a third-party
index. Additionally, governments and financial markets around the world
could be affected by Year 2000 issues. To the extentfive-year, $600 million syndicated
bank credit facility that the market prices
of securitieswe are negatively impacted by these or other Year 2000 issues, the
Company's investment advisory revenues, results of operations and financial
condition could be materially adversely affected.currently negotiating.
FORWARD-LOOKING INFORMATION.
InformationFrom time-to-time, information or statements provided by or on behalf of the Company from time
to time,T.
Rowe Price, including those within this Form 10-Q Quarterly Report, may
contain certain "forward-looking information," including information
relating to anticipated growth in our revenues or earnings, per share, anticipated
changes in the amount and composition of assets under management, our
anticipated expense levels, and our expectations regarding financial market
and other conditions. The Company
cautions readersReaders are cautioned that any forward-looking
information provided by or on behalf of the CompanyT. Rowe Price 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.
11
Further, such forward-looking statements speak only as of the date on which
such statements are made, and the Company undertakeswe undertake 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.
In addition to those factors discussed above with respect to the Year 2000
processing issue, the Company'sOur future revenues maywill fluctuate due to othermany factors, such as:as the total
value and composition of assets under our management and related cash
inflows or outflows in the T. Rowe Price mutual funds and private accountother investment
portfolios; fluctuations in the worldwide financial markets, including those in
emerging countries, resulting in appreciation or depreciation of assets
under our management; the relative investment performance of the Company's sponsoredPrice
mutual funds and other investment portfolios as compared to competing
offerings and market indices; the extent to which we earn performance-based
investment advisory fees are earned from private account
investment portfolios;fees; the expense ratios of the Company's sponsoredPrice mutual funds;
investor sentiment and investor confidence; the ability of the Company
to maintain our
investment management and administrative fees at appropriate levels;
competitive conditions in the mutual funds industry; thefund, asset management, and broader
financial services sectors; our introduction of new mutual funds and
investment portfolios; theour ability of the Company to contract with the Price mutual funds
for payment for investment advisory-related administrative services provided
to the funds and their shareholders; the continuation of trends in the
retirement plan marketplace favoring defined 13
contribution plans and
participant-directed investments; and the amount and timing of income
recognized on the Company's investment portfolio. The
Company'sour venture capital and other investments. Our revenues are
substantially dependent on fees earned under contracts with the Price funds
and could be adversely affected if the independent directors of one or more
of the Price funds determined to terminate or significantly alter the terms
of one or morethe investment management and/or related administrative services agreements.
The Company'sOur future operating results are also dependent upon the level of our
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, includingdue to, among other things, performance-based compensation
based on the Company's financial results, as well asbonuses, changes in
response to
the size of the totalour employee population,count and mix, and competitive factors, or other
reasons;factors; changes in expense
levels resulting from our pending Rowe Price-Fleming International
acquisition, including goodwill charges arising therefrom; the manner in
which the Company provideswe provide international investment advisory services; expenses and
capital costs, includingsuch as technology assets, depreciation, amortization,
research and other non-cash charges,development, and interest, incurred by the Company to maintain itsand enhance our
administrative and operating services infrastructure including costs incurred with
respect to readiness for Year 2000 processing;Internet
capabilities; unanticipated costs that may be incurred by the Company from time to time to protect investor
accounts and client goodwill;the goodwill of our clients; and third-party noncompliance in Year 2000 processing.
The Company'sdisruptions of services,
including those provided by third parties such as communications, power, and
the mutual fund transfer agent system.
Our 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 businessour operations and results, of operations, including but
not limited to effects on the level of
costs incurred by the Companywe incur and effects on investor interest in 12
mutual funds and investing in general or in particular classes of mutual
funds or other investments.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Since December 31, 1998,1999, there has been no material change in the
information provided in Item 7A of the 19981999 Form 10-K Annual Report.
PART II. OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS.
On July 6, 1998, RPFI,Rowe Price-Fleming, the T. Rowe Price International Stock
Fund (the
International Stock Fund) and itsthe 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 sought to
invalidate the advisory agreement between RPFIRowe Price-Fleming and the
International Stock Fund, and sought recovery of an unspecified amount of
advisory fees paid by the International Stock Fund to RPFI. This action was
based on an allegationRowe Price-Fleming.
Plaintiffs alleged that the International Stock Fund does not have a
sufficient number of independent directors, as required by the Investment
Company Act of 1940, as amended, because its independent directors serve on 14
multiple boards of directors within the T. Rowe Price mutual fund complex
and receive substantial compensation in the form of director fees. On
October 12, 1998, the plaintiffs filed an Amended Complaint adding as a
plaintiff Linda B. Rohrbaugh, a shareholder in the T. Rowe Price Growth
Stock Fund. The Amended Complaint also added as defendants the T. Rowe
Price Growth Stock Fund, T. Rowe Price Associates and threecertain of the Company's wholly-ownedits
subsidiaries (T. Rowe Price Investment Services, T. Rowe Price Services and
T. Rowe Price Retirement Plan Services) which provide services to the Funds,funds, as well as five directors
of the T. Rowe Price Growth Stock Fund. On January 21, 1999, the Amended
Complaint was dismissed with leave for plaintiffs to re-file. On February
16, 1999, the plaintiffs filed a Second Amended Complaint, thoughbut the fund
directors were excluded as defendants. The Second Amended Complaint allegesalleged
a claim under Section 36(b) of the Investment Company Act of 1940. The
Complaint seekssought to invalidate the advisory and service agreements
negotiated between the corporate defendants and certain T. Rowe Price funds
based on a claim that (i) the fees paid to the corporate defendants were
excessive and (ii) the advisory agreements were not negotiated at armsarm's
length because each of the boardboards of directors of the Price funds areis not
independent as required under the Investment Company Act of 1940. On March
19, 1999, T. Rowe Pricewe and the other defendants filed a Motion to Dismiss the Second
Amended ComplaintComplaint. In an order dated March 20, 2000, our motion was granted
and the case dismissed with prejudice. On April 19, 1999,6, 2000, the plaintiffs
filed a Memorandum in Opposition and, on May 4, 1999, T. Rowe
Price and the other defendants filed a Reply.
The Company continues to believe that the factual and legal basis on which
the complaint is based is wholly unfounded, and the Company and the other
defendants intend to defend the case vigorously. Accordingly, the Company
does not believe that the ultimate resolutionNotice of this matter will have a
material adverse effect on the financial condition or results of operationsAppeal of the Company.Dismissal of the case.
From time to time, the Company is a party to various claims arisingarise in the ordinary course of our business,
including employment-related claims. In the
opinion of management, after consultationAfter consulting with counsel, we
believe it is unlikely that any adverse determination in one or more pending
claims would have a material adverse effect on the Company'sour financial positioncondition or
results of operations. 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The annual meeting of our stockholders was held on April 13, 2000. The
proxy statement and solicitation pertaining to this meeting were previously
filed with the Commission. Shares eligible to vote were 120,375,159 as of
the record date of February 14, 2000.
Management's 14 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 qualify. The tabulation of votes was:
Nominee For Withheld
_____________________ __________ __________
Edward C. Bernard 98,613,612 2,860,988
James E. Halbkat, Jr. 99,118,531 2,356,069
Donald B. Hebb, Jr. 99,099,187 2,375,414
Henry H. Hopkins 98,623,796 2,850,804
James A.C. Kennedy 98,627,045 2,847,555
John H. Laporte 98,631,393 2,843,207
Richard L. Menschel 99,081,815 2,392,785
William T. Reynolds 98,611,837 2,862,763
James S. Riepe 98,631,397 2,843,203
George A. Roche 89,417,926 12,056,675
Brian C. Rogers 98,637,493 2,837,107
Robert L. Strickland 99,070,600 2,404,000
M. David Testa 90,918,639 10,555,961
Anne Marie Whittemore 98,669,936 2,804,665
ITEM 5. OTHER INFORMATION.
On April 11, 2000, we entered into an agreement with Robert Fleming Holdings
Limited to purchase its 50% interest in Rowe Price-Fleming International for
a fixed price of $780 million. Rowe Price-Fleming was formed in 1979 and is
a 50% owned consolidated subsidiary of T. Rowe Price Associates. It
primarily provides U.S. investors with international investment advisory
services and, at March 31, 2000, managed $42.8 billion. Our acquisition of
the remaining interest in Rowe Price-Fleming is subject to receipt of
requisite regulatory approvals and is expected to close in the third quarter
of 2000, after The Chase Manhattan Corporation completes its announced
acquisition of Robert Fleming Holdings. In any event, closing of our
transaction will occur no later than December 31, 2000. The acquisition
will likely be modestly dilutive to earnings per share near-term and
somewhat accretive to income before goodwill charges. We expect to finance
this acquisition with available cash resources including the proceeds of a
five-year, $600 million syndicated bank credit facility that we are
currently negotiating.
On April 13, 2000, the Board of Directors elected Martin G. Wade as the
fifteenth member of the Board. Mr. Wade is the Vice Chairman and Chief
Executive Officer of Rowe Price-Fleming International.
14
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. Exhibits
10.0710.06 through 10.1310.11 are compensatory plan arrangements.
3.(i) Composite Restated Charter of T. Rowe Price Associates, Inc.
as of April 16, 1998. (Incorporated by reference from Form
10-Q Report for the quarterly period ended March 31, 1998;
Accession No. 0000080255-98-000361.)
15
3.(ii) Amended and Restated By-Laws of T. Rowe Price Associates,
Inc. as of April 17, 1997. (Incorporated by reference from
Form 10-Q Report for the quarterly period ended June 30,
1997; Accession No. 0000080255-97-000369.)
10.01 Form ofRepresentative Investment Management Agreement with each of
the T. Rowe Price Funds.mutual funds. (Incorporated by reference
from Form N-1A;N-1A/A; Accession No. 0000775688-99-000003.0001046404-97-000008.)
10.02 Transfer Agency and Service Agreement dated as of January
1,
19991,2000 between each of the T. Rowe Price Fundsmutual funds and T.
Rowe Price Services, Inc. (Incorporated by reference from
Form N-
1A;485BPOS; Accession No. 0000775688-99-000003.0001012968-00-000024.)
10.03 Agreement dated January 1, 19992000, as amended February 9, 2000,
between T. Rowe Price Retirement Plan Services, Inc. and each
of the T. Rowe Price Taxable Funds.taxable mutual funds. (Incorporated by
reference from Form N-1A;485BPOS; Accession No.
0000775688-99-000003.0001012968-00-000024.)
10.04 Form ofRepresentative Underwriting Agreement between each of the T.
Rowe Price Fundsmutual funds and T. Rowe Price Investment
Services, Inc. (Incorporated by reference from Form N-1A;N-1A/A;
Accession No. 0000775688-99-000003.0001046404-97-000008.)
10.05 Agreement dated February 11, 1998 between TRP Suburban
Second, Inc. and Riparius Construction, Inc. as Construction
Manager and Constructor (Incorporated by reference from the
paper filing of March 26, 1998, pursuant to a continuing
hardship exemption, on Form SE to the 1997 Form 10-K
[Accession No. 0000080255-98-00358].)
10.06 Amended, Restated, and Consolidated Office Lease dated as of
May 22, 1997 between 100 East Pratt Street Limited
Partnership and T. Rowe Price Associates, Inc. (Incorporated
by reference from Form 10-K for 1997; Accession No.
0000080255-98-000358.)
10.07 1986 Employee Stock Purchase Plan of T. Rowe Price
Associates, Inc. as Amended to April 5, 1990. (Incorporated
by reference from Exhibit A to the Definitive Proxy Statement
for the 1990 Annual Meeting of Stockholders which is included
in the 1989 Annual Report on Form 10-K [File No. 0-14282].)
10.08 T. Rowe Price Associates, Inc. 1986 Stock Incentive Plan.
(Incorporated by reference from Form S-1 Registration
Statement [File No. 33-3398].)
10.0910.06 T. Rowe Price Associates, Inc. 1990 Stock Incentive Plan.
(Incorporated by reference from Form S-8 Registration
Statement [File No. 33-37573].)
16
10.1010.07 T. Rowe Price Associates, Inc. 1993 Stock Incentive Plan.
(Incorporated by reference from Form S-8 Registration
Statement [File No. 33-72568].)
10.11 15
10.08 T. Rowe Price Associates, Inc. 1995 Director Stock Option
Plan. (Incorporated by reference from Form DEF 14A;
Accession No. 000933259-95-000009; CIK 0000080255.)
10.1210.09 T. Rowe Price Associates, Inc. 1996 Stock Incentive PlanPlan.
(Incorporated by reference from Form DEF 14A; Accession No.
0001006199-96-000031; CIK 0000080255.)
10.1310.10 T. Rowe Price Associates, Inc. 1998 Director Stock Option
Plan. (Incorporated by reference from Form DEF 14A;
Accession No. 00080255-98-000355.)
10.11 Executive Incentive Compensation Plan. (Incorporated by
reference from Form DEF 14A; Accession No. 933259-95-000009;
CIK 0000080255.)
15 Letter from PricewaterhouseCoopers LLP, independent
accountants, re unaudited interim financial information.
27 Financial Data Schedule.
(b) Reports on Form 8-K: None were filed during the secondfirst quarter of 1999.2000.
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 27, 1999.April 26, 2000.
T. Rowe Price Associates, Inc.
/s/ Alvin M. Younger, Jr., Managing Director, ChiefGeorge A. Roche
Chairman, President & Principal Financial Officer
/s/ Joseph P. Croteau, CPA
Vice President, Treasurer & Controller
(Principal Accounting Officer, Treasurer and SecretaryOfficer)