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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year ended: DECEMBER 31, 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.
Securities registered pursuant to Section 12(b) of the Act: NONE.
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.20 PAR VALUE.
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X]. No [ ].
State the aggregate market value of the common equity (all shares are voting)
held by non-affiliates (excludes executive officers and directors) computed by
reference to the price at which the common equity was last sold as of the last
business day of the registrant's most recently completed second fiscal quarter
(June 30, 2002). $3.6 BILLION.
Indicate the number of shares outstanding of the registrant's common stock, as
of the latest practicable date. 122,302,344 SHARES AT FEBRUARY 28, 2003.
Documents incorporated by reference: IN ITEM 9 OF PART II AND IN PART III OF
THIS FORM 10-K, THE DEFINITIVE PROXY STATEMENT FOR THE 2003 ANNUAL MEETING OF
STOCKHOLDERS (FORM DEF14A; ACCESSION NO. 0001113169-03-000001).
Exhibit index at Item 15(a)3 begins on page 41.
Page 1
PART I.
ITEM 1. BUSINESS.
OVERVIEW. T. Rowe Price Group is a financial services holding company that
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. Our 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.
We operate our investment advisory business through our subsidiary companies,
primarily T. Rowe Price Associates and T. Rowe Price International. Our advisory
business was begun by the late Thomas Rowe Price in 1937 and our common stock
was offered to the public for the first time in 1986. Our corporate holding
company structure was put in place in December 2000.
Total assets under our management decreased $15.7 billion over the course of
2002 and ended the year at $140.6 billion, including $88.7 billion held in
retirement accounts and variable annuity investment portfolios. Assets under our
management at the end of 2002 included $92.9 billion of equity securities and
$47.7 billion of debt securities. The five largest Price funds at December 31,
2002 - Equity Income, Mid-Cap Growth, Prime Reserve, Blue Chip Growth, and
International Stock - account for 21.9% of assets under management at that time
and 27.1% of 2002 investment advisory revenues. The investors that we serve are
primarily domiciled in the United States of America.
Our assets under management are accumulated from a diversified client base that
is accessed across several distribution methods. Our assets under management are
sourced approximately 30% from individual U.S. investors, 30% from U.S. defined
contribution retirement plans, 20% from third-party distribution, and 20% from
institutional investors. Our international client base presently accounts for
just over 2% of our assets under management and is included primarily in our
assets sourced from third-party distribution and institutional investors. Our
largest client account relationship, excluding the T. Rowe Price funds,
accounted for about 3.5% of our investment advisory revenues in 2002.
We manage a broad range of U.S. domestic and international stock, bond, and
money market mutual funds and other investment portfolios which are designed to
meet the varied and changing needs and objectives of individual and
institutional investors. For example, mutual fund shareholders can exchange
balances among mutual funds at any time that economic and market conditions and
their investment needs change. From time to time, we introduce new funds and
other investment portfolios to complement and expand our investment offerings,
respond to competitive developments in the financial marketplace, and meet the
changing needs of our investment advisory clients. We will open a new mutual
fund if we believe that its objective can be useful for investors over a long
period of time.
We also provide certain administrative services as ancillary services to our
investment advisory clients. These administrative services are provided by
several of our subsidiary companies and include mutual fund transfer agent,
accounting, and shareholder services; participant recordkeeping and transfer
agent services for defined contribution
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retirement plans; discount brokerage; and trust services. More than 90% of our
administrative revenues in 2002 were based on the recovery of expenditures
incurred in providing the related services and they, therefore, do not
significantly affect our net income.
We employ fundamental and quantitative security analyses in the performance of
the investment advisory function. We maintain substantial internal equity and
fixed income investment research capabilities. We perform original industry and
company research using such sources as inspection of corporate activities,
management interviews, company-published financial and other information,
financial newspapers and magazines, corporate rating services, and field checks
with suppliers and competitors in the same industry and particular business
sector. Our research staff operates primarily from offices located in the United
States and Great Britain with additional staff resident in Argentina, France,
Hong Kong, Japan, and Singapore. We also use research provided by brokerage
firms in a supportive capacity and information received from private economists,
political observers, commentators, government experts, and market and security
analysts. Our stock selection process for some investment portfolios is based on
quantitative analyses using computerized data modeling.
Investment objectives for our managed investment portfolios, including the Price
funds, accommodate a variety of strategies. Investors select funds based on the
distinct objectives that are detailed in each fund's prospectus. Management of
other client portfolios includes approaches similar to those employed in the
Price funds. Equity investment strategies may emphasize large-cap, mid-cap or
small-cap investing; growth or value investing; and U.S., global, or
international investing. We also offer systematic, tax-efficient, and blended
equity investment strategies as well as active and systematic management
strategies for fixed income investments. Our specialized advisory services
include management of stable value investment contracts and a service for the
disposition of equity distributions from venture capital investments.
Information concerning our revenues, results of operations, total assets, and
investment assets under our management during the past three years is contained
in our consolidated statements of income and in note 6 to our consolidated
financial statements included in Item 8 of this Form 10-K.
RECENT DEVELOPMENTS. Weakness in financial market valuations that began in early
2000 continued through 2002 as the U.S. stock markets declined for the third
straight year, the first such three-year period of decline since 1939-1941.
During 2002, equity security valuations peaked in the first quarter and fell
during the second half of the year, reaching a low point in October that was
last seen in the first half of 1997. The equity market declines led assets under
management down to $140.6 billion, the lowest year-end figure of the past five
years. Despite this environment, our comparative investment performance was
relatively strong as more than 80% of our mutual funds outperformed their Lipper
peer groups' averages for the one-, three-, and five-years ended December 31,
2002.
The decline in equity markets this year depressed mutual fund assets from $98.0
billion at the start of 2002 to $87.3 billion at year-end. Average fund assets
were down $6.6 billion to $92.1 billion. Net cash inflows to the T. Rowe Price
mutual funds totaled $3.1 billion, a significant increase versus recent years
and the most since 1998, but lower market valuations dropped fund assets $13.8
billion for the year. Overall, net cash inflows aggregated almost $4.9 billion
in 2002.
Page 3
Investors seeking positive yields added $1.9 billion to our money market and
bond funds in 2002, with those seeking the highest yield adding $700 million to
the High Yield Fund. Changing sentiments also saw investors return to our stock
funds which had $1.2 billion of net inflows. Equity investors made net
subscriptions of $2.7 billion into our U.S. domestic stock funds with
value-oriented investors adding to the Equity Income, Mid-Cap Value and
Small-Cap Value funds. International stock fund investing again was out of favor
and those funds had net redemptions of $1.5 billion. Total advisory revenues
from mutual funds declined nearly $43.5 million from 2001 when average fund
assets were $6.6 billion higher.
The other investment portfolios that we manage aggregated $53.3 billion at
December 31, 2002, down $5 billion over the course of the year. These portfolios
experienced lower market valuations of $6.7 billion while adding net inflows of
$1.7 billion, primarily from third party distribution efforts and institutional
investors outside the United States. Enabled by our 2000 acquisition of the 50%
non-controlling interest in T. Rowe Price International, we now compete for the
provision of investment advisory services to institutional and individual
investors outside the United States. Our U.K. investment advisory subsidiary, T.
Rowe Price Global Investment Services, has expanded our investment advisory
business to Europe where we offer separate account management to institutional
investors and a series of Luxembourg-domiciled mutual funds with both
institutional and individual share classes. Our efforts have focused on
institutional investors and third party distributors of the Luxembourg funds.
Our European initiatives complement those that we began in 1999 in Japan through
T. Rowe Price Global Asset Management, which subadvises investment assets for
Daiwa SB Investments in which we hold a 10% interest. Together, our
international client base now accounts for more than 2% of our total assets
under management.
We have responded to the unfavorable financial market conditions by meaningfully
reducing our operating expenses in each of the last two years. Our aim has been
to adjust our spending levels to better reflect business realities while still
sustaining our high client service standards.
Our operating cash flow and financial condition have remained strong. During
2002, we repaid $49 million of debt and expended $96 million to repurchase 2.8
million shares of our common stock.
This past year, we introduced a new Retirement series of mutual funds with asset
allocations that automatically shift as an investor ages. Our third party
distribution efforts through financial intermediaries were further strengthened
with the introduction of an R share class for retirement plans and an increase
in the number of funds offering Advisor class shares.
On the services front, we enhanced our IRA rollover programs to attract more
assets from the growing retirement plan rollover market, and launched a
redesigned Web site with new features and better functionality to make it easier
for investors to manage their accounts. We also expanded our lineup of free
educational tools by launching an online College Investment Calculator and
providing Internet access to several Morningstar investment planning and
guidance tools, the first products resulting from an alliance between our firms.
PRICE FUNDS. We provide investment advisory, distribution and other
administrative services to the Price funds under various agreements. Investment
advisory services are provided to each fund under individual investment
management agreements that grant the fund the right to use the
Page 4
T. Rowe Price name. The boards of the respective funds, including a majority of
directors who are not interested persons of the funds or of us (as defined in
the Investment Company Act of 1940, as amended), must approve the investment
management agreements annually. Amendments to management agreements must be
approved by fund shareholders. Each agreement automatically terminates in the
event of its assignment (as defined in the Investment Company Act) and,
generally, either party may terminate the agreement without penalty after a
60-day notice. The termination of one or more of these agreements could have a
material adverse effect on our results of operations.
Advisory Services. Investment advisory revenues are based upon the daily net
assets managed in each fund. Additional fees are earned for advisory-related
administrative services as discussed below. Independent directors and trustees
of the Price funds regularly review our fee structures.
The advisory fee paid by each of the Price funds generally is computed each day
by multiplying a fund's net assets by a specific fee. For the majority of the
Price funds, the fee is equal to the sum of a group charge that is set based on
the combined net assets of those funds and an individual fund charge that is set
based on the fund's specific investment objective. The 2002 fee rates determined
in this manner varied from a low of 32 basis points for the U.S. Treasury Money
Fund to a high of 107 basis points for the International Discovery funds. To the
extent that the combined net assets of the funds increase, the group charge
component of the fee and, therefore, each overall fund fee decreases. Details of
each fund's fee arrangement are available in its prospectus.
Each of the Price funds has a distinct investment objective that has been
developed as part of our strategy to provide a broad, comprehensive selection of
investing opportunities. All Price funds can be purchased on a no-load basis,
without a sales commission. No-load mutual funds offer investors a low-cost and
relatively easy method of investing in a variety of stock and bond portfolios.
Our Advisor and R classes of fund shares are sold through financial
intermediaries and incur 12b-1 fees of up to 25 and 50 basis points,
respectively, for distribution, administration, and personal services. We
believe that our lower fund cost structure, distribution methods, and fund
shareholder and administrative services help promote stability of fund assets
through market cycles.
Each Price fund typically bears all expenses associated with its operation and
the issuance and redemption of its securities. In particular, each fund pays
investment advisory fees; shareholder servicing fees and expenses; fund
accounting fees and expenses; transfer agent fees; custodian fees and expenses;
legal and auditing fees; expenses of preparing, printing and mailing
prospectuses and shareholder reports to existing shareholders; registration fees
and expenses; proxy and annual meeting expenses; and independent trustee or
director fees and expenses.
Several of the Price funds have different fee arrangements. The Equity Market
Index funds and the Summit funds each have single, all-inclusive fees covering
all investment management and operating expenses. Each of the funds in the
Spectrum series and new Retirement series of mutual funds invest in a broadly
diversified portfolio of other Price funds and have no separate investment
advisory fee. However, they indirectly bear the expenses of the funds in which
they invest. Mutual funds for institutional investors each have separate
advisory fee arrangements.
Page 5
We usually commit that a newly organized fund's expenses will not exceed a
specified percentage of its net assets during an initial operating period. We
absorb all advisory fees and other mutual fund expenses in excess of these
self-imposed limits.
We bear all advertising and promotion expenses for the Price funds. Our costs
include advertising and direct mail communications to potential fund
shareholders as well as a substantial staff and communications capabilities to
respond to investor inquiries. Marketing efforts are focused in the print media
and, in recent years, promotional activities have expanded onto television and
the Internet. In addition, we direct considerable marketing efforts to defined
contribution plans that invest in mutual funds. Advertising and promotion
expenditures vary over time based on investor interest, market conditions, new
investment offerings, and the development and expansion of new marketing
initiatives, including those arising from international expansion and
enhancements to our Web site (www.troweprice.com).
Administrative Services. We provide advisory-related administrative services to
the Price funds through our subsidiaries. T. Rowe Price Services provides mutual
fund transfer agency and shareholder services, including maintenance of staff,
facilities, and technology and other equipment to respond to inquiries from fund
shareholders. T. Rowe Price Associates provides mutual fund accounting services,
including maintenance of financial records, preparation of financial statements
and reports, daily valuation of portfolio securities and computation of daily
net asset values per share. T. Rowe Price Retirement Plan Services provides
participant accounting, plan administration and transfer agent services for
defined contribution retirement plans that invest in the Price funds. Plan
sponsors compensate us for some services while the Price funds compensate us for
maintaining and administering the individual participant accounts for those
plans that invest in the funds.
Our trustee services are provided by another subsidiary, T. Rowe Price Trust
Company. Through this Maryland-chartered limited-service trust company, we offer
common trust funds for investment by qualified retirement plans and serve as
trustee for retirement plans and IRAs. T. Rowe Price Trust Company may not
accept deposits and cannot make personal or commercial loans.
We also provide customized investment advisory services to shareholders and
potential investors in the Price funds through our subsidiary T. Rowe Price
Advisory Services. These services currently include an Investment Checkup of an
individual's financial situation, the Retirement Income Manager for developing
an individual's personal income and investment strategy during retirement, and a
Rollover Investment Service for investing retirement plan distributions.
Another subsidiary, T. Rowe Price Savings Bank, issues federally-insured
certificates of deposit.
Fund Assets. At December 31, 2002, assets under our management in the Price
funds aggregated nearly $87.3 billion, a decrease of $10.7 billion from the
beginning of the year. The following table presents the net assets (in millions)
of our largest funds (net assets in excess of $100 million) at December 31, 2001
and 2002 and the year each fund was started. The Spectrum and Retirement series
of funds are not listed in the table because their assets are included in the
underlying funds.
Page 6
2001 2002
-------- --------
Stock funds:
Growth Stock (1950) $ 4,685 $ 3,729
New Horizons (1960) 5,583 3,359
New Era (1969) 1,070 985
International Stock (1980) 6,515 4,447
Growth & Income (1982) 2,395 1,675
Equity Income (1985) 10,436 9,838
New America Growth (1985) 1,183 761
Capital Appreciation (1986) 1,405 1,853
Science & Technology (1987) 5,764 3,186
International Discovery (1988) 486 370
Small-Cap Value (1988) 2,037 2,554
Foreign Equity (1989) 1,842 1,146
Equity Index 500 (1990) 3,473 2,708
European Stock (1990) 847 641
New Asia (1990) 639 543
Balanced (1991) 1,791 1,582
Japan (1991) 133 100
Dividend Growth (1992) 692 531
Mid-Cap Growth (1992) 6,756 5,764
Small-Cap Stock (1992) 3,197 3,439
Blue Chip Growth (1993) 6,711 5,020
Latin America (1993) 177 129
Media & Telecommunications (1993) 675 421
Personal Strategy - Balanced (1994) 660 603
Personal Strategy - Growth (1994) 316 322
Personal Strategy - Income (1994) 252 259
Value (1994) 1,330 1,187
Emerging Markets Stock (1995) 155 170
Health Sciences (1995) 961 678
Financial Services (1996) 309 265
Mid-Cap Equity Growth (1996) 308 263
Mid-Cap Value (1996) 503 993
Real Estate (1997) 69 132
Total Equity Market Index (1998) 198 168
Institutional Small-Cap Stock (2000) 288 334
Other funds 601 493
-------- --------
74,442 60,648
-------- --------
Bond and money market funds:
New Income (1973) 1,803 2,018
Prime Reserve (1976) 5,878 5,662
Tax-Free Income (1976) 1,416 1,503
Tax-Exempt Money (1981) 759 703
U.S. Treasury Money (1982) 1,005 1,080
Tax-Free Short-Intermediate (1983) 448 560
High Yield (1984) 1,623 2,361
Short-Term Bond (1984) 599 904
GNMA (1985) 1,139 1,408
Tax-Free High Yield (1985) 1,089 1,119
California Tax-Free Bond (1986) 249 274
International Bond (1986) 767 1,073
New York Tax-Free Bond (1986) 208 229
New York Tax-Free Money (1986) 114 112
Maryland Tax-Free Bond (1987) 1,186 1,334
U.S. Treasury Intermediate (1989) 280 398
U.S. Treasury Long-Term (1989) 306 297
New Jersey Tax-Free Bond (1991) 128 145
Page 7
Virginia Tax-Free Bond (1991) 352 402
Tax-Free Intermediate Bond (1992) 131 163
Florida Intermediate Tax-Free Bond (1993) 106 126
Maryland Short-Term Tax-Free Bond (1993) 148 217
Summit Cash Reserves (1993) 2,825 3,165
Summit GNMA (1993) 91 110
Summit Municipal Intermediate (1993) 94 110
Summit Municipal Money Market (1993) 211 241
Emerging Markets Bond (1994) 156 211
Institutional High Yield (2002) - 158
Other funds 419 524
-------- --------
23,530 26,607
-------- --------
$ 97,972 $ 87,255
======== ========
OTHER INVESTMENT PORTFOLIOS. We managed $53.3 billion at December 31, 2002 in
investment portfolios outside of the Price funds, down $5.0 billion from the
beginning of the year. We provide investment advisory services to these client
accounts on a separately-managed or subadvised basis and through sponsored
investment portfolios generally organized by us as common trust funds or
partnerships. Several special-purpose subsidiaries serve as the general partners
of our sponsored investment partnerships. These partnerships were formed in
prior years through private placements and are now in the liquidation phase of
their existence.
Our fees for managing these investment portfolios are computed using the value
of assets under our management. Nearly 60% of these advisory fees are based on
the daily valuations of the managed investment portfolios, while about 30% of
the fees are based on end of billing period valuations. The remainder are based
on account values at the beginning of the billing period.
We charge fees for investment management based on, among other things, the
specific investment services to be provided. Our standard form of investment
advisory agreement for client accounts provides that the agreement may be
terminated at any time and that any unearned fees paid in advance will be
refunded.
Our subsidiaries also provide other advisory services to investment clients.
Stable value investment contracts, totaling $9.1 billion at December 31, 2001
and $9.9 billion at December 31, 2002, are managed by T. Rowe Price Stable Asset
Management. International equity and fixed income securities held in other
investment portfolios managed by T. Rowe Price International totaled $9.0
billion at the end of 2002, down from $14.2 billion at the beginning of the
year.
REGULATION. T. Rowe Price Associates, T. Rowe Price International, T. Rowe Price
Stable Asset Management, T. Rowe Price Global Asset Management, and T. Rowe
Price Advisory Services are registered with the SEC as investment advisors under
the Investment Advisers Act of 1940. T. Rowe Price Global Investment Services,
T. Rowe Price Global Asset Management, and T. Rowe Price International are
regulated by the Financial Services Authority in Great Britain. Our transfer
agent services subsidiaries are registered under the Securities Exchange Act of
1934, and our trust company is regulated by the State of Maryland, Commissioner
of Financial Regulation. T. Rowe Price Savings Bank is regulated by the Office
of Thrift Supervision, U.S. Department of the Treasury.
Page 8
The Price funds are distributed by our subsidiary, T. Rowe Price Investment
Services, which is a registered broker-dealer and member of the National
Association of Securities Dealers and the Securities Investor Protection
Corporation. We provide discount brokerage services through this subsidiary
primarily to complement the other services provided to shareholders of the Price
funds. All discount brokerage transactions are cleared through and customer
accounts are maintained by Pershing LLC, an independent clearing broker.
All aspects of our business are subject to extensive federal and state laws and
regulations. These laws and regulations are primarily intended to benefit or
protect our clients and the Price funds' shareholders. They generally grant
supervisory agencies and bodies broad administrative powers, including the power
to limit or restrict the conduct of our business in the event that we fail to
comply with laws and regulations. Possible sanctions that may be imposed on us
in the event that we fail to comply include the suspension of individual
employees, limitations on engaging in certain business activities for specified
periods of time, revocation of our investment adviser and other registrations,
censures, and fines.
Certain of our subsidiaries are subject to net capital requirements including
those of various federal, state, and foreign regulatory agencies. Our
subsidiaries' net capital, as defined, has consistently met or exceeded all
minimum requirements.
COMPETITION. As a member of the financial services industry, we are subject to
substantial competition in all aspects of our business. A significant number of
mutual funds are sold to the public by investment management firms,
broker-dealers, other mutual fund companies, banks and insurance companies and
include the distribution of both proprietary and other sponsors' mutual funds.
We compete with brokerage and investment banking firms, insurance companies,
banks, and other financial institutions in all aspects of our business and in
every country in which we offer our advisory services. Many of these financial
institutions have substantially greater resources than we do. We compete with
other providers of investment management services primarily on the basis of the
availability and objectives of investment portfolios offered, investment
performance, and the scope and quality of our services.
We believe that competition within the investment management industry will
increase as a result of consolidation and acquisition activity. In order to
maintain and enhance our competitive position, we may review acquisition and
venture opportunities and, if appropriate, engage in discussions or negotiations
that could lead to acquisitions or new financial relationships.
EMPLOYEES. At December 31, 2002, we employed 3,710 associates, up just over 1%
from the end of 2001. We may add additional temporary and part-time personnel to
our staff from time to time to meet periodic and special project demands,
primarily for technology and mutual fund administrative services.
SEC FILINGS. We make available through our Internet Web site our annual report
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Exchange Act as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the Securities and
Exchange Commission. To retrieve any of this information, you may access our
Internet home page at www.troweprice.com, select: Press or Company Info, and
then select: Financial Information.
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ITEM 2. PROPERTIES.
Our primary corporate offices consist of approximately 299,000 square feet of
space leased through late 2006 at 100 East Pratt Street in Baltimore, Maryland.
Our international offices in London, Buenos Aires, Copenhagen, Hong Kong, Paris,
Singapore, and Tokyo are also leased. Our leased customer service call center in
Tampa, Florida moved to a newly constructed office complex in the third quarter
of 2002.
In recent years, we have expanded our operating and servicing facilities to
include owned properties in suburban campus settings comprising 567,000 square
feet in Owings Mills, Maryland and 124,000 square feet in Colorado Springs,
Colorado. We also own a 46,000 square foot technology center on a separate
parcel of land in Owings Mills in close proximity to the campus facilities.
Acreage that we own surrounding these three facilities will accommodate
additional future development.
With the development and our occupancy of the larger suburban Owings Mills
campus facilities, we may vacate and sell our separate 110,000 square foot
facility in Owings Mills.
We maintain investor centers for walk-in traffic and investor meetings in leased
facilities located in the Baltimore; Boston (Wellesley, Massachusetts); Chicago
(Oak Brook, Illinois); Los Angeles (Woodland Hills, California); New Jersey/New
York City (Short Hills, New Jersey); San Francisco (Walnut Creek, California);
Tampa; and Washington (Washington, D.C. and McLean, Virginia) areas. We also
have centers in our owned facilities in Colorado Springs and Owings Mills. These
11 investor centers allow us to be available to a large number of our investors
within a one hour drive.
Information concerning our anticipated capital expenditures in 2003 and our
future minimum rental payments under noncancelable operating leases at December
31, 2002 is set forth in the capital resources and liquidity discussion in Item
7 of this Form 10-K.
ITEM 3. LEGAL PROCEEDINGS.
From time to time, various claims against us arise 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 our
financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None during the fourth quarter of 2002.
Page 10
ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT.
The following information includes the names, ages, and positions of our
executive officers. There are no arrangements or understandings pursuant to
which any person serves as an officer. The first seven individuals are members
of our management committee.
George A. Roche (61), Chairman and President (1997), Chief Financial Officer
(1984-1997), and Vice President (1973-1987).
James S. Riepe (59), Vice Chairman (1997) and Vice President (1981).
M. David Testa (58), Vice Chairman (1997) and Vice President (1976).
Edward C. Bernard (47), Vice President (1989).
James A.C. Kennedy (49), Vice President (1981).
William T. Reynolds (54), Vice President (1983).
David J.L. Warren (45), Vice President (2000) and President (1998) of
T. Rowe Price International.
Cristina Wasiak (49), Vice President and Chief Financial Officer (2001).
Ms. Wasiak was previously the Chief Financial Officer of DSC Logistics
(2000-2001) and a Senior Vice President with ABN Amro North America (1998-
2000).
Michael A. Goff (43), Vice President (1994).
Henry H. Hopkins (60), Vice President (1976).
Melody L. Jones (43), Vice President (2002). Ms. Jones was previously Vice
President and Chief Human Resources Officer (1998-2002) with Aon
Corporation.
Wayne D. O'Melia (50), Vice President (1991).
Charles E. Vieth (46), Vice President (1985).
Joseph P. Croteau (48), Vice President (1987) and Treasurer (2000).
Page 11
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our common stock ($.20 par value) trades on The Nasdaq National Market under the
symbol "TROW". The high and low trade price information and dividends per share
during the past two years were:
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------- ------- ------- -------
2001 - High price $43.94 $37.93 $40.48 $35.23
Low price 28.56 27.81 23.44 27.08
Cash dividends declared .15 .15 .15 .16
2002 - High price 42.69 39.15 33.62 31.67
Low price 33.83 30.53 21.50 21.25
Cash dividends declared .16 .16 .16 .17
On February 10, 2003, there were approximately 3,900 holders of record of our
outstanding common stock.
We expect to declare and pay cash dividends at the $.17 per-share quarterly rate
for the first three quarters of 2003. The increase made to our quarterly
dividend rate in December 2002 was the seventeenth consecutive annual increase
since we became a public company in April 1986.
ITEM 6. SELECTED FINANCIAL DATA.
Year ended December 31,
-----------------------------------------------------------
1998 1999 2000 2001 2002
--------- --------- --------- --------- ---------
(in millions, except per-share data)
Net revenues $ 857.8 $ 999.1 $ 1,153.9 $ 995.4 $ 923.5
Net income $ 174.1 $ 239.4 $ 269.0 $ 195.9 $ 194.3
Basic earnings
per share $ 1.46 $ 1.99 $ 2.22 $ 1.59 $ 1.58
Diluted earnings
per share $ 1.34 $ 1.85 $ 2.08 $ 1.52 $ 1.52
Cash dividends
declared per share $ .36 $ .43 $ .54 $ .61 $ .65
Weighted average
shares outstanding 119.1 120.6 121.2 123.1 122.9
Weighted average
shares outstanding-
assuming dilution 130.0 129.2 129.6 129.0 127.7
December 31,
----------------------------------------------------------
1998 1999 2000 2001 2002
-------- -------- ---------- ---------- ----------
(in millions, except as noted)
Balance sheet data
Goodwill $ 3.2 $ 2.5 $ 695.0 $ 665.7 $ 665.7
Total assets $ 796.8 $ 998.0 $ 1,469.5 $ 1,313.1 $ 1,370.4
Debt - $ 17.7 $ 312.3 $ 103.9 $ 55.9
Stockholders'
equity $ 614.3 $ 770.2 $ 991.1 $ 1,077.8 $ 1,133.8
Assets under manage-
ment (in billions) $ 147.8 $ 179.9 $ 166.7 $ 156.3 $ 140.6
Page 12
ITEM 7. 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. Investors outside the
United States account for just over 2% of our assets under management.
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 $140.6 billion at December
31, 2002, including $92.9 billion in equity securities and $47.7 billion in bond
and money market holdings. Lower financial market valuations more than offset
our net investor inflows in 2002 and decreased our assets under management by
10% or $15.7 billion over the course of the year.
Our expenditures to broaden our investor base may be significant and precede the
revenues that we may obtain from any new investment advisory clients.
RESULTS OF OPERATIONS.
2002 VERSUS 2001. Net income decreased about $1.6 million, or 1%, to $194.3
million. Diluted earnings per share was unchanged at $1.52 as lower weighted
average shares and share equivalents outstanding due to our repurchase of 2.8
million common shares in 2002 and our common stock's generally lower per share
market value offset the decline in net income. With the adoption of the new
accounting standard for goodwill 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 in the amount of $28.9 million,
adjusted net income for 2001 was $224.8 million and adjusted diluted earnings
per share was $1.74. Total revenues declined $70.6 million, or 7%, to $925.8
million and net revenues declined a similar 7% or $71.9 million to $923.5
million.
Investment advisory revenues earned from the T. Rowe Price mutual funds
distributed in the United States decreased $43.5 million as average fund assets
under management were $92.1 billion during 2002, $6.6 billion less than in 2001.
Weakness in financial market valuations that began in early 2000 have continued
nearly three years. During the second half of 2002, U.S. equity market
valuations fell to levels last seen in the first half of 1997. Mutual fund
assets ended 2002 at almost $87.3 billion, down $10.7 billion from December 31,
2001 and nearly $4.9 billion from the 2002 average. The Price funds had $3.1
billion of net cash inflows during 2002, the highest net annual inflows since
1998; however, market depreciation, net of income and dividends paid but not
reinvested, more than offset the inflows and reduced fund assets $13.8 billion
in 2002. Money market and bond funds had net investor subscriptions of $1.9
billion and stock funds added an additional $1.2 billion of net inflows. Bond
fund investors seeking higher yields added $704 million to the High Yield Fund
in 2002. Net inflows of $2.7 billion to U.S. domestic stock funds in 2002 were
led
Page 13
primarily by value-oriented investors in the Equity Income, Mid-Cap Value, and
Small-Cap Value funds while international stock fund investors had net
redemptions of $1.5 billion during the year.
Investment advisory revenues earned from the other investment portfolios that we
manage were down $11.2 million in 2002 on lower assets under management that
also resulted from lower market valuations. The value of the assets in these
portfolios decreased $5 billion during 2002 to $53.3 billion at year end as net
cash inflows of $1.7 billion were more than offset by $6.7 billion of market
value losses. Additionally, performance-based advisory fees were down $5 million
from 2001 to $1.2 million in 2002. We earn these fees primarily from a managed
disposition service for distributions of venture capital investments and, though
recurring, these fees will vary significantly over time. They have declined
during the past two years as market conditions were unfavorable and investment
portfolios changed.
Administrative revenues and other income decreased $12.4 million from 2001 to
$207.4 million in 2002. This decrease is primarily attributable to transfer
agency and participant recordkeeping services that we provide for defined
contribution retirement plans and was partially offset by a $2.3 million
increase in 12b-1 distribution fees received from our Advisor class of mutual
fund shares. These revenue changes are generally offset by similar changes in
the expenses that we incurred to provide the services and distribute the Advisor
shares through third parties.
Total revenues also increased $1.5 million on greater investment income from the
larger investment portfolio of our savings bank subsidiary. Our savings bank
depositor base increased from $25 million at December 31, 2001 to $81 million at
the end of 2002. Interest expense on the higher deposits increased $1.3 million.
We manage the assets of our savings bank as a portfolio in a manner similar to
that of our other investment advisory clients. The net of our investment
portfolio income and depositor interest expense results in a net revenue amount
that is similar to the investment advisory fees earned on the investment
portfolios that we manage.
Operating expenses in 2002 were $81.2 million less than in 2001. The elimination
of the amortization of goodwill accounts for $28.9 million or about 36% of the
decrease. Our largest expense, compensation and related costs, decreased 7% or
$27.4 million from 2001. Our average staff size, use of temporary personnel in
the technology operations group, and total levels of compensation were all lower
in 2002. Attrition and a late 2001 staff reduction lowered our average number of
associates in 2002 by 6% from the average 2001 level. At December 31, 2002, we
employed 3,710 associates, up 2% from the 2002 average. Advertising and
promotion expenditures were down $5.6 million in 2002 as we again curtailed
these expenditures due to weak financial market conditions that have made
investors more cautious and less active. We vary our promotional spending based
on market conditions and investor demand as well as our efforts to expand our
investor base in the United States and abroad. We expect our advertising and
promotion expenditures in the first half of 2003 to be similar to the first half
of 2002. Market conditions in the second half of the year will dictate our
spending then.
Occupancy and facility costs and other operating expenses in 2002 decreased $5.8
million and $12.5 million, respectively, versus 2001. These reductions primarily
reflect the first half 2001 completions of several technology initiatives as
well as the international facilities and infrastructure transition that resulted
from the August 2000 purchase of
Page 14
Robert Fleming Holdings' interest in our consolidated subsidiary, T. Rowe Price
International. Through the first half of 2001, we incurred substantial costs to
establish and transition this entity to new operating facilities with
appropriate infrastructure support for their international investment
operations. Robert Fleming affiliates previously provided the space and
infrastructure support for these offices.
Overall, net operating income was up $9.3 million from 2001 to 2002 including
the goodwill amortization of $28.9 million in 2001 that did not recur in 2002.
Non-operating income and expenses include the recognition of investment gains
and losses as well as interest expense incurred on our indebtedness. While we
recognized $31 million of net investment income in 2001, we experienced a net
investment loss of $8.3 million in 2002 as interest and dividend income of $3.3
million was more than offset by losses across all of our investment portfolios.
During 2002, we recognized $3.9 million of losses on dispositions and other than
temporary impairments of our mutual fund holdings, $3.3 million of losses on our
holdings of collateralized bond obligations, $1.4 million of losses from
exchange rate fluctuations on our yen debt, and $3.0 million of valuation
decreases in our private equity holdings. Our mutual fund investment holdings at
December 31, 2002 include an aggregate net gain, before income taxes, of $11.3
million that is included in stockholders' equity as part of accumulated other
comprehensive income. This net gain has not been recognized in our statements of
income and comprises aggregate gains of $15.5 million and aggregate losses of
$4.2 million that have arisen since June 30, 2002 and are considered temporary.
Interest expense on our debt is down more than $9 million due to lower principal
balances and interest rates in 2002. Overall, we recognized a net non-operating
loss of $10.9 million in 2002 versus net non-operating income of $19.4 million
in 2001.
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.
2001 VERSUS 2000. The presentation of our results of operations in our
consolidated statements of income for 2001 and 2000 has been changed to conform
to our 2002 presentation. The following narrative has been modified from that
presented in our 2001 Annual Report to provide a discussion that can be read in
conjunction with the new presentation in our consolidated income statement.
Net income decreased $73.2 million, or 27%, to $196 million, and diluted
earnings per share fell from $2.08 to $1.52. A full year's amortization of
goodwill arising from the T. Rowe Price International acquisition accounted for
$.13 of the decline. Total revenues declined 14% from $1.15 billion to just
under $1 billion. Net revenues also declined 14% to $995 million.
Investment advisory revenues earned from the T. Rowe Price mutual funds
decreased $101 million as average fund assets under management were $98.7
billion during 2001, $15.2 billion less than in 2000. Weakness in financial
market valuations that began in 2000 continued through 2001. The terrorist
attacks in the United States on September 11, 2001 pushed financial markets down
to their lowest levels of the year before they recovered somewhat in the fourth
quarter. Mutual fund assets ended the year at $98.0 billion, down $750 million
from the 2001 average and $8.3 billion from the start of 2001.
Page 15
The Science & Technology Fund and the international funds accounted for $4.1
billion and $3.4 billion, respectively, of the $8.6 billion net decline in
mutual fund valuations during 2001. Dividends paid by the mutual funds, net of
reinvestments, were $.2 billion in 2001. Net inflows from fund investors were
$.5 billion in 2001. Domestic stock funds had net investor subscriptions of more
than $1.8 billion while money market and bond fund investors added almost $.7
billion. Two U.S. growth funds led the inflows with the Small-Cap Stock and Blue
Chip Growth Funds adding a total of $1.4 billion from investors. International
stock funds had net outflows of $2.0 billion.
Assets in the other investment portfolios that we manage fell $2.1 billion
during 2001, and our advisory fees thereon were down $30.4 million. While the
same financial market declines played a significant role in reducing these
assets, cash inflows, primarily from third-party distribution efforts and
international initiatives, added about $2.9 billion to assets under management
in 2001. Additionally, adverse market conditions pushed performance-related
advisory fees down $10.3 million in 2001.
Administrative revenues and other income were down $17.5 million from 2000.
Discount brokerage commissions fell $10.0 million from the prior year as
investor trading activity and average commission rates were lower. Other
administrative revenues declined $7.5 million but were mostly offset by reduced
costs of the services that we provide to the mutual funds and defined
contribution retirement plans.
Our savings bank subsidiary's customer deposits increased in 2001 and added $1.1
million to total revenues and $.3 million to net revenues versus 2000.
Operating expenses declined about 8% from $744 million in 2000 to $684 million
in 2001. Compensation and related costs is our largest expense and was up only
1% or $4.3 million from 2000. Our average staff size was up about 2% versus 2000
but total compensation levels, including bonus expense and the use of temporary
personnel by our information technology operations, were down in 2001. Staff
reductions, primarily in November 2001, together with attrition during the year
reduced our staff to 3,650 associates at December 31, 2001, a 9% reduction from
the end of 2000. Our advertising and promotion expense decreased almost 27% or
$23.6 million to $64.6 million in 2001 as we curtailed these expenditures due to
weak financial market conditions that made investors more cautious and less
active.
International investment research fees were eliminated in August 2000 at the
time of the T. Rowe Price International acquisition. Depreciation and
amortization of property and equipment was $9.8 million higher in 2001 due
primarily to additional amortization from recently completed software and
technology projects, as well as depreciation of new operating facilities. We
completed our move into new space in London in the first quarter of 2001 and in
Colorado Springs in the fourth quarter of 2000. Occupancy and facility costs are
down from 2000 as the temporary facilities and other additional costs associated
with the moves were eliminated.
A full year's amortization of goodwill arising from the T. Rowe Price
International acquisition added $17.0 million to our 2001 expenses. Other
operating expenses decreased 25% or $29.1 million from 2000. As the
international transition and several technology initiatives have been brought to
a close, we have substantially reduced other operating expenses.
Page 16
Overall, net operating income was down $98 million from 2000 to 2001, including
the additional $17 million of goodwill expense.
Net non-operating income was also down more than $29 million from 2000. Net
investment income declined $27.2 million to $31.0 million, with smaller cash and
mutual fund holdings as well as lower interest rates in 2001 accounting for the
decline. Gains from our venture capital investments in 2000 that did not recur
in 2001 were mostly offset by $11.3 million of greater realized gains from 2001
dispositions of our available-for-sale mutual fund holdings. Interest expense on
our debt increased almost $2.2 million as our acquisition indebtedness was
outstanding for only five months in 2000.
The 2001 provision for income taxes as a percentage of pretax income is higher
than that of 2000 largely due to the full year's amortization of nondeductible
goodwill.
Minority interests declined due to the 2000 acquisition and the elimination of
the interests in a remaining venture in the first quarter of 2001.
CAPITAL RESOURCES AND LIQUIDITY.
During the three years ended December 31, 2002, stockholders' equity increased
from $770 million to more than $1.1 billion. Stockholders' equity at December
31, 2002 includes $8.6 million of unrealized investment holding gains, after
provision for income taxes, and $42 million which is restricted as to use under
various regulations and agreements arising in the ordinary course of business.
Net liquid assets of more than $175 million are available at the beginning of
2003. Unused committed credit facilities at the beginning of 2003 include $458
million expiring in June 2005 and $100 million expiring in June 2003.
During 2002, we repaid $49 million of our debt and expended $96 million in the
repurchase of our common shares. These cash outflows were funded by existing
cash balances, proceeds of $25 million from exercises of our stock options, and
cash provided by our operating activities.
Operating activities provided cash flows of $269 million in 2002 as compared to
$290 million in 2001. Net cash expended in investing activities increased $86
million from 2001 to $95 million in 2002. In 2001 we made net redemptions of our
sponsored mutual fund holdings of $53 million versus net investments of $10
million in 2002. Investments in property and equipment in 2002 were down $15
million versus 2001 while our savings bank subsidiary increased its investment
portfolio more than $60 million as a result of increasing its customer deposits.
Cash used in financing activities was down about $140 million in 2002 versus
2001. Bank borrowings were reduced $49 million in 2002 versus $205 million in
2001. With our debt having been substantially reduced, we used our cash flows to
step up our share repurchase activity and, on a net basis after increased option
exercises, expended nearly $53 million more for share repurchases in 2002.
Anticipated property and equipment expenditures in 2003 are approximately $36
million. These capital expenditures, further debt reductions, and additional
share repurchases are expected to be funded from existing cash balances and 2003
operating cash flows.
Under the terms of existing operating leases, we are contractually obliged to
make certain future lease payments. These aggregate commitments are discussed in
Note 8 to our financial statements included elsewhere in this
Page 17
2002 Annual Report and include $19.2 million in 2003, $14.6 million in 2004,
$28.8 million in 2005 - 2007, and $47.1 million thereafter. We have historically
funded our operating lease payments from current year cash flows from operations
and expect to continue to do so in the foreseeable future.
CRITICAL ACCOUNTING POLICIES.
The preparation of financial statements often requires the selection of specific
accounting methods and policies from among several acceptable alternatives.
Further, significant estimates and judgments may be required in selecting and
applying those methods and policies in the recognition of the assets and
liabilities in our balance sheet, the revenues and expenses in our statement of
income, and the information that is contained in our significant accounting
policies and notes to the financial statements. Making these estimates and
judgments requires the analysis of information concerning events that may not
yet be complete and of facts and circumstances that may change over time.
Accordingly, actual amounts or future results could differ materially from those
estimates that we include currently in our financial statements and notes
thereto.
We have historically presented those significant accounting policies that we use
in the preparation of our financial statements as an integral part of those
statements and have done so again in this 2002 Annual Report. In the following
discussion, we highlight and explain further certain of those policies that are
most critical to the preparation and understanding of our financial statements.
The application of these policies often requires significant judgments and
estimates.
OTHER THAN TEMPORARY IMPAIRMENTS OF AVAILABLE FOR SALE SECURITIES. We classify
our investment holdings in sponsored mutual funds and the debt securities held
in the investment portfolio of our savings bank subsidiary as available for
sale. At the end of each quarter, we mark the carrying amount of each investment
holding to fair value and recognize an unrealized gain or loss in other
comprehensive income within stockholders' equity. We next review each individual
security position that has an unrealized loss to determine if that loss is other
than temporary.
A mutual fund holding that has had an unrealized loss for more than six months
is presumed to have an other than temporary loss and an impairment is recognized
in our statement of income unless there is persuasive evidence, such as an
increase in value subsequent to quarter end, to overcome that presumption. We
may also recognize an other than temporary loss of less than six months in our
statement of income if the particular circumstances of the underlying investment
do not warrant our belief that a near-term recovery is possible. A debt security
held by our savings bank subsidiary is considered impaired and an other than
temporary loss is recognized whenever we determine that we will probably not
collect all contractual amounts due under the terms of the security based on the
issuer's financial condition and our intent to hold that security.
GOODWILL. As a result of the adoption of a new financial accounting standard on
January 1, 2002, we ceased recording recurring charges to amortize the carrying
amount of goodwill in our balance sheet. The new standard instead now requires
that we evaluate goodwill for possible impairment on an annual basis using a
fair value approach. We make that evaluation in the third quarter of each year.
Goodwill is considered impaired whenever the carrying amount of the related
reporting unit exceeds
Page 18
the fair value of that unit. We attribute all goodwill to our single reportable
business segment and reporting unit, our investment advisory business.
Because our testing in 2002 demonstrated that the fair value of our investment
advisory business exceeded our carrying amount (basically, our stockholders'
equity), we concluded that no impairment exists. Should we reach a different
conclusion when we conduct our evaluation in subsequent years, additional work
would be performed to ascertain the amount of the non-cash charge needed to
recognize the impairment. We must also perform impairment testing at other times
if an event or circumstance occurs indicating that it is more likely than not
that an impairment has been incurred. The maximum possible future impairment
charge that we could incur is the amount recognized in our balance sheet, $666
million at December 31, 2002.
PROVISION FOR INCOME TAXES. After compensation and related costs, our provision
for income taxes on our earnings is our second largest annual expense. We
operate in several states and several other countries through our various
subsidiaries, and must allocate income, expenses, and earnings under the various
laws and regulations of each of these taxing jurisdictions. Accordingly, our
provision for income taxes represents our total estimate of the liability that
we have incurred for doing business in all locations. Annually, we file tax
returns which represent our filing positions with each jurisdiction and settle
our return liabilities. Each jurisdiction has the right to audit those returns
and may take different positions with respect to income and expense allocations
and taxable earnings determinations. From time-to-time, we may also provide for
estimated liabilities associated with uncertain tax return filing positions that
are subject to, or in the process of, being audited by various tax authorities.
Because the determinations of our annual provisions are subject to judgments and
estimates, it is possible that actual results will vary from those recognized in
our financial statements. In such cases, it is possible that additional expense
for prior reporting periods may be recorded in subsequent periods as actual tax
returns and tax audits are settled.
STOCK OPTIONS. The summary of significant accounting policies includes certain
pro forma disclosures as if a fair value based method had been used to recognize
compensation expense associated with our stock option grants. The fair value
method uses a valuation model for shorter-term, market-traded financial
instruments to theoretically value our stock option grants even though they are
not available for trading purposes and are of longer duration. The model
includes the input of certain variables that are dependent on future
expectations, including the expected lives of our options from grant date to
exercise date, the volatility of our underlying common shares in the market over
that time period, and the rate of dividends that we will pay during that time.
Additionally, the recognition of expense fluctuates based on the forfeiture rate
for unvested options when employees leave the company.
Our estimates for the variables used in the valuation model are made for the
purpose of theoretically determining an expense for each reporting period and
are not subsequently adjusted. Unlike almost all other expenses, the resulting
theoretical charge to earnings using a fair value based method is a non-cash
charge that is never measured by a cash outflow.
Page 19
NEWLY ISSUED ACCOUNTING PRONOUNCEMENT.
On January 17, 2003, the Financial Accounting Standards Board (FASB) issued an
interpretation of accounting principles that have existed since 1959. In its
Interpretation No. 46, Consolidation of Variable Interest Entities, the FASB
defines a variable interest entity as a corporation, partnership, limited
liability company, trust, or any other legal structure used for business
purposes that either (a) does not have equity investors with voting rights or
(b) has equity investors that do not provide sufficient financial resources for
the entity to support its activities. The Interpretation requires a variable
interest entity to be consolidated by a company if that company is subject to,
among other things, a majority of the risk of loss from the variable interest
entity's residual returns. A company that is required to consolidate a variable
interest entity is referred to as the primary beneficiary of that entity.
We are presently reviewing the accounting requirements of this interpretation to
determine its applicability to our consolidated financial statements. While our
review is not complete at this time, we have initially determined that we hold
residual interests in two $300 million high-yield collateralized bond
obligations (CBOs) for which we may be required to apply the provisions of this
interpretation beginning July 1, 2003. These entities are non-recourse, limited
liability companies in which we hold a portion, though not a majority, of the
interests in their residual returns. We are also the collateral manager of each
CBO and receive a market-based fee for performance of that service. We may also
receive a market-based performance fee, though none were recognized in 2002.
Our maximum exposure to future losses from these interests is the $10 million
carrying amount in other assets at December 31, 2002.
FORWARD-LOOKING INFORMATION.
From time to time, information or statements provided by or on behalf of T. Rowe
Price, including those within this 2002 Annual Report to our stockholders, 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 and results 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;
Page 20
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 results are also dependent upon the level of our 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 total compensation expense due to,
among other things, 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.
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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our revenues and net income are based primarily on the value of assets under our
management. Accordingly, declines in financial market values directly and
negatively impact our investment advisory revenues and net income.
We invest in our sponsored mutual funds, which are market risk sensitive
financial instruments held for purposes other than trading; we do not invest in
derivative financial or commodity instruments. Mutual fund investments have
inherent market risk in the form of equity price risk; that is, the potential
future loss of value that would result from a decline in the fair values of the
mutual fund shares. Each fund and its underlying net assets are also subject to
market risk which may arise from changes in equity prices, credit ratings,
foreign currency exchange rates, and interest rates.
Page 21
The following table (in thousands of dollars) presents the equity price risk
from investments in sponsored mutual funds by assuming a hypothetical decline in
the fair values of mutual fund shares. This potential future loss of value,
before any income tax benefits, reflects the valuation of mutual fund
investments at year end using each fund's lowest fair value per share during the
past year. In considering this presentation, it is important to note that: all
funds did not experience their lowest fair value per share on the same day; it
is likely that the composition of the mutual fund investment portfolio would be
changed if adverse market conditions persist; and we could experience future
losses in excess of those presented below.
Fair value at Potential
December 31, % of lower % of
2002 Portfolio value Portfolio Potential loss
------------- --------- --------- --------- ---------------
Stock funds $ 72,929 59 $ 63,799 60 $ 9,130 13%
Bond funds 50,243 41 43,203 40 7,040 14
-------- --- -------- --- -------
$123,172 100 $107,002 100 $16,170 13
======== === ======== === =======
The comparable potential loss of value shown in last year's annual report was
$15.7 million on sponsored mutual fund investments of $123.2 million at the end
of 2001. During 2002, we actually experienced net unrealized losses of $10.2
million in the value of our fund investments.
Investments in mutual funds generally moderate market risk because funds, by
their nature, invest in a number of different financial instruments. T. Rowe
Price further manages its exposure to market risk by diversifying its
investments among many domestic and international funds. In addition, investment
holdings may be altered from time to time, in response to changes in market
risks and other factors, as deemed appropriate by management.
Interest rates on our outstanding debt under the credit facility expiring in
June 2005 are reset at one- to six-month intervals. Our borrowing rate on this
debt is presently only 1.76%. Should our cost of funds increase back to the 7.1%
that we experienced in early 2001, and we make no repayments of principal on the
existing outstanding balance of $42 million, our interest expense for a full
year would increase by $2.2 million.
The investment portfolio and customer deposit liabilities of our savings bank
subsidiary are subject to interest rate risk. If interest rates change 1%, the
change in the net value of these assets and liabilities would not be material.
The U.S. dollar weakened versus the Japanese yen again in 2002, and an exchange
rate loss was recognized on our yen borrowing. In evaluating exchange rate
sensitivity, a loss of $1.3 million would be recognized if the yen strengthened
10% from December 31, 2002. Other foreign currency denominated assets and
liabilities are not material.
We also make other investments that we include in our balance sheet in other
assets. We are at risk for further losses on these investments should market
conditions deteriorate as they have in the past three years. At December 31,
2002, we hold investments in a sponsored high-yield collateralized bond
obligation issued in 2001 that is recognized in our balance sheet at $10 million
and in private equity and other entities totaling nearly $7 million. During
2002, we recognized nearly $6.4 million of losses on these investments and
similar ones that we previously held.
Page 22
Our risk of future loss on these investments cannot exceed the $17 million
recognized in our balance sheet. Additionally, we have recognized our 10%
interest in Daiwa SB Investments (Japan) at $15 million using the cost basis of
accounting. Our market risk on this investment is primarily limited to foreign
currency exchange rate fluctuations between the U.S. dollar and the Japanese yen
because the functional currency of Daiwa SB Investments is the yen.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Page
----
Index to Financial Statements:
Report of Independent Auditors for 2001 and 2002 24
Report of Independent Accountants for 2000 25
Consolidated Balance Sheets at December 31, 2001 and 2002 26
Consolidated Statements of Income for each of the
three years in the period ended December 31, 2002 27
Consolidated Statements of Cash Flows for each of the
three years in the period ended December 31, 2002 28
Consolidated Statements of Stockholders' Equity for each of
the three years in the period ended December 31, 2002 29
Summary of Significant Accounting Policies 31
Notes to Consolidated Financial Statements
including Supplementary Quarterly Financial Data 34
Page 23
INDEPENDENT AUDITORS' REPORT FOR 2001 and 2002
The Board of Directors and Stockholders of
T. Rowe Price Group, Inc.:
We have audited the accompanying consolidated balance sheets of T. Rowe Price
Group, Inc. and subsidiaries as of December 31, 2001 and 2002, and the related
consolidated statements of income, cash flows, and stockholders' equity for the
years then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of T. Rowe Price Group,
Inc. and subsidiaries as of December 31, 2001 and 2002, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
As discussed in Note 3 to the consolidated financial statements, effective
January 1, 2002, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets.
/s/ KPMG LLP
Baltimore, Maryland
January 30, 2003
Page 24
REPORT OF INDEPENDENT ACCOUNTANTS FOR 2000
To the Stockholders and Board of Directors
of T. Rowe Price Group, Inc.
In our opinion, the consolidated statements of income, of cash flows and of
stockholders' equity for the year ended December 31, 2000 present fairly, in all
material respects, the results of operations and cash flows of T. Rowe Price
Group, Inc. and its subsidiaries for the year ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Baltimore, Maryland
January 23, 2001
Page 25
CONSOLIDATED BALANCE SHEETS
December 31,
-------------------------
2001 2002
---------- ----------
(in thousands)
ASSETS
Cash and cash equivalents (Note 1) $ 79,741 $ 111,418
Accounts receivable (Note 6) 104,001 96,787
Investments in sponsored mutual funds (Note 1) 123,247 123,172
Debt securities held by savings bank
subsidiary (Note 1) 30,961 92,908
Property and equipment (Note 2) 241,825 215,590
Goodwill (Note 3) 665,692 665,692
Other assets (Notes 4 and 7) 67,648 64,866
---------- ----------
$1,313,115 $1,370,433
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable and accrued
expenses (Notes 4 and 5) $ 42,782 $ 43,902
Accrued compensation and related costs 43,498 34,640
Dividends payable 19,699 20,860
Customer deposits at savings bank subsidiary 25,422 81,292
Debt and accrued interest (Note 7) 103,889 55,899
---------- ----------
Total liabilities 235,290 236,593
---------- ----------
Commitments and contingent liabilities (Note 8)
Stockholders' equity (Notes 5 and 8)
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 122,648,696 shares in 2002 24,618 24,530
Additional capital in excess of par value 67,965 80,744
Retained earnings 973,472 1,019,925
Accumulated other comprehensive income 11,770 8,641
---------- ----------
Total stockholders' equity 1,077,825 1,133,840
---------- ----------
$1,313,115 $1,370,433
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
Page 26
CONSOLIDATED STATEMENTS OF INCOME
Year ended December 31,
-----------------------------------------
2000 2001 2002
---------- ---------- ----------
(in thousands, except
per-share amounts)
Revenues (Note 6)
Investment advisory fees $ 916,358 $ 775,074 $ 715,365
Administrative fees and other income 237,318 219,848 207,409
Investment income of savings bank
subsidiary 433 1,535 3,055
---------- ---------- ----------
Total revenues 1,154,109 996,457 925,829
Interest expense on savings bank
deposits 209 1,011 2,327
---------- ---------- ----------
Net revenues 1,153,900 995,446 923,502
---------- ---------- ----------
Operating expenses
Compensation and related
costs (Notes 2, 5, and 8) 380,636 384,959 357,586
Advertising and promotion 88,215 64,638 59,056
Depreciation and amortization of
property and equipment 41,813 51,567 50,578
Occupancy and facility costs (Note 8) 68,645 66,611 60,788
International investment research fees 36,665 -- --
Goodwill amortization (Note 3) 11,879 28,921 --
Other operating expenses 116,561 87,519 74,983
---------- ---------- ----------
744,414 684,215 602,991
---------- ---------- ----------
Net operating income 409,486 311,231 320,511
---------- ---------- ----------
Other investment income (loss) (Note 1) 58,218 31,039 (8,273)
Other interest expense (Note 7) 9,512 11,681 2,634
---------- ---------- ----------
Net non-operating income (expense) 48,706 19,358 (10,907)
---------- ---------- ----------
Income before income taxes and
minority interests 458,192 330,589 309,604
Provision for income taxes (Note 4) 174,818 135,078 115,350
---------- ---------- ----------
Income from consolidated companies 283,374 195,511 194,254
Minority interests in consolidated
subsidiaries 14,345 (357) --
---------- ---------- ----------
Net income $ 269,029 $ 195,868 $ 194,254
========== ========== ==========
Earnings per share
Basic $ 2.22 $ 1.59 $ 1.58
========== ========== ==========
Diluted $ 2.08 $ 1.52 $ 1.52
========== ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
Page 27
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
---------------------------------------
2000 2001 2002
--------- --------- ---------
(in thousands)
Cash flows from operating activities
Net income $ 269,029 $ 195,868 $ 194,254
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization of
property and equipment 41,813 51,567 50,578
Minority interests in consolidated
subsidiaries 14,345 (357) --
Goodwill amortization 11,879 28,921 --
Other changes in assets and liabilities (14,331) 14,355 24,466
--------- --------- ---------
Net cash provided by operating activities 322,735 290,354 269,298
--------- --------- ---------
Cash flows from investing activities
Acquisition of minority interests in
T. Rowe Price International (783,194) -- --
Investments in sponsored mutual funds (42,576) (35,968) (15,547)
Dispositions of sponsored mutual funds 67,068 88,968 5,453
Increase in debt securities held by savings
bank subsidiary (16,398) (14,135) (60,638)
Additions to property and equipment (85,612) (41,375) (26,047)
Other investment activity (374) (6,460) 1,808
--------- --------- ---------
Net cash used in investing activities (861,086) (8,970) (94,971)
--------- --------- ---------
Cash flows from financing activities
Repurchases of common shares -- (30,923) (95,773)
Stock options exercised 19,279 13,102 25,320
Proceeds from bank borrowings 300,000 -- --
Debt principal repaid (5,000) (205,000) (49,366)
Dividends paid to stockholders (62,880) (73,838) (78,701)
Savings bank subsidiary deposits 10,932 14,490 55,870
Other financing activities (1,926) -- --
--------- --------- ---------
Net cash provided by (used in)
financing activities 260,405 (282,169) (142,650)
--------- --------- ---------
Cash and cash equivalents
Net increase (decrease) during year (277,946) (785) 31,677
At beginning of year 358,472 80,526 79,741
--------- --------- ---------
At end of year $ 80,526 $ 79,741 $ 111,418
========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
Page 28
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional 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,
1999, 120,107,818 common
shares $ 24,022 $ 48,057 $ 649,378 $ 48,727 $ 770,184
Comprehensive income
Net income 269,029
Change in unrealized
security holding gains,
net of taxes (15,780)
Total comprehensive
income 253,249
2,331,414 common shares
issued under stock-based
compensation plans 466 32,798 33,264
Dividends declared (65,632) (65,632)
--------- --------- --------- --------- ----------
Balance at December 31,
2000, 122,439,232 common
shares 24,488 80,855 852,775 32,947 991,065
Comprehensive income
Net income 195,868
Change in unrealized
security holding gains,
net of taxes (21,177)
Total comprehensive
income 174,691
1,720,063 common shares
issued under stock-based
compensation plans 344 18,922 19,266
1,070,500 common shares
repurchased (214) (31,812) (32,026)
Dividends declared (75,171) (75,171)
--------- --------- --------- --------- ----------
Balance at December 31,
2001, 123,088,795 common
shares $ 24,618 $ 67,965 $ 973,472 $ 11,770 $1,077,825
Continued on next page.
The accompanying notes are an integral part of the consolidated financial
statements.
Page 29
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional Accumu-
capital lated
in other Total
excess compre- stock-
Common of par Retained hensive holders'
stock value earnings income equity
---------- ---------- --------- ---------- ------------
(in thousands)
Continued from prior page.
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 194,254
Change in unrealized
security holding gains,
net of taxes (3,129)
Total comprehensive
income 191,125
2,359,901 common shares
issued under stock-based
compensation plans 472 38,952 (2) 39,422
2,800,000 common shares
repurchased (560) (26,173) (67,937) (94,670)
Dividends declared (79,862) (79,862)
---------- ---------- ---------- ---------- ------------
Balance at December 31,
2002, 122,648,696 common
shares $ 24,530 $ 80,744 $1,019,925 $ 8,641 $ 1,133,840
========== ========== ========== ========== ============
The accompanying notes are an integral part of the consolidated financial
statements.
Page 30
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
As the result of the one-for-one exchange of shares of outstanding T. Rowe Price
Associates common stock for that of T. Rowe Price Group on December 28, 2000, T.
Rowe Price Group became the sole owner of T. Rowe Price Associates and T. Rowe
Price Associates' former stockholders became the stockholders of T. Rowe Price
Group. The exchange was accounted for at historical cost in a manner similar to
a pooling-of-interests transaction and T. Rowe Price Group succeeded to the
obligation for periodic public reporting.
BASIS OF PREPARATION.
Our consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States which require the use of
estimates made by our management. Actual results may vary from those estimates.
Our financial statements include the accounts of all subsidiaries in which we
have a majority or controlling interest. All material intercompany accounts and
transactions are eliminated in consolidation. Certain 2000 and 2001 amounts have
been reclassified to conform to the 2002 presentation.
CASH EQUIVALENTS.
Cash equivalents consist primarily of short-term, highly liquid investments in
sponsored money market mutual funds and in commercial paper. The cost of these
funds is equivalent to fair value.
INVESTMENTS.
Investments in sponsored mutual funds and debt securities held by our savings
bank subsidiary are classified as available-for-sale and are reported at fair
value. Net unrealized security holding gains are recognized in comprehensive
income.
We also hold other investments that are included in other assets and are
recognized using the cost or equity methods of accounting, as appropriate.
We review the carrying amount of each investment for possible impairment on a
quarterly basis and recognize a loss in our statement of income whenever a loss
is considered other than temporary.
Page 31
CONCENTRATIONS OF RISK.
Concentration of credit risk in accounts receivable is believed to be minimal in
that clients generally have substantial assets, including those in the
investment portfolios that we manage.
Our investments in sponsored mutual funds expose us to market risk in the form
of equity price risk; that is, the potential future loss of value that would
result from a decline in the fair values of the mutual funds. Each fund and its
underlying net assets are also subject to market risk which may arise from
changes in equity prices, credit ratings, foreign currency exchange rates, and
interest rates.
Investments by our savings bank subsidiary in debt securities expose us to
market risk which may arise from changes in credit ratings and interest rates.
PROPERTY AND EQUIPMENT.
Property and equipment is stated at cost net of accumulated depreciation and
amortization computed using the straight-line method. Provisions for
depreciation and amortization are based on the following weighted average
estimated useful lives: computer and communications software and equipment, 3
years; furniture and other equipment, 5 years; buildings, 32 years; leasehold
improvements, 8 years; and leased land, 99 years.
REVENUE RECOGNITION.
Fees for investment advisory services and related administrative services that
we provide to investment advisory clients are recognized in the period that our
services are provided.
ADVERTISING.
Costs of advertising are expensed the first time that the advertising takes
place.
INTERNATIONAL INVESTMENT RESEARCH FEES.
International investment research and support was provided by affiliates of
Robert Fleming Holdings until our acquisition of their interests in T. Rowe
Price International on August 8, 2000. Fees that we paid for these services were
based on international assets under management.
EARNINGS PER SHARE.
Basic earnings per share excludes the dilutive effect of outstanding stock
options and is computed by dividing net income by the weighted average common
shares outstanding of 121,196,000 in 2000, 123,072,000 in 2001, and 122,876,000
in 2002. Diluted earnings per share reflects the potential dilution that could
occur if outstanding stock options were exercised. It is computed by increasing
the denominator of the basic calculation by potential dilutive common shares,
determined using the treasury stock method, of 8,452,000 in 2000, 5,973,000 in
2001, and 4,830,000 in 2002.
COMPREHENSIVE INCOME.
Total comprehensive income is reported in our consolidated statements of
stockholders' equity and includes net income and the change in unrealized
security holding gains, net of income taxes and any minority interests.
Page 32
STOCK OPTION GRANTS.
Our six stock-based compensation plans (the 1990, 1993, 1996, and 2001 Stock
Incentive Plans and the 1995 and 1998 Director Stock Option Plans) are accounted
for using the intrinsic value based method. Under these plans, we have granted
only fixed stock options with a maximum term of 10 years to employees and
directors. Vesting of employee options is based solely on the individual
continuing to render service and generally occurs over a five-year graded
schedule. The exercise price of each option granted is equivalent to the market
price of the common stock at the date of grant. Accordingly, no compensation
expense related to stock option grants has been recognized in the consolidated
statements of income.
Accounting principles require us to make the following disclosures as if the
fair value based method of accounting had been applied to our stock option
grants after 1994. The weighted-average grant-date fair value of each option
awarded is estimated to be $13.45 in 2000, $9.15 in 2001, and $9.42 in 2002
using the Black-Scholes option-pricing model and the following assumptions:
dividend yield of 1.3% in 2000 and 2001 and 1.4% in 2002; expected volatility of
35% in 2000, 37% in 2001, and 36% in 2002; risk-free interest rates of 5.6% in
2000, 4.2% in 2001, and 4.0% in 2002; and expected lives of 4.8 years in 2000,
5.5 years in 2001, and 5.7 years in 2002.
The following table illustrates the effect on net income (in thousands) and
earnings per share if we had applied the fair value based method and the
estimates contained in the preceding paragraph to our stock option grants that
were outstanding and unvested each year.
2000 2001 2002
---------- --------- ---------
Net income, as reported $ 269,029 $ 195,868 $ 194,254
Additional stock-option based
compensation expense estimated using
the fair value based method (30,380) (42,688) (39,369)
Related income tax benefits 9,391 13,471 11,985
---------- --------- ---------
Pro forma net income $ 248,040 $ 166,651 $ 166,870
========== ========= =========
Earnings per share
Basic - as reported $ 2.22 $ 1.59 $ 1.58
========== ========= =========
Basic - pro forma $ 2.05 $ 1.35 $ 1.36
========== ========= =========
Diluted - as reported $ 2.08 $ 1.52 $ 1.52
========== ========= =========
Diluted - pro forma $ 1.92 $ 1.30 $ 1.31
========== ========= =========
It is important to note that the charge to compensation expense that results
from using the fair value based method would also result in an equal and
offsetting increase to our additional capital in excess of par value;
accordingly, total stockholders' equity is not diminished if the fair value
method had been used to record compensation expense.
Page 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - INVESTMENTS.
Cash equivalent investments in our sponsored money market mutual funds aggregate
$72,411,000 at December 31, 2001 and $99,457,000 at December 31, 2002.
Investments in our other sponsored mutual funds (in thousands) at December 31
include:
Aggregate
Aggregate Unrealized fair
cost holding gains value
--------- ------------- ---------
2001
- -----------
Stock funds $ 66,439 $ 15,523 $ 81,962
Bond funds 39,245 2,040 41,285
-------- -------- --------
$105,684 $ 17,563 $123,247
======== ======== ========
2002
- -----------
Stock funds $ 70,350 $ 2,579 $ 72,929
Bond funds 41,558 8,685 50,243
-------- -------- --------
$111,908 $ 11,264 $123,172
======== ======== ========
The following table reconciles our unrealized holding losses on investments in
sponsored mutual funds (in thousands) to that recognized in other comprehensive
income.
2000 2001 2002
-------- -------- --------
Unrealized holding losses $(19,027) $(14,159) $(10,169)
Less gains (losses) realized in net
income using average cost 7,417 18,701 (3,870)
-------- -------- --------
(26,444) (32,860) (6,299)
Deferred tax benefits 9,365 11,512 2,295
-------- -------- --------
(17,079) (21,348) (4,004)
Minority interests 1,124 -- --
-------- -------- --------
Unrealized holding losses recognized
in other comprehensive income $(15,955) $(21,348) $ (4,004)
======== ======== ========
Dividends earned on our investments in sponsored mutual funds, including money
market mutual funds, totaled $35,157,000 in 2000, $8,748,000 in 2001, and
$2,989,000 in 2002.
Our savings bank subsidiary holds investments in mortgage-backed and other
marketable debt securities which are accounted for as available-for-sale. The
expected holding period of these securities generally correlates to customer
deposits which range in maturity up to five years. Balances (in thousands) in
these investments at December 31 were:
Aggregate
Aggregate Unrealized fair
cost holding gains value
--------- ------------- --------
2001 $ 30,389 $ 572 $ 30,961
2002 90,888 2,020 92,908
Page 34
Other comprehensive income includes unrealized holding gains on the savings bank
portfolio, net of income taxes of $115,000 in 2000, $226,000 in 2001, and
$799,000 in 2002.
NOTE 2 - PROPERTY AND EQUIPMENT.
Property and equipment (in thousands) at December 31 consists of:
2001 2002
--------- ---------
Computer and communications software and equipment $ 157,353 $ 170,120
Buildings and leasehold improvements 167,785 166,568
Furniture and other equipment 59,688 60,276
Land owned and leased 21,503 21,503
--------- ---------
406,329 418,467
Accumulated depreciation and amortization (164,504) (202,877)
--------- ---------
$ 241,825 $ 215,590
========= =========
Compensation and related costs attributable to the development of computer
software for internal use totaling $10,690,000 in 2000, $7,465,000 in 2001, and
$4,639,000 in 2002 have been capitalized.
NOTE 3 - GOODWILL.
On August 8, 2000, we purchased Robert Fleming Holdings' 50% non-controlling
interest in our consolidated subsidiary, T. Rowe Price International. This
purchase transaction resulted in goodwill of $704 million that was amortized in
2000 and 2001 on a straight-line basis over 25 years. We operate in one
reportable business segment - that of the investment advisory business - and all
goodwill is attributed to that segment.
As of January 1, 2002, we adopted the provisions of a new financial accounting
standard for goodwill, ceased amortizing goodwill, and determined that its
carrying amount was not impaired. We also evaluated goodwill for possible
impairment in the third quarter of 2002 and again concluded that there had been
no impairment. A similar evaluation using the fair value approach will be done
at least annually in the third quarter each year. Prior to 2002, we used an
undiscounted future cash flows approach to evaluate goodwill for potential
impairment.
The following information reconciles reported net income (in thousands) and
earnings per share to adjusted net income (in thousands) and earnings per share,
excluding the goodwill amortization recognized in prior years.
2000 2001 2002
----------- ----------- -----------
Reported net income $ 269,029 $ 195,868 $ 194,254
Add back goodwill amortization 11,879 28,921 --
----------- ----------- -----------
Adjusted net income $ 280,908 $ 224,789 $ 194,254
=========== =========== ===========
Basic earnings per share
Reported net income $ 2.22 $ 1.59 $ 1.58
Goodwill amortization .10 .24 --
----------- ----------- -----------
Adjusted net income $ 2.32 $ 1.83 $ 1.58
=========== =========== ===========
Page 35
Diluted earnings per share
Reported net income $ 2.08 $ 1.52 $ 1.52
Goodwill amortization .09 .22 --
------- ------- -------
Adjusted net income $ 2.17 $ 1.74 $ 1.52
======= ======= =======
NOTE 4 - INCOME TAXES.
The provision for income taxes (in thousands) consists of:
2000 2001 2002
--------- --------- ---------
Current income taxes
U.S. federal and foreign $ 150,431 $ 122,598 $ 111,027
State and local 16,283 12,231 9,429
Deferred income taxes (tax benefits) 8,104 249 (5,106)
--------- --------- ---------
$ 174,818 $ 135,078 $ 115,350
========= ========= =========
Deferred income taxes arise from temporary differences between taxable income
for financial statement and income tax return purposes. Amortization and
depreciation of property and equipment resulted in deferred income taxes of
$4,158,000 in 2000. Significant temporary differences in 2001 included deferred
benefits of $3,866,000 related to investment income offset by deferred taxes of
$4,212,000 related to accrued compensation. Deferred tax benefits in 2002
include $4,584,000 related to investment income and $2,359,000 related to
depreciation and amortization of property and equipment offset by deferred taxes
of $2,346,000 related to accrued compensation.
The net deferred tax liability of $89,000 included in accounts payable and
accrued expenses at December 31, 2001, consists of total deferred tax
liabilities of $10,178,000 and total deferred tax assets of $10,089,000.
Deferred tax liabilities include $6,364,000 arising from unrealized holding
gains on available-for-sale securities. Deferred tax assets include $4,441,000
arising from investment income and $3,479,000 arising from accrued compensation.
The net deferred tax asset of $6,740,000 included in other assets at December
31, 2002, consists of total deferred tax liabilities of $5,600,000 and total
deferred tax assets of $12,340,000. Deferred tax liabilities include $4,642,000
arising from unrealized holding gains on available-for- sale securities.
Deferred tax assets include $9,025,000 arising from investment income.
Cash outflows from operating activities include income taxes paid of
$188,285,000 in 2000, $103,125,000 in 2001, and $112,457,000 in 2002. The income
tax benefit arising from exercises of our stock options reduced income taxes
paid by $13,985,000 in 2000, $6,164,000 in 2001, and $14,102,000 in 2002.
The following table reconciles the statutory federal income tax rate to the
effective income tax rate.
2000 2001 2002
----- ----- -----
Statutory U.S. federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefits 2.7 2.7 2.5
Nondeductible goodwill amortization 1.0 3.3 --
Other items (.5) (.1) (.2)
----- ----- -----
Effective income tax rate 38.2% 40.9% 37.3%
===== ===== =====
Page 36
NOTE 5 - COMMON STOCK AND STOCK-BASED COMPENSATION PLANS.
SHARES AUTHORIZED AND ISSUED.
At December 31, 2002, 35,734,680 shares of unissued common stock were reserved
for the exercise of stock options. Additionally, 1,680,000 shares are reserved
for issuance under a plan whereby substantially all employees may acquire common
stock through payroll deductions at prevailing market prices.
The Board of Directors has authorized the future repurchase of up to 1,633,010
common shares at December 31, 2002. Accounts payable and accrued expenses
includes $1,103,000 at December 31, 2001 for pending settlements of common stock
repurchases.
DIVIDENDS.
Cash dividends declared per share were $.54 in 2000, $.61 in 2001, and $.65 in
2002.
STOCK OPTIONS.
The following table summarizes the status of and changes in our stock option
grants during the past three years.
Weighted- Weighted-
average average
exercise Options exercise
Options price exercisable price
---------- ---------- ----------- ---------
Outstanding at
beginning
of 2000 23,657,481 $ 19.45 14,014,481 $13.04
Granted 4,914,085 38.90
Exercised (2,513,694) 10.08
Forfeited (456,000) 30.66
----------
Outstanding at
end of 2000 25,601,872 23.90 14,910,572 16.25
Granted 3,973,384 25.96
Exercised (1,839,850) 9.48
Forfeited (434,619) 34.28
----------
Outstanding at
end of 2001 27,300,787 25.01 16,233,787 20.03
Granted 3,970,367 27.41
Exercised (2,482,951) 11.87
Forfeited (844,347) 33.62
----------
Outstanding at
end of 2002 27,943,856 26.25 16,759,556 23.50
==========
Information regarding the exercise prices and lives of stock options outstanding
at December 31, 2002 follows.
Page 37
Weighted-
average
Weighted- remaining Weighted-
average contractual average
Range of exercise life (in exercise
exercise prices Outstanding price years) Exercisable price
- ------------------- ----------- ---------- ----------- ----------- ---------
$ 7.03 to 21.25 8,007,087 $ 12.38 2.5 8,007,087 $ 12.38
$21.26 to 27.28 3,706,410 25.71 8.7 737,010 25.70
$27.29 to 34.73 8,734,227 29.40 7.5 3,692,027 31.12
$34.74 to 47.07 7,496,132 37.68 6.9 4,323,432 37.20
---------- ----------
27,943,856 26.25 6.1 16,759,556 23.50
========== ==========
NOTE 6 - INFORMATION ABOUT REVENUES AND SERVICES.
Revenues (in thousands) from advisory services provided under agreements with
sponsored mutual funds and other investment clients include:
2000 2001 2002
-------- -------- --------
Sponsored U.S. mutual funds
Stock $570,133 $464,883 $411,679
Bond and money market 93,020 97,707 107,425
-------- -------- --------
663,153 562,590 519,104
Other portfolios 253,205 212,484 196,261
-------- -------- --------
Total investment advisory fees $916,358 $775,074 $715,365
======== ======== ========
The following table summarizes the various investment portfolios and assets
under management (in billions) on which advisory fees are earned.
Average during December 31,
-------------------------------- -------------------
2000 2001 2002 2001 2002
------ ------ ------ ------ ------
Sponsored U.S. mutual funds
Stock $ 92.2 $ 75.8 $ 67.1 $ 74.5 $ 60.7
Bond and money market 21.7 22.9 25.0 23.5 26.6
------ ------ ------ ------ ------
113.9 98.7 92.1 98.0 87.3
Other portfolios 63.7 56.5 55.5 58.3 53.3
------ ------ ------ ------ ------
$177.6 $155.2 $147.6 $156.3 $140.6
====== ====== ====== ====== ======
Fees for advisory-related administrative services provided to our sponsored
mutual funds were $178,226,000 in 2000, $170,916,000 in 2001, and $155,771,000
in 2002. Accounts receivable from the mutual funds aggregate $57,972,000 and
$55,474,000 at December 31, 2001 and 2002, respectively. All services to the
sponsored U.S. mutual funds are provided under contracts which are subject to
periodic review and approval by each of the funds' boards and, with respect to
investment advisory contracts, also by the funds' shareholders.
NOTE 7 - DEBT.
In April 1999, we borrowed 1,809,500,000 yen ($15,019,000) from a bank under a
promissory note. Interest is due quarterly at LIBOR for yen borrowings plus .95%
and is fixed for 12 months until April 2003 at 1.06%. Foreign currency
transaction gains of $1,894,000 in 2000 and $2,085,000 in 2001 and losses of
$1,335,000 in 2002 arising from this borrowing are included in non-operating
investment income (loss). In 2002, we made an installment payment of 180,950,000
yen and the remaining equivalent balance of $13,712,000 is due in installments
of 180,950,000 yen in April 2003 and 1,447,600,000 yen in 2004.
Page 38
To partially finance the acquisition of the T. Rowe Price International shares,
we borrowed $300,000,000 in August 2000 under a $500,000,000 syndicated bank
credit facility expiring in June 2005 for which JPMorgan Chase Bank serves as
administrative agent. We made principal payments of $5,000,000 in 2000,
$205,000,000 in 2001, and $48,000,000 in 2002 and thereby reduced our borrowing
to $42,000,000 at the end of 2002. Credit facility costs of $796,000 are
included in other assets at December 31, 2002 and are being amortized over the
period to June 2005. Interest on the debt floats at .35% over the Eurodollar
base rate and was 7.1%, 2.27%, and 1.76% at the end of 2000, 2001 and 2002,
respectively. We also have a complementary $100,000,000 syndicated bank credit
facility expiring in June 2003 under which there have been no borrowings. We
paid annual fees for these credit facilities of $942,000 in 2002.
At December 31, 2002, we are in compliance with the covenants contained in our
credit agreements. Total interest expense on our outstanding debt, including
amortization of credit facility costs, and commitment fees was $9,512,000 in
2000, $11,681,000 in 2001, and $2,634,000 in 2002.
NOTE 8 - OTHER DISCLOSURES.
We occupy certain office facilities and rent computer and other equipment under
noncancelable operating leases. Related rental expense was $30,752,000 in 2000,
$25,711,000 in 2001, and $22,568,000 in 2002. Future minimum rental payments
under these leases aggregate $19,194,000 in 2003, $14,626,000 in 2004,
$12,196,000 in 2005, $11,536,000 in 2006, $5,023,000 in 2007, and $47,130,000 in
later years.
At December 31, 2002, we had outstanding commitments to fund additional
investments totaling $1.5 million.
Our consolidated stockholders' equity at December 31, 2002 includes
approximately $42,000,000 which is restricted as to use by various regulations
and agreements arising in the ordinary course of our business.
From time to time, various claims against us arise 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 our
financial position or results of operations.
Expense for our defined contribution retirement program in the United States was
$22,263,000 in 2000, $21,641,000 in 2001, and $22,830,000 in 2002.
NOTE 9 - SUPPLEMENTARY QUARTERLY FINANCIAL DATA (Unaudited).
Basic Diluted
earnings earnings
Net Net per per
Revenues income share share
-------- -------- -------- --------
(in thousands)
2001
- -----------
1st quarter $263,249 $ 49,308 $ .40 $ .38
2nd quarter 251,849 51,156 .42 .40
3rd quarter 240,717 50,398 .41 .39
4th quarter 239,631 45,006 .37 .35
Page 39
2002
- -----------
1st quarter 242,008 53,024 .43 .41
2nd quarter 240,280 51,854 .42 .40
3rd quarter 221,576 43,210 .35 .34
4th quarter 219,638 46,166 .38 .37
Net revenues are presented for comparability across quarterly periods to conform
with the year-end 2002 presentation of our statement of income.
The sum of quarterly earnings per share may not equal annual earnings per share
because the computations are done independently.
Page 40
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
We previously reported that we changed our certifying independent accountants
from PricewaterhouseCoopers LLP to KPMG LLP on September 6, 2001. Information
regarding this change appears in the definitive proxy statement filed pursuant
to Regulation 14A for the 2003 Annual Meeting of our stockholders and is
incorporated by reference.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information required by this item regarding the identification of executive
officers is contained as a separate item at the end of Part I of this Form 10-K.
The balance of the information required by this item regarding our directors and
executive officers appears in the definitive proxy statement filed pursuant to
Regulation 14A for the 2003 Annual Meeting of our stockholders and is
incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information required by these items appears in the definitive proxy statement
filed pursuant to Regulation 14A for the 2003 Annual Meeting of our stockholders
and is incorporated by reference.
ITEM 14. CONTROLS AND PROCEDURES.
Within the 90-day period prior to the filing date of this Form 10-K Annual
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 IV.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report.
1. Financial Statements: See index at Item 8 of Part II.
2. Financial Statement Schedules: None applicable.
3. The following exhibits required by Item 601 of Regulation S-K are
filed as part of this Form 10-K. Exhibits 10.06 through 10.12 are
compensatory plans and arrangements.
Page 41
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
December 12, 2002.
4 $500,000,000 Five-Year Credit Agreement among T. Rowe Price
Associates, Inc., the several lenders, and The Chase Manhattan 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.)
10.01 Representative Investment Management Agreement with most of the T.
Rowe Price mutual funds. (Incorporated by reference from Form
N-1A/A; Accession No. 0001181628-02-000007.)
10.02 Transfer Agency and Service Agreement dated as of January 1, 2002
between T. Rowe Price Services, Inc. and each of the T. Rowe Price
Funds. (Incorporated by reference from Form N-1A/A; Accession No.
0001181628-02-000007.)
10.03 Agreement dated January 1, 2002 between T. Rowe Price Retirement
Plan Services, Inc. and certain of the T. Rowe Price Funds.
(Incorporated by reference from Form N-1A/A; Accession No.
0001181628-02-000007.)
10.04 Representative Underwriting Agreement between each of the T. Rowe
Price mutual funds and T. Rowe Price Investment Services, Inc.
(Incorporated by reference from Form N-1A/A; Accession No.
0001181628-02-000007.)
10.05 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.)
10.06 1995 Director Stock Option Plan. (Incorporated by reference from
Form DEF 14A; Accession No. 0000933259-95-000009.)
10.07 1998 Director Stock Option Plan. (Incorporated by reference from
Form DEF 14A; Accession No. 0000080255-98-000355.)
10.08 1990 Stock Incentive Plan. (Incorporated by reference from Form S-8
Registration Statement [File No. 33-37573].)
10.09 1993 Stock Incentive Plan. (Incorporated by reference from Form S-8
Registration Statement [File No. 33-72568].)
10.10 1996 Stock Incentive Plan. (Incorporated by reference from Form DEF
14A; Accession No. 0001006199-96-000031.)
10.11 2001 Stock Incentive Plan. (Incorporated by reference from Form DEF
14A; Accession No. 0001113169-01-000002.)
10.12 Executive Incentive Compensation Plan. (Incorporated by reference
from Form DEF 14A; Accession No. 0000933259-95- 000009.)
Page 42
21 Subsidiaries of T. Rowe Price Group, Inc.
23.1 Consent of Independent Auditors, KPMG LLP.
23.2 Consent of Independent Accountants, PricewaterhouseCoopers LLP.
99.1 Certification of Principal Executive Officer Pursuant to 18 U.S.C.
1350 (Section 906 of the Sarbanes-Oxley Act of 2002).
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 amended and restated by-laws of T. Rowe Price
Group.
SIGNATURES.
Pursuant to the requirements of Section 13 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 March 4, 2003.
T. Rowe Price Group, Inc.
By: /s/ George A. Roche, Chairman and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on March 4, 2003.
/s/ George A. Roche, Chairman, Director, and President
/s/ James S. Riepe, Vice Chairman and Director
/s/ M. David Testa, Vice Chairman and Director
/s/ Edward C. Bernard, Director
/s/ D. William J. Garrett, Director
/s/ James H. Gilliam, Jr., Director
/s/ Donald B. Hebb, Jr., Director
/s/ Henry H. Hopkins, Director
/s/ James A.C. Kennedy, Director
/s/ John H. Laporte, Director
/s/ Richard L. Menschel, Director
/s/ William T. Reynolds, Director
/s/ Brian C. Rogers, Director
/s/ Anne Marie Whittemore, Director
/s/ Cristina Wasiak, Chief Financial Officer
/s/ Joseph P. Croteau, Treasurer (Principal Accounting Officer)
Page 43
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER.
I, George A. Roche, certify that:
1. I have reviewed this annual report on Form 10-K of T. Rowe Price Group, Inc.;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 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 annual 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 annual
report (the "Evaluation Date"); and
c) presented in this annual 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 annual
report whether there were significant changes in internal controls or in other
factors that could significantly affect internal 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
March 4, 2003
Page 44
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER.
I, Cristina Wasiak, certify that:
1. I have reviewed this annual report on Form 10-K of T. Rowe Price Group, Inc.;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 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 annual 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 annual
report (the "Evaluation Date"); and
c) presented in this annual 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 annual
report whether there were significant changes in internal controls or in other
factors that could significantly affect internal 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
March 4, 2003
Page 45