Howdy, Fools! We're now on the back nine holes of earnings reporting season, which happens to be one of my favorite times of the year. I'm not sure why, but I get a lot of satisfaction when the companies in my portfolio turn in one excellent earnings report after another.

Of course, it's always a disappointment when one or two companies report less than stellar results, but since I define "disappointment" a little differently than most Wall Street analysts, I generally see positive developments in most every report. Because I focus on our key Rule Maker metrics rather than rabidly focusing on earnings per share (EPS), I don't usually consider it disappointing if the company comes up one or two pennies short of the consensus EPS estimate. By pretty much ignoring EPS and focusing on our Rule Maker checklist, we don't get spooked by the violent swings in investor perception and stock price that can come during this time of year.

Because most of the companies report only income statement related information in their press releases, we can't usually get all the information we need only from the earnings announcements. We'll usually be able to hit most of the information on our checklist, however, and then we can wait for the 10-Q to fill in the balance sheet and cash flow information.

Today, I'll review the earnings report you've all been waiting for -- T. Rowe Price (Nasdaq: TROW).

T. Rowe's management has been unusually noisy this quarter. The company has, after all, put out TWO whole press releases this month. And that was after TWO press releases last month. One of the release's headlines was titled, "Several T. Rowe Price Stock Funds Set Performance Records in '99, But Managers Say Investors Should Lower Expectations for 2000." Maybe that's why I like this company so much -- talk about being unglamorous! The company has an incredible year, so what do they do? Put out a press release to caution investors.

The other press release was the standard quarterly earnings report. For any other company, these would be blowout numbers, but for T. Rowe, it's just all in a day's work. Even so, the Baltimore-based money management shop really outdid itself this quarter and, in fact, this entire fiscal year. Let's walk through the numbers.

T. Rowe announced fourth quarter sales of nearly $285 million, marking 21.3% growth versus the year-ago quarter. In addition, full-year 1999 sales revenue exceeded for the first time our magic $1 billion mark -- $1.036 billion to be precise -- an increase of 16.95% from 1998. This kind of sales growth is more than satisfactory when compared to our 10% annual sales growth target.

Assets under management (AUM), the crucial statistic for mutual fund companies, increased to $179.9 billion dollars as of December 31, 1999. That's a 21.7% increase when compared to last year's 147.8 billion. This number is for mutual funds what page views are for Internet content companies. If you can gather assets, you will be a winner in the money management game.

Moving down the income statement, T. Rowe doesn't break out cost of goods sold so there's no way to calculate its gross margin. (It's a little hard to determine your cost of goods sold when your product is a service.) As a substitute, I always check to make sure operating costs are rising more slowly than sales. In Q4, T. Rowe grew sales by over 21%, but operating expenses only rose 7.2%. For the full year, expenses rose by 8.4%. The company's tight control of expenses has allowed more cash to fall to the bottom-line, and therefore has had a wonderful effect on net margins.

Net margin jumped to 24.6% for the most recent quarter, an incredible improvement over last year's excellent 19.2% net margin. This means that T. Rowe now keeps more than 28% more of each dollar of revenues than they did at the same time just last year! For the entire year, T. Rowe turned in a net margin of 23.1% versus 19.7% in 1998. Fools, this is amazing margin improvement for such a large and established company in a mature industry, and easily blows past our 7% Rule Maker minimum.

Now, for the number all the Wall Street guys obsess over... T. Rowe cranked out Microsoft-like earnings growth, producing fourth quarter EPS growth of 57.1% compared to Q4 '98. For the full year, T. Rowe's results were simply awesome, generating 38.1% EPS growth compared to the 1998 fiscal year.

What else is there to admire? How about a reduction in outstanding shares? As the price of T. Rowe stock stubbornly refuses to keep pace with the business, management has wisely chosen to buy back shares, and has reduced the average sharecount by just over 1 million shares compared to last year at this time.

What was the market's reaction to all this good news? Well, the stock dropped from just over $42 to $36. With a price-to-earnings ratio under 20, no debt, and tremendous growth both in top-line sales and in bottom-line earnings, T. Rowe Price remains one of the most underrated companies I know of. That's why I'll be lobbying for an increase in our portfolio's investment in T. Rowe in the coming months!

More Rule Maker earnings... Pharmaceutical Rule Maker Schering-Plough (NYSE: SGP) reported earnings on Wednesday. Fool newsman Dave Marino-Nachison chronicled the report along with some insight regarding the company's ailing share price. Get the full scoop here: Schering-Plough Plows Ahead.

Finally, if filling out the ol' 1040 happens to be part of your weekend plans, you can find all the tax help you'll need in our Foolish Tax Area.

Fool on!

-Zeke

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