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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the fiscal year ended: DECEMBER 31, 2000.
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. [ ]
State the aggregate market value of the common stock (based on the last
reported price from The Nasdaq Stock Market) held by non-affiliates (excludes
executive officers and directors) of the registrant. $4.1 BILLION AT
FEBRUARY 9, 2001.
Indicate the number of shares outstanding of the registrant's common stock,
as of the latest practicable date. 122,980,599 SHARES AT MARCH 23, 2001.
Documents incorporated by reference: IN PART III OF THIS FORM 10-K, THE
DEFINITIVE PROXY STATEMENT FOR THE 2001 ANNUAL MEETING OF STOCKHOLDERS (FORM
DEF 14A; ACCESSION NO. 0001113169-01-000002).
Exhibit index is at Item 14(a)3 on pages 40-42.
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PART I.
ITEM 1. BUSINESS.
OVERVIEW. T. Rowe Price Group is a financial services holding company formed
in 2000 that derives its consolidated revenues and net income primarily from
investment advisory services that certain of its subsidiaries provide to
individual and institutional investors in the T. Rowe Price mutual funds and
other investment portfolios. The investors that we serve are primarily
domiciled in the United States.
On June 30, 2000, the stockholders of T. Rowe Price Associates approved the
one-for-one exchange of their shares for those of T. Rowe Price Group. The
share exchange occurred on December 28, 2000, at which time 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 T.
Rowe Price Associates' obligation for periodic public reporting.
We operate our investment advisory business through our subsidiary companies,
primarily T. Rowe Price Associates and T. Rowe Price International (formerly
Rowe Price-Fleming International). Our advisory business is the successor to
the investment counseling business begun by the late Thomas Rowe Price in
1937. Our common stock was offered to the public for the first time in 1986.
Total assets under our management decreased $13.2 billion from the beginning
of 2000 to end the year at $166.7 billion. These assets include $105.2
billion of investments held in retirement accounts and variable annuity
investment portfolios. Investments in equity securities were $126.6 billion
at the end of 2000, including $31.8 billion in international securities. The
three largest Price funds - Equity Income, International Stock, and Science &
Technology - accounted for 25% of investment advisory revenues in 2000 and
18% of assets under management at year-end 2000.
We offer a broad range of investment portfolios designed to attract and
retain investors with varying investment objectives. Price fund shareholders
can exchange balances among mutual funds as economic and market conditions
and their investment needs change. From time-to-time, we introduce new
mutual 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 Price fund only if we believe that it can play a useful
role for investors over a long period of time.
We manage a broad range of domestic and international stock, bond, and money
market mutual funds and other investment portfolios that 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 market valuations
and in the composition of assets under management impact our revenues and
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results of operations.
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 retirement plans; discount brokerage;
and trust services. About 75% of our administrative revenues in 2000 were
from services to the Price funds. Fees earned for administrative services to
the Price funds are generally based on the recovery of expenditures incurred
and they, therefore, do not significantly affect our net income.
We employ fundamental, technical and cyclical security analyses in the
performance of the investment advisory function. We maintain substantial
internal, domestic and international, 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 from offices located in the United
States and six foreign countries: Great Britain, 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 for
investment based on the distinct objectives that are detailed in each fund's
prospectus. Management of other stock portfolios includes active approaches
similar to those employed in the Price funds. Investment strategies for
these clients may emphasize large-cap, mid-cap or small-cap investing; growth
or value investing; and international or U.S. investing. We also offer
systematic, tax-efficient, and blended equity investment strategies as well
as several active and systematic management strategies for fixed income
investments. Our specialized advisory services include investing in stable
value asset contracts and a service for the efficient disposition of equity
distributions from venture capital investments.
Information concerning our revenues, results of operations and assets under
management during the past three years is contained in our consolidated
statements of income and in note 7 to our consolidated financial statements
included in Item 8 of this Form 10-K.
RECENT DEVELOPMENTS. We completed the most significant financial transaction
in our history on August 8, 2000, when we acquired the 50% non-controlling
interest in our consolidated subsidiary, Rowe Price-Fleming International,
from London-based asset management and investment banking group Robert
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Fleming Holdings for $783 million, including $704 million of goodwill. To
finance the purchase of the Fleming interest, we used $483 million of our
cash holdings and borrowed $300 million under a five-year, syndicated bank
credit facility. At the time of this transaction, Rowe Price-Fleming managed
$37.5 billion of international assets which were historically included in our
reported consolidated assets under management. We formed Rowe Price-Fleming
in 1979 with Robert Fleming in order to provide U.S. investors with
international investment advisory services. As a result of the transaction,
we can now compete for the provision of investment advisory services to
institutional and individual investors throughout the world. In late 2000,
we began marketing efforts to expand our investor base to European
institutions. In addition, we have undertaken significant efforts to
establish our foreign offices in facilities that are independent of Robert
Fleming. We expect that movement into these new international facilities
will be complete in the first half of 2001.
We achieved several significant financial milestones in 2000. Revenues
surpassed $1.2 billion for the first time while stockholders' equity grew to
nearly $1 billion and ended 2000 at $991 million. Net income and earnings
per share also reached respective records of $269 million and $2.08 diluted.
Financial markets were difficult in 2000. Stock market valuations peaked in
the first quarter and declined sharply in the fourth quarter. Investor
sentiment was not favorable in this environment and our investment offerings
experienced net cash outflows. For the first time in our fifteen years as a
public company, our assets under management declined during the fiscal year.
While cash flows overall were negative during 2000, investor sentiment
concentrated net cash inflows into a few of our mutual funds. Strong 1999
and early 2000 market performance in the technology sector led investors to
put $2.6 billion into the Science & Technology Fund, while four other growth
oriented funds - Mid-Cap Growth, Blue Chip Growth, Health Sciences and New
Horizons - added net investments totaling $2.4 billion. These positive net
cash flows were offset by the effect of negative investor sentiment for most
of the year toward value-oriented and international stock funds. Our Equity
Income Fund had net redemptions of $3.2 billion while the Growth & Income,
Equity Index 500, and International Stock funds had net outflows of $2.0
billion.
Seven new mutual funds were offered in 2000, including two for the
institutional market. Our fund shareholders also approved the merger of four
smaller bond funds into three larger funds during the fourth quarter of the
year.
Performance-related advisory fees earned from our other investment portfolios
were higher in 2000 and for the year totaled nearly $16.5 million, though
only $.2 million was recognized in the fourth quarter. In 2000, our
specialized service for the disposition of venture capital distributions
accounted for $15.4 million of these fees. The same favorable markets for
IPOs and technology stocks of late 1999 and early 2000 that led to the net
cash inflows to our Science & Technology Fund also produced additional assets
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for, and revenues from, our disposition service in 2000. Performance-related
fees are also earned from investment partnerships that we sponsor. These
partnerships have entered their liquidation stage and contributed lower
performance fees in 2000 than in 1999. While performance-based revenues from
our disposition service and sponsored partnerships are of a recurring nature,
their significance will vary as market conditions change and the partnerships
complete their liquidation. Given the declining market conditions of late
2000 and early 2001, a lower level of revenues from these sources is likely
in 2001.
In June 2000, we commenced operations of a new subsidiary, the T. Rowe Price
Savings Bank. Through the savings bank, we now issue federally insured
certificates of deposit.
In June 2000, we also began offering an Advisor class of shares with a 12b-1
fee for ten of the Price funds. These shares are available through certain
full-service financial intermediaries and provide new distribution channels
for the Price funds.
During 2000, we also expanded our investor center network where our clients
can visit with our customer service representatives. A new center was opened
in the Walnut Creek area of greater San Francisco. We plan to open a few
additional centers in 2001, continuing our effort to be available to a large
number of our investors within one hour's drive. Additionally, we completed
the first building in our western campus in Colorado Springs and finished the
move into our expanded Owings Mills campus that we had begun in late 1999.
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 T.
Rowe Price name. The boards of the respective funds, including a majority of
directors who are not "interested persons" (as defined in the Investment
Company Act of 1940, as amended) of the funds or of us, 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 fees are based upon the average daily
net assets managed in each fund. Additionally, other fees are earned for
advisory-related administrative services. Independent directors and trustees
of the Price funds regularly review 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 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
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is set based on the fund's specific investment objective. As the combined
net assets of these funds increase, the group charge component of the funds'
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 are sold exclusively 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 class of fund shares is sold through
financial intermediaries and incurs a 12b-1 fee of 25 basis points for
distribution and recordkeeping. We believe that our lower fund cost
structure, distribution methods, and fund shareholder and administrative
services promote stability of assets in the Price funds 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 have single, all-inclusive fees
covering all investment management and operating expenses. The Spectrum
Growth, Spectrum Income and Spectrum International 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. Funds targeted to institutional investors each have
separate advisory fee arrangements.
We usually guarantee 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 capability to
respond to investor inquiries. Marketing efforts have traditionally been
focused in the print media, but in recent years, promotional activities have
expanded into television and the Internet. In addition, we target
considerable marketing efforts at participant-directed 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
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Internet site (www.troweprice.com).
Administrative Services. Our service company subsidiaries also provide
advisory-related administrative services to the Price funds. Through them,
we provide mutual fund transfer agency and shareholder services, including
maintenance of staff, facilities, and technology and other equipment to
respond to inquiries from shareholders. In addition, we provide 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. We also provide
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.
We provide trust services through a subsidiary, the 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. The 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
individual portfolios, the Retirement Income Manager that develops
personalized income and investment strategies for people who are one or two
years away from retirement, and a Rollover Investment Service for investing
distributions from retirement plans.
Fund Assets. At December 31, 2000, assets under our management in the Price
funds aggregated $106.3 billion, a decrease of $8.2 billion from the
beginning of the year. The following table presents the year each Price fund
was started as well as the net assets (in millions) of each fund at December
31, 1999 and 2000. The Spectrum funds are not listed in the table because
their assets are included in the amounts shown for their underlying fund
investments.
1999 2000
________ ________
Domestic stock and blended funds:
Growth Stock (1950) $ 5,672 $ 5,428
New Horizons (1960) 6,022 6,122
New Era (1969) 1,082 1,195
Growth & Income (1982) 3,440 2,989
Equity Income (1985) 12,321 10,188
New America Growth (1985) 2,064 1,519
Capital Appreciation (1986) 856 914
Science & Technology (1987) 12,271 9,721
Small-Cap Value (1988) 1,262 1,362
Equity Index 500 (1990) 5,049 4,045
Balanced (1991) 2,091 1,896
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Dividend Growth (1992) 1,028 751
Mid-Cap Growth (1992) 5,243 6,591
Small-Cap Stock (1992) 1,740 2,263
Blue Chip Growth (1993) 6,709 7,116
Media & Telecommunications (1993) 930 798
Capital Opportunity (1994) 109 93
Personal Strategy - Balanced (1994) 619 620
Personal Strategy - Growth (1994) 262 284
Personal Strategy - Income (1994) 206 229
Value (1994) 851 989
Health Sciences (1995) 303 972
Financial Services (1996) 159 337
Mid-Cap Equity Growth (1996) 266 308
Mid-Cap Value (1996) 212 282
Diversified Small-Cap Growth (1997) 75 85
Real Estate (1997) 25 54
Tax-Efficient Balanced (1997) 43 52
Extended Equity Market Index (1998) 54 86
Total Equity Market Index (1998) 199 206
Tax-Efficient Growth (1999) 70 91
Developing Technologies (2000) -- 18
Institutional Large-Cap Value (2000) -- 2
Institutional Small-Cap Stock (2000) -- 230
________ ________
71,233 67,836
________ ________
International stock funds:
International Stock (1980) 12,674 9,735
International Discovery (1988) 687 765
Foreign Equity (1989) 3,923 3,042
European Stock (1990) 1,588 1,232
New Asia (1990) 1,375 800
Japan (1991) 596 243
Latin America (1993) 268 207
Emerging Markets Stock (1995) 162 152
Global Stock (1995) 90 99
International Growth & Income (1998) 11 10
Emerging Europe & Mediterranean (2000) -- 23
Global Technology (2000) -- 131
International Equity Index (2000) -- 6
________ ________
21,374 16,445
________ ________
Bond and money market funds:
New Income (1973) 1,795 1,715
Prime Reserve (1976) 5,431 5,639
Tax-Free Income (1976) 1,328 1,396
Tax-Exempt Money (1981) 684 731
U.S. Treasury Money (1982) 966 934
Tax-Free Short-Intermediate (1983) 445 405
High Yield (1984) 1,682 1,448
Short-Term Bond (1984) 486 466
GNMA (1985) 1,089 1,091
Tax-Free High Yield (1985) 1,132 1,084
California Tax-Free Bond (1986) 214 236
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California Tax-Free Money (1986) 102 102
International Bond (1986) 811 753
New York Tax-Free Bond (1986) 188 201
New York Tax-Free Money (1986) 112 112
Maryland Tax-Free Bond (1987) 990 1,082
U.S. Treasury Intermediate (1989) 244 225
U.S. Treasury Long-Term (1989) 324 315
New Jersey Tax-Free Bond (1991) 108 117
Virginia Tax-Free Bond (1991) 265 307
Tax-Free Intermediate Bond (1992) 116 117
Florida Intermediate Tax-Free Bond (1993) 99 101
Georgia Tax-Free Bond (1993) 58 66
Maryland Short-Term Tax-Free Bond (1993) 129 118
Summit Cash Reserves (1993) 2,430 2,551
Summit GNMA (1993) 62 68
Summit Municipal Income (1993) 70 71
Summit Municipal Intermediate (1993) 79 82
Summit Municipal Money Market (1993) 191 210
Emerging Markets Bond (1994) 173 164
Corporate Income (1995) 51 50
U.S. Bond Index (2000) -- 14
________ ________
21,854 21,971
________ ________
$114,461 $106,252
________ ________
________ ________
OTHER INVESTMENT PORTFOLIOS. We managed $60.4 billion at December 31, 2000
in investment portfolios other than the Price funds, down $5 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. Our sponsored investment partnerships were formed in
prior years through private placements and several of our special-purpose
subsidiaries serve as the general partners.
We usually compute fees for non-Price fund accounts based upon the value of
assets under our management. Approximately 50% of our advisory fees from
these clients are based on the daily valuation of their investment
portfolios, while more than 10% are based on beginning of billing period
values and less than 40% on values at the end 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 targeted advisory services to our non-Price
fund investment clients. Stable value investment contracts, totaling $8
billion at December 31, 1999 and 2000, 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
$15.5 billion at the end of 2000, down $4.8 billion from the beginning of the
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year.
REGULATION. T. Rowe Price Associates, T. Rowe Price International, T. Rowe
Price Stable 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 International is also regulated by the Investment
Management Regulatory Organisation 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.
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
accounts maintained by an independent clearing broker. In late 2000, we
changed clearing firms to the Pershing Division of Donaldson, Lufkin &
Jenrette Securities Corporation.
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 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. 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.
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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
prospects and, if appropriate opportunities arise, engage in discussions or
negotiations that could lead to acquisitions.
Additionally, we continue to review our distribution strategies and have
expanded them beyond the direct marketing of low cost, no-load mutual funds
to the self-directed investor. At the end of 2000, our assets under
management were sourced approximately 30% from individual investors, 30% from
defined contribution retirement plans, 20% from third-party distribution, and
20% from institutional investors. Our largest client account relationship
provided less than 4% of our total investment advisory revenues in 2000.
EMPLOYEES. At December 31, 2000, we employed more than 4,000 active, full-
time employees. We add additional temporary and part-time personnel to our
staff to meet periodic and special project demands for technology functions
and mutual fund administrative services.
ITEM 2. PROPERTIES.
We continued to expand our operating facilities this past year. During the
first half, we completed the move into buildings 3 & 4 of our 567,000 square
foot Owings Mills, Maryland campus and renovated our 110,000 square foot
Owings Mills financial services center to house our technology support staff.
In November, we moved into our newly constructed 124,000 square foot facility
at the western regional campus in Colorado Springs. The Colorado Springs
land and our Owings Mills acreage will both accommodate additional future
development.
We opened a new investor center for walk-in traffic and investor meetings in
the San Francisco area and relocated the Colorado Springs and Baltimore
facilities in 2000. Other investor centers are located in the Los Angeles,
Washington, Boston, Owings Mills, and Tampa areas.
Our primary corporate offices consist of approximately 270,000 square feet of
space leased through late 2006 at 100 East Pratt Street in Baltimore. We
lease our service center in Tampa and our international offices in London,
Buenos Aires, Copenhagen, Hong Kong, Paris, Singapore, and Tokyo.
We own an expandable 46,000 square foot technology center on a separate
parcel of land in Owings Mills. This facility is in close proximity to the
building that now houses our technology support staff.
Information concerning our anticipated capital expenditures in 2000 is set
forth in the capital resources and liquidity discussion in Item 7 of this
Form 10-K. Our future minimum rental payments under noncancelable operating
leases at December 31, 2000 are set forth in note 9 to our consolidated
financial statements included in Item 8 of this Form 10-K.
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ITEM 3. LEGAL PROCEEDINGS.
On July 6, 1998, Rowe Price-Fleming, the T. Rowe Price International Stock
Fund and the fund's five directors were named as defendants in Migdal v. Rowe
Price-Fleming International, Inc., et al., filed in the United States
District Court for the District of Maryland. The Complaint sought to
invalidate the advisory agreement between Rowe Price-Fleming and the
International Stock Fund, and sought recovery of an unspecified amount of
advisory fees paid by the International Stock Fund to Rowe Price-Fleming.
Plaintiffs alleged that the International Stock Fund does not have a
sufficient number of independent directors, as required by the Investment
Company Act of 1940, as amended, because its independent directors serve on
multiple boards of directors within the T. Rowe Price mutual fund complex and
receive substantial compensation in the form of director fees. On October
12, 1998, the plaintiffs filed an Amended Complaint adding as a plaintiff
Linda B. Rohrbaugh, a shareholder in the T. Rowe Price Growth Stock Fund.
The Amended Complaint also added as defendants the T. Rowe Price Growth Stock
Fund, T. Rowe Price Associates and certain of its subsidiaries which provide
services to the funds, as well as five directors of the T. Rowe Price Growth
Stock Fund. On January 21, 1999, the Amended Complaint was dismissed with
leave for plaintiffs to re-file. On February 16, 1999, the plaintiffs filed
a Second Amended Complaint, but the fund directors were excluded as
defendants. The Second Amended Complaint alleged a claim under Section 36(b)
of the Investment Company Act of 1940. The Complaint sought to invalidate
the advisory and service agreements negotiated between the corporate
defendants and certain T. Rowe Price funds based on a claim that (i) the fees
paid to the corporate defendants were excessive and (ii) the advisory
agreements were not negotiated at arm's length because each of the boards of
directors of the Price funds is not independent as required under the
Investment Company Act of 1940. On March 19, 1999, we and the other
defendants filed a Motion to Dismiss the Second Amended Complaint. In an
order dated March 20, 2000, our motion was granted and the case dismissed
with prejudice. On April 6, 2000, the plaintiffs filed a Notice of Appeal of
the Dismissal of the case. On June 16, 2000, we and the other defendants
filed a Brief with the United States Court of Appeals (Fourth Circuit) to
affirm the District Court's judgment.
From time to time, claims arise in the ordinary course of our business,
including employment-related claims. After consulting with counsel, we
believe it unlikely that any adverse determination in one or more pending
claims would have a material adverse effect on our financial condition or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of our stockholders during the fourth
quarter of 2000.
ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT.
The following information includes the names, ages, and positions of our
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executive officers. There are no arrangements or understandings pursuant to
which any person serves as an officer.
George A. Roche (59), Chairman (1997), President (1997), Managing Director
(1989), and Chief Financial Officer (1984-1997).
James S. Riepe (57), Vice Chairman (1997) and Managing Director (1989).
M. David Testa (56), Vice Chairman (1997) and Managing Director (1989).
Edward C. Bernard (45), Managing Director (1995).
Michael A. Goff (41), Managing Director (1997) and Vice President
(1994-1997).
Henry H. Hopkins (58), Managing Director (1989).
James A.C. Kennedy (47), Managing Director (1990).
Maria Nalywayko (38), Managing Director (2000) and Vice President
(1998-2000). Ms. Nalywayko was an Executive Vice President (1994-1998) of
Wells Fargo/Norwest.
Wayne D. O'Melia (48), Managing Director (1998) and Vice President
(1991-1998).
William T. Reynolds (52), Managing Director (1990).
Charles E. Vieth (44), Managing Director (1993).
Joseph P. Croteau (46), Vice President (1987), Controller (1994), and
Treasurer (2000).
On March 19, 2001, Cristina Wasiak (47) joined T. Rowe Price as a Managing
Director and Chief Financial Officer. Ms. Wasiak was formerly the Chief
Financial Officer of DSC Logistics (2000-2001). Previously, she was a Senior
Vice President with ABN Amro North America (1998-2000) and an Executive Vice
President with KeyCorp (1995-1998).
Similar information for other significant employees who are managing
directors follows.
John H. Laporte (55), Managing Director (1989).
Brian C. Rogers (45), Managing Director (1991).
Martin G. Wade (58), Managing Director (2000). Mr. Wade was Chief Executive
Officer (1998-2000) and President (1982-1998) of T. Rowe Price
International.
David J.L. Warren (43), Managing Director (2000). Mr. Warren is Chief
Executive Officer (2000) and President (1998), and was Executive Vice
President (1988-1998), of T. Rowe Price International.
Christopher D. Alderson (38), Managing Director (2000). Mr Alderson has been
a Vice President of T. Rowe Price International since 1989.
Preston G. Athey (51), Managing Director (1997) and Vice President
(1991-1997).
Brian W.H. Berghuis (42), Managing Director (1997) and Vice President
(1991-1997).
Stephen W. Boesel (56), Managing Director (1993).
John H. Cammack, (48), Managing Director (2000) and Vice President
(1994-2000).
John R. Ford, (43), Managing Director (2000). Mr Ford has been an Executive
Vice President of T. Rowe Price International since 1988.
Ian Kelson, (44), Managing Director (2000). Mr. Kelson was previously Head
14
of Fixed Income for Morgan Grenfell/Deutsche Asset Management in London
which he joined in 1985.
Gregory A. McCrickard (42), Managing Director (1998) and Vice President
(1991-1998).
Mary J. Miller (45), Managing Director (1993).
Charles A. Morris (38), Managing Director (1995).
Nancy M. Morris (48), Managing Director (2000) and Vice President
(1993 - 2000).
George A. Murnaghan (44), Managing Director (1997) and Vice President
(1986-1997).
Edmund M. Notzon (55), Managing Director (1997) and Vice President
(1991-1997).
Larry J. Puglia (40), Managing Director (1998) and Vice President
(1993-1998).
John R. Rockwell (58), Managing Director (1998) and Vice President
(1991-1998).
R. Todd Ruppert (44), Managing Director (1997) and Vice President
(1988-1997).
Robert W. Smith (39), Managing Director (1998) and Vice President
(1993-1998).
William J. Stromberg (41), Managing Director (1998) and Vice President
(1990-1998).
Mark J. Vaselkiv (42), Managing Director (2000) and Vice President
(1989-2000).
Richard T. Whitney (42), Managing Director (1995).
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
_______ _______ _______ _______
1999 - High price $39.88 $43.25 $40.00 $40.25
Low price 29.25 30.63 27.44 25.88
Cash dividends declared .10 .10 .10 .13
2000 - High price 42.88 48.00 49.94 48.44
Low price 30.06 32.88 39.25 35.06
Cash dividends declared .13 .13 .13 .15
On February 9, 2001, there were approximately 4,000 holders of record of our
outstanding common stock.
We expect to pay cash dividends at the $.15 per-share quarterly rate for the
first three quarters of 2001. The increase made to our quarterly dividend
15
rate in December 2000 was the fifteenth consecutive annual increase since we
became a public company in April 1986.
ITEM 6. SELECTED FINANCIAL DATA.
Year ended December 31,
____________________________________________________
1996 1997 1998 1999 2000
________ ________ ________ ________ ________
(in millions, except per-share data)
Revenues $ 586.1 $ 755.0 $ 886.1 $1,036.4 $1,212.3
Net income $ 98.5 $ 144.4 $ 174.1 $ 239.4 $ 269.0
Basic earnings
per share $ .86 $ 1.24 $ 1.46 $ 1.99 $ 2.22
Diluted earnings
per share $ .79 $ 1.13 $ 1.34 $ 1.85 $ 2.08
Cash dividends
declared per share $ .2225 $ .28 $ .355 $ .43 $ .54
Weighted average
shares outstanding 114.5 116.3 119.1 120.6 121.2
Weighted average
shares outstanding -
assuming dilution 123.9 128.1 130.0 129.2 129.6
December 31,
________________________________________________
1996 1997 1998 1999 2000
________ ________ ________ ________ ________
(in millions, except as noted)
Balance sheet data
Goodwill $ 4.7 $ 4.0 $ 3.2 $ 2.5 $ 695.0
Total assets $ 478.8 $ 646.1 $ 796.8 $ 998.0 $1,469.5
Debt -- -- -- $ 17.7 $ 312.3
Stockholders'
equity $ 345.7 $ 486.7 $ 614.3 $ 770.2 $ 991.1
Common shares
outstanding 115.1 118.2 120.2 120.1 122.4
Assets under manage-
ment (in billions) $ 99.4 $ 124.3 $ 147.8 $ 179.9 $ 166.7
All share and per-share data has been retroactively adjusted to give effect
to the 2-for-1 stock splits in April 1996 and 1998.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Our revenues and net income are derived primarily from investment advisory
services provided to U.S. individual and institutional investors in our
sponsored mutual funds and other investment portfolios.
We manage a broad range of 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
16
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 $166.7 billion at
December 31, 2000, including $94.9 billion in domestic equity securities and
$31.7 billion in international equity securities.
ROWE PRICE-FLEMING INTERNATIONAL ACQUISITION.
On August 8, 2000, we completed our purchase of Robert Fleming Holdings' 50%
interest in our consolidated subsidiary, Rowe Price-Fleming International,
which at that time managed $37.5 billion. This purchase transaction resulted
in goodwill of $704 million which is being amortized on a straight-line basis
over 25 years. Coincident with the change in ownership, our subsidiary was
renamed T. Rowe Price International and our international research contracts
with Robert Fleming affiliates were terminated. Transition services are
being provided to us by certain Robert Fleming affiliates during an interim
period in which we are establishing the new operating infrastructure for our
international investment operations. Additionally, we are now expanding our
marketing efforts to include European investors and may seek other investors
on a global basis. Our expenditures in these efforts may be significant and
will precede revenues from any new investment advisory clients that we may
obtain.
RESULTS OF OPERATIONS.
2000 versus 1999. Net income increased nearly $30 million or 12% to $269
million and diluted earnings per share rose from $1.85 to $2.08. Total
revenues increased 17% from $1 billion to a record $1.2 billion, led by an
increase of $115 million in investment advisory fees.
Investment advisory revenues earned from the T. Rowe Price mutual funds
increased $86 million as average fund assets under management were $113.9
billion during 2000, $13.1 billion more than in 1999. However, declines in
financial market valuations pushed fund assets down $5.5 billion during the
year. Net redemptions by fund investors were $1.7 billion during 2000.
Defined contribution plans moved $2 billion to other advisors on the last day
of the year, offsetting net inflows that had occurred until that time. The
merger of a client into another firm and the restructuring of investments by
a large state pension plan were the primary causes of the outflows at year
end. Other fund asset decreases were the result of our redemption of almost
$.5 billion to partially fund the Rowe Price-Fleming acquisition and $.5
billion of dividends, net of reinvestments, that were paid out during the
year. Mutual fund assets ended 2000 at $106.3 billion, including $84.3
billion in stock funds.
Assets in the other investment portfolios that we manage were also higher
during most of 2000 and contributed $25 million of additional advisory fees.
In addition, performance-related advisory fees were $4 million higher in
2000. We earn performance fees primarily on venture capital investments that
we manage and, though recurring, these fees will vary significantly as market
17
conditions and investment portfolios change. Assets in other portfolios that
we manage ended 2000 at $60.4 billion, down from $65.4 billion at the
beginning of the year due primarily to international portfolios which
experienced both market depreciation of $3.3 billion and outflows of $1.5
billion during 2000.
Administrative fees from advisory-related services that we provide to the
funds and their shareholders rose $39.6 million from 1999 to $236.9 million.
This increase is primarily attributable to transfer agency and recordkeeping
services for defined contribution retirement plans and the Price mutual funds
and includes $1.1 million of 12b-1 distribution fees received from the new
Advisor class of mutual fund shares. Administrative revenues are largely
offset by the costs that we incur in providing the services, including fees
paid to third-parties which distribute the Advisor shares to their clients.
Discount brokerage added $1.4 million of the increase on greater transaction
volume offset by lower average commissions arising from the shift to
transactions originating over the Internet.
Investment and other income rose more than $21 million from 1999 to $59
million. Net gains of $7.4 million on dispositions of our stock and bond
mutual fund holdings in 2000 versus losses of $1.6 million recognized on fund
holdings in 1999 account for $9.0 million of the increase. Higher returns on
our venture capital investments added $2.9 million in 2000. The strong
markets of late 1999 and early 2000 produced significant market gains and
distributions from venture capital investments. Income from this source will
vary with market conditions and the size of our investments. Larger capital
gain distributions resulting from our stock fund holdings added $2.0 million
to our 2000 income. Foreign currency rate fluctuations arising from our yen-
denominated debt account for a positive change of $4.6 million as the losses
experienced in 1999 largely reversed in 2000. We expect that investment
income will generally be lower in future periods.
Operating expenses increased 21% to $754 million. Greater compensation and
related costs, which were up $51 million or 16%, were attributable to
increases in our rates of compensation, including performance-related
bonuses, and an 8% increase in our staff size primarily to support our
growing operations. As of December 31, 2000, we employed more than 4,000
associates. Our advertising and promotion expenditures increased $14.1
million from the prior year to $88.2 million. These costs will vary with
market conditions and investor demand for our products as we seek to expand
our base both domestically and internationally. We expect spending in 2001
to exceed that of 2000 and, in particular, the first quarter of 2001 to be
slightly higher than the preceding fourth quarter of 2000.
International investment research fees were down $17 million from 1999 as the
contract for these services terminated at the time of the Rowe Price-Fleming
acquisition. Occupancy and equipment expense was $16.1 million higher in 2000
due primarily to the expansion of our operating facilities in Owings Mills in
late 1999 and early 2000. Amortization of goodwill arising from the Rowe
Price-Fleming purchase and interest expense on our acquisition indebtedness
added $11.1 million and $9.3 million, respectively, to our 2000 expenses.
18
Under current accounting principles, goodwill charges of $7 million per
quarter will recur in the future. Other operating expenses increased $47
million largely due to significant broad-based technology expenditures that
support established and new business activities. Additional expenses in
connection with our international expansion also contributed to the higher
expense levels. Costs incurred for defined contribution plan recordkeeping
systems and the distribution of the Advisor class of fund shares also
increased our expense levels; however, these charges were generally offset by
additional administrative revenues. We anticipate that our operating
expenses in at least the first half of 2001 will continue to be higher in
comparison to prior comparable periods, but that the amount of increase will
moderate from that experienced in the second half of 2000.
The 2000 provision for income taxes as a percentage of pretax income is
higher than that of 1999 largely due to the new goodwill charges that are not
deductible in determining our income tax expense. The effective tax rate
will rise again in 2000 as we recognize a full year's amortization of
goodwill.
Minority interests declined $5.9 million due to the acquisition of Robert
Fleming's 50% interest in Rowe Price-Fleming.
1999 versus 1998. Net income increased $65 million or 37% to $239 million,
or diluted earnings per share of $1.85, from $174 million or diluted earnings
per share of $1.34. Total revenues increased 17% from $886 million to a
record $1.04 billion, led by an increase of $117 million in investment
advisory fees.
Investment advisory revenues earned from sponsored mutual fund investment
portfolios increased $73 million as average fund assets under management were
$100.8 billion, $12.9 billion more than in 1998. Fund assets increased $20.1
billion during the year and totaled $114.5 billion at December 31, 1999,
including $92.6 billion in stock and blended assets funds. The most
significant increase in fund assets during 1999 was attributable to market
appreciation of and income reinvested in the stock and blended funds totaling
$19 billion. Net cash inflows to the funds during the year totaled $1.1
billion, including inflows of more than $2.3 billion into domestic stock and
blended funds, offset in part by $1.0 billion of outflows from international
stock funds and $.2 billion from bond and money market funds. Domestic
growth stock funds accounted for the largest net inflows with the Science &
Technology and Blue Chip Growth funds each drawing more than $1 billion.
Greater assets in other investment portfolios, including variable annuity and
other subadvised funds, and an increase of $9 million in performance-based
fees contributed the balance of advisory revenue gains totaling $44 million.
Assets under management in other investment portfolios were $65.4 billion at
December 31, 1999, up $12 billion during 1999.
Administrative fees from advisory-related services to the funds and their
shareholders rose $24 million from 1998 to $197 million. This increase was
primarily attributable to defined contribution retirement plan recordkeeping
19
services; however, increased operating expenses offset these gains.
Commissions earned on greater discount brokerage trading volume contributed
nearly $5 million of the revenue increase.
Investment and other income rose $9 million from 1998, including $6 million
from larger money market fund balances and nearly $6 million from venture
capital investments offset by almost $3 million of foreign currency exchange
rate loss on the yen-denominated debt.
Operating expenses increased 8% to nearly $622 million. Greater compensation
and related costs, which were up $25 million or 8%, were attributable to
increases in rates of compensation, including performance-related bonuses,
and an increase in staff size of 6% primarily to support the growing
investment-related administrative services and technology-based operations.
These increases in compensation costs were partially offset by reduced use of
temporary staff and the capitalization of almost $5 million for the
development of internal-use software. At year-end 1999, more than 3,700
associates were employed. Advertising and promotion expenditures increased
2% to $74 million in 1999. Occupancy and equipment expense was nearly $11
million higher in 1999 due to the expansion of operating facilities and
related equipment acquisitions, primarily leases of technology assets.
International investment research fees were up nearly $6 million as
international assets under management increased during 1999 from $32.9
billion to $42.7 billion, including $22.4 billion in the mutual funds.
International assets are managed by our consolidated subsidiary, Rowe Price-
Fleming International, and are included in the consolidated assets under
management. Other operating expenses increased $6 million to support growing
operations.
The crossover of operations into 2000 was made successfully. Expenditures
for the comprehensive efforts involved totaled $37 million through year-end,
including more than $18 million in 1999, an increase of about $1 million from
1998.
The 1999 provision for income taxes as a percentage of pretax income is lower
than that of 1998 due to changes in income apportionment for purposes of
state taxation.
CAPITAL RESOURCES AND LIQUIDITY.
We financed the Rowe Price-Fleming acquisition from available cash holdings
of $483 million and borrowings of $300 million from the five-year, $500
million syndicated bank credit facility that we obtained in June 2000. We
have also obtained a complementary $100 million, 364-day syndicated bank
credit facility. We reduced outstanding borrowings $5 million in November
2000 and expect that available cash resources will be used to further reduce
borrowings in 2001.
During the three years ended December 31, 2000, stockholders' equity more
than doubled, increasing from $487 million to $991 million. Stockholders'
equity at December 31, 2000 includes $33 million of unrealized security
20
holding gains (after provision for income taxes) on investments and $52
million which is restricted as to use under various regulations and
agreements arising in the ordinary course of business. Net liquid assets of
about $250 million were available at the beginning of 2001.
Operating activities provided net cash inflows of $323 million in 2000 as net
income increased $30 million from the prior year. Comparatively, 1999
provided net operating cash inflows of $297 million. Net cash expended in
investing activities increased $743 million from 1999 to $861 million.
Expenditures in 2000 included $783 million for the acquisition of Robert
Fleming's interest in Rowe Price-Fleming and $86 million for additions to
property and equipment, more than half of which was for completing our
building projects and outfitting the new space. Cash provided from financing
activities was $260 million in 2000. This compares with cash used in
financing activities of $104 million in 1999. Net bank borrowings used to
partially fund the Rowe Price-Fleming acquisition provided cash of $295
million in 2000. There were no repurchases of common stock in 2000 compared
with $67 million used to repurchase shares in 1999. Dividends paid to common
stockholders were $63 million, $15 million higher than 1999 as the per-share
dividend was again increased.
Anticipated property and equipment acquisitions in 2001 are approximately $57
million, including completion of the international infrastructure to support
the operations of T. Rowe Price International. These capital expenditures are
expected to be funded from operating cash inflows.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
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.
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 reflects the valuation of mutual fund investments at year end using
each fund's lowest fair value per share during the prior twelve months. 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 persisted; and we could experience
future losses in excess of those presented below.
21
Fair value at Potential
December 31, % of lower % of Potential loss
2000 Portfolio value Portfolio of value
_____________ _________ _________ _________ ______________
Stock funds
Domestic $135,255 71 $120,179 70 $15,076 11%
International 33,012 17 31,666 18 1,346 4
________ ___ ________ ___ _______
Total 168,267 88 151,845 88 16,422 10
Blended funds 12,175 7 11,595 7 580 5
Bond funds 9,964 5 9,700 5 264 3
________ ___ ________ ___ _______
$190,406 100 $173,140 100
________ ___ ________ ___
________ ___ ________ ___
Potential loss before income taxes attributable to
accumulated comprehensive income $17,266 9
_______
_______
The comparable potential loss of value shown in last year's annual report was
$39 million on sponsored mutual fund investments of $234 million at the end
of 1999. During 2000, we incurred net unrealized losses of $19 million in
the value of our mutual fund investments. We last recognized a net loss in
the value of our fund holdings in 1994.
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.
In evaluating market risk, it is also important to consider the risk that the
value of managed investment portfolios will decline. Because revenues and
net income are based primarily on the value of assets under management,
declines of financial market values will negatively impact revenues and net
income.
The U.S. dollar strengthened against the Japanese yen in 2000, and an
exchange rate gain was recognized on the yen borrowing that reversed much of
the loss recognized in 1999. In evaluating exchange rate sensitivity, a loss
of nearly $2 million would be recognized if the yen strengthened 10% from
December 31, 2000. Other foreign currency denominated assets and liabilities
are not material.
FORWARD-LOOKING INFORMATION.
From time-to-time, information or statements provided by or on behalf of T.
Rowe Price, including those within this Annual Report on Form 10-K, may
contain certain "forward-looking information," including information relating
to anticipated growth in our revenues or earnings, anticipated changes in the
amount and composition of assets under management, our anticipated 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
22
performance. Actual results may differ materially from those in forward-
looking information as a result of various factors, including but not limited
to those discussed below. Further, forward-looking statements speak only as
of the date on which they are made, and we undertake no obligation to update
any forward-looking statement to reflect events or circumstances after the
date on which it is made or to reflect the occurrence of unanticipated
events.
Our future revenues will fluctuate due to many factors, including the total
value and composition of assets under our management and related cash inflows
or outflows in the T. Rowe Price mutual funds and other managed investment
portfolios; fluctuations in worldwide financial markets, including those in
emerging countries, resulting in appreciation or depreciation of assets under
our management; the relative investment performance of the Price mutual funds
and other managed investment portfolios as compared to competing offerings
and market indices; the extent to which we earn performance-based investment
advisory fees; the expense ratios of the Price mutual funds; investor
sentiment and investor confidence; the ability to maintain our investment
management and administrative fees at appropriate levels; competitive
conditions in the mutual fund, asset management, and broader financial
services sectors; our introduction of new mutual funds and investment
portfolios; our ability to contract with the Price mutual funds for payment
for investment advisory-related administrative services provided to the funds
and their shareholders; the continuation of trends in the retirement plan
marketplace favoring defined contribution plans and participant-directed
investments; the amount and timing of income recognized on our venture
capital and other investments; and our success in implementing our strategy
to significantly expand our international business. Our revenues are
substantially dependent on fees earned under contracts with the Price funds
and could be adversely affected if the independent directors of one or more
of the Price funds determined to terminate or significantly alter the terms
of the investment management or related administrative services agreements.
Our future operating results are also dependent upon the level of our
operating expenses, which are subject to fluctuation for the following or
other reasons: changes in the level of advertising expenses in response to
market conditions, expansion of marketing efforts both within the U.S. and
internationally, or other factors; variations in the level of compensation
expense due to, among other things, performance-based bonuses, changes in our
employee count and mix, and competitive factors; changes in expense levels
resulting from our acquisition of the minority interests in Rowe Price-
Fleming International, including goodwill charges and interest expense, and
from differences in the manner in which we provide support for our
international investment advisory services; 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, including Internet capabilities;
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 communications, power, and the mutual fund
transfer agent system.
23
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 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Page
Index to Financial Statements:
Report of Independent Accountants 24
Consolidated Balance Sheets at December 31, 1999 and 2000 25
Consolidated Statements of Income for each of the
three years in the period ended December 31, 2000 26
Consolidated Statements of Cash Flows for each of the
three years in the period ended December 31, 2000 27
Consolidated Statements of Stockholders' Equity for
each of the three years in the period ended December 31, 2000 28
Summary of Significant Accounting Policies 30
Notes to Consolidated Financial Statements
including Supplementary Quarterly Financial Data 32
24
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of T. Rowe Price Group, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of T. Rowe Price Group, Inc. and its subsidiaries at December 31,
1999 and 2000, and the results of their operations and their cash flows for
each of the three years in the period 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 audits. We conducted our audits 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 audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Baltimore, Maryland
January 23, 2001
25
CONSOLIDATED BALANCE SHEETS
December 31,
____________________
1999 2000
________ __________
(in thousands)
ASSETS
Cash and cash equivalents (Note 1) $358,472 $ 80,526
Accounts receivable (Note 7) 121,637 131,041
Investments in sponsored mutual funds (Note 1) 233,924 190,406
Other investments (Notes 2 and 9) 44,986 59,801
Property and equipment (Note 3) 210,302 255,660
Goodwill (Note 4) 2,474 694,985
Other assets (Note 8) 26,244 57,040
________ __________
$998,039 $1,469,459
________ __________
________ __________
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable and accrued expenses $ 37,712 $ 56,877
Accrued compensation and related costs 64,774 66,356
Income taxes payable (Note 5) 31,819 13,220
Dividends payable 15,614 18,366
Customer deposits at savings bank subsidiary -- 10,932
Debt and accrued interest (Note 8) 17,716 312,277
Minority interests in consolidated subsidiaries 60,220 366
________ __________
Total liabilities 227,855 478,394
________ __________
Commitments and contingent liabilities (Note 9)
Stockholders' equity (Notes 6 and 9)
Preferred stock, undesignated, $.20 par value -
authorized and unissued 20,000,000 shares -- --
Common stock, $.20 par value - authorized
500,000,000 shares; issued 120,107,818 shares
in 1999 and 122,439,232 shares in 2000 24,022 24,488
Capital in excess of par value 48,057 80,855
Retained earnings 649,378 852,775
Accumulated other comprehensive income 48,727 32,947
________ __________
Total stockholders' equity 770,184 991,065
________ __________
$998,039 $1,469,459
________ __________
________ __________
The accompanying notes are an integral part of the consolidated financial
statements.
26
CONSOLIDATED STATEMENTS OF INCOME
Year ended December 31,
______________________________
1998 1999 2000
________ __________ __________
(in thousands, except
per-share amounts)
Revenues (Notes 1, 7 and 8)
Investment advisory fees $684,296 $ 801,579 $ 916,358
Administrative fees 173,321 197,297 236,879
Investment and other income 28,525 37,503 59,090
________ __________ __________
886,142 1,036,379 1,212,327
________ __________ __________
Expenses
Compensation and related
costs (Notes 3, 6 and 9) 304,376 329,385 380,636
Advertising and promotion 73,044 74,140 88,215
Occupancy and equipment (Note 9) 83,374 94,008 110,133
International investment research fees 48,066 53,734 36,665
Goodwill amortization (Note 4) 745 745 11,879
Interest expense (Note 8) -- 174 9,721
Other operating expenses 63,723 69,423 116,886
________ __________ __________
573,328 621,609 754,135
________ __________ __________
Income before income taxes and
minority interests 312,814 414,770 458,192
Provision for income taxes (Note 5) 118,676 155,166 174,818
________ __________ __________
Income from consolidated companies 194,138 259,604 283,374
Minority interests in
consolidated subsidiaries 19,998 20,200 14,345
________ __________ __________
Net income $174,140 $ 239,404 $ 269,029
________ __________ __________
________ __________ __________
Earnings per share
Basic $ 1.46 $ 1.99 $ 2.22
________ __________ __________
________ __________ __________
Diluted $ 1.34 $ 1.85 $ 2.08
________ __________ __________
________ __________ __________
The accompanying notes are an integral part of the consolidated financial
statements.
27
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
______________________________
1998 1999 2000
________ ________ ________
(in thousands)
Cash flows from operating activities
Net income $174,140 $239,404 $269,029
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization of
property and equipment 32,615 32,628 41,813
Minority interests in consolidated
subsidiaries 19,998 20,200 14,345
Amortization of goodwill 745 745 11,879
Change in accounts receivable (13,865) (20,860) (8,593)
Change in accounts payable and accrued
liabilities 26,236 26,701 3,921
Other changes in assets and liabilities (7,894) (1,881) (9,659)
________ ________ ________
Net cash provided by operating activities 231,975 296,937 322,735
________ ________ ________
Cash flows from investing activities
Acquisition of minority interests in
Rowe Price-Fleming International -- -- (783,194)
Investments in sponsored mutual funds (32,538) (16,059) (42,576)
Dispositions of sponsored mutual funds 21,708 1,287 67,068
Other investments (3,119) (35,888) (18,808)
Distributions from other investments 2,934 9,926 2,036
Additions to property and equipment (56,558) (77,417) (85,612)
________ ________ ________
Net cash used in investing activities (67,573) (118,151) (861,086)
________ ________ ________
Cash flows from financing activities
Purchases of stock (36,424) (67,418) --
Receipts relating to stock issuances 12,901 9,967 19,279
Proceeds of bank borrowing -- 15,019 300,000
Principal repayment -- -- (5,000)
Dividends paid to stockholders (40,406) (48,241) (62,880)
Savings bank subsidiary deposits -- -- 10,932
Distributions to minority interests (17,044) (13,479) --
Other activities -- -- (1,926)
________ ________ ________
Net cash provided by (used in)
financing activities (80,973) (104,152) 260,405
________ ________ ________
Cash and cash equivalents
Net increase (decrease) during year 83,429 74,634 (277,946)
At beginning of year 200,409 283,838 358,472
________ ________ ________
At end of year $283,838 $358,472 $ 80,526
________ ________ ________
________ ________ ________
The accompanying notes are an integral part of the consolidated financial
statements.
28
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumu-
Capital lated
Common in other Total
stock excess compre- stock-
- par of par Retained hensive holders'
value value earnings income equity
_______ _______ ________ _______ ________
(in thousands)
Balance at December 31, 1997,
59,097,705 common shares $11,819 $30,707 $415,279 $28,868 $486,673
Comprehensive income
Net income 174,140
Change in unrealized
security holding gains,
net of taxes 2,695
Total comprehensive income 176,835
2,711,273 common shares
issued under stock-based
compensation plans 543 29,056 29,599
59,594,288 common shares
issued in 2-for-1 split 11,919 (11,919) --
1,220,000 common shares
purchased (244) (6,771) (29,409) (36,424)
Dividends declared (42,379) (42,379)
_______ _______ ________ _______ ________
Balance at December 31, 1998,
120,183,266 common shares 24,037 41,073 517,631 31,563 614,304
Comprehensive income
Net income 239,404
Change in unrealized
security holding gains,
net of taxes 17,164
Total comprehensive income 256,568
2,141,042 common shares
issued under stock-based
compensation plans 428 18,145 18,573
2,216,490 common shares
purchased (443) (11,161) (55,814) (67,418)
Dividends declared (51,843) (51,843)
_______ _______ ________ _______ ________
Balance at December 31, 1999,
120,107,818 common shares $24,022 $48,057 $649,378 $48,727 $770,184
Continued on next page.
The accompanying notes are an integral part of the consolidated financial
statements.
29
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumu-
Capital lated
Common in other Total
stock excess compre- stock-
- par of par Retained hensive holders'
value value earnings income equity
_______ _______ ________ _______ ________
(in thousands)
Continued from prior page.
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
_______ _______ ________ _______ ________
_______ _______ ________ _______ ________
The accompanying notes are an integral part of the consolidated financial
statements.
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.
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.
On June 30, 2000, our stockholders approved the one-for-one exchange of their
shares of outstanding T. Rowe Price Associates common stock for that of our
newly-organized holding company, T. Rowe Price Group. As the result of the
share exchange on December 28, 2000, Price Group became the sole owner of
Price Associates and Price Associates' former stockholders became the
stockholders of Price Group. The exchange was accounted for similar to a
pooling-of-interests transaction and 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. They 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.
CASH EQUIVALENTS.
Cash equivalents consist of short-term, highly liquid investments in
sponsored money market mutual funds and overnight commercial paper. The cost
of these investments is equivalent to fair value.
INVESTMENTS IN SPONSORED MUTUAL FUNDS.
Investments in sponsored mutual funds are classified as available-for-sale
and are reported at fair value. Unrealized security holding gains are
recognized in comprehensive income.
CONCENTRATIONS OF RISK.
Concentration of credit risk in accounts receivable is believed to be minimal
in that clients have substantial assets including those in the investment
portfolios that we manage.
31
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.
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 to 4 years; furniture and other equipment, 5 years; buildings, 33 years;
leasehold improvements, 9 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 when earned.
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 Rowe
Price-Fleming 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 119,134,000 in 1998, 120,599,000 in 1999, and
121,196,000 in 2000. 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
10,818,000 in 1998, 8,564,000 in 1999, and 8,452,000 in 2000.
COMPREHENSIVE INCOME.
Total comprehensive income is reported in our consolidated statements of
stockholders' equity and includes net income and unrealized security holding
gains, net of income taxes and any minority interests.
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - INVESTMENTS IN SPONSORED MUTUAL FUNDS.
Cash equivalents comprising investments in our sponsored money market mutual
funds aggregate $354,418,000 at December 31, 1999 and $70,597,000 at December
31, 2000. Investments in our other sponsored mutual funds (in thousands) at
December 31 include:
Aggregate
Aggregate Unrealized fair
cost holding gains value
_________ _____________ _________
1999
___________
Stock funds
Domestic $ 82,214 $51,727 $133,941
International 21,685 19,351 41,036
________ _______ ________
Total 103,899 71,078 174,977
Blended funds 14,994 5,394 20,388
Bond funds 38,165 394 38,559
________ _______ ________
$157,058 $76,866 $233,924
________ _______ ________
________ _______ ________
2000
___________
Stock funds
Domestic $ 95,292 $39,963 $135,255
International 26,377 6,635 33,012
________ _______ ________
Total 121,669 46,598 168,267
Blended funds 8,684 3,491 12,175
Bond funds 9,630 334 9,964
________ _______ ________
$139,983 $50,423 $190,406
________ _______ ________
________ _______ ________
The following table reconciles our unrealized holding gains on investments in
sponsored mutual funds (in thousands) to that recognized in comprehensive
income.
1998 1999 2000
_______ _______ _________
Unrealized holding gains
(losses) during the year $ 8,355 $26,237 $(19,027)
Less gains (losses)
realized in net income 4,840 (1,567) 7,417
_______ _______ ________
3,515 27,804 (26,444)
Deferred taxes (946) (9,808) 9,365
_______ _______ ________
2,569 17,996 (17,079)
Minority interests 126 (832) 1,124
_______ _______ ________
Unrealized holding gains
(losses) recognized in
comprehensive income $ 2,695 $17,164 $(15,955)
_______ _______ ________
_______ _______ ________
33
Dividends earned on investments in sponsored mutual funds, including money
market mutual funds, aggregate $20,878,000 in 1998, $32,941,000 in 1999, and
$35,157,000 in 2000.
NOTE 2 - OTHER INVESTMENTS.
Other investments (in thousands) at December 31 consists of:
1999 2000
________ ________
Cost method investments, including a 10% interest
in Daiwa SB Investments (Japan) of $15,019,000 $ 18,153 $ 18,001
Equity method investments, primarily sponsored
partnerships 14,554 13,240
Fair value investments
Debt securities held by savings bank subsidiary
as available for sale -- 16,398
Income notes of sponsored collateralized bond
obligation due 2012, including accrued interest 12,248 12,148
Common stocks held pending disposition 31 14
________ ________
$ 44,986 $ 59,801
________ ________
________ ________
The debt securities held by our savings bank subsidiary include $290,000 of
unrealized gains. These gains, net of deferred taxes of $115,000, are
included in comprehensive income.
NOTE 3 - PROPERTY AND EQUIPMENT.
Property and equipment (in thousands) at December 31 consists of:
1999 2000
________ ________
Computer and communications software and equipment $107,442 $138,635
Buildings and leasehold improvements 133,842 160,520
Furniture and other equipment 44,189 56,765
Land owned and leased 21,503 21,503
________ ________
306,976 377,423
Accumulated depreciation and amortization (96,674) (121,763)
________ ________
$210,302 $255,660
________ ________
________ ________
On January 1, 1999, we prospectively adopted a new accounting principle
requiring the capitalization and subsequent amortization of certain costs of
computer software developed for internal use. Accordingly, compensation and
related costs totaling $4,555,000 in 1999 and $10,690,000 in 2000 were
capitalized.
NOTE 4 - GOODWILL.
On April 11, 2000, we entered into an agreement with Robert Fleming Holdings
to purchase its 50% non-controlling interest in our consolidated subsidiary,
34
Rowe Price-Fleming International. On August 8, 2000, we completed the
purchase of Robert Fleming's interest for $780 million. Investment banking
and legal fees incurred were $3.2 million. Immediately after completing this
transaction, we changed the name of Rowe Price-Fleming to T. Rowe Price
International. This purchase transaction resulted in goodwill of $704.4
million which is being amortized on a straight line basis over 25 years.
Goodwill of $7,937,000 arising from a 1992 acquisition is being amortized
over eleven years using the straight-line method. Accumulated amortization
of all goodwill aggregates $5,463,000 at December 31, 1999 and $17,342,000 at
December 31, 2000.
NOTE 5 - INCOME TAXES.
The provision for income taxes (in thousands) consists of:
1998 1999 2000
________ ________ ________
Current income taxes
Federal and foreign $104,376 $144,754 $150,431
State and local 13,562 16,046 16,283
Deferred income taxes (tax benefits) 738 (5,634) 8,104
________ ________ ________
$118,676 $155,166 $174,818
________ ________ ________
________ ________ ________
Deferred income taxes arise from temporary differences between taxable income
for financial statement and income tax return purposes. Significant
temporary differences related to amortization and depreciation of property
and equipment resulted in deferred income taxes of $4,158,000 in 2000.
Deferred tax benefits arising from significant temporary differences include
$3,122,000 in 1999 related to investment income.
The net deferred tax liability of $11,238,000 included in income taxes
payable at December 31, 2000 consists of total deferred tax liabilities of
$21,867,000 and total deferred tax assets of $10,629,000. Deferred tax
liabilities include $17,763,000 arising from unrealized holding gains on
available-for-sale securities. Deferred tax assets include $7,691,000
arising from accrued compensation.
The net deferred tax liability of $17,430,000 included in income taxes
payable at December 31, 1999 consists of total deferred tax liabilities of
$31,271,000 and total deferred tax assets of $13,841,000. Deferred tax
liabilities include $27,013,000 arising from unrealized holding gains on
available-for-sale securities. Deferred tax assets include $8,848,000
arising from accrued compensation.
Cash outflows from operating activities include income taxes paid of
$114,322,000 in 1998, $132,253,000 in 1999, and $188,285,000 in 2000. The
additional income tax benefit that we realized from the tax deduction related
to the exercise of our stock options resulted in the reduction of income
taxes paid by $16,698,000 in 1998, $8,606,000 in 1999, and $13,985,000 in
2000.
35
The following table reconciles the statutory federal income tax rate to the
effective income tax rate.
1998 1999 2000
______ ______ ______
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefits 2.9 2.6 2.7
Other items - (.2) .5
______ ______ ______
Effective income tax rate 37.9% 37.4% 38.2%
______ ______ ______
______ ______ ______
NOTE 6 - COMMON STOCK AND STOCK-BASED COMPENSATION PLANS.
SHARES AUTHORIZED AND ISSUED.
A two-for-one split of our common stock was effected at the close of business
on April 30, 1998. All share and per-share data in these notes have been
adjusted to give retroactive effect to the stock split.
At December 31, 2000, 31,835,208 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
5,503,510 common shares at December 31, 2000.
DIVIDENDS.
Cash dividends declared per share were $.355 in 1998, $.43 in 1999, and $.54
in 2000.
FIXED STOCK OPTION PLANS.
Our six stock-based compensation plans (the 1986, 1990, 1993 and 1996 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 fixed stock options with a maximum term of ten years to
employees and directors. Vesting of employee options is based solely on the
individual continuing to render service and generally occurs over a 5-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.
The following table summarizes the status of and changes in our stock option
grants during the past three years.
36
Weighted- Weighted-
average average
exercise Options exercise
Options price exercisable price
__________ _________ ___________ _________
Outstanding at
beginning of 1998 23,118,424 $12.02 11,808,624 $7.18
Granted 3,528,883 35.68
Exercised (3,491,738) 6.51
Forfeited (515,000) 18.30
__________
Outstanding at
end of 1998 22,640,569 16.41 12,479,069 9.91
Granted 3,470,325 31.02
Exercised (2,294,013) 6.73
Forfeited (159,400) 23.80
__________
Outstanding at
end of 1999 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
__________
__________
Information regarding the exercise prices and lives of stock options
outstanding at December 31, 2000 follows.
Weighted-
average
Weighted- remaining Weighted-
average contractual average
Range of exercise life (in exercise
exercise prices Outstanding price years) Exercisable price
_______________ ___________ _________ ___________ ___________ _________
$ 4.25 to 29.88 11,991,715 $ 11.23 4.2 11,341,915 $ 10.84
$30.09 to 47.06 13,610,157 35.06 8.5 3,568,657 33.45
__________ __________
25,601,872 23.90 6.5 14,910,572 16.25
__________ __________
__________ __________
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 $9.88 in 1998, $9.86 in 1999, and $13.45 in 2000
using the Black-Scholes option-pricing model and the following assumptions:
dividend yields of 1.4% in 1998 and 1.3% in 1999 and 2000; expected
volatility of 30% in 1998, 31% in 1999, and 35% in 2000; risk-free interest
rates of 4.5% in 1998, 5.9% in 1999, and 5.6% in 2000; and expected lives of
4.4 years in 1998, 4.7 years in 1999, and 4.8 years in 2000. Had
compensation costs been determined including these fair value estimates, pro
forma net income would be $161,723,000 in 1998, $219,185,000 in 1999, and
$248,040,000 in 2000. Pro forma basic earnings per share would be $1.36 in
1998, $1.82 in 1999, and $2.05 in 2000. Pro forma diluted earnings per share
would be $1.25 in 1998, $1.70 in 1999, and $1.92 in 2000.
37
NOTE 7 - INFORMATION ABOUT REVENUES AND SERVICES.
Revenues (in thousands) from advisory services provided under agreements with
sponsored mutual funds and other investment clients include:
1998 1999 2000
________ ________ ________
Sponsored mutual funds
Stock and blended
Domestic $296,389 $358,226 $427,693
International 115,914 121,294 142,440
Bond and money market 92,360 97,931 93,020
________ ________ ________
504,663 577,451 663,153
Other portfolios 179,633 224,128 253,205
________ ________ ________
Total investment advisory fees $684,296 $801,579 $916,358
________ ________ ________
________ ________ ________
The following table summarizes the various investment portfolios and assets
under management (in billions) on which advisory fees are earned.
Average during December 31,
________________________ _______________
1998 1999 2000 1999 2000
______ ______ ______ ______ ______
Sponsored mutual funds
Stock and blended
Domestic $ 50.9 $ 61.6 $ 72.5 $ 71.2 $ 68.0
International 16.3 17.0 19.7 21.4 16.3
Bond and money market 20.8 22.2 21.7 21.9 22.0
______ ______ ______ ______ ______
88.0 100.8 113.9 114.5 106.3
Other portfolios 48.6 56.7 63.7 65.4 60.4
______ ______ ______ ______ ______
$136.6 $157.5 $177.6 $179.9 $166.7
______ ______ ______ ______ ______
______ ______ ______ ______ ______
Fees for advisory-related administrative services provided to the funds were
$127,243,000 in 1998, $147,224,000 in 1999, and $178,226,000 in 2000.
Accounts receivable from the funds aggregate $68,390,000 and $70,537,000 at
December 31, 1999 and 2000, respectively. All services to the sponsored
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 8 - DEBT.
In April 1999, we borrowed 1,809,500,000 yen ($15,019,000) from a bank under
a promissory note due in installments of 180,950,000 yen in 2002 and 2003 and
1,447,600,000 yen in 2004. Interest is due quarterly at LIBOR for yen
borrowings plus .95% and is fixed until April 2001 at 1.42%. Foreign
currency transaction losses of $2,706,000 in 1999 and gains of $1,894,000 in
2000 arising from this borrowing are included in investment and other income.
To partially finance the acquisition of the Rowe Price-Fleming shares, we
borrowed $300,000,000 in August 2000 under a $500,000,000 five-year
syndicated bank credit facility for which The Chase Manhattan Bank serves as
administrative agent. In November 2000, we made a $5,000,000 principal
38
payment and reduced our borrowing to $295,000,000. Debt acquisition costs of
$1,586,000 are included in other assets and are being amortized over five
years. Interest on the debt floats at .35% over the Eurodollar base rate and
was 7.1% at the end of 2000. On January 8, 2001, the borrowing rate was
reset at 6.4% for one month. We also have a complementary $100,000,000 364-
day syndicated bank credit facility under which there have been no
borrowings. We pay annual commitment fees for our credit facilities of
$862,000.
At December 31, 2000, we are in compliance with covenants contained in our
credit agreements. Total interest expense on our outstanding debt, including
amortization of debt issuance costs and credit facility commitment fees, was
$9,512,000 in 2000.
NOTE 9 - OTHER DISCLOSURES.
We occupy certain office facilities and rent computer and other equipment
under noncancelable operating leases. Related rental expense was $25,953,000
in 1998, $31,888,000 in 1999, and $30,752,000 in 2000. Future minimum rental
payments under these leases aggregate $19,058,000 in 2001, $14,554,000 in
2002, $13,103,000 in 2003, $12,536,000 in 2004, $12,552,000 in 2005 and
$67,303,000 in later years.
At December 31, 2000, we had outstanding commitments to fund additional
investments totaling $1,032,000.
Our consolidated stockholders' equity at December 31, 2000 includes
$52,123,000 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 two defined contribution retirement plans in the United
States was $17,852,000 in 1998, $20,835,000 in 1999, and $22,263,000 in 2000.
39
NOTE 10 - SUPPLEMENTARY QUARTERLY FINANCIAL DATA (Unaudited).
Basic Diluted
earnings earnings
Net per per
Revenues income share share
________ _______ ________ ________
(in thousands)
1999
___________
1st quarter $245,826 $53,413 $.44 $.41
2nd quarter 245,771 53,690 .44 .41
3rd quarter 259,929 62,221 .51 .48
4th quarter 284,853 70,080 .59 .55
2000
___________
1st quarter 316,331 75,034 .62 .58
2nd quarter 300,682 69,339 .57 .54
3rd quarter 303,704 69,183 .57 .53
4th quarter 291,610 55,473 .45 .43
40
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE. None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information required by this item regarding the identification of executive
officers and certain significant employees 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 2001
Annual Meeting of our stockholders and is incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
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 2001 Annual Meeting of our
stockholders and is incorporated by reference.
PART IV.
ITEM 14. 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 10.11 are
compensatory plans and arrangements.
2.01 Agreement and Plan of Exchange as of April 30, 2000 between
T. Rowe Price Associates, Inc. and T. Rowe Price Group, Inc.
(Incorporated by reference from Form 424B3; Accession No.
0001113169-00-000003.)
2.02 Form of Articles of Share Exchange between T. Rowe Price
Associates, Inc. and T. Rowe Price Group, Inc. which was
executed on December 14, 2000. (Incorporated by reference
from Form 424B3; Accession No. 0001113169-00-000003.)
2.03 Stock Purchase Agreement dated as of April 11, 2000 by and
between Robert Fleming Holdings Limited and its wholly owned
subsidiaries Jardine Fleming International Holdings Limited
and Copthall Overseas Limited, T. Rowe Price Associates,
Inc., and The Chase Manhattan Corporation. (Incorporated by
reference from Form 10-Q Report for the quarterly period
41
ended June 30, 2000; Accession No. 0000080255-00-000425.)
3(i) Amended and Restated Charter of T. Rowe Price Group, Inc. as
of March 9, 2001.
3(ii) By-Laws of T. Rowe Price Group, Inc. as of June 30, 2000.
(Incorporated by reference from Form 424B3; Accession No.
0001113169-00-000003.)
4.01 $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 each of
the T. Rowe Price mutual funds. (Incorporated by reference
from Form N-1A/A; Accession No. 0001046404-97-000008.)
10.02 Transfer Agency and Service Agreement dated as of January 1,
2000 between each of the T. Rowe Price mutual funds and T.
Rowe Price Services, Inc. (Incorporated by reference from
Form 485BPOS; Accession No. 0001012968-00-000024.)
10.03 Agreement dated January 1, 2000, as amended February 9, 2000,
between T. Rowe Price Retirement Plan Services, Inc. and each
of the T. Rowe Price taxable mutual funds. (Incorporated by
reference from Form 485BPOS; Accession No. 0001012968-00-
000024.)
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 485APOS;
Accession No. 0000775688-00-000003.)
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 1990 Stock Incentive Plan. (Incorporated by reference from
Form S-8 Registration Statement [File No. 33-37573].)
10.07 1993 Stock Incentive Plan. (Incorporated by reference from
Form S-8 Registration Statement [File No. 33-72568].)
10.08 1995 Director Stock Option Plan. (Incorporated by reference
from Form DEF 14A; Accession No. 0000933259-95-000009.)
42
10.09 1996 Stock Incentive Plan. (Incorporated by reference from
Form DEF 14A; Accession No. 0001006199-96-000031.)
10.10 1998 Director Stock Option Plan. (Incorporated by reference
from Form DEF 14A; Accession No. 0000080255-98-000355.)
10.11 Executive Incentive Compensation Plan. (Incorporated by
reference from Form DEF 14A; Accession No. 0000933259-95-
000009.)
21 Subsidiaries of T. Rowe Price Group, Inc.
23 Consent of Independent Accountants,
PricewaterhouseCoopers LLP.
(b) Reports on Form 8-K: On December 29, 2000, we filed a report disclosing
the completion of our reorganization into a holding company structure
through a share exchange on December 28, 2000. (Form 8-K12G3; Accession
No. 0000950109-00-005100).
SIGNATURES.
Pursuant to the requirements of Section 13 or 15(d) 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 23,
2001.
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 23, 2001.
/s/ George A. Roche, Chairman and Director, President, and
Principal Financial Officer
/s/ James S. Riepe, Vice Chairman and Director
/s/ M. David Testa, Vice Chairman and Director
/s/ Edward C. Bernard, Director
/s/ James E. Halbkat, 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/ Robert L. Strickland, Director
/s/ Martin G. Wade, Director
/s/ Anne Marie Whittemore, Director
/s/ Joseph P. Croteau, Treasurer and Principal Accounting Officer