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: SEPTEMBER 30, 2001.
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 the number of shares outstanding of the issuer's common stock ($.20 par
value), as of the latest practicable date. 123,457,658 SHARES AT OCTOBER 22,
2001.
Exhibit index is at Item 6(a) on pages 15-16.
PART I. FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
12/31/00 09/30/01
---------- ----------
ASSETS
Cash and cash equivalents $ 80,526 $ 181,126
Accounts receivable 131,041 103,718
Investments in sponsored mutual funds 190,406 115,901
Other investments 59,801 75,337
Property and equipment 255,660 249,685
Goodwill 694,985 672,922
Other assets 57,040 23,605
---------- ----------
$1,469,459 $1,422,294
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable and accrued expenses $ 56,877 $ 41,623
Accrued compensation and related costs 66,356 87,169
Income taxes payable 13,220 44,411
Dividends payable 18,366 18,550
Customer deposits at savings bank subsidiary 10,932 22,843
Debt and accrued interest 312,277 140,477
Minority interests in consolidated subsidiaries 366 --
---------- ----------
Total liabilities 478,394 355,073
---------- ----------
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 122,439,232 shares in
2000 and 123,582,130 shares in 2001 24,488 24,716
Capital in excess of par value 80,855 87,588
Retained earnings 852,775 948,164
Accumulated other comprehensive income 32,947 6,753
---------- ----------
Total stockholders' equity 991,065 1,067,221
---------- ----------
$1,469,459 $1,422,294
========== ==========
See the accompanying notes to the condensed consolidated financial statements.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per-share amounts)
Three months Nine months
ended ended
------------------------ ------------------------
09/30/00 09/30/01 09/30/00 09/30/01
--------- --------- --------- ---------
Revenues
Investment advisory fees $ 239,206 $ 189,289 $ 699,740 $ 588,265
Administrative fees 57,557 51,161 175,582 166,999
Investment and other income 6,941 3,168 45,395 30,966
--------- --------- --------- ---------
303,704 243,618 920,717 786,230
--------- --------- --------- ---------
Expenses
Compensation and related costs 98,912 91,219 284,544 292,076
Advertising and promotion 15,547 10,315 61,728 47,437
Occupancy and equipment 27,078 27,952 80,424 89,419
International investment
research fees 5,961 -- 36,665 --
Goodwill amortization 4,276 7,230 4,649 21,690
Interest expense 3,608 2,438 3,730 11,256
Other operating expenses 33,810 19,208 83,176 69,810
--------- --------- --------- ---------
189,192 158,362 554,916 531,688
--------- --------- --------- ---------
Income before income taxes and
minority interests 114,512 85,256 365,801 254,542
Provision for income taxes 42,800 34,858 137,595 104,037
--------- --------- --------- ---------
Income from consolidated companies 71,712 50,398 228,206 150,505
Minority interests in consolidated
subsidiaries 2,529 -- 14,650 (357)
--------- --------- --------- ---------
Net income $ 69,183 $ 50,398 $ 213,556 $ 150,862
========= ========= ========= =========
Basic earnings per share $ .57 $ .41 $ 1.77 $ 1.23
========= ========= ========= =========
Diluted earnings per share $ .53 $ .39 $ 1.65 $ 1.17
========= ========= ========= =========
Dividends declared per share $ .13 $ .15 $ .39 $ .45
========= ========= ========= =========
Weighted average shares outstanding 121,425 123,283 120,926 123,041
========= ========= ========= =========
Weighted average shares outstanding-
assuming dilution 130,500 129,284 129,415 129,272
========= ========= ========= =========
See the accompanying notes to the condensed consolidated financial statements.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine months ended
-------------------------
09/30/00 09/30/01
--------- ---------
Cash flows from operating activities
Net income $ 213,556 $ 150,862
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization of property
and equipment 29,966 38,440
Minority interests in consolidated subsidiaries 14,650 (357)
Amortization of goodwill 4,649 21,690
Other changes in assets and liabilities 30,261 101,693
--------- ---------
Net cash provided by operating activities 293,082 312,328
--------- ---------
Cash flows from investing activities
Acquisition of minority interests in
T. Rowe Price International (783,194) --
Investments in sponsored mutual funds (8,699) (32,568)
Dispositions of sponsored mutual funds 67,038 84,927
Other investments (13,228) (30,678)
Distributions from other investments 576 12,568
Additions to property and equipment (66,544) (37,148)
--------- ---------
Net cash used in investing activities (804,051) (2,899)
--------- ---------
Cash flows from financing activities
Purchases of stock -- (6,221)
Receipts relating to stock issuances 12,293 10,770
Proceeds of bank borrowing 300,000 --
Debt principal repayments -- (170,000)
Dividends paid to stockholders (47,065) (55,289)
Savings bank subsidiary deposits -- 11,911
Other activities (1,047) --
--------- ---------
Net cash provided by (used in) financing activities 264,181 (208,829)
--------- ---------
Cash and cash equivalents
Net change during period (246,788) 100,600
At beginning of year 358,472 80,526
--------- ---------
At end of period $ 111,684 $ 181,126
========= =========
See the accompanying notes to the condensed consolidated financial statements.
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 end of 2000,
122,439,232 common shares $ 24,488 $ 80,855 $ 852,775 $ 32,947 $ 991,065
Comprehensive income
Net income 150,862
Change in unrealized
security holding gains,
including ($10,188) for
the third quarter (26,194)
Total comprehensive income 124,668
1,440,398 common shares
issued under stock-based
compensation plans 288 15,980 16,268
297,500 common shares
repurchased (60) (9,247) (9,307)
Dividends declared (55,473) (55,473)
---------- ---------- ---------- ---------- ----------
Balance at September 30,
2001, 123,582,130 common
shares $ 24,716 $ 87,588 $ 948,164 $ 6,753 $1,067,221
========== ========== ========== ========== ==========
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.
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 2000 Annual Report. Certain
2000 amounts have been reclassified to conform to the 2001 presentation.
NOTE 2 - INFORMATION ABOUT REVENUES AND SERVICES.
Our revenues (in thousands) from advisory services provided under agreements
with our sponsored mutual funds and other investment clients for the nine months
ended September 30 were:
2000 2001
-------- --------
Sponsored mutual funds
Stock and blended
Domestic $321,830 $280,657
International 111,492 74,869
Bond and money market 69,709 72,422
-------- --------
503,031 427,948
Other portfolios 196,709 160,317
-------- --------
Total investment advisory fees $699,740 $588,265
======== ========
The following table summarizes the various investment portfolios and assets
under management (in billions) on which we earn advisory fees.
Average during
first 9 months
--------------------
2000 2001 12/31/00 09/30/01
-------- -------- -------- --------
Sponsored mutual funds
Stock and blended
Domestic $ 73.0 $ 63.5 $ 68.0 $ 54.0
International 20.5 13.9 16.3 10.5
Bond and money market 21.7 22.7 22.0 23.4
-------- -------- -------- --------
115.2 100.1 106.3 87.9
Other portfolios 64.4 56.7 60.4 52.5
-------- -------- -------- --------
$ 179.6 $ 156.8 $ 166.7 $ 140.4
======== ======== ======== ========
Fees for advisory-related administrative services provided to the funds were
$131,232,000 and $131,012,000 for the first nine months of 2000 and 2001,
respectively. Accounts receivable from the funds totaled $70,537,000 at December
31, 2000 and $52,786,000 at September 30, 2001.
NOTE 3 - DEBT.
On April 2, 2001, the interest rate on our yen-denominated debt was reduced to
1.09% for the next twelve months.
During the first nine months of 2001, we reduced our U.S. dollar-denominated
debt by $170,000,000. On October 10, 2001, we further reduced this debt by
$5,000,000 and the interest rate on the balance of $120,000,000 was lowered to
2.92% for the next 34 days.
NOTE 4 - COMMON STOCK.
On September 21, 2001, we granted options to acquire about 4 million of our
common shares to certain of our officers and employees at a price of $25.70.
At September 30, 2001, accounts payable and accrued expenses includes $3,086,000
related to the pending settlement of the repurchase of 110,000 common shares.
During the first three days of October 2001, we repurchased an additional
175,500 common shares at an aggregate price of $5,047,000.
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors and Stockholders
T. Rowe Price Group, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of T.
Rowe Price Group, Inc. and its subsidiaries as of September 30, 2001, the
related condensed consolidated statements of income for the three-month and
nine-month periods ended September 30, 2001, and the related condensed
consolidated statements of cash flows and stockholders' equity for the
nine-month period ended September 30, 2001. These condensed consolidated
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 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.
/s/ KPMG LLP
Baltimore, Maryland
October 18, 2001
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
T. Rowe Price Group, Inc.
We have reviewed the accompanying condensed consolidated statements of income
for the three-month and nine-month periods ended September 30, 2000, and the
related condensed consolidated statements of cash flows for the nine-month
period ended September 30, 2000. 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 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 accompanying condensed consolidated interim financial statements
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 as of
December 31, 2000, 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 23, 2001, 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, 2000, 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
October 25, 2000, except for the
final paragraph above for which
the date is July 19, 2001
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Our revenues and net income are derived primarily from investment advisory
services provided to U.S. individual and institutional investors in our
sponsored mutual funds and other investment portfolios.
We manage a broad range of domestic and international stock, bond, and money
market mutual funds and other investment portfolios that meet the varied needs
and objectives of individual and institutional investors. Investment advisory
revenues depend largely on the total value and composition of assets under
management. Accordingly, fluctuations in financial markets and in the
composition of assets under management impact our revenues and results of
operations. Total assets under our management of $140.4 billion at September 30,
2001 are down $18.2 billion from June 30, 2001 and $26.3 billion from the
beginning of 2001. Assets under management at September 30, 2001 include $75.8
billion in domestic stock portfolios and $22.4 billion in international stock
portfolios. The financial market declines this year have pushed asset valuations
lower and are the primary cause of assets under management falling. We expect
that our fourth quarter revenues and operating results will be adversely
affected.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2001 VERSUS 2000.
Net income decreased $18.8 million, or 27%, to $50.4 million and diluted
earnings per share fell $.14 to $.39. Total revenues declined 20% from $304
million to $244 million.
Investment advisory revenues earned from the T. Rowe Price mutual funds
decreased $34 million, or 20%, as average fund assets under management were
$95.9 billion during the 2001 quarter, $21 billion or 18% less than in the 2000
period. Mutual fund assets totaled $87.9 billion at September 30, 2001, down
$8.0 billion from the third quarter 2001 average and down $13.1 billion from
June 30, 2001. Lower stock market valuations, especially those sustained after
the September 11, 2001 terrorist attacks in the United States, pushed fund
assets down $12.9 billion during the third quarter of 2001. Net redemptions by
fund investors during the 2001 quarter were $257 million. Stock funds had net
investor redemptions of $725 million, including $640 million from the
international funds and $85 million from the domestic funds. Money market and
bond fund investors added $468 million during the 2001 quarter.
Assets in the other investment portfolios that we manage declined $5.1 billion
during the 2001 quarter to $52.5 billion, pushing advisory fees down $11 million
from the 2000 period. In addition, performance-related fees were $1.7 million
during the 2001 third quarter, $4.9 million lower than in the comparable 2000
quarter. We earn performance fees primarily on venture capital investments that
we manage and, though recurring, these fees will vary significantly as market
conditions and investment portfolios change.
Administrative revenues from discount brokerage commissions fell $1.9 million
versus the 2000 period due to lower transaction volume and lower average
commission rates arising from the shift to Internet trading. Revenues from other
services that we provide to the T. Rowe Price funds and their shareholders
declined $4.5 million and were mostly offset by a similar reduction of the costs
that we incurred in providing these services.
Investment and other income declined $3.8 million from the 2000 period, of which
$3.2 million is attributable to smaller average cash balances and lower interest
rates in 2001 after the T. Rowe Price International acquisition in August 2000.
We expect that investment income in future quarterly periods will generally be
lower than that of prior-year comparable periods.
Operating expenses declined $30.8 million, or 16%, from last year's third
quarter to $158.4 million. Lower compensation and related costs, which were down
$7.7 million over the comparable 2000 quarter, were attributable primarily to a
reduction in our performance-based bonus expense and decreased use of temporary
personnel by our information technology operations. As of September 30, 2001, we
employed 3,830 associates, down almost 200 from the end of 2000. Advertising and
promotion expenses decreased $5.2 million from the 2000 quarter to $10.3
million. We have reduced our spending as financial market declines have made
investors more cautious and less active. We expect that our advertising and
promotion expenditures for the fourth quarter will rise sequentially from the
third quarter 2001 and approximate spending in the first quarter of this year.
Occupancy and equipment expenses were about $28 million, only 3% higher than in
the 2000 third quarter. The transition of our international operations in seven
foreign countries to T. Rowe Price operating and investment systems was
completed in June 2001. For the first time in several years, no facilities
expansion is currently underway. The next planned move will occur in late third
quarter 2002 when our Tampa service center relocates to a new leased facility.
The T. Rowe Price International acquisition in August 2000 has resulted in the
realignment of our operating costs to include greater operating expenses
associated with new employees and facilities and has added interest expense on
the acquisition indebtedness. However, the international investment research
fees and minority interests in Price International's net income have been
eliminated. Results now include a quarterly charge of $7 million, or just over
$.05 per share, for the amortization of goodwill arising from the acquisition.
As a result of the issuance of Statement of Financial Accounting Standards No.
142, the recurring quarterly charge amortizing goodwill will end after this
year. In subsequent years, the carrying amount of goodwill will be evaluated for
impairment on an annual basis.
Other operating expenses decreased $14.6 million from the third quarter of 2000.
As the international transition and several technology initiatives have been
brought to a close, we have substantially reduced other quarterly operating
expenses.
We expect that fourth quarter operating expenses will rise from the third
quarter level of this year primarily due to increased advertising and promotion
expense.
The 2001 provision for income taxes as a percentage of pretax income is
higher due to the amortization of goodwill that is not deductible in determining
our income tax expense.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2001 VERSUS 2000.
Net income decreased $62.7 million, or 29%, to $150.9 million and diluted
earnings per share fell from $1.65 to $1.17. Total revenues declined nearly 15%
from $921 million to $786 million.
Investment advisory revenues earned from the T. Rowe Price mutual funds
decreased $75.1 million as average fund assets under management were $100.1
billion during the 2001 period, $15.1 billion less than in the 2000 period.
Declines in financial market valuations reduced fund assets $18.6 billion during
the first nine months of 2001. Net subscriptions by fund investors were $282
million in the 2001 period. Domestic stock funds had net investor subscriptions
of $1.0 billion while money market and bond fund investors added $600 million.
International stock funds had net outflows of $1.3 billion.
Assets in the other investment portfolios that we manage fell $7.9 billion
during the first nine months of 2001, and our advisory fees thereon were down
$24.3 million. In addition, performance-related fees were $12.1 million lower in
the 2001 period.
Administrative revenues fell $8.6 million due almost entirely to lower discount
brokerage commissions.
Investment income declined $14.4 million to $31 million, with smaller cash and
bond fund holdings in 2001 accounting for $13.8 million of the decline. Gains
from our venture capital investments in 2000 that did not recur in the 2001
period were mostly offset by $11.3 million of greater realized gains from
dispositions of our available-for-sale mutual fund holdings in 2001.
Operating expenses declined 4% from $555 million in the 2000 period to $532
million, primarily due to reductions in advertising and promotion and other
operating expenses.
CAPITAL RESOURCES AND LIQUIDITY.
During the first nine months of 2001, we generated net cash flows from operating
activities of $312 million, including the effect of a change in federal law that
moved the due date of the third quarter 2001 estimated tax payment from
September 17 to October 1. We used our cash balances to reduce outstanding
borrowings by $170 million during the first nine months of 2001, and by an
additional $5 million in October. We also used $55 million to pay dividends
during the first nine months of 2001 and $14 million to repurchase our common
shares through October 3. We expect that available cash balances and those
generated from operating activities in the last quarter of this year will be
used to further reduce borrowings and to pay accrued bonuses before year end.
Depending on market conditions, we may also repurchase additional common shares.
FORWARD-LOOKING INFORMATION.
From time-to-time, information or statements provided by or on behalf of T. Rowe
Price, including those within this Quarterly Report on Form 10-Q, may contain
certain "forward-looking information," including information relating to
anticipated changes in our revenues and earnings, anticipated changes in the
amount and composition of assets under management, our anticipated expense
levels, and our expectations regarding financial markets and other conditions.
Readers are cautioned that any forward-looking information provided by or on
behalf of T. 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. Further,
forward-looking statements speak only as of the date on which they are made, and
we undertake no obligation to update any forward-looking statement to reflect
events or circumstances after the date on which it is made or to reflect the
occurrence of unanticipated events.
Our future revenues will fluctuate due to many factors, including: the total
value and composition of assets under our management; cash inflows and outflows
in the T. Rowe Price mutual funds and other managed investment portfolios;
fluctuations in worldwide financial markets, including those in emerging
countries, resulting in appreciation or depreciation of assets under our
management; the relative investment performance of the Price mutual funds and
other managed investment portfolios as compared to competing offerings and
market indices; the extent to which we earn performance-based investment
advisory fees; the expense ratios of the Price mutual funds; investor sentiment
and investor confidence; the ability to maintain our investment management and
administrative fees at appropriate levels; competitive conditions in the mutual
fund, asset management, and broader financial services sectors; our introduction
of new mutual funds and investment portfolios; our ability 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 contribution plans
and participant-directed investments; the amount and timing of income recognized
on our venture capital and other investments; and our level of success in
implementing our strategy to significantly expand our international business.
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 the investment management or related administrative services
agreements.
Our 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,
expansion of marketing efforts both within the U.S. and internationally, and
other factors; variations in the level of compensation expense due to, among
other things, performance-based bonuses, changes in our employee count and mix,
and competitive factors; changes in our operating expenses resulting from our
acquisition of the minority interests in T. Rowe Price International, including
goodwill amortization or impairment charges, interest expense, and other costs
of providing our international investment advisory services; fluctuation in
foreign currency exchange rates applicable to the costs of our international
operations; expenses and capital costs, such as technology assets,
depreciation, amortization, and research and development, incurred to maintain
and enhance our administrative and operating services infrastructure, including
Internet capabilities; unanticipated costs that may be incurred to protect
investor accounts and the goodwill of our clients; and disruptions of services,
including those provided by third parties such as facilities, 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 our operations and results, including but not limited to
effects on costs that we incur and effects on investor interest in 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, 2000, there has been no material adverse change in the
information provided in Item 7A of the 2000 Form 10-K Annual Report.
PART II. OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS.
On July 6, 1998, T. Rowe Price International (formerly Rowe Price-Fleming
International), the T. Rowe Price International Stock Fund and the fund's five
directors were named as defendants in 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 Rowe Price-Fleming and the International Stock Fund, and sought recovery
of an unspecified amount of advisory fees paid by the International Stock Fund
to Rowe Price-Fleming. Plaintiffs alleged that the International Stock Fund did
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 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 certain of its subsidiaries which
provided services to the 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, but the fund directors were excluded as defendants.
The Second Amended Complaint alleged a claim under Section 36(b) of the
Investment Company Act of 1940. The Complaint sought 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 arm's length because each of the boards of directors of the Price
funds was not independent as required under the Investment Company Act of 1940.
On March 19, 1999, we and the other defendants filed a Motion to Dismiss the
Second Amended Complaint. In an order dated March 20, 2000, our motion was
granted and the case dismissed with prejudice. On April 6, 2000, the plaintiffs
filed a Notice of Appeal of the Dismissal of the case. On May 1, 2001, the
United States Court of Appeals (Fourth Circuit) affirmed the District Court's
judgment.
From time to time, claims arise in the ordinary course of our business,
including employment-related claims. After consulting with counsel, we believe
it unlikely that any adverse determination in one or more pending claims would
have a material adverse effect on our financial condition or results of
operations.
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 10.06
through 10.12 are compensatory plan arrangements.
3(i) Amended and Restated Charter of T. Rowe Price Group, Inc. as of
March 9, 2001. (Incorporated by reference from Form 10-K for
2000; Accession No. 0001113169-01-000003.)
3(ii) By-Laws of T. Rowe Price Group, Inc. as of June 30, 2000.
(Incorporated by reference from Form 424B3; Accession No.
0001113169-00-000003.)
4 $500,000,000 Five-Year Credit Agreement among T. Rowe Price
Associates, Inc., the several lenders, and The Chase Manhattan
Bank, as administrative agent. (Incorporated by reference from
Form 10-Q Report for the quarterly period ended June 30, 2000;
Accession No. 0000080255-00-000425.)
10.01 Representative Investment Management Agreement with each of the
T. Rowe Price mutual funds. (Incorporated by reference from Form
N-1A/A; Accession No. 0001046404-97-000008.)
10.02 Transfer Agency and Service Agreement dated as of January 1,2001
between T. Rowe Price Services, Inc. and each of the T. Rowe
Price Funds. (Incorporated by reference from Form 485BPOS;
Accession No. 0000775688-01-500030.)
10.03 Agreement dated January 1, 2001 between T. Rowe Price Retirement
Plan Services, Inc. and certain of the T. Rowe Price Funds.
(Incorporated by reference from Form 485BPOS; Accession No.
0000775688-01-500030.)
10.04 Representative Underwriting Agreement between each of the T.
Rowe Price mutual funds and T. Rowe Price Investment Services,
Inc. (Incorporated by reference from Form 485APOS; Accession No.
0000775688-00-000003.)
10.05 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.)
10.06 1995 Director Stock Option Plan. (Incorporated by reference from
Form DEF 14A; Accession No. 0000933259-95-000009.)
10.07 1998 Director Stock Option Plan. (Incorporated by reference from
Form DEF 14A; Accession No. 0000080255-98-000355.)
10.08 1990 Stock Incentive Plan. (Incorporated by reference from Form
S-8 Registration Statement [File No. 33-37573].)
10.09 1993 Stock Incentive Plan. (Incorporated by reference from Form
S-8 Registration Statement [File No. 33-72568].)
10.10 1996 Stock Incentive Plan. (Incorporated by reference from Form
DEF 14A; Accession No. 0001006199-96-000031.)
10.11 2001 Stock Incentive Plan. (Incorporated by reference from Form
DEF 14A; Accession No. 0001113169-01-000002.)
10.12 Executive Incentive Compensation Plan. (Incorporated by
reference from Form DEF 14A; Accession No.
0000933259-95-000009.)
15 Letter from KPMG LLP, independent accountants, re unaudited
interim financial information.
(b) Reports on Form 8-K: A filing was made during the third quarter of 2001
reporting the change in our certifying independent accountant from
PricewaterhouseCoopers LLP to KPMG LLP on September 6, 2001.
(Accession No. 0000950133-01-502540.)
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 October 23, 2001.
T. Rowe Price Group, Inc.
/s/ Cristina Wasiak, Managing Director and Chief Financial Officer
/s/ Joseph P. Croteau, CPA, Vice President and Treasurer
(Principal Accounting Officer)