-----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, U+CiEktxN9gtMJj8hNF8IT9oh/+PDN82oE4lpMKj+SzWka5d7GnMeAXShqZgZz0e NBN5ZCCWU9wa7GQEJ8Xqng== 0000080255-99-000528.txt : 19990729 0000080255-99-000528.hdr.sgml : 19990729 ACCESSION NUMBER: 0000080255-99-000528 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990728 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: 99671373 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: JUNE 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. 121,390,478 SHARES AT JULY 26, 1999. Exhibit index is at Item 6(a) on page 14. 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 06/30/99 ________ ________ ASSETS Cash and cash equivalents $283,838 $361,584 Accounts receivable 100,702 108,530 Investments in sponsored mutual funds 192,914 208,290 Other investments 26,597 33,016 Property and equipment 166,612 186,710 Other assets 26,121 22,899 ________ ________ $796,784 $921,029 ________ ________ ________ ________ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Accounts payable and accrued expenses $ 45,737 $ 32,835 Accrued compensation and related costs 56,757 65,318 Income taxes payable 15,308 18,327 Dividends payable 12,012 12,130 Debt -- 15,014 Minority interests in consolidated subsidiaries 52,666 63,581 ________ ________ Total liabilities 182,480 207,205 ________ ________ 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 121,353,820 shares in 1999 24,037 24,271 Capital in excess of par value 41,073 48,273 Retained earnings 517,631 600,516 Accumulated other comprehensive income 31,563 40,764 ________ ________ Total stockholders' equity 614,304 713,824 ________ ________ $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 06/30/99 06/30/98 06/30/99 ________ ________ ________ ________ Revenues Investment advisory fees $176,750 $191,545 $340,467 $382,423 Administrative fees 43,361 48,379 85,525 97,596 Investment and other income 2,198 5,847 6,751 11,578 ________ ________ ________ ________ 222,309 245,771 432,743 491,597 ________ ________ ________ ________ Expenses Compensation and related costs 75,906 82,932 146,306 164,395 Advertising and promotion 16,983 16,268 37,055 36,493 Occupancy and equipment 20,071 21,402 38,956 42,349 International investment research fees 12,553 12,581 25,113 24,725 Other operating expenses 15,042 17,115 27,963 32,925 ________ ________ ________ ________ 140,555 150,298 275,393 300,887 ________ ________ ________ ________ Income before income taxes and minority interests 81,754 95,473 157,350 190,710 Provision for income taxes 31,602 36,657 60,529 72,945 ________ ________ ________ ________ Income from consolidated companies 50,152 58,816 96,821 117,765 Minority interests in consolidated subsidiaries 5,283 5,126 10,662 10,662 ________ ________ ________ ________ Net income $ 44,869 $ 53,690 $ 86,159 $107,103 ________ ________ ________ ________ ________ ________ ________ ________ Basic earnings per share $ .38 $ .44 $ .72 $ .89 ________ ________ ________ ________ ________ ________ ________ ________ Diluted earnings per share $ .34 $ .41 $ .66 $ .82 ________ ________ ________ ________ ________ ________ ________ ________ Dividends declared per share $ .085 $ .10 $ .17 $ .20 ________ ________ ________ ________ ________ ________ ________ ________ Weighted average shares outstanding 119,209 121,152 118,854 120,834 ________ ________ ________ ________ ________ ________ ________ ________ Weighted average shares outstanding- assuming dilution 130,598 130,062 130,267 129,827 ________ ________ ________ ________ ________ ________ ________ ________ 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 06/30/99 ________ ________ Cash flows from operating activities Net income $ 86,159 $107,103 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization of property and equipment 15,900 15,421 Minority interests in consolidated subsidiaries 10,662 10,662 Other changes in assets and liabilities 613 (1,545) ________ ________ Net cash provided by operating activities 113,334 131,641 ________ ________ Cash flows from investing activities Investments in sponsored mutual funds (13,330) (1,018) Proceeds from disposition of sponsored mutual funds 3,957 -- Other investments (579) (23,792) Distributions from other investments 2,116 10,002 Additions to property and equipment (24,874) (31,500) ________ ________ Net cash used in investing activities (32,710) (46,308) ________ ________ Cash flows from financing activities Purchases of stock -- (3,669) Receipts relating to stock issuances 4,855 5,186 Proceeds of bank borrowing -- 15,019 Dividends paid to stockholders (20,127) (24,100) Distributions to minority interests (17,030) (23) ________ ________ Net cash used in financing activities (32,302) (7,587) ________ ________ Cash and cash equivalents Net increase during period 48,322 77,746 At beginning of year 200,409 283,838 ________ ________ At end of period $248,731 $361,584 ________ ________ ________ ________ 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 107,103 Change in unrealized security holding gains 9,201 Total comprehensive income 116,304 1,284,054 common shares issued under stock-based compensation plans 257 10,847 11,104 113,500 common shares repurchased (23) (3,647) (3,670) Dividends declared (24,218) (24,218) _______ _______ ________ _______ ________ Balance at June 30, 1999, 121,353,820 common shares $24,271 $48,273 $600,516 $40,764 $713,824 _______ _______ ________ _______ ________ _______ _______ ________ _______ ________ 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 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 7 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's revenues (in thousands) from advisory services provided under agreements with its sponsored mutual funds and other investment clients during the first six months include: 1998 1999 ________ ________ Sponsored mutual funds Stock and balanced Domestic $148,392 $167,659 International 59,476 57,199 Bond and money market 44,383 48,855 ________ ________ 252,251 273,713 Other portfolios 88,216 108,710 ________ ________ Total investment advisory fees $340,467 $382,423 ________ ________ ________ ________ 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 6 months _______________ 1998 1999 12/31/98 06/30/99 ______ ______ ________ ________ Sponsored mutual funds Stock and balanced Domestic $ 51.2 $ 58.4 $ 55.9 $ 63.9 International 16.8 16.3 16.4 16.6 Bond and money market 20.1 22.3 22.1 22.1 ______ ______ ______ ______ 88.1 97.0 94.4 102.6 Other portfolios 47.7 54.4 53.4 56.6 ______ ______ ______ ______ $135.8 $151.4 $147.8 $159.2 ______ ______ ______ ______ ______ ______ ______ ______ Fees for advisory-related administrative services provided to the funds were $63,403,000 and $72,137,000 in the first six months of 1998 and 1999, respectively. Accounts receivable from the funds aggregate $59,700,000 at June 30, 1999. 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 June 30, 1999 and for the three- and six-month periods ended June 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 July 23, 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 June 30, 1999, assets under management totaled $159.2 billion, including $102.6 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. RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1999 VERSUS 1998. Net income increased $8.8 million or 20% to $53.7 million, or diluted earnings per share of $0.41, from $44.9 million or diluted earnings per share of $0.34. Total revenues increased almost 11% from $222 million to nearly $246 million, led by an increase of nearly $15 million in investment advisory fees. Investment advisory revenues earned from the mutual fund investment portfolios increased $10.0 million as average mutual fund assets under management were $99.5 billion, up $8.4 billion from the 1998 period. Fund assets rose $7.1 billion during the second quarter and totaled more than $102.6 billion at June 30, 1999, including $80.5 billion in stock and balanced funds. Net cash inflows to the funds during the quarter totaled $324 million, including net inflows of $799 million into domestic stock funds offset in part by net outflows of $219 million from bond and money market funds and $256 million from international stock 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. Assets under management in other investment portfolios rose to $56.6 billion at June 30, 1999, up $2.9 billion since March 31, 1999. Total assets under management closed the quarter at $159.2 billion, up from $149.2 billion at 10 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 to the funds and their shareholders rose $5 million to $48.4 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. Commissions earned on greater trading volume in discount brokerage contributed $1.7 million of the administrative revenues increase. Investment and other income was up $3.7 million, including $1.5 million of additional income from the Company's greater money market mutual fund investments. Losses recognized in 1998 from the decline in value of investment portfolios held by certain partnerships in which the Company invests did not recur in 1999. Operating expenses increased 7% to $150.3 million. Greater compensation and related costs, which were up $7.0 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 June 30, 1999, the Company employed nearly 3,600 associates. Occupancy and equipment expense was up due to the expansion of operating facilities and equipment acquisitions, primarily investments 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 in investment advisory fees. Investment advisory revenues earned from the mutual fund investment portfolios increased $21.5 million as average mutual fund assets under management were $97.0 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. 11 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, increased operating expenses, including preparations for Year 2000 processing, offset these gains. Commissions earned on greater trading volume in discount brokerage contributed $3.7 million of the revenue increase. Investment 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. 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 April 1999. YEAR 2000 PROCESSING ISSUE UPDATE. 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." 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 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 private account 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 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 13 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. Since December 31, 1998, there has been no material change 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 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 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 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 board of directors of the Price funds are not independent as required under the Investment Company Act of 1940. On March 19, 1999, T. Rowe Price 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, 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 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 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.) 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 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.) 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].) 16 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 second 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 July 27, 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 July 23, 1999 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Dear Sirs: We are aware that our report dated July 23, 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 June 30, 1999 and is qualified in its entirety by reference to such financial statements. 0000080255 T. ROWE PRICE ASSOCIATES, INC. 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 361,584,000 208,290,000 108,530,000 0 0 0 186,710,000 0 921,029,000 0 0 0 0 24,271,000 689,553,000 921,029,000 0 491,597,000 0 300,887,000 0 0 0 190,710,000 72,945,000 107,103,000 0 0 0 107,103,000 .89 .82 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.
-----END PRIVACY-ENHANCED MESSAGE-----