-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q1QIDEef5GA5hf6Q1iOSt4k8BV2BeYcxKtJW0ux1SiDWZGj6oCp691KhWbvyWqca QLwVzjFQk3aTB7v7VXOz1g== 0000080255-99-000564.txt : 19991025 0000080255-99-000564.hdr.sgml : 19991025 ACCESSION NUMBER: 0000080255-99-000564 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991022 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRICE T ROWE ASSOCIATES INC /MD/ CENTRAL INDEX KEY: 0000080255 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY & COMMODITY BROKERS, DEALERS, EXCHANGES & SERVICES [6200] IRS NUMBER: 520556948 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14282 FILM NUMBER: 99732159 BUSINESS ADDRESS: STREET 1: 100 EAST PRATT ST CITY: BALTIMORE STATE: MD ZIP: 21202 BUSINESS PHONE: (410) 345- MAIL ADDRESS: STREET 1: P.O. BOX 89000 CITY: BALTIMORE STATE: MD ZIP: 21289 10-Q 1 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended: SEPTEMBER 30, 1999. Commission file number: 000-14282. Exact name of registrant as specified in its charter: T. ROWE PRICE ASSOCIATES, INC. State of incorporation: MARYLAND. I.R.S. Employer Identification No.: 52-0556948. Address and Zip Code of principal executive offices: 100 EAST PRATT STREET, BALTIMORE, MARYLAND 21202. Registrant's telephone number, including area code: (410) 345-2000. Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X]. No [ ]. Indicate the number of shares outstanding of the issuer's common stock ($.20 par value), as of the latest practicable date. 119,651,894 SHARES AT OCTOBER 18, 1999. Exhibit index is at Item 6(a) on page 15. 2 PART I. FINANCIAL INFORMATION. ITEM 1. FINANCIAL STATEMENTS. T. ROWE PRICE ASSOCIATES, INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data) 12/31/98 09/30/99 ________ ________ ASSETS Cash and cash equivalents $283,838 $390,565 Accounts receivable 100,702 112,025 Investments in sponsored mutual funds 192,914 204,313 Other investments 26,597 33,310 Property and equipment 166,612 196,839 Other assets 26,121 16,873 ________ ________ $796,784 $953,925 ________ ________ ________ ________ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Accounts payable and accrued expenses $ 45,737 $ 48,051 Accrued compensation and related costs 56,757 89,576 Income taxes payable 15,308 16,404 Dividends payable 12,012 12,010 Debt -- 17,088 Minority interests in consolidated subsidiaries 52,666 69,228 ________ ________ Total liabilities 182,480 252,357 ________ ________ 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 119,716,171 shares in 1999 24,037 23,943 Capital in excess of par value 41,073 43,132 Retained earnings 517,631 598,446 Accumulated other comprehensive income 31,563 36,047 ________ ________ Total stockholders' equity 614,304 701,568 ________ ________ $796,784 $953,925 ________ ________ ________ ________ 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 Nine months ended ended _________________ _________________ 09/30/98 09/30/99 09/30/98 09/30/99 ________ ________ ________ ________ Revenues Investment advisory fees $170,214 $204,225 $510,681 $586,648 Administrative fees 42,919 49,954 128,444 147,550 Investment and other income 5,426 5,750 12,177 17,328 ________ ________ ________ ________ 218,559 259,929 651,302 751,526 ________ ________ ________ ________ Expenses Compensation and related costs 78,153 83,531 224,459 247,926 Advertising and promotion 13,764 13,309 50,819 49,802 Occupancy and equipment 22,293 24,625 61,249 66,974 International investment research fees 10,657 13,041 35,770 37,766 Other operating expenses 15,223 17,068 43,186 49,993 ________ ________ ________ ________ 140,090 151,574 415,483 452,461 ________ ________ ________ ________ Income before income taxes and minority interests 78,469 108,355 235,819 299,065 Provision for income taxes 30,094 40,509 90,623 113,454 ________ ________ ________ ________ Income from consolidated companies 48,375 67,846 145,196 185,611 Minority interests in consolidated subsidiaries 5,401 5,625 16,063 16,287 ________ ________ ________ ________ Net income $ 42,974 $ 62,221 $129,133 $169,324 ________ ________ ________ ________ ________ ________ ________ ________ Basic earnings per share $ .36 $ .51 $ 1.08 $ 1.40 ________ ________ ________ ________ ________ ________ ________ ________ Diluted earnings per share $ .33 $ .48 $ .99 $ 1.31 ________ ________ ________ ________ ________ ________ ________ ________ Dividends declared per share $ .085 $ .10 $ .255 $ .30 ________ ________ ________ ________ ________ ________ ________ ________ Weighted average shares outstanding 119,429 120,967 119,047 120,879 ________ ________ ________ ________ ________ ________ ________ ________ Weighted average shares outstanding- assuming dilution 130,096 129,041 130,209 129,562 ________ ________ ________ ________ ________ ________ ________ ________ 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) Nine months ended __________________ 09/30/98 09/30/99 ________ ________ Cash flows from operating activities Net income $129,133 $169,324 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization of property and equipment 24,286 23,548 Minority interests in consolidated subsidiaries 16,063 16,287 Other changes in assets and liabilities 30,343 32,879 ________ ________ Net cash provided by operating activities 199,825 242,038 ________ ________ Cash flows from investing activities Investments in sponsored mutual funds (13,690) (5,363) Proceeds from disposition of sponsored mutual funds 13,955 1,186 Other investments (1,113) (23,633) Distributions from other investments 2,686 9,537 Additions to property and equipment (41,247) (47,009) ________ ________ Net cash used in investing activities (39,409) (65,282) ________ ________ Cash flows from financing activities Purchases of stock (33,666) (55,468) Receipts relating to stock issuances 7,951 6,674 Proceeds of bank borrowing -- 15,019 Dividends paid to stockholders (30,285) (36,231) Distributions to minority interests (17,045) (23) ________ ________ Net cash used in financing activities (73,045) (70,029) ________ ________ Cash and cash equivalents Net increase during period 87,371 106,727 At beginning of year 200,409 283,838 ________ ________ At end of period $287,780 $390,565 ________ ________ ________ ________ See the accompanying notes to the condensed consolidated financial statements. 5 T. ROWE PRICE ASSOCIATES, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (dollars in thousands) Accumu- Capital lated Common in other Total stock excess compre- stock- - par of par Retained hensive holders' value value earnings income equity _______ _______ ________ ________ ________ Balance at December 31, 1998, 120,183,266 common shares $24,037 $41,073 $517,631 $31,563 $614,304 Comprehensive income Net income 169,324 Change in unrealized security holding gains 4,484 Total comprehensive income 173,808 1,609,395 common shares issued under stock-based compensation plans 322 13,036 13,358 2,076,490 common shares repurchased (416) (10,977) (52,280) (63,673) Dividends declared (36,229) (36,229) _______ _______ ________ _______ ________ Balance at September 30, 1999, 119,716,171 common shares $23,943 $43,132 $598,446 $36,047 $701,568 _______ _______ ________ _______ ________ _______ _______ ________ _______ ________ See the accompanying notes to the condensed consolidated financial statements. 6 T. ROWE PRICE ASSOCIATES, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - THE COMPANY AND BASIS OF PREPARATION. T. Rowe Price Associates, Inc. and its consolidated subsidiaries (the Company) derives its revenue and net income primarily from investment advisory services provided to individual and institutional investors in the Company's sponsored mutual funds and private account 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 of America. Investment advisory revenues are largely dependent on the total value and composition of assets under management; accordingly, fluctuations in financial markets and in the composition of assets under management impact revenues and results of operations. The unaudited condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. All such adjustments are of a normal recurring nature. The unaudited interim financial information contained in the condensed consolidated financial statements should be read in conjunction with the consolidated financial statements contained in the 1998 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 for internal use. Accordingly, the Company capitalized $1,825,000 during the third quarter and $3,724,000 during the first nine months of 1999. 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 promissory note due in installments of 180,950,000 yen in 2002 and 2003 and 1,447,600,000 yen in 2004. Interest is due quarterly at LIBOR for yen borrowings plus .95% and is fixed for the first two years at 7 1.42%. Foreign currency transaction losses arising from this borrowing of $2,012,000 during the nine months ended September 30, 1999 are included in investment and other income. NOTE 5 - INFORMATION ABOUT REVENUES AND SERVICES. The Company's revenues (in thousands) from advisory services provided under agreements with its sponsored mutual funds and other investment clients during the first nine months include: 1998 1999 _________ _________ Sponsored mutual funds Stock and balanced Domestic $221,918 $261,246 International 88,291 87,739 Bond and money market 67,934 73,511 ________ ________ 378,143 422,496 Other portfolios 132,538 164,152 ________ ________ Total investment advisory fees $510,681 $586,648 ________ ________ ________ ________ The following table summarizes the various investment portfolios and assets under management (in billions) on which the Company earns its advisory fees. Average during first 9 months _______________ 1998 1999 12/31/98 09/30/99 ______ ______ ________ ________ Sponsored mutual funds Stock and balanced Domestic $ 50.9 $ 60.3 $ 55.9 $ 61.6 International 16.6 16.5 16.4 17.1 Bond and money market 20.4 22.2 22.1 22.2 ______ ______ ______ ______ 87.9 99.0 94.4 100.9 Other portfolios 48.0 55.4 53.4 56.5 ______ ______ ______ ______ $135.9 $154.4 $147.8 $157.4 ______ ______ ______ ______ ______ ______ ______ ______ Fees for advisory-related administrative services provided to the funds were $94,700,000 and $110,661,000 for the first nine months of 1998 and 1999, respectively. Accounts receivable from the funds totaled $56,345,000 at December 31, 1998 and $60,983,000 at September 30, 1999. NOTE 6 - COMMON STOCK. During the first nine months of 1999, the Company granted options to acquire 3,413,215 common shares to certain of its directors, officers and employees at an average price of $30.94. At September 30, 1999, accounts payable and accrued expenses includes $8,205,000 related to the pending settlement of common share repurchases. During the first four days of October 1999, the Company repurchased an additional 140,000 common shares at an aggregate price of $3,745,000. 8 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 September 30, 1999 and for the three- and nine-month periods ended September 30, 1998 and 1999, appearing on pages two through seven of this Form 10-Q Quarterly Report. These financial statements are the responsibility of the company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements for them to be in conformity with generally accepted accounting principles. We previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet as of December 31, 1998, and the related consolidated statements of income, of cash flows, and of stock-holders' equity for the year then ended (not presented herein), and in our report dated January 26, 1999 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, 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 20, 1999 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 revenue and net income primarily from investment advisory services provided to individual and institutional investors in the Company's sponsored mutual funds and private account 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 of a broad range of domestic and international stock, bond, and money market mutual funds and other investment portfolios which meet the varied needs and objectives of its individual and institutional investment advisory clients. Investment advisory revenues are largely dependent on the total value and composition of assets under management; accordingly, fluctuations in financial markets and in the composition of assets under management impact revenues and results of operations. At September 30, 1999, assets under management totaled $157.4 billion, including $100.9 billion in the mutual funds. Equity investments comprise nearly 75% of all assets under management at September 30, 1999. This management's discussion and analysis should be read in conjunction with that contained in the 1998 Annual Report. RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1999 VERSUS 1998. Net income increased $19.2 million or 45% to $62.2 million, or diluted earnings per share of $0.48, from $43.0 million or diluted earnings per share of $0.33. Total revenues increased 19% from $219 million to $260 million, led by an increase of $34 million in investment advisory fees. Investment advisory revenues earned from the mutual fund investment portfolios increased $22.9 million as average mutual fund assets under management were $102.9 billion, up $15.4 billion from the 1998 period. Fund assets decreased $1.8 billion during the third quarter of 1999 and totaled $100.9 billion at period end, including $78.7 billion in stock and balanced funds. Net cash inflows to the funds during the quarter totaled $818 million, including net inflows of $989 million into domestic stock funds offset by net outflows of $24 million from bond and money market funds and $147 million from international stock funds. The balance of the change in mutual fund assets was due to market value depreciation and reinvested income. Fees earned from other investment portfolios, including variable annuity and other subadvised funds, contributed the balance of the advisory revenue gains. Assets under management in other investment portfolios were $56.5 billion at September 30, 1999, down less than $100 million from June 30, 1999. 10 Administrative fees from advisory-related services to the funds and their shareholders rose $7.0 million to nearly $50 million. These increases were primarily attributable to defined contribution retirement plan recordkeeping services; however, increased operating expenses, including preparations for Year 2000 processing, offset these gains. Investment and other income was up $.3 million, including $1.8 million from the Company's greater money market mutual fund investments and $.6 million from other investments. These gains were, for the most part, offset by a $2.1 million foreign currency exchange rate loss on the Company's yen-denominated debt. Operating expenses increased 8% to $151.6 million. Greater compensation and related costs, which were up $5.4 million, were attributable to increases in rates of compensation, including performance-related bonuses, and an increase in staff size primarily to support the Company's growing investment-related administrative services and technology support operations. At September 30, 1999, the Company employed more than 3,700 associates. Advertising and promotion costs decreased almost $.5 million from 1998 levels. These expenditures will vary over time as market conditions and cash flows to the mutual funds warrant. The Company expects to increase spending in the fourth quarter to a level above that of the fourth quarter 1998. Occupancy and equipment expense was up due to the expansion of operating facilities and related equipment leasing, primarily of technology assets. International investment research fees were up $2.4 million as international assets under management increased to a record $34.9 billion at September 30, 1999, including $18.2 billion in the mutual funds. International assets are managed by the Company's 50% owned consolidated subsidiary, Rowe Price-Fleming International (RPFI). Other expenses increased largely to support the Company's growing technology support operations. The provision for income taxes as a percentage of pretax income is lower in 1999 due to changes anticipated in the apportionment of income for state taxation. RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1999 VERSUS 1998. Net income increased $40.2 million or 31% to $169.3 million, or diluted earnings per share of $1.31, from $129.1 million or diluted earnings per share of $0.99. Total revenues increased 15% from $651.3 million to $751.5 million, led by an increase of $76.0 million in investment advisory fees. Investment advisory revenues earned from the mutual fund investment portfolios increased $44.4 million as average mutual fund assets under management were $99.0 billion, $11.1 billion more than during the 1998 period. Net cash inflows to the funds in 1999 totaled $1.4 billion, including inflows of $2.2 billion into domestic stock funds and $.1 billion into bond and money market funds, offset in part by outflows of $.9 billion 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 $6.7 million of increased performance-based advisory 11 fees earned primarily on assets managed in sponsored partnerships. Administrative fees from advisory-related services to the funds and their shareholders rose $19.1 million to nearly $147.6 million. This increase was primarily attributable to defined contribution retirement plan recordkeeping services; however, increased operating expenses, including preparations for Year 2000 processing, offset these gains. Commissions earned on greater trading volume in discount brokerage contributed $3.8 million of the revenue increase. Investment and other income rose $5.2 million, largely from greater income on the Company's larger money market mutual fund investments. Gains recognized by certain sponsored partnerships in which the Company invests were partially offset by the foreign currency exchange rate loss on the yen-denominated debt. Operating expenses increased 9% to $452.5 million. Greater compensation and related costs, which were up $23.5 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 related equipment acquisitions, primarily leases of technology assets. Other expenses increased $6.8 million to support the Company's growing operations. CAPITAL RESOURCES AND LIQUIDITY. See Notes 3 and 4 on page 6 of this Quarterly Report for a discussion concerning borrowings and investments made in 1999. YEAR 2000 PROCESSING ISSUE UPDATE. At June 30, 1999, the Company's mission critical systems efforts were complete. The Company's non-mission critical systems efforts were completed during the third quarter of 1999. In April 1999, 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." The Company has developed and tested Year 2000 contingency plans for mission critical systems, facilities and external dependencies. 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 third-party 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 has alternative short-term 12 solutions, it is unlikely that any adequate contingency plan can be developed for a prolonged failure of these mission critical services and systems. 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 staffs are assessing the Year 2000 risks in the managed 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 composition of a third-party index. Additionally, governments and financial markets around the world could be affected by Year 2000 issues. To the extent that the market prices of securities 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. FORWARD-LOOKING INFORMATION. Information or statements provided by or on behalf of the Company from time to time, including those within this Form 10-Q Quarterly Report, may contain certain "forward-looking information," including information relating to anticipated growth in revenues or earnings per share, anticipated changes in the amount and composition of assets under management, anticipated expense levels, and expectations regarding financial market conditions. The Company cautions readers that any forward-looking information provided by or on behalf of the Company is not a guarantee of future performance. Actual results may differ materially from those in forward-looking information as a result of various factors, including but not limited to those discussed below. Further, such forward-looking statements speak only as of the date on which such statements are made, and the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. In addition to those factors discussed above with respect to the Year 2000 processing issue, the Company's future revenues may fluctuate due to other factors such as: the total value and composition of assets under management and related cash inflows or outflows in mutual funds and private account investment portfolios; fluctuations in the worldwide financial markets, including those in emerging countries, resulting in appreciation or depreciation of assets under management; the relative investment performance of the Company's sponsored mutual funds and other investment portfolios as compared to competing offerings and market indices; the extent to which performance-based investment advisory fees are earned from investment portfolios; the expense ratios of the Company's sponsored mutual funds; investor sentiment and investor confidence; the ability of the Company to maintain investment management and administrative fees at appropriate levels; competitive conditions in the mutual funds industry; the introduction of new mutual funds and investment portfolios; the ability of the Company to 13 contract with the 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; and the amount and timing of income recognized on the Company's investment portfolio. The Company's revenues are substantially dependent on fees earned under contracts with the funds and could be adversely affected if the independent directors of one or more of the funds determined to terminate or significantly alter the terms of one or more investment management and/or related administrative services agreements. The Company's future operating results are also dependent upon the level of operating expenses, which are subject to fluctuation for the following or other reasons: changes in the level of advertising expenses in response to market conditions or other factors; variations in the level of compensation expense incurred by the Company, including performance-based compensation based on the Company's financial results, as well as changes in response to the size of the total employee population, competitive factors, or other reasons; changes in the manner in which the Company provides international investment services; expenses and capital costs, including depreciation, amortization and other non-cash charges, incurred by the Company to maintain its administrative and services infrastructure, including costs incurred with respect to readiness for Year 2000 processing; unanticipated costs that may be incurred by the Company from time to time to protect investor accounts and client goodwill; and third-party noncompliance in Year 2000 processing. The Company's business is also subject to substantial governmental regulation, and changes in legal, regulatory, accounting, tax, and compliance requirements may have a substantial effect on the Company's business and results of operations, including but not limited to effects on the level of costs incurred by the Company and effects on investor interest in mutual funds and investing in general or in particular classes of mutual funds or other investments. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Except for the yen-denominated debt and its exchange rate sensitivity which is discussed in Note 4 on page 6 of the Quarterly Report, there has been no material change since December 31, 1998 in the information provided in Item 7A of the 1998 Form 10-K Annual Report. PART II. OTHER INFORMATION. ITEM 1. LEGAL PROCEEDINGS. On July 6, 1998, RPFI, the T. Rowe Price International Stock Fund (the International Stock Fund) and its 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 RPFI and the 14 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 allegation 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 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 three of the Company's wholly-owned subsidiaries (T. Rowe Price Investment Services, T. Rowe Price Services and T. Rowe Price Retirement Plan Services) which provide 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, though the fund directors were excluded as defendants. The Second Amended Complaint alleges a claim under Section 36(b) of the Investment Company Act of 1940. The Complaint seeks 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 arms length because each of the boards of directors of the Price funds are not independent as required under the Investment Company Act of 1940. On March 19, 1999, the Company and the other defendants filed a Motion to Dismiss Second Amended Complaint with prejudice. On April 19, 1999, the plaintiffs filed a Memorandum in Opposition and, on May 4, 1999, the Company 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 resolution of this matter will have a material adverse effect on the financial condition or results of operations of the Company. From time to time, the Company is a party to various claims arising in the ordinary course of business, including employment-related claims. In the opinion of management, after consultation with counsel, it is unlikely that any adverse determination in one or more pending claims would have a material adverse effect on the Company's financial position or results of operations. ITEM 5. OTHER INFORMATION. On June 3, 1999, the Company's board of directors was expanded to add Donald B. Hebb, Jr. (age 57). Mr. Hebb is the managing general partner of ABS Capital Partners. 15 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 10.07 through 10.13 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.) 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 of Investment Management Agreement with each of the T. Rowe Price Funds. (Incorporated by reference from Form N-1A; Accession No. 0000775688-99-000003.) 10.02 Transfer Agency and Service Agreement dated as of January 1,1999 between each of the T. Rowe Price Funds and T. Rowe Price Services, Inc. (Incorporated by reference from Form N-1A; Accession No. 0000775688-99-000003.) 10.03 Agreement dated January 1, 1999 between T. Rowe Price Retirement Plan Services, Inc. and each of the T. Rowe Price Taxable Funds. (Incorporated by reference from Form N-1A; Accession No. 0000775688-99-000003.) 10.04 Form of Underwriting Agreement between each of the T. Rowe Price Funds and T. Rowe Price Investment Services, Inc. (Incorporated by reference from Form N-1A; Accession No. 0000775688-99-000003.) 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.) 16 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].) 10.09 T. Rowe Price Associates, Inc. 1990 Stock Incentive Plan. (Incorporated by reference from Form S-8 Registration Statement [File No. 33-37573].) 10.10 T. Rowe Price Associates, Inc. 1993 Stock Incentive Plan. (Incorporated by reference from Form S-8 Registration Statement [File No. 33-72568].) 10.11 T. Rowe Price Associates, Inc. 1995 Director Stock Option Plan. (Incorporated by reference from Form DEF 14A; Accession No. 000933259-95-000009; CIK 0000080255.) 10.12 T. Rowe Price Associates, Inc. 1996 Stock Incentive Plan (Incorporated by reference from Form DEF 14A; Accession No. 0001006199-96-000031; CIK 0000080255.) 10.13 T. Rowe Price Associates, Inc. 1998 Director Stock Option Plan. (Incorporated by reference from Form DEF 14A; Accession No. 00080255-98-000355.) 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 third quarter of 1999. 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 22, 1999. T. Rowe Price Associates, Inc. /s/ Alvin M. Younger, Jr., Managing Director, Chief Financial & Accounting Officer, Treasurer and Secretary EX-15 2 EXHIBIT 15 October 21, 1999 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Dear Sirs: We are aware that our report dated October 20, 1999 (issued pursuant to the provisions of Statement on Auditing Standards No. 71) is incorporated by reference in the Prospectuses constituting parts of T. Rowe Price Associates, Inc.'s Registration Statements on Form S-8 (No. 033-07012, No. 033-08672, No. 033-37573, No. 033-72568, No. 033-58749 and No. 333-20333). We are also aware of our responsibilities under the Securities Act of 1933. Yours very truly, /s/ PricewaterhouseCoopers LLP EX-27 3
5 This schedule contains summary financial information extracted from the unaudited condensed consolidated financial statements of T. Rowe Price Associates, Inc. included in Part I, Item 1 of the accompanying Form 10-Q Quarterly Report for the period ended September 30, 1999 and is qualified in its entirety by reference to such financial statements. 0000080255 T. ROWE PRICE ASSOCIATES, INC. 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 390,565,000 204,313,000 112,025,000 0 0 0 196,839,000 0 953,925,000 0 0 0 0 23,943,000 677,625,000 953,925,000 0 751,526,000 0 452,461,000 0 0 0 299,065,000 113,454,000 169,324,000 0 0 0 169,324,000 1.40 1.31 Item is not contained in registrant's unclassified balance sheet. Item is reported net of accumulated depreciation at interim. Not reported at interim. Basic earnings per share.
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