SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 14, 1999
(September 30, 1999)
FRANKLIN RESOURCES, INC.
(Exact name of registrant as specified in its charter)
....DELAWARE....................1-9318.......13-2670991...
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
777 MARINERS ISLAND BLVD., SAN MATEO, CALIFORNIA....... 94404...
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code. (650) 312-3000
_________________________________________________
(Former name or former address, if changed since last report)
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Item 5. Other Events
Registrant is filing a Form 8-K in order to update its progress on its Year 2000
compliance plans. By this filing, Registrant is not establishing the practice of
filing further updates on Form 8-K in connection with its Year 2000 compliance
plan.
Year 2000 Readiness Disclosure
Forward-Looking Statements.
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When used in this Form 8-K and in future filings by Franklin Resources, Inc. and
subsidiaries (collectively, the "Company") with the SEC, in the Company's press
releases and in oral statements made with the approval of an authorized
executive officer, the words or phrases "will be", "are expected to", "will
continue", "is anticipated", "estimate", "project" or similar expressions are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements regarding the Year
2000 problem also include estimated timetables for completion of the phases of
the Company's Year 2000 plan; projections of project costs regarding the Year
2000 plan; statements regarding the possible effects of the Year 2000 problem on
the Company's business and that of third parties with whom the Company does
business; and contingency and liquidity plans of the Company. Such statements
are subject to certain risks and uncertainties, including those discussed under
the caption "Specific Risks Associated with the Year 2000" below, that could
cause actual results to differ materially from historical earnings and those
presently anticipated or projected. The Company cautions readers not to place
undue reliance on any such forward-looking statements, which speak only as of
the date made.
Year 2000.
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Because the Year 2000 project is an ongoing Company-wide endeavor, the state of
the Company's progress changes daily. Information contained in this filing is
provided as of the dates stated below.
As of September 30, 1999, all of the Company's mission-critical systems were
certified as Year 2000 compliant and were operating in production. On October 4,
1999, the Company also completed certification of all non-mission critical
systems that are maintained by the Company's Information Systems & Technology
("IS&T") department. All of these non-mission critical systems are now operating
in production except one, which the Company anticipates putting into production
shortly. Certified systems operating in production now include all of the
Company's mission-critical securities trading systems, portfolio accounting
systems, customer service systems, general ledger systems, international and
domestic transfer agency systems, and sales and marketing systems.
The Company will now focus its efforts on updating its verification of
third-party readiness and completing the contingency planning process, including
detailed year-end cross-over plans, and additional integrated testing of certain
systems.
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The Company's Year 2000 compliance plan is comprised of four phases: Assessment,
Remediation, Testing and Implementation. When testing a system, the Company
considers it to be Year 2000 compliant when it has passed a number of prescribed
tests either (a) established by the Company and/or the vendor of the system, (b)
viewed as the industry standard, or (c) suggested by regulators. For certain
third-party systems that cannot be tested by the Company, depending upon the
importance of the system to the Company's operations, the Company may rely upon
vendor representations, the results of point-to-point testing, or test scripts
supplied by the vendor. However, no testing can guarantee that a system which
has been certified as Year 2000 compliant will not have difficulties associated
with the Year 2000.
Assessment: systems are inventoried, budgets and strategies are created
to address identified problems.
Remediation: software corrections, upgrades and other fixes are
made; questionnaires requesting Year 2000 compliance
assurances are sent to vendors and, in some cases, test
scripts are requested.
Testing: internal systems are tested on a stand-alone
basis; point-to-point testing is conducted for some
systems, and the system is certified as Year 2000 compliant.
Implementation: systems that have been identified as being Year 2000
compliant are put into normal business operation;
end-user training is conducted.
The Company's Year 2000 plan prioritized the Year 2000 certification of
mission-critical systems over other systems. The percentages below are provided
as of September 30, 1999.
Phase of % of Mission-Critical
Project Systems Complete
------------------------------------------
Assessment 100%
Remediation 100%
Testing 100%
Implementation 100%
The non-mission critical systems of the Company are either maintained by the
Company's IS&T department or are maintained by internal business users (end-user
maintained systems). IS&T-maintained systems were given high priority due to
their relative importance while end-user maintained systems were given lower
priorities. The percentages below include only IS&T-maintained systems, and are
provided as of October 4, 1999.
Phase of % of Non-Mission Critical
Project IS&T-Maintained Systems Complete
---------------------------------------------------
Assessment 100%
Remediation 100%
Testing 100%
Implementation 99%
In 1999, the Company successfully participated in several nationwide,
industry-wide tests: the Securities Industry Association's "Street Wide Testing"
held over five weekends in March and April; testing of major real-time market
data services in May; and six days of testing interfaces with major
broker/dealers in July. These tests included simulated Year 2000 securities
transactions and market data feeds, and involved the major North American
securities exchanges, securities clearing organizations, news services, market
data services, major banks, brokerages and investment advisory and investment
management companies in the United States. The Company may take part in
additional industry-wide and point-to-point testing when available and
appropriate.
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Third Parties and Year 2000. The Company's business operations are heavily
dependent upon a complex worldwide network of information technology ("IT")
systems that are owned and managed in whole or in part by third parties,
including some of the Company's mission-critical systems. These third-party
systems include data feeds, trading systems, securities transfer agent
operations and stock market links. The Company has contacted all of its major
external suppliers of goods and services to assess their compliance efforts and
the Company's exposure in the event of a failure of third-party compliance
efforts. In the process of certifying its systems, the Company has received
responses from certain system suppliers and in some cases has obtained
additional information, written assurances of certification, or test scripts. In
addition, certain of these third parties assisted the Company with modifying and
testing the Company's systems, and participated in Street Wide Testing with the
Company and with one another. To date, no major third-party supplier has
informed the Company that it would not be Year 2000 compliant or Year 2000 ready
by the millennium date, nor has the Company's testing with third parties
revealed any significant non-compliance issues. Such communication with third
parties will continue as the Company proceeds with its Year 2000 project, and
into the Year 2000 to monitor system functions.
Cost Estimates. The total estimated costs through March 2000 associated with the
Year 2000 project are expected to be between $50 million and $60 million,
including an unallocated amount for unanticipated costs. These estimated costs
consist mainly of internal and third-party labor costs which are expensed as
incurred. The total amount expended on the project through September 30, 1999
was approximately $42.5 million. The Company's estimate of the total costs to
complete the Year 2000 project will continue to be refined in future periods.
Further costs are expected to be incurred before March 2000 to develop and test
contingency plans, independent rapid code inspection and code analysis, test
lab activities and staffing, and event logistics and management for the actual
millennium rollover. The Company believes that its existing liquid assets,
together with expected cash flow from operations, combined with its borrowing
capacity under existing credit facilities will be sufficient to fund anticipated
expenditures.
Contingency Planning. Extensive preparation efforts cannot guarantee a total
absence of Year 2000 problems. Therefore, the Company continues to develop,
exercise, and integrate comprehensive worldwide contingency plans. As of the
date of this filing, 100% of the Company's worldwide contingency plans had been
formulated and tested, with the exception of testing the Company's Canadian
contingency plans, which is scheduled to be completed in October 1999. In
addition to technical systems matters, the contingency planning process has
considered possible operational issues such as an increased volume of
shareholder requests, cash flow matters related to unusual levels of purchases
or redemptions, and market adjustments. Through the Company's testing and
communications with third parties, and use of business continuity planning
specialists and other consultants, the Company seeks to identify areas of
potential disruptions and, to the extent possible, to minimize such disruptions.
The Company expects to refine, change and update its contingency plans
throughout the end of calendar 1999 and through the rollover date.
As part of the effort to create a smooth transition to the Year 2000, the
Company formed a worldwide Year 2000 cross-over team with representatives from
each major business function. This team will staff command centers around the
world from December 31 through the end of the first week of January 2000. During
the cross-over weekend, personnel will be at the command centers 24 hours a day,
beginning with the first office rollovers to the Year 2000 in Australia, Hong
Kong and Singapore until the final rollover at the Company's headquarters in
California.
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However, in light of the complexity and magnitude of the Company's business
processes there are, in certain cases, limited or no alternatives to some of its
mission-critical systems or public utilities. It is not possible to predict
which internal or external systems or utilities may be affected worldwide, or
the exact nature of all problems that might occur. While redundant systems and
multi-day back-up power sources are in place at the Company's main data centers
to address communication or power interruptions, if certain public utilities
fail in multiple locations or if mission-critical systems of the Company or
third parties fail, there could be a material adverse impact upon the Company's
business, financial condition and results of operations. This is especially true
if such outages or failures were to extend for a period of many days.
Non-IT Systems. All of the Company's non-information technology ("non-IT")
systems have been certified as being Year 2000 ready, either by internal
verification or by third-party representations, for the Company's domestic
properties and for foreign properties over 5,500 square feet. The Company's
business operations are not heavily dependent on non-IT, such as elevators,
electrical and security systems, and devices such as fax machines and copiers,
and none of the Company's mission-critical systems is a non-IT system. The
Company is dependent upon certain non-IT systems such as third-party long
distance telephone and data lines, and public utility electrical power. The
Company does not expect to experience any material effects related to the Year
2000 compliance of non-IT systems unless there are telephone and data line, or
general public utility problems, beyond the Company's control.
Specific Risks Associated with the Year 2000. The Company's ability to manage
Year 2000 issues is subject to uncertainties beyond its control that could cause
actual results to differ materially from what has been discussed above. The
Company could become subject to legal claims in the event of any Year 2000
problem in the Company's business operations. In addition, the Company and its
subsidiaries are subject to regulation by various domestic and international
authorities which could impose sanctions or fines or cause the Company to cease
certain operations in the event its systems are not Year 2000 compliant. A
general disruption in securities or capital markets, or withdrawal of funds by
investors concerned about Year 2000 issues, could create global liquidity issues
that could have a material adverse effect upon the Company's business, financial
condition and results of operations. Such disruptions could occur regardless of
the existence or severity of Year 2000 problems as a result of overreaction or
market panic in response to even minor Year 2000 problems or false reports of
Year 2000 problems.
Factors that could influence the impact of the Year 2000 problem also include
the success of the Company in identifying systems and programs that are
affected. Other factors include the nature and amount of testing, remediation,
programming, installation and systems work required to upgrade or to replace
each of the affected programs or systems; the rate, magnitude and availability
of related labor and consulting costs; the success of the Company in correcting
its internal systems and the success of the Company's external partners and
suppliers in addressing their respective Year 2000 problems. If there are Year
2000 system interruptions or failures of important third parties, such as
securities transfer agents, stock exchanges, data providers or other
organizations such as those mentioned above under "Third Parties and Year 2000",
this could have a material adverse effect on the Company's business, financial
condition and results of operations. Although certain third parties may
represent that their systems are Year 2000 ready, there can be no assurance that
their systems are in fact Year 2000 compliant or that they have provided
complete and accurate information to the Company.
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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 hereunto duly authorized.
FRANKLIN RESOURCES, INC.
(Registrant)
Date: October 14, 1999 /s/ Leslie M. Kratter
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LESLIE M. KRATTER
Vice President
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