<PAGE> 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.
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PART I. FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
T. ROWE PRICE ASSOCIATES, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
12/31/98 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.
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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.
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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.
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T. ROWE PRICE ASSOCIATES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(dollars in thousands)
Accumu-
Capital lated
Common in other Total
stock excess compre- stock-
- par of par Retained hensive holders'
value value earnings income equity
_______ _______ ________ ________ ________
Balance at December 31, 1998,
120,183,266 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.
<PAGE> 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
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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.
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
T. Rowe Price Associates, Inc.
We have reviewed the condensed consolidated financial statements of T. Rowe
Price Associates, Inc. and its subsidiaries as of 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.
<PAGE> 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.
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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
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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
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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
<PAGE> 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
<PAGE> 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.
<PAGE> 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.)
<PAGE> 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
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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<CIK> 0000080255
<NAME> T. ROWE PRICE ASSOCIATES, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 390,565,000
<SECURITIES> 204,313,000
<RECEIVABLES> 112,025,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 196,839,000<F2>
<DEPRECIATION> 0<F3>
<TOTAL-ASSETS> 953,925,000
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 23,943,000
<OTHER-SE> 677,625,000
<TOTAL-LIABILITY-AND-EQUITY> 953,925,000
<SALES> 0
<TOTAL-REVENUES> 751,526,000
<CGS> 0
<TOTAL-COSTS> 452,461,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 299,065,000
<INCOME-TAX> 113,454,000
<INCOME-CONTINUING> 169,324,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 169,324,000
<EPS-BASIC> 1.40<F4>
<EPS-DILUTED> 1.31
<FN>
<F1>Item is not contained in registrant's unclassified balance sheet.
<F2>Item is reported net of accumulated depreciation at interim.
<F3>Not reported at interim.
<F4>Basic earnings per share.
</FN>
</TABLE>
