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, 1998.MARCH 31, 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 registrantregistrant: (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. 119,535,933121,031,014 SHARES AT
JULY 21, 1998.APRIL 23, 1999.
Exhibit index is at Item 6(a) on page 12.14.
2
PART I. FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
T. ROWE PRICE ASSOCIATES, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
12/31/97 06/30/98 03/31/99
________ ________
ASSETS
Cash and cash equivalents $200,409 $248,731$283,838 $346,830
Accounts receivable 86,795 96,404100,702 105,515
Investments in sponsored mutual funds 173,729 197,473192,914 194,664
Partnership and other investments 19,030 15,83626,597 22,130
Property and equipment (Note 2) 142,497 149,685166,612 174,089
Other assets 23,607 16,54026,121 18,668
________ ________
$646,067 $724,669$796,784 $861,896
________ ________
________ ________
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable and accrued expenses $ 30,72245,737 $ 30,42135,374
Accrued compensation and retirement costs 49,694 52,07856,757 53,302
Income taxes payable 19,102 14,09615,308 40,781
Dividends payable 10,039 10,15712,012 12,088
Minority interests in consolidated subsidiaries 49,837 43,43252,666 58,269
________ ________
Total liabilities 159,394 150,184182,480 199,814
________ ________
Commitments and contingent liabilities (Note 2)
Stockholders' equity
Preferred stock, undesignated, $.20 par value -
authorized and unissued 20,000,000 shares -- --
Common stock, $.20 par value - authorized
200,000,000 shares in 1997 and 500,000,000 shares
in 1998;shares; issued 59,097,705 shares in
1997 and 119,504,242120,183,266 shares in
1998 (Note 3) 11,819 23,901and 120,893,546 shares in 1999 24,037 24,179
Capital in excess of par value 30,707 31,26941,073 46,727
Retained earnings 415,279 481,192517,631 558,955
Accumulated other comprehensive income 28,868 38,12331,563 32,221
________ ________
Total stockholders' equity 486,673 574,485614,304 662,082
________ ________
$646,067 $724,669$796,784 $861,896
________ ________
________ ________
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
June 30, June 30,
__________________________________
1997 1998 1997 1998___________________
03/31/98 03/31/99
________ ________________ ________
Revenues
Investment advisory fees $141,549 $176,750 $270,846 $340,467$163,717 $190,877
Administrative fees 34,694 43,361 69,829 85,52542,164 49,217
Investment and other income 3,845 2,198 7,372 6,7514,553 5,731
________ ________
________ ________
180,088 222,309 348,047 432,743
________ ________210,434 245,825
________ ________
Expenses
Compensation and related costs 62,257 75,906 121,439 146,30670,400 81,463
Advertising and promotion 13,742 16,983 31,199 37,05520,072 20,225
Occupancy and equipment 14,989 20,071 28,745 38,95618,885 20,947
International investment research fees 11,782 12,553 22,739 25,11312,560 12,144
Other operating expenses 14,236 15,042 26,502 27,96312,921 15,810
________ ________
________ ________
117,006 140,555 230,624 275,393
________ ________134,838 150,589
________ ________
Income before income taxes and minority interests 63,082 81,754 117,423 157,35075,596 95,236
Provision for income taxes 24,162 31,602 45,286 60,529
________ ________28,927 36,288
________ ________
Income from consolidated companies 38,920 50,152 72,137 96,82146,669 58,948
Minority interests in consolidated subsidiaries 5,138 5,283 9,808 10,662
________ ________5,379 5,536
________ ________
Net income $ 33,78241,290 $ 44,869 $ 62,329 $ 86,159
________ ________ ________ ________53,412
________ ________
________ ________
Basic earnings per share $ .29.35 $ .38 $ .54 $ .72
________ ________ ________ ________.44
________ ________
________ ________
Diluted earnings per share $ .27.32 $ .34 $ .49 $ .66
________ ________ ________ ________.41
________ ________
________ ________
Dividends declared per share $ .065 $ .085 $ .13 $ .17
________ ________ ________ ________.10
________ ________
________ ________
Weighted average shares outstanding 115,818 119,209 115,687 118,854
________ ________ ________ ________118,495 120,512
________ ________
________ ________
Weighted average shares outstanding-outstanding assuming dilution 127,028 130,598 127,055 130,267
________ ________ ________ ________129,933 129,589
________ ________
________ ________
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)
SixThree months ended
__________________
06/30/97 06/30/03/31/98 03/31/99
________ ________
Cash flows from operating activities
Net income $ 62,32941,290 $ 86,15953,412
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization of property
and equipment 11,102 15,9007,928 7,600
Minority interests in consolidated subsidiaries 9,808 10,662
Increase in accounts receivable (10,182) (9,609)
Change in accounts payable and5,379 5,536
Income taxes accrued liabilities 10,514 7,759but not paid 19,632 36,073
Other changes in assets and liabilities 669 2,463
_________(13,251) (10,934)
________ ________
Net cash provided by operating activities 84,240 113,33460,978 91,687
________ ________
Cash flows from investing activities
Investments in sponsored mutual funds (10,026) (13,330)
Proceeds from disposition of sponsored mutual funds -- 3,957(9,813) (664)
Partnership and other investments (3,432) (579)
Liquidation of(566) (7,541)
Distributions from partnership and other investments 5,696 2,116497 4,368
Additions to property and equipment (29,827) (24,874)(11,130) (15,209)
________ ________
Net cash used in investing activities (37,589) (32,710)(21,012) (19,046)
________ ________
Cash flows from financing activities
Purchases of stock (9,655) -- (1,007)
Receipts relating to stock issuances 5,117 4,8552,471 3,393
Dividends paid to stockholders (15,008) (20,127)(10,039) (12,012)
Distributions to minority interests (7,370) (17,030)(17,014) (23)
________ ________
Net cash used in financing activities (26,916) (32,302)(24,582) (9,649)
________ ________
Cash and cash equivalents
Net increase during period 19,735 48,32215,384 62,992
At beginning of year 114,551 200,409 283,838
________ ________
At end of period $134,286 $248,731$215,793 $346,830
________ ________
________ ________
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, 1997,
59,097,7051998,
120,183,266 common shares $11,819 $30,707 $415,279 $28,868 $486,673$24,037 $41,073 $517,631 $ 31,563 $614,304
Comprehensive income
Net income 86,159
Unrealized53,412
Change in unrealized
security holding gains 9,255658
Total comprehensive income 95,414
812,24954,070
743,780 common shares
issued under stock-based
compensation plans 163 12,481 12,644149 6,654 6,803
33,500 common shares
repurchased (7) (1,000) (1,007)
Dividends declared (20,246) (20,246)
59,594,288 shares issued in
2-for-1 split of common
stock at April 30, 1998 11,919 (11,919) --(12,088) (12,088)
_______ _______ ________ _______ ________
Balance at June 30, 1998,
119,504,242March 31, 1999,
120,893,546 common shares $23,901 $31,269 $481,192 $38,123 $574,485$24,179 $46,727 $558,955 $32,221 $662,082
_______ _______ ________ _______ ________
_______ _______ ________ _______ ________
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 and
administrative services provided to individual and institutional investors in the
Company's sponsored mutual funds and private account investment portfoliosportfolios.
The Company also provides investment advisory clients with related
administrative services, including mutual fund transfer agent, defined
contribution retirement plan recordkeeping, discount brokerage, and to private accounts of other institutional and individual
investors,trust
services. The Company's clients are primarily domiciled in the United States
of America.
CompanyInvestment advisory revenues are largely dependent on the total value and
composition of assets under management, which include domestic and international equity and debt
securities;management; accordingly, fluctuations in
financial markets and in the composition of assets under management impact
revenues and results of operations. Assets under management at June 30, 1998 total $141.9 billion,
including $91.4 billion in the sponsored T. Rowe Price mutual funds.
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 19971998 Annual Report to
Stockholders.Report.
NOTE 2 - COMMITMENTSINFORMATION ABOUT REVENUES AND CONTINGENT LIABILITIES.
On February 11,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 quarter include:
1998 1999
_________ _________
Sponsored mutual funds
Stock and balanced
Domestic $ 70,879 $ 80,681
International 28,780 27,940
Bond and money market 21,831 24,322
________ ________
121,490 132,943
Other portfolios 42,227 57,934
________ ________
Total investment advisory fees $163,717 $190,877
________ ________
________ ________
The following table summarizes the various investment portfolios and assets
under management (in billions) on which the Company entered into an agreementearns its advisory fees.
7
Average during
first quarter
_______________
1998 1999 12/31/98 03/31/99
______ ______ ________ ________
Sponsored mutual funds
Stock and balanced
Domestic $ 48.9 $ 56.2 $ 55.9 $ 56.8
International 16.3 16.0 16.4 16.2
Bond and money market 19.8 22.2 22.1 22.5
______ ______ ______ ______
85.0 94.4 94.4 95.5
Other portfolios 45.9 53.4 53.4 53.7
______ ______ ______ ______
$130.9 $147.8 $147.8 $149.2
______ ______ ______ ______
______ ______ ______ ______
Fees for advisory-related administrative services provided to construct two
office buildings having a combined 360,000 square feetthe funds were
$31,021,000 and $36,222,000 in the first quarter of floor space1998 and two
parking garages. On June 17, 1998,1999,
respectively. Accounts receivable from the agreement was amended to include anfunds aggregate guaranteed maximum price of $70,840,000. The facilities will be
erected on land owned in Owings Mills, Maryland.$59,052,000 at
March 31, 1999.
NOTE 3 - COMMON STOCK SPLIT.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 results of operations for the first quarter of
1999.
NOTE 4 - SUBSEQUENT EVENT.
On April 30, 1998,2, 1999, the Company's outstanding common shares split two-for-one.
All per shareCompany borrowed 1,809,500,000 yen from a bank under a
five-year promissory note due in installments of 180,950,000 yen in each of
2002 and share data2003 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 accompanying unaudited condensed
consolidated statementsfirst two years of income have been adjustedthe borrowing at 1.42%.
On April 5, 1999, the Company used the proceeds of the borrowing to give retroactive
effect toacquire a
10% interest in Daiwa SB Investments Ltd., a Japan-based investment
management venture with The Sumitomo Bank and Daiwa Securities Co. The
Company will account for its investment using the stock split.cost method.
The Company has recorded both its yen borrowing and investment at
$15,019,000.
78
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, 1998,March 31, 1999 and for the
three- and six-monththree-month periods ended June 30, 1997March 31, 1998 and 1998,1999, appearing on pages two
through sixseven 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 have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1997,1998, 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, 19981999 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,
1997,1998, 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 21, 1998April 19, 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.
89
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL.
T. Rowe Price Associates, Inc. and its consolidated subsidiaries (the
Company)The Company derives its revenue and net income primarily from investment
advisory and
administrative services provided to individual and institutional investors in the
Company's sponsored Price Mutual Funds (the
Funds), other sponsored investment portfolios,mutual funds and private accounts of other
institutionalaccount 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 individual investors. Investment advisory feestrust
services. The Company's clients are generally based onprimarily domiciled in the net assets of the portfolios managed. The majority of
administrative revenues are derived from services provided to the Funds.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. At June 30, 1998,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 are $141.9impact revenues and results of
operations. At March 31, 1999, assets under management totaled $149.2
billion, including $91.4$95.5 billion in the Funds.mutual funds. Equity investments
compose nearly 74%comprise 73% of totalall assets under management.management at the end of March 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, 1998MARCH 31, 1999 VERSUS 1997.1998.
Net income increased $11.1$12.1 million or 33%29% to $44.9$53.4 million, or diluted
earnings per share of $0.34$0.41, from $33.8$41.3 million or diluted earnings per share
of $0.27. Earnings per share have been retroactively restated for the two-
for-one stock split effected at April 30, 1998.$0.32. Total revenues increased 23%about 17% from $180$210 million to $222nearly
$246 million, led by an increase of $35.2$27 million in investment advisory fees.
Investment advisory feesrevenues earned from the Fundsmutual fund investment
portfolios increased nearly $27.8$11.5 million as the
Fund's average mutual fund assets under
management were $94.4 billion, almost $9.4 billion more than during the second1998
period. First quarter rose $20.6
billion to $91.1 billion.average fund assets reflect the full lagged effect of
asset growth in late 1998. Fund assets were up $1.1 billion during the first
quarter and totaled $91.4$95.5 billion at June 30,
1998, up $10.3March 31, 1999, including nearly $73
billion from December 31, 1997. Stock funds, which totaled
$70.7 billion at June 30, 1998, accounted for approximately 85% of the
increase.in stock and balanced funds. Net cash inflows to the Fundsfunds during
the second quarter totaled $250 million, including inflows of 1998
were nearly $1.4 billion with$400 million into
domestic stock funds and $350 million into the bond and money market funds,
offset in part by outflows of $500 million from international stock funds.
The balance of the changeincrease in Fund assets coming
primarily from declines in value of the funds' investment portfolios. As of
July 19,mutual fund assets had risen nearly $3.0 billion since June 30, including
net cash inflows of about $430 million. Advisory feeswas due to appreciation and
reinvested income. Fees earned from private accounts
and other sponsored investment portfolios contributed
the balance of the investment advisory revenue gains. Thesegains, including $7.1 million of
increased performance-based advisory fees earned primarily on assets managed
in sponsored partnerships. Assets under management in other investment
portfolios rose to $50.5$53.7 billion at June 30, 1998,March 31, 1999, up $7.4 billion from December 31, 1997 and
$9.0 billion over the past twelve months.$300 million since
10
year-end 1998. Total assets under management closed the second quarter at $141.9$149.2
billion, up from $124.3$147.8 billion at December 31, 1997 and $116.9the end of 1998. International assets
under management by the Company's 50% owned consolidated subsidiary, Rowe
Price-Fleming International, ended the 1999 quarter at $32.4 billion,
at June 30, 1997.including $17.3 billion in the mutual funds.
Administrative fees from advisory-related services to the Fundsfunds and their
shareholders grew
$8.7rose $7 million to $43.4$49.2 million. Revenue gainsThese increases were
primarily attributable to
the Company's defined contribution retirement plan recordkeeping
services and mutual fund transfer agent;agent services; however, increases in relatedincreased operating
expenses, 9including preparations for Year 2000 processing, offset these
gains. Commissions earned on greater trading volume in discount brokerage
contributed $2.1 million of the revenue increase.
Investment and other income fell $1.6rose $1.2 million, due primarily to a decline in
valueincluding $0.9 million of
investment portfolios held by certain partnerships in which the
company invests.income from greater money market and other mutual fund investments.
Operating expenses increased 20%12% to $140.6$150.6 million. CompensationGreater compensation and
related costs, which were up $13.6$11.1 million, duewere attributable to higherincreases in
rates of compensation, including performance-based bonus accrualsperformance-related bonuses, and a 16%an 11%
increase in the number of
associates as well as the greater use of temporary employees,staff size primarily into support the Company's growing investment-
related administrative services and technology support and administrative services
operations. At the end of the second quarter,March
31, 1999, the Company employed more than
3,250nearly 3,600 associates. Advertising and
promotion expenditures increased 24% to $17.0 millionless than 1% as compared with the Company continued to take advantage of favorable marketing conditions for its
investment portfolios.1998
period. These expenditures will vary over time as market conditions and cash
flows to the Fundsfunds warrant. Occupancy and equipment expense was up 34% due to
the recent expansion of operating facilities and equipment acquisitions, primarily
investments in technology. RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1998 VERSUS 1997.
Net incomeOther expenses increased $23.8 million or 38% to $86.2 million or diluted
earnings per share of $0.66 versus $0.49 in 1997. Total revenues increased
24% from $348 million to almost $433 million, led by an increase of $69.6$2.9 million in investment advisory fees.
Investment advisory fees from the Funds increased nearly $51.7 million as the
Fund's average assets under management during the first half rose $19.5
billion to $88.1 billion. Net cash inflows to the Funds during the first
half of 1998 were more than $3.2 billion with the balance of Fund asset
growth coming from market gains. Approximately 70%support
of the net inflows were
to stock funds. Advisory fees from private accountsCompany's growing operations.
CAPITAL RESOURCES AND LIQUIDITY.
See Note 4 on page 7 of this Form 10-Q Quarterly Report for a discussion
concerning borrowings and other sponsored
investment portfolios contributedinvestments.
YEAR 2000 PROCESSING ISSUE UPDATE.
In April 1999, the balanceCompany completed its participation in the street-wide
testing conducted by the Securities Industry Association (SIA) and securities
industry firms. Results of the investment advisory
revenue gains.
Administrative fees from servicestesting are pending SIA publication.
The following chart summarizes the Company's estimated timetable and current
state of completion for its mission critical systems efforts including those
related to the Funds and their shareholders grew
$15.7 million to $85.5 million. Revenue gains were primarily attributable to
the Company's defined contribution retirement plan recordkeeping services and mutual fund transfer agent; however, increasesagency system, which is maintained by a
third-party service provider.
11
Stages Target date Current state of completion
_____________________________ ___________ ___________________________
Identification and assessment Complete Complete
Remediation Complete Complete
Internal testing Complete Complete
Point-to-point testing 06/30/99 More than 75%
Implementation 06/30/99 More than 75%
The Company is developing a contingency plan for its mission critical systems
and external dependencies. However, in related operating expenses
offsetan 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 gains.
Operating expensesservices 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.
Additionally, the investment portfolios from which the Company derives the
majority of its revenues could be subject to increased 19% to $275.4 million. Compensationcredit, market and
related
costs were up nearly $24.9 million while occupancy and equipment costs rose
$10.2 million or 36%. Growth in technology support and administrative
services operations contributed significantly to these increases.
Internationalliquidity risk arising from the impact of Year 2000 issues on the issuers of
individual securities. The Company's investment research fees increased 10% or $2.4 million. Duringstaff are assessing the first half of 1997, international assets under management grew from $29.2
billion to $33.8 billion while 1998 totals have been flat on both March 31
10
and June 30, at $33.6 billion including $18 billionYear
2000 risks in the Funds.
International assetsinvestment 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 50%-owned subsidiary, Rowe
Price-Fleming International, Inc. (RPFI).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.
The 12
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 accounts;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 and
private accounts as
compared to competing offerings and market indices; the extent to which
performance-based investment advisory fees are earned from private accounts;account
investment portfolios; the expense ratios of the Company's sponsored investment
portfolios;mutual
funds; investor sentiment and investor confidence in mutual funds;confidence; the ability of the Company
to maintain investment management and administrative fees at currentappropriate
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 Fundsfunds for payment for investment advisory-related
administrative services offeredprovided to the Fundsfunds 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
11
its administrative and serviceservices 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 revenues are substantially dependent on revenues from the
Funds, which 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 agreements.
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.funds or
other investments.
13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
BecauseSince December 31, 1998, there has been no material change in the Company's market capitalization on January 28, 1997 was less than
$2.5 billion, this item is not applicable until the filinginformation
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 the Fund'sits 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
seekssought to invalidate the advisory agreement between RPFI and the
International Stock Fund, and seekssought recovery of an unspecified amount of
advisory fees paid by the International Stock Fund to RPFI. This relief is soughtaction 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 the Fund'sits 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 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. On April 19, 1999, the plaintiffs filed a
Memorandum in Opposition to Defendants' Motion to Dismiss the Second Amended
Complaint.
The Company and RPFIcontinues to believe that the factual and legal basis on which
the complaint is based is wholly unfounded, and RPFIthe Company and the other
defendants intend to defend the case vigorously. Among other things, the Company has
been advised that the structure of the board of the Fund complies with all
applicable federal and state legal and regulatory requirements and practices,
as well as with established industry norms. Accordingly, the Company
does not believe that the ultimate resolution of this matter will have a
14
material adverse effect on the financial condition or results of operations
of the Company.
12From 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The 1999 annual meeting of the Company's stockholders was held on April 15,
1999. The Company's proxy statement and solicitation pertaining to this
meeting were previously filed with the Commission. Shares eligible to vote
were 120,538,067 as of the record date of February 16, 1999.
Management's 13 nominees for the Board of Directors were elected to hold
office until the next annual meeting of stockholders and until their
respective successors are elected and qualify. The tabulation of votes was:
Nominee For Withheld
________________ ___________ _________
J.E. Halbkat, Jr. 104,846,889 4,238,658
H.H. Hopkins 107,388,177 1,697,370
J.A.C. Kennedy 107,017,660 2,067,887
J.H. Laporte 107,398,738 1,686,809
R.L. Menschel 107,372,988 1,712,559
W.T. Reynolds 107,394,357 1,691,190
J.S. Riepe 107,394,578 1,690,969
G.A. Roche 107,275,052 1,810,495
B.C. Rogers 107,394,848 1,690,699
R.L. Strickland 107,383,239 1,702,308
M.D. Testa 107,348,830 1,736,717
P.C. Walsh 107,365,855 1,719,692
A.M. Whittemore 107,392,557 1,692,990
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: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.)
15
-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].)
10.10 T. Rowe Price Associates, Inc. 1993 Stock Incentive Plan.
(Incorporated by reference from Form S-8 Registration
Statement [File No. 33-72568].)
16
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.
All other items in Part II are omitted because they are not applicable or(b) Reports on Form 8-K: None were filed during the answers are none.first 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 22, 1998.April 26, 1999.
T. Rowe Price Associates, Inc.
/s/ Alvin M. Younger, Jr., Managing Director, Chief Financial & Accounting
Officer, Treasurer and Secretary