FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to______________
Commission File No. 1-9318
FRANKLIN RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-2670991
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
777 Mariners Island Blvd., San Mateo, CA 94404
(Address of Principal Executive Offices)
(Zip Code)
(415) 312-2000
(Registrant's telephone number, including area code)
---------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO ______
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES _____ NO ______
APPLICABLE ONLY TO CORPORATE ISSUERS:
Outstanding:126,079,301 shares, common stock, par value $.10 per share at April
30, 1997.
<PAGE>
PART I -FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
FRANKLIN RESOURCES, INC.
Consolidated Statements of Income
Unaudited
Three months Six months
ended ended
March 31 March 31
(In thousands, except per share 1997 1996 1997 1996
data)
- ---------------------------------------------------------------------------
Operating revenues:
Investment management fees $308,266 $215,916 $583,940 $418,144
Underwriting and
distribution fees 180,285 152,910 316,771 271,946
Shareholder servicing fees 28,797 22,051 53,625 42,847
Banking/finance, net and other 4,528 2,924 7,579 3,478
- ---------------------------------------------------------------------------
Total operating revenues 521,876 393,801 961,915 736,415
- ---------------------------------------------------------------------------
Operating expenses:
Underwriting and distribution 184,167 149,171 327,085 265,232
Employee related 106,783 81,726 206,354 158,588
General and administrative 54,439 39,396 100,429 69,588
Advertising and promotion 23,406 17,286 42,072 32,811
Amortization of intangible assets 9,057 4,530 16,402 9,371
- ---------------------------------------------------------------------------
Total operating expenses 377,852 292,109 692,342 535,590
- ---------------------------------------------------------------------------
Operating income 144,024 101,692 269,573 200,825
Other income/(expenses):
Investment and other income 6,087 9,989 25,695 20,654
Interest expense (5,756) (3,419) (13,929) (6,042)
- ---------------------------------------------------------------------------
Other income/(expenses), net 331 6,570 11,766 14,612
- ---------------------------------------------------------------------------
Income before taxes on income 144,355 108,262 281,339 215,437
Taxes on income 42,944 33,050 83,699 66,274
===========================================================================
Net income $101,411 $75,212 $197,640 $149,163
===========================================================================
Earnings per share:
Primary $0.80 $0.60 $1.56 $1.19
Fully diluted $0.80 $0.60 $1.56 $1.19
Dividends per share $0.08 $0.07 $0.16 $0.14
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
FRANKLIN RESOURCES, INC.
Consolidated Balance Sheets
Unaudited
As of As of
March 31 September 30
(In thousands) 1997 1996
- ---------------------------------------------------------------------------
ASSETS:
Current assets:
Cash and cash equivalents $286,388 $483,975
Receivables:
Fees from Franklin Templeton funds 169,092 133,453
Other 40,014 54,727
Investment securities, available for sale 192,641 174,156
Prepaid expenses and other 14,427 9,952
- ---------------------------------------------------------------------------
Total current assets 702,562 856,263
- ---------------------------------------------------------------------------
Banking/Finance assets:
Cash and cash equivalents 14,968 18,214
Loans receivable, net 317,378 345,399
Investment securities, available for sale 19,981 25,325
Other assets 3,689 4,660
- ---------------------------------------------------------------------------
Total banking/finance assets 356,016 393,598
- ---------------------------------------------------------------------------
Other assets:
Deferred sales commissions, net 42,228 24,316
Property and equipment, net 168,561 161,613
Intangible assets, net of $90,441 and $74,027
accumulated amortization, respectively 1,241,874 641,983
Receivable from banking/finance group 208,417 236,532
Other assets 71,040 59,862
- ---------------------------------------------------------------------------
Total other assets 1,732,120 1,124,306
- ---------------------------------------------------------------------------
Total assets $2,790,698 $2,374,167
===========================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
FRANKLIN RESOURCES, INC.
Consolidated Balance Sheets
Unaudited
As of As of
March 31 September 30
(Dollars in thousands) 1997 1996
- ---------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accrued employee related $81,625 $77,935
Commissions payable 37,670 28,067
Income taxes payable 33,425 27,673
Short-term debt 150,420 427
Other 48,606 48,099
- ---------------------------------------------------------------------------
Total current liabilities 351,746 182,201
- ---------------------------------------------------------------------------
Banking/finance liabilities:
Deposits of account holders:
Interest bearing 106,928 125,124
Non-interest bearing 6,673 6,095
Payable to parent 208,417 236,532
Other liabilities 1,802 1,725
- ---------------------------------------------------------------------------
Total banking/finance liabilities 323,820 369,476
- ---------------------------------------------------------------------------
Other Liabilities:
Long-term debt 443,492 399,462
Other liabilities 26,465 22,437
- ---------------------------------------------------------------------------
Total other liabilities 469,957 421,899
- ---------------------------------------------------------------------------
Total liabilities 1,145,523 973,576
- ---------------------------------------------------------------------------
Stockholders' equity:
Preferred stock, $1.00 par value,
1,000,000 shares authorized; none issued - -
Common stock, $.10 par value, 500,000,000 shares
authorized; 126,231,299 and
82,264,982 shares issued; 126,231,299 and
80,272,131 shares outstanding, respectively 12,623 8,226
Capital in excess of par value 91,344 101,226
Retained earnings 1,542,564 1,370,513
Less cost of treasury stock - (90,301)
Other (1,356) 10,927
- ---------------------------------------------------------------------------
Total stockholders' equity 1,645,175 1,400,591
- ---------------------------------------------------------------------------
Total liabilities and stockholders'
equity $2,790,698 $2,374,167
===========================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
FRANKLIN RESOURCES, INC.
Consolidated Statements of Cash Flows
Unaudited
Six months ended
March 31
(In thousands) 1997 1996
- ---------------------------------------------------------------------------
Net income $197,640 $149,163
Adjustments to reconcile net income to net cash provided by operating
activities:
Increase in receivables, prepaid expenses and
other current assets (39,322) (18,221)
Increase in deferred sales commissions, net (17,912) (15,748)
Increase in other current liabilities 4,572 30,285
Increase (decrease) in income taxes payable 5,752 (1,179)
Increase in commissions payable 9,603 5,493
Increase (decrease) in accrued employee related 29,411 (11,136)
Depreciation and amortization 29,837 19,839
Realized gains on disposition of investments and
other assets (10,662) (5,411)
- ---------------------------------------------------------------------------
Net cash provided by operating activities 208,919 153,085
- ---------------------------------------------------------------------------
Purchase of investments (57,694) (41,919)
Liquidation of investments 45,249 35,852
Purchase of banking/finance investments (8,072) (36,850)
Liquidation of banking/finance investments 13,416 33,929
Originations of banking/finance loans receivable (53,920) (21,382)
Collections of banking/finance loans receivable 84,862 77,239
Purchase of property and equipment (18,863) (19,985)
Acquisition of assets and liabilities of Heine
Securities Corporation (550,717) -
- ---------------------------------------------------------------------------
Net cash provided by (used in) investing
activities (545,739) 26,884
- ---------------------------------------------------------------------------
Decrease in bank deposits (17,618) (20,168)
Exercise of common stock options 2,280 1,009
Dividends paid on common stock (18,944) (16,973)
Purchase of treasury stock (7,945) (50,682)
Issuance of debt 371,081 65,440
Payments on debt (101,182) (82,712)
Purchase of option rights from subordinated
debenture holders (91,685) -
- ---------------------------------------------------------------------------
Net cash provided by (used in) financing
activities 135,987 (104,086)
- ---------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents (200,833) 75,883
Cash and cash equivalents, beginning of the
period 502,189 261,699
- ---------------------------------------------------------------------------
Cash and cash equivalents, end of the period $301,356 $337,582
===========================================================================
Supplemental disclosure of non-cash information:
Value of stock issued for Heine acquisition $65,588 -
Value of stock issued for redemption of
debentures $75,015 -
Value of common stock issued in other
transactions $30,848 $18,040
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
FRANKLIN RESOURCES, INC.
Notes to Consolidated Financial Statements
March 31, 1997
(Unaudited)
1. Basis of Presentation
The unaudited interim consolidated financial statements of Franklin Resources,
Inc. (the "Company") included herein have been prepared in accordance with the
instructions to Form 10-Q pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. In the opinion of management, all appropriate adjustments
necessary to a fair presentation of the results of operations have been made for
the periods shown. All adjustments are of a normal recurring nature. Certain
prior year amounts have been reclassified to conform to current year
presentation. The number of shares used for purposes of calculating earnings per
share and all per share data have been adjusted for all periods presented to
reflect a three-for-two stock dividend paid on January 15, 1997. Stockholders'
equity as of September 30, 1996 has not been restated. These financial
statements should be read in conjunction with the Company's audited financial
statements for the year ended September 30, 1996.
2. Debt
During October 1996, the Company issued $270.8 million in commercial paper as
part of the Heine transaction (see Note 3. "Acquisition" below).
During December 1996, the holders of the option rights related to the Company's
$150 million of subordinated debentures exercised their rights to receive
approximately 2.4 million shares of the Company's common stock in return for
approximately $75 million of the subordinated debentures. In addition, the
Company purchased the remaining $75 million of subordinated debentures and
associated option rights, representing approximately 2.4 million shares, from
the holders for approximately $165.8 million plus accrued interest. This
transaction was financed in part through the issuance of $100 million in
medium-term notes, maturing in years 1998 through 1999 with coupon rates ranging
from 6.02% to 6.19%. No material gain or loss was recognized on this
transaction.
At March 31, 1997, the Company had interest rate swap agreements, maturing in
years 1998 through 2000, which effectively fixed interest rates on $295.0
million of commercial paper. The fixed rates of interest ranged from 6.24% to
6.65%. These financial instruments are placed with major financial institutions.
The creditworthiness of the counterparties is subject to continuous review and
full performance is anticipated. At March 31, 1997, any potential loss from
failure of the counterparties to perform is deemed to be immaterial. As of March
31, 1997, the weighted average effective interest rate, including the effect of
interest-rate swap agreements, was 6.18% on approximately $595.0 million of
outstanding commercial paper and medium-term notes. Through its interest rate
swap agreements and its medium-term note program, the Company has fixed the
rates of interest it pays on $515 million of its outstanding debt.
3. Acquisition
On November 1, 1996, the Company acquired the assets and liabilities of Heine
Securities Corporation ("Heine"), the former investment advisor to Mutual Series
Fund, Inc. and other funds and private accounts ("Mutual"). One of the Company's
subsidiaries, Franklin Mutual Advisers, Inc. ("FMAI"), now serves as the
investment adviser to Mutual. This transaction (the "Acquisition") had an
aggregate value of approximately $616 million. Heine received $550 million in
cash and 1.1 million pre-split shares of the Company's common stock which may
not be sold for two years and which are subject to other restrictions. The
Acquisition has been accounted for using the purchase method of accounting.
Intangibles purchased in the Acquisition, principally management contracts, are
being amortized over approximately 34 years.
4. Statement of Financial Accounting Standards No. 128, "Earnings per
Share"
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share." The Statement
specifies the computation, presentation and disclosure requirements for earnings
per share for entities with publicly held common stock. In summary, the
Statement will require the Company to change its presentation of earnings per
share from primary and fully diluted to basic and diluted for its fiscal year
ending September 30, 1998. At that time, all prior period earnings per share
data will be restated. The impact on reported earnings per share is not expected
to be material as the Company's common stock equivalents are not currently
material.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL
Franklin Resources, Inc. and its majority-owned subsidiaries (the "Company")
derives substantially all of its revenue and net income from providing
investment management and administration, distribution and related services to
the Franklin Templeton Group's mutual funds, managed accounts and other
investment products. The Company's revenues are derived largely from the amount
and composition of assets under management. The Company has a diversified base
of assets under management and a full range of investment management products
and services to meet the needs of a variety of individuals and institutions.
I. Material Changes in Results of Operations
Results of operations
Three months ended Six months ended
March 31 March 31
% %
(In millions) 1997 1996 Change 1997 1996 Change
- --------------------------------------------------------------
Net income $101.4 $75.2 35% $197.6 $149.2 32%
Earnings per
share:
Primary $.80 $.60 33% $1.56 $1.19 31%
Fully-diluted $.80 $.60 33% $1.56 $1.19 31%
Operating margin 28% 26% 28% 27%
- --------------------------------------------------------------
Net income for the quarter and six months ended March 31, 1997 increased as
compared to the same periods in 1996 principally due to an increase in
investment management fees as a result of increased average assets under
management. Previously reported earnings per share have been restated for the
three- and six-month periods to reflect the three-for-two stock dividend paid on
January 15, 1997.
Operating revenues will continue to be dependent upon the amount and composition
of assets under management, mutual fund sales, and the number of mutual fund
investors and institutional clients. Operating expenses are expected to increase
with the Company's ongoing expansion, the increase in competition and the
Company's commitment to constantly improve its products and services.
The contributions to the Company's operating profit from its non-U.S. operations
increased for the quarter and six months ended March 31, 1997, principally as a
result of increased fee revenues from investment management services provided by
its foreign subsidiaries. This trend will continue to be dependent on the amount
and composition of assets managed by the Company's non-U.S. subsidiaries. There
have been no significant changes to the Company's limited exposure to
fluctuations in global currency markets.
Assets under management
As of March 31 %
(In billions) 1997 1996 Change
- ----------------------------------------------------------------------
Franklin Templeton Group:
Fixed-income funds:
Tax-free $43.1 $41.5 4%
U.S. government fixed-income
(primarily GNMA's) 15.2 15.8 (4%)
Taxable and tax-free money
funds 3.2 3.0 7%
Global/international
fixed-income 2.9 2.8 4%
- ----------------------------------------------------------------------
Total fixed-income funds 64.4 63.1 2%
- ----------------------------------------------------------------------
Equity/income funds:
Global/international equity 58.0 41.3 40%
U.S. equity/income 41.7 17.9 136%
- ----------------------------------------------------------------------
Total equity/income funds 99.7 59.2 68%
- ----------------------------------------------------------------------
Total Franklin Templeton fund
assets 164.1 122.3 34%
Franklin Templeton institutional
assets 25.8 19.1 35%
- ----------------------------------------------------------------------
Total Franklin Templeton Group $189.9 $141.4 34%
======================================================================
Changes in assets under management
Three months ended Six months ended
March 31 March 31
% %
(In billions) 1997 1996 Change 1997 1996 Change
- --------------------------------------------------------------------------------
Assets under management -
beginning 180.9 $135.1 34% $151.5 $130.8 16%
Mutual acquisition - - - 18.6 - -
Sales & reinvestments, net of
underwriting commissions 14.1 9.9 42% 25.8 17.3 49%
Redemptions (7.6) (5.1) 49% (16.1) (10.1) 59%
Market appreciation 2.5 1.5 67% 10.1 3.4 197%
- --------------------------------------------------------------------------------
Assets under management -
ending $189.9 $141.4 34% $189.9 $141.4 34%
================================================================================
Monthly average assets under
management $186.8 $139.1 34% $176.5 $135.6 30%
===============================================================================
The Company's assets under management were $189.9 billion at March 31, 1997,
which included $21.8 billion in Mutual assets, an increase of $38.4 billion
(25%) from September 30, 1996 and an increase of $48.5 billion (34%) from March
31, 1996. These increases were the result of net sales, market appreciation and
the Acquisition.
Fixed income funds represented 34% of total assets under management as of March
31, 1997, down from 45% a year ago primarily as a result of the impact of the
Mutual assets on the Company's product mix.
Equity/income funds grew to 53% of total assets under management as of March 31,
1997, up from 42% a year ago. This increase was primarily the result of the
addition of $21.6 billion of Mutual assets under management to the Company's
equity/income product mix. However, U.S. equity/income funds, excluding Mutual
assets, increased 16% from levels a year ago due to net sales and to market
appreciation. Global/international equity funds' assets under management
increased 39% from levels a year ago.
Institutional assets, comprised predominately of global/international equity
portfolios, represented 14% of total assets under management as of March 31,
1997, the same percentage as a year ago, even though they increased 35% from
levels a year ago. The Company remains strongly committed to the institutional
asset market and intends to continue to expand the services it provides in this
area.
Operating revenue
Three months ended Six months ended
March 31 March 31
% %
(In millions) 1997 1996 Change 1997 1996 Change
- -----------------------------------------------------------------------------
Investment management fees $308.3 $215.9 43% $583.9 $418.1 40%
Underwriting and
distribution fees 180.3 152.9 18% 316.8 271.9 17%
Shareholder servicing fees 28.8 22.1 30% 53.6 42.8 25%
Banking/finance, net and
other 4.5 2.9 55% 7.6 3.5 117%
=============================================================================
Total operating revenues $521.9 $393.8 33% $961.9 $736.4 31%
=============================================================================
The Company's revenues from investment management fees are derived primarily
from contractual fixed-fee arrangements that are based upon the level of assets
under management of open-end and closed-end investment companies and managed
accounts. Under various investment management agreements, annual rates vary and
generally decline as the average net assets of the portfolios exceed certain
threshold levels. Investment management services provided to Franklin Templeton
Group are reviewed and approved annually by each fund's Board of
Directors/Trustees. There have been no significant changes in the management fee
structures for the Franklin Templeton Group in the period under review.
Investment management fees increased primarily as a result of a 34% and 30%
increase in monthly average assets under management and a shift in the
composition of average assets under management to higher fee equity and income
funds for the three- and six-month periods ended March 31, 1997.
Revenues from underwriting commissions are earned primarily from fund sales.
Most sales of Franklin Templeton funds include a sales commission, of which a
significant portion is reallowed to selling intermediaries. Certain subsidiaries
of the Company act as distributors for its sponsored mutual funds and receive
distribution fees, including 12b-1 fees, from those funds in reimbursement for
distribution expenses incurred up to a maximum allowed by each fund. A
significant portion of distribution fees are reallowed to selling
intermediaries. Distribution fees are typically based on levels of assets under
management.
Underwriting and distribution fees increased 18% and 17% over the same periods
in the previous fiscal year primarily as a result of increased retail mutual
fund sales partially offset by a decrease in effective commission rates.
Effective commission rates declined as relative sales of products with lower
commission rates such as Class II shares and annuity products increased.
Shareholder servicing fees are generally fixed charges per account which vary
with the particular type of fund and the service being rendered. Shareholder
servicing fees increased primarily as a result of an increase in Franklin
Templeton retail fund shareholder accounts to 6.1 million, or 17%, from 5.2
million a year ago. The increase in shareholder servicing fees was also due to
an increase in the average annual shareholder servicing fees of approximately
$3.20 per account, for approximately 122 of the Company's U.S. mutual funds,
consisting of approximately 4.9 million shareholder accounts effective in the
second quarter of fiscal year 1997.
Banking/finance, net and other
Three months ended Six months ended
March 31 March 31
% %
(In millions) 1997 1996 Change 1997 1996 Change
- -----------------------------------------------------------------------------
Revenues $9.6 $12.2 (21%) $19.8 $25.1 (21%)
Provision for loan losses .2 (3.0) (107%) (1.1) (8.3) (87%)
Interest expense (5.3) (6.3) (16%) (11.1) (13.3) (17%)
=============================================================================
Banking/finance, net
and other $4.5 $2.9 55% $7.6 $3.5 117%
=============================================================================
Compared to the corresponding periods in the prior year, banking/finance, net
and other revenues increased principally due to decreases in the provision for
loan losses. For the three- and six-month periods ended March 31, 1997,
charge-offs decreased $2.5 million, or 45%, and $5.1 million, or 46%, compared
to the same periods a year ago. Delinquencies decreased $11 million, or 50% from
levels of a year ago. Revenues decreased principally due to a 17% decrease in
average loans outstanding during the periods under review as a result of net
paydowns of dealer auto loans. Interest expense decreased in the six-month
period due to a $17.7 million reduction in the borrowing requirements of the
banking/finance group.
Operating expenses
Three months ended Six months ended
March 31 March 31
% %
(In millions) 1997 1996 Change 1997 1996 Change
- -----------------------------------------------------------------------------
Underwriting and
distribution $184.2 $149.2 23% $327.1 $265.2 23%
Employee related 106.8 81.7 31% 206.4 158.6 30%
General and administrative 54.4 39.4 38% 100.4 69.6 44%
Advertising and promotion 23.4 17.3 35% 42.1 32.8 28%
Amortization of intangibles 9.1 4.5 102% 16.4 9.4 74%
=============================================================================
Total operating expenses $377.9 $292.1 29% $692.3 $535.6 29%
=============================================================================
Increases in operating expenses principally resulted from the general expansion
of the Company's business and the Acquisition.
Underwriting and distribution expenses includes sales commissions and
distribution fees paid to brokers and other third party intermediaries.
Generally distribution expenses increased at a greater rate than distribution
revenues because of the relatively higher growth in the sales of Class II shares
and similar products sold primarily by the Company's Canadian subsidiary.
While Class II shares will increase distribution expenses of the Company and
will utilize the Company's capital resources over the short term, the Company
believes that Class II shares will result in an overall increase in assets under
management by expanding distribution of fund shares. Sales of Class II shares
represented approximately 16% and 12% of open end U.S. mutual funds sales for
both the three- and six-month periods ended March 31, 1997 and 1996,
respectively.
Employee related costs increased 31% and 30% for the three- and six-month
periods ended March 31, 1997 over the same periods in 1996 as a result of a 15%
increase in the number of employees, increases in the Company's incentive
compensation related to the Company's increased earnings and additional employee
related costs associated with the Acquisition.
General and administrative expenses increased during the periods due to higher
technology and facilities costs related to the expansion of the Company's
business.
Advertising and promotion expenses increased during the comparative three- and
six-month periods mainly due to marketing and promotional efforts related to the
Mutual Series funds.
Amortization of intangibles increased as a result of approximately $615 million
of additional intangibles related to the Acquisition.
Other income/(expenses)
Three months ended Six months ended
March 31 March 31
% %
(In millions) 1997 1996 Change 1997 1996 Change
- -----------------------------------------------------------------------------
Investment and other income $6.1 $10.0 (39%) $25.7 $20.7 24%
Interest expense (5.8) (3.4) 71% (13.9) (6.0) 132%
=============================================================================
Other
income/(expenses), net $.3 $6.6 (95%) $11.8 $14.6 (19%)
=============================================================================
The decrease in investment income for the three months ended March 31, 1997 as
compared to the same period in 1996 was primarily due to a decrease in dividend
income as a result of the sale of a portion of the Company's investment
portfolio which was used to fund portions of the Acquisition. The increase in
investment income for the six-month period ended March 31, 1997, as compared to
the same period in 1996, resulted from realized gains from the sale of those
same investment securities
Interest expense increased for the three- and six-month periods primarily due to
a $194.6 million increase in commercial paper and a $100.0 million increase in
medium-term notes outstanding, partially offset by a $150.0 million reduction in
subordinated debentures. The Company's overall weighted average effective
interest rate at March 31, 1997, including the effect of interest-rate swap
agreements, was 6.18% on $595.0 million of outstanding commercial paper and
medium-term notes as compared to 6.33% on $450.5 million of debt outstanding at
March 31, 1996.
In the periods under review, the effective tax rate decreased slightly to 30% of
pretax income. The effective tax rate will continue to be reflective of the
relative contributions of foreign earnings which are subject to reduced tax
rates and are not currently includable in U.S. taxable income.
II. Material Changes in Financial Condition, Liquidity and Capital
Resources
As of March 31, 1997, stockholders' equity increased to approximately $1.6
billion compared to approximately $1.4 billion at September 30, 1996,
principally as a result of increased net income and the issuance of 1.1 million
pre-split shares in connection with the Acquisition. Cash provided by operating
activities for the six months ended March 31, 1997 increased $55.8 million from
$153.1 million for the six months ended March 31, 1996 also as a result of
increased net income. During the six-month period ended March 31, 1997, the
Company used net cash of $545.7 million for investing activities primarily for
the Acquisition. Net cash provided by financing activities during the period was
$136.0 million primarily as a result of the issuance of $371.1 million in
medium-term notes and commercial paper, which was partially offset by payment on
debt of $101.2 million and the purchase of option rights related to the
subordinated debentures of $91.7 million. During the period the Company paid
$18.9 million in dividends to stockholders and purchased one hundred thousand
shares of its common stock for $7.9 million. As of March 31, 1997, the Company
had 5.6 million shares remaining under its authorized repurchase program. The
Company will continue from time to time to purchase its own shares in the open
market and in private transactions for use in connection with various corporate
employee incentive programs and when it believes the market price of its shares
merits such action.
At March 31, 1997, the Company held liquid assets of $723.1 million, including
$301.4 million in cash and cash equivalents as compared to $889.9 million and
$502.2 million, respectively, at September 30, 1996. The Company maintains a
$400 million commercial paper program and a $500 million medium-term note
program. The Company has also established two revolving credit and competitive
auction facilities as back-up for the commercial paper program. At March 31,
1997, total back-up credit facilities were $400 million of which, $150 million
was under a 364-day revolving credit facility. The remaining $250 million
back-up facility has a five-year term. At March 31, 1997, approximately $400
million was available to the Company under unused credit facilities
Management expects that the principal needs for cash will be to fund increased
property and equipment acquisitions, pay shareholder dividends, repurchase
shares of the Company's common stock and repay debt and advance sales
commissions for Class II shares and Canadian products. Management believes that
the Company's existing liquid assets, together with the expected continuing cash
flow from operations, its ability to issue stock, and its borrowing capacity
under current credit facilities, will be sufficient to meet its present and
reasonably foreseeable cash needs.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed as part of the report:
Exhibit 3(i)(a) Registrant's Certificate of Incorporation, as filed
November 28, 1969, incorporated by reference to Exhibit (3)(i) to
the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994 (the
"1994 Annual Report")
Exhibit 3(i)(b) Registrant's Certificate of Amendment of Certificate of
Incorporation, as filed March 1, 1985, incorporated by reference
to Exhibit (3)(ii) to the 1994 Annual Report
Exhibit 3(i)(c) Registrant's Certificate of Amendment of Certificate of
Incorporation, as filed April 1, 1987, incorporated by reference
to Exhibit (3)(iii) to the 1994 Annual Report
Exhibit 3(i)(d) Registrant's Certificate of Amendment of Certificate of
Incorporation, as filed February 2, 1994, incorporated by
reference to Exhibit (3)(iv) to the 1994 Annual Report
Exhibit (3)(ii) Registrant's By-Laws are incorporated by reference to
Exhibit 3(v) to Registrant's Form 10-Q for the Quarterly Period
ended December 31, 1994.
Exhibit 11 Computations of per share earnings
Exhibit 12 Computations of ratios of earnings to fixed charges
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K:
(i) Form 8-K dated April 24, 1997 reporting under Item 5 "Other
Events" the filing of an earnings press release by the Registrant
on April 23, 1997 and including said press release as an Exhibit
under Item 7 "Financial Statements and Exhibits".
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FRANKLIN RESOURCES, INC.
Registrant
Date: May 14, 1997 /S/ Martin L. Flanagan
MARTIN L. FLANAGAN
Senior Vice President,
Treasurer and Chief
Financial Officer
<PAGE>
INDEX TO EXHIBITS
Exhibit
Exhibit 3(i)(a) Registrant's Certificate of Incorporation, as filed
November 28, 1969, incorporated by reference to Exhibit (3)(i) to
the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994 (the "1994 Annual Report")
Exhibit 3(i)(b) Registrant's Certificate of Amendment of Certificate of
Incorporation, as filed March 1, 1985, incorporated by reference
to Exhibit (3)(ii) to the 1994 Annual Report
Exhibit 3(i)(c) Registrant's Certificate of Amendment of Certificate of
Incorporation, as filed April 1, 1987, incorporated by reference
to Exhibit (3)(iii) to the 1994 Annual Report
Exhibit 3(i)(d) Registrant's Certificate of Amendment of Certificate of
Incorporation, as filed February 2, 1994, incorporated by
reference to Exhibit (3)(iv) to the 1994 Annual Report
Exhibit (3)(ii) Registrant's By-Laws are incorporated by reference to
Exhibit 3(v) to Registrant's Form 10-Q for the Quarterly Period
ended December 31, 1994.
Exhibit 11 Computations of per share earnings
Exhibit 12 Computations of ratios of earnings to fixed charges.
Exhibit 27 Financial Data Schedule
<PAGE>
Exhibit 11
COMPUTATIONS OF PER SHARE EARNINGS
Earnings per share are based on net income divided by the average number of
shares outstanding including common stock equivalents during the period. The
number of shares used for purposes of calculating earnings per share and all per
share data have been adjusted for all periods presented to reflect a
three-for-two stock dividend paid on January 15, 1997.
Three months ended Six months ended
March 31 March 31
Restated Restated
(Dollars and shares in 1997 1996 1997 1996
thousands)
- ------------------------------------------------------------------------
Average outstanding shares 126,137 120,517 125,804 120,876
Common stock equivalents:
Primary 350 3,860 544 3,952
Fully diluted 370 4,081 569 4,073
Total shares:
Primary 126,487 124,377 126,348 124,828
Fully diluted 126,507 124,598 126,373 124,949
Net income $101,411 $75,212 $197,640 $149,163
Earnings per share:
Primary $.80 $.60 $1.56 $1.19
Fully diluted $.80 $.60 $1.56 $1.19
<PAGE>
Exhibit 12
COMPUTATIONS OF EARNINGS TO FIXED CHARGES
Three months ended Six months ended
March 31 March 31
(Dollars in thousands) 1997 1996 1997 1996
- ----------------------------------------------------------------------------
Income before taxes $144,355 $108,262 $281,339 $215,437
Add fixed charges:
Interest 9,448 7,537 21,617 14,902
Interest factor on rent 2,337 2,063 4,429 3,950
- ----------------------------------------------------------------------------
Total fixed charges 11,785 9,600 26,046 18,852
- ----------------------------------------------------------------------------
Earnings before fixed charges
and taxes on income $156,140 $117,862 $307,385 $234,289
============================================================================
Ratio of earnings to fixed
charges 13.2 12.3 11.8 12.4
============================================================================
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REGISTRANT'S
FINANCIAL STATEMENTS FOR THE QUARTER ENDED MARCH 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 301,356
<SECURITIES> 192,641
<RECEIVABLES> 209,106
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 702,562
<PP&E> 168,561
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,790,698
<CURRENT-LIABILITIES> 351,746
<BONDS> 0
0
0
<COMMON> 12,623
<OTHER-SE> 1,632,552
<TOTAL-LIABILITY-AND-EQUITY> 2,790,698
<SALES> 0
<TOTAL-REVENUES> 961,915
<CGS> 0
<TOTAL-COSTS> 692,342
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,929
<INCOME-PRETAX> 281,339
<INCOME-TAX> 83,699
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 197,640
<EPS-PRIMARY> 1.56
<EPS-DILUTED> 1.56
</TABLE>
