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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended: SEPTEMBER 30, 2002.
Commission file number: 000-32191.
Exact name of registrant as specified in its charter:
T. ROWE PRICE GROUP, INC.
State of incorporation: MARYLAND.
I.R.S. Employer Identification No.: 52-2264646.
Address and Zip Code of principal executive offices: 100 EAST PRATT STREET,
BALTIMORE, MARYLAND 21202.
Registrant's telephone number, including area code: (410) 345-2000.
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X]. No [ ].
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X]. No [ ].
Indicate the number of shares outstanding of the issuer's common stock ($.20 par
value), as of the latest practicable date. 122,379,046 SHARES AT OCTOBER 29,
2002.
Exhibit index is at Item 6(a) on page 13.
1
PART I. FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
12/31/01 09/30/02
---------- ----------
ASSETS
Cash and cash equivalents $ 79,741 $ 123,416
Accounts receivable (Note 5) 104,001 97,861
Investments in sponsored mutual funds 123,247 117,091
Debt securities held by savings bank subsidiary 30,961 87,480
Property and equipment 241,825 221,093
Goodwill (Note 4) 665,692 665,692
Other assets 67,648 63,305
---------- ----------
$1,313,115 $1,375,938
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable and accrued expenses $ 42,782 $ 38,254
Accrued compensation and related costs 43,498 85,881
Dividends payable 19,699 19,587
Customer deposits at savings bank subsidiary 25,422 75,347
Debt and accrued interest (Note 2) 103,889 56,561
---------- ----------
Total liabilities 235,290 275,630
---------- ----------
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 123,088,795 shares in
2001 and 122,323,723 shares in 2002 (Note 3) 24,618 24,465
Additional capital in excess of par value 67,965 76,457
Retained earnings 973,472 996,253
Accumulated other comprehensive income 11,770 3,133
---------- ----------
Total stockholders' equity 1,077,825 1,100,308
---------- ----------
$1,313,115 $1,375,938
========== ==========
See the accompanying notes to the condensed consolidated financial statements.
2
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per-share amounts)
Three months Nine months
ended ended
-------------------- ----------------------
09/30/01 09/30/02 09/30/01 09/30/02
-------- --------- --------- ---------
Revenues (Note 5)
Investment advisory fees $ 189,289 $ 168,622 $ 588,265 $ 546,873
Administrative fees 51,161 52,718 166,999 156,430
Investment income (loss) 3,168 (1,044) 30,966 (4,735)
--------- --------- --------- ---------
243,618 220,296 786,230 698,568
--------- --------- --------- ---------
Expenses
Compensation and related costs 91,219 88,621 292,076 273,700
Advertising and promotion 10,315 10,766 47,437 42,113
Occupancy and equipment 27,952 27,826 89,419 84,285
Goodwill amortization (Note 4) 7,230 -- 21,690 --
Interest expense (Note 2) 2,438 1,337 11,256 3,607
Other operating expenses 19,208 21,416 69,810 55,735
--------- --------- --------- ---------
158,362 149,966 531,688 459,440
--------- --------- --------- ---------
Income before income taxes and
minority interests 85,256 70,330 254,542 239,128
Provision for income taxes 34,858 27,120 104,037 91,040
--------- --------- --------- ---------
Income from consolidated companies 50,398 43,210 150,505 148,088
Minority interests in consolidated
subsidiaries -- -- (357) --
--------- --------- --------- ---------
Net income (Note 4) $ 50,398 $ 43,210 $ 150,862 $ 148,088
========= ========= ========= =========
Basic earnings per share (Note 4) $ .41 $ .35 $ 1.23 $ 1.20
========= ========= ========= =========
Diluted earnings per share (Note 4) $ .39 $ .34 $ 1.17 $ 1.15
========= ========= ========= =========
Dividends declared per share $ .15 $ .16 $ .45 $ .48
========= ========= ========= =========
Weighted average shares -
Outstanding 123,283 122,396 123,041 123,017
========= ========= ========= =========
Assuming dilution 129,284 126,051 129,272 128,291
========= ========= ========= =========
See the accompanying notes to the condensed consolidated financial statements.
3
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine months ended
---------------------
09/30/01 09/30/02
-------- --------
Cash flows from operating activities
Net income $ 150,862 $ 148,088
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization of property
and equipment 38,440 38,454
Amortization of goodwill 21,690 --
Other changes in assets and liabilities 101,336 69,428
--------- ---------
Net cash provided by operating activities 312,328 255,970
--------- ---------
Cash flows from investing activities
Investments in sponsored mutual funds (32,568) (11,883)
Dispositions of sponsored mutual funds 84,927 --
Increase in debt securities held by savings
bank subsidiary (12,095) (54,861)
Additions to property and equipment (37,148) (19,519)
Other investment activity (6,015) 1,582
--------- ---------
Net cash used in investing activities (2,899) (84,681)
--------- ---------
Cash flows from financing activities
Repurchases of common shares (6,221) (91,916)
Stock options exercised 10,770 21,872
Debt principal repaid (170,000) (48,366)
Dividends paid to stockholders (55,289) (59,129)
Savings bank subsidiary deposits 11,911 49,925
--------- ---------
Net cash used in financing activities (208,829) (127,614)
--------- ---------
Cash and cash equivalents
Net increase during period 100,600 43,675
At beginning of year 80,526 79,741
--------- ---------
At end of period $ 181,126 $ 123,416
========= =========
See the accompanying notes to the condensed consolidated financial statements.
4
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Addi-
tional Accumu-
capital lated
in other Total
excess compre- stock-
Common of par Retained hensive holders'
stock value earnings income equity
----------- ----------- --------------- ---------- --------------
(in thousands)
Balance at
December 31, 2001,
123,088,795 common
shares $ 24,618 $ 67,965 $ 973,472 $ 11,770 $ 1,077,825
Comprehensive income
Net income 148,088
Change in unrealized
security holding
gains, including
($6,024) for the
third quarter (8,637)
Total comprehensive
income 139,451
1,884,928 common shares
issued under stock-based
compensation plans 377 32,487 (2) 32,862
2,650,000 common shares
repurchased (530) (23,995) (66,288) (90,813)
Dividends declared (59,017) (59,017)
----------- ----------- --------------- ---------- --------------
Balance at September 30,
2002, 122,323,723
common shares $ 24,465 $ 76,457 $ 996,253 $ 3,133 $ 1,100,308
=========== =========== =============== ========== ==============
See the accompanying notes to the condensed consolidated financial statements.
5
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY AND BASIS OF PREPARATION.
T. Rowe Price Group derives its consolidated revenues and net income primarily
from investment advisory services that its subsidiaries provide to individual
and institutional investors in the sponsored T. Rowe Price mutual funds and
other investment portfolios. We also provide our investment advisory clients
with related administrative services, including mutual fund transfer agent,
accounting and shareholder services; participant recordkeeping and transfer
agent services for defined contribution retirement plans; discount brokerage;
and trust services. The investors that we serve are primarily domiciled in the
United States of America.
Investment advisory revenues depend largely on the total value and composition
of assets under our management. Accordingly, fluctuations in financial markets
and in the composition of assets under management impact our revenues and
results of operations.
These unaudited condensed consolidated financial statements reflect all
adjustments which are, in the opinion of management, necessary to a fair
statement of our results for the interim periods presented. All such adjustments
are of a normal recurring nature.
The unaudited interim financial information contained in these condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements contained in our 2001 Annual Report.
NOTE 2 - DEBT.
On April 2, 2002, the interest rate on the balance owed on our yen-denominated
debt of 1,628,550,000 yen ($13,377,000) was reset to 1.06% for the next twelve
months.
On July 15, 2002, we reduced our dollar-denominated debt by $2 million to $43
million. The debt bears interest at an annual rate of approximately 2.15% for
the fourth quarter.
NOTE 3 - COMMON STOCK.
During the first four days of October 2002, we repurchased an additional 100,000
common shares at an aggregate price of $2,440,000.
On July 30, 2002, we granted options to acquire 3,890,500 of our common shares
to certain of our officers and employees at a price of $27.34.
NOTE 4 - CHANGE IN ACCOUNTING PRINCIPLES.
On January 1, 2002, we adopted the provisions of a new financial accounting
standard and ceased the amortization of goodwill. We have completed our testing
of goodwill balances and no impairment of goodwill presently exists. We operate
in one reportable business segment - that of the investment advisory business -
and all goodwill is attributed to that segment. The following information
reconciles reported net income and earnings per share to adjusted net income and
earnings per share, excluding the goodwill amortization previously recognized.
6
Three months Nine months
ended ended
-------------------------- ---------------------------
09/30/01 09/30/02 09/30/01 09/30/02
------------- ------------ ------------ -------------
Reported net income (in thousands) $ 50,398 $ 43,210 $ 150,862 $ 148,088
Add back goodwill amortization (in
thousands) 7,230 -- 21,690 --
----------- ----------- ----------- -----------
Adjusted net income (in thousands) $ 57,628 $ 43,210 $ 172,552 $ 148,088
=========== =========== =========== ===========
Basic earnings per share
Reported net income $ .41 $ .35 $ 1.23 $ 1.20
Goodwill amortization .06 -- .17 --
----------- ----------- ----------- -----------
Adjusted net income $ .47 $ .35 $ 1.40 $ 1.20
=========== =========== =========== ===========
Diluted earnings per share
Reported net income $ .39 $ .34 $ 1.17 $ 1.15
Goodwill amortization .06 -- .16 --
----------- ----------- ----------- -----------
Adjusted net income $ .45 $ .34 $ 1.33 $ 1.15
=========== =========== =========== ===========
NOTE 5 - INFORMATION ABOUT REVENUES AND SERVICES.
Revenues (in thousands) from advisory services provided under agreements with
sponsored U.S. mutual funds and other investment clients for the nine months
ended September 30 include:
2001 2002
-------- --------
Sponsored U.S. mutual funds
Stock and blended
Domestic $280,657 $264,630
International 74,869 53,965
Bond and money market 72,422 78,824
-------- --------
427,948 397,419
Other portfolios 160,317 149,454
-------- --------
Total investment advisory fees $588,265 $546,873
======== ========
The following table summarizes the various investment portfolios and assets
under management (in billions) on which advisory fees are earned.
Average during
first 9 months
-------------------
2001 2002 12/31/01 09/30/02
------ ------ ------- --------
Sponsored U.S. mutual funds
Stock and blended
Domestic $ 63.5 $ 59.4 $ 63.5 $ 48.3
International 13.9 9.9 11.0 7.7
Bond and money market 22.7 24.5 23.5 26.0
------ ------ ------ ------
100.1 93.8 98.0 82.0
Other portfolios 56.7 56.4 58.3 49.6
------ ------ ------ ------
$156.8 $150.2 $156.3 $131.6
====== ====== ====== ======
Fees for advisory-related administrative services provided to our sponsored
mutual funds were $131,012,000 and $117,126,000 for the first nine months of
2001 and 2002, respectively. Accounts receivable from the mutual funds aggregate
$57,972,000 at December 31, 2001 and $51,784,000 at September 30, 2002.
7
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors and Stockholders of
T. Rowe Price Group, Inc.:
We have reviewed the condensed consolidated balance sheet of T. Rowe Price
Group, Inc. and subsidiaries as of September 30, 2002, the related condensed
consolidated statements of income for the three- and nine-month periods ended
September 30, 2002 and 2001, the related condensed consolidated statements of
cash flows for the nine-month periods ended September 30, 2002 and 2001, and the
related statement of stockholders' equity for the nine-month period ended
September 30, 2002. These condensed consolidated financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with accounting principles generally accepted in the
United States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet as of
December 31, 2001, and the related consolidated statements of income, cash
flows, and stockholders' equity for the year then ended (not presented herein);
and in our report dated January 24, 2002, 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, 2001, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
/s/ KPMG LLP
Baltimore, Maryland
October 24, 2002
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL.
Our revenues and net income are derived primarily from investment advisory
services provided to U.S. individual and institutional investors in our
sponsored mutual funds and other investment portfolios.
We manage a broad range of U.S. domestic and international stock, bond, and
money market mutual funds and other investment portfolios which meet the varied
needs and objectives of individual and institutional investors. Investment
advisory revenues depend largely on the total value and composition of assets
under management. Accordingly, fluctuations in financial markets and in the
composition of assets under management impact our revenues and results of
operations. Total assets under our management were $131.6 billion at September
30, 2002, including $85.7 billion in equity securities and $45.9 billion in bond
and money market investments. Lower financial market valuations have more than
offset our net investor inflows thus far in 2002. Assets under management have
decreased almost 16% or $24.7 billion since the beginning of 2002.
Investors outside the United States now account for almost 2% of our assets
under management. Our expenditures to attract new assets under management and
broaden our investor base may be significant and will precede revenues from any
new investment advisory clients that we may obtain.
RESULTS OF OPERATIONS.
THREE MONTHS ENDED SEPTEMBER 30, 2002 VERSUS 2001. Net income decreased $7.2
million, or 14%, to $43.2 million, and diluted earnings per share decreased from
$.39 to $.34. With the adoption of a new accounting standard on January 1, 2002,
we have ceased amortizing the goodwill that is recognized in our consolidated
balance sheet. After excluding the 2001 amortization of goodwill, adjusted net
income for the comparable 2001 period was $57.6 million and adjusted diluted
earnings per share was $.45. Total revenues declined $23.3 million, or 9.6%, to
nearly $220.3 million.
Investment advisory revenues earned from the T. Rowe Price mutual funds
decreased $15.4 million as average fund assets under management were $86.6
billion during the 2002 quarter, $9.3 billion less than in the 2001 period.
Weakness in financial market valuations that began in early 2000 have continued
now for more than two years. During the third quarter of 2002, valuations fell
to levels last seen in the first half of 1997. Mutual fund assets ended
September 2002 at $82.0 billion, down $11.1 billion from June 30, 2002 and $15.4
billion from the second quarter 2002 average. The Price funds had $583 million
of net cash inflows during the third quarter of 2002; however, market
depreciation, net of income and dividends paid but not reinvested, more than
offset the inflows and reduced fund assets $11.6 billion in the 2002 quarter.
Money market and bond funds had net investor subscriptions of $984 million while
net stock fund outflows of $401 million were split between the international and
domestic funds.
Investment advisory revenues earned from other investment portfolios that we
manage were down almost $5.3 million, primarily as the result of lower portfolio
valuations. While these portfolios had net cash inflows of $179 million during
the 2002 quarter, lower market valuations decreased these
9
assets $6.3 billion to $49.6 billion at September 30, 2002. Performance-based
fees from our managed venture capital distributions service were down $1.7
million from the 2001 quarter. Market conditions affecting these investments
vary significantly over time, and during the third quarter 2002 were
unfavorable.
Administrative revenues increased $1.6 million versus the 2001 quarter but were
primarily offset by similar increases in the costs of providing the related
services.
A net investment loss of $1.0 million in the 2002 quarter compares with
investment income of $3.2 million during the third quarter last year. The $2.3
million of losses on our mutual fund holdings that we recognized during this
year's third quarter more than offset our investment income. Our mutual fund
investment holdings at September 30, 2002 include an aggregate net gain, before
income taxes, of $2.6 million and is included in stockholders' equity within
accumulated other comprehensive income. The net gain comprises aggregate gains
of $12.1 million and aggregate losses of $9.5 million. All individual mutual
fund holding losses that have not been recognized in our income statement at
September 30, 2002 arose subsequent to the first quarter of 2002 and are
considered temporary. Many have already been diminished by fourth quarter market
valuation increases.
Operating expenses have been reduced $8.4 million, or 5.3%, from $158.4 million
in the third quarter of 2001 to $150.0 million in the comparable 2002 quarter.
Our largest expense, compensation and related costs, decreased 2.8%, or $2.6
million, from the 2001 quarter. Attrition and a late 2001 reduction have reduced
our staff 5.6% from 3,884 as of June 30, 2001 to 3,668 associates at September
30, 2002. Advertising and promotion expenditures were up less than $.5 million
to $10.8 million. In light of the early fourth quarter financial market rebound
and our seasonal advertising pattern, we plan to increase advertising and
promotion expenditures in the fourth quarter and expect our spending to be
comparable to or slightly exceed that of last year's final quarter.
The elimination of the amortization of goodwill and lower interest expense on
our remaining debt account for $7.2 million and $1.6 million, respectively, of
the decrease in our 2002 operating expenses. Other operating expenses for the
quarter increased $2.2 million versus the third quarter of last year primarily
as the result of increased spending for professional services associated with
initiatives within our operations and technology groups.
The 2002 provision for income taxes as a percentage of pretax income is lower
than that of 2001 due primarily to eliminating the amortization of nondeductible
goodwill in 2002.
NINE MONTHS ENDED SEPTEMBER 30, 2002 VERSUS 2001. Net income decreased $2.8
million, or 1.8%, to $148.1 million, and diluted earnings per share fell $.02 to
$1.15. After excluding the 2001 amortization of goodwill, adjusted net income
for the comparable 2001 period was $172.6 million and adjusted diluted earnings
per share was $1.33. Total revenues declined 11% from $786 million to $699
million.
Investment advisory revenues earned from the T. Rowe Price mutual funds
decreased $30.5 million as average fund assets under management were $93.8
billion during the 2002 period, $6.3 billion less than in the 2001 period.
10
The Price funds had $3 billion of net cash inflows during the 2002 period;
however, market depreciation, net of income and dividends paid but not
reinvested, more than offset the inflows and reduced fund assets $19 billion in
the first nine months of 2002. Domestic stock funds had net investor
subscriptions of nearly $2.3 billion and fixed income fund investors added
another $1.6 billion. Net outflows of more than $900 million occurred from the
international stock funds.
Investment advisory revenues earned from other investment portfolios that we
manage were down $10.9 million, including $3.8 million which is attributable to
lower performance-based fees. These portfolios had net cash inflows of $1.2
billion in the first nine months of 2002, while lower market valuations
decreased these assets $9.9 billion.
Net investment losses of $4.7 million in the 2002 period compare with investment
income of $31.0 million during the comparable 2001 period when we recognized
$18.7 million of gain on the disposition of available-for-sale mutual fund
investments and had $3.4 million more of interest income on larger cash
positions in a higher interest rate environment. The 2001 results also include a
$4.6 million gain on investment partnerships that held distressed debt
securities. Thus far in 2002, we have neither sold any of our available-for-sale
fund investments nor have we recognized any similar gain on our partnership
investments. Instead, our investment losses in the first nine months of 2002
have more than offset our investment income. Our losses include $1.0 million
from exchange rate fluctuations on our yen debt, valuation decreases of $2.7
million on private equity investments, a $2.1 million loss on our investments in
sponsored collateralized bond obligations, and impairments recognized on our
mutual fund investments of $3.1 million.
Operating expenses have been reduced more than $72 million, or 13.6%, from
$531.7 million to $459.4 million in 2002. Compensation and related costs are our
largest expense and we decreased them 6.3%, or $18.4 million, from the 2001
period. In addition to our lower staff size, we have significantly reduced our
use of temporary personnel in the technology operations group. We reduced our
advertising and promotion expenditures $5.3 million in the first nine months of
2002 in light of the weak financial market conditions. The elimination of the
amortization of goodwill and lower interest expense on our remaining acquisition
indebtedness account for $21.7 million and $8.4 million, respectively, of our
lower 2002 operating expenses. Occupancy and equipment costs and other operating
expenses decreased $5.1 million and $14.1 million, respectively, versus the same
period last year. These reductions primarily reflect the 2001 completion of
several technology initiatives and the international infrastructure transition.
CAPITAL RESOURCES AND LIQUIDITY.
During the first nine months of 2002, we repaid $48 million of our debt and
expended $92 million in the repurchase of our common shares. In October 2002, we
repurchased an additional $2 million of our common stock. These cash outflows
were funded by existing cash balances, proceeds of $21.9 million from exercises
of our stock options and cash provided by our operating activities.
FORWARD-LOOKING INFORMATION.
From time to time, information or statements provided by or on behalf of T.
11
Rowe Price, including those within this Quarterly Report on Form 10-Q, may
contain certain forward-looking information, including information or
anticipated information relating to changes in our revenues and net income,
changes in the amount and composition of our assets under management, our
expense levels, and our expectations regarding financial markets and other
conditions. Readers are cautioned that any forward-looking information provided
by or on behalf of T. Rowe Price is not a guarantee of future performance.
Actual results may differ materially from those in forward-looking information
as a result of various factors, including but not limited to those discussed
below. Further, forward-looking statements speak only as of the date on which
they are made, and we undertake no obligation to update any forward-looking
statement to reflect events or circumstances after the date on which it is made
or to reflect the occurrence of unanticipated events.
Our future revenues will fluctuate due to many factors, including: the total
value and composition of assets under our management; cash inflows and outflows
in the T. Rowe Price mutual funds and other managed investment portfolios;
fluctuations in the financial markets around the world that result in
appreciation or depreciation of the assets under our management; the relative
investment performance of the Price mutual funds and other managed investment
portfolios as compared to competing offerings and market indices; the extent to
which we earn performance-based investment advisory fees; the expense ratios of
the Price mutual funds; investor sentiment and investor confidence; the ability
to maintain our investment management and administrative fees at appropriate
levels; competitive conditions in the mutual fund, asset management, and broader
financial services sectors; our introduction of new mutual funds and investment
portfolios; our ability to contract with the Price mutual funds for payment for
investment advisory-related administrative services provided to the funds and
their shareholders; changes in retirement savings trends favoring
participant-directed investments and defined contribution plans; the amount and
timing of income or loss from our private equity, high yield, mutual fund, and
other investments; and our level of success in implementing our strategy to
expand our business internationally. Our revenues are substantially dependent on
fees earned under contracts with the Price funds and could be adversely affected
if the independent directors of one or more of the Price funds determined to
terminate or significantly alter the terms of the investment management or
related administrative services agreements.
Our future operating results are also dependent upon the level of our operating
expenses, which are subject to fluctuation for the following or other reasons:
changes in the level of our advertising expenses in response to market
conditions, including our efforts to expand our investment advisory business to
investors outside the United States and to further penetrate our distribution
channels within the United States; variations in the level of compensation
expense due to, among other things, performance-based bonuses, changes in our
employee count and mix, and competitive factors; any goodwill impairment that
may arise; fluctuation in foreign currency exchange rates applicable to the
costs of our international operations and our yen-denominated debt; expenses and
capital costs, such as technology assets, depreciation, amortization, and
research and development, incurred to maintain and enhance our administrative
and operating services infrastructure; unanticipated costs that may be incurred
to protect investor accounts and the goodwill of our clients; and disruptions of
services, including those provided by third parties such as facilities,
communications, power, and the mutual fund transfer agent system.
12
Our business is also subject to substantial governmental regulation, and changes
in legal, regulatory, accounting, tax, and compliance requirements may have a
substantial effect on our operations and results, including but not limited to
effects on costs that we incur and effects on investor interest in mutual funds
and investing in general, or in particular classes of mutual funds or other
investments.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Except that equity and currency market fluctuations have resulted in losses as
discussed in Item 2 of this Form 10-Q, there has been no material change since
December 31, 2001 in the information provided in Item 7A of the 2001 Form 10-K
Annual Report.
ITEM 4. CONTROLS AND PROCEDURES.
Within the 90-day period prior to the filing date of this Form 10-Q Quarterly
Report, we carried out under the supervision and with the participation of our
management, including our principal executive officer and principal financial
officer, an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures. Based on that evaluation, our principal
executive officer and principal financial officer concluded that our disclosure
controls and procedures are effective in timely alerting them to material
information that is required to be included in the periodic reports that we must
file with the Securities and Exchange Commission. There have been no significant
changes in our internal controls or in other factors that could significantly
affect these controls subsequent to the date of that evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
PART II. OTHER INFORMATION.
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.
3(i) Amended and Restated Charter of T. Rowe Price Group, Inc. as of
March 9, 2001. (Incorporated by reference from Form 10-K for
2000; Accession No. 0001113169-01-000003.)
3(ii) Amended and Restated By-Laws of T. Rowe Price Group, Inc. as of
September 5, 2002. (Incorporated by reference from Form 8-K of
September 5, 2002; Accession No. 0000950133-02-003328.)
4 $500,000,000 Five-Year Credit Agreement among T. Rowe Price
Associates, Inc., the several lenders, and JPMorgan Chase Bank,
as administrative agent. (Incorporated by reference from Form
10-Q Report for the quarterly period ended June 30, 2000;
Accession No. 0000080255-00-000425.)
15 Letter from KPMG LLP, independent accountants, re unaudited
interim financial information.
99.1 Certification of Principal Executive Officer Pursuant to 18
U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).
13
99.2 Certification of Principal Financial Officer Pursuant to 18
U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).
(b) Reports on Form 8-K: A filing as of September 5, 2002 was made on October
3, 2002 reporting the adoption of the Amended and Restated By-Laws of T.
Rowe Price Group. The amended and restated by-laws change the notice
provisions for proposals by stockholders concerning business to be
transacted at future annual stockholder meetings. (Accession No.
0000950133-02-003328.)
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 30, 2002.
T. Rowe Price Group, Inc.
/s/ George A. Roche
Chairman & President
/s/ Cristina Wasiak
Vice President and Chief Financial Officer
/s/ Joseph P. Croteau
Vice President & Treasurer (Chief Accounting Officer)
14
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER.
I, George A. Roche, certify that:
1. I have reviewed this quarterly report on Form 10-Q of T. Rowe Price Group,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors:
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
15
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ George A. Roche
Chairman & President
October 30, 2002
16
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER.
I, Cristina Wasiak, certify that:
1. I have reviewed this quarterly report on Form 10-Q of T. Rowe Price Group,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors:
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
17
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Cristina Wasiak
Vice President & Chief Financial Officer
October 30, 2002
18