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): April 21, 1999
(April 20, 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
When used in this Form 8-K and in future filings by 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 likely result", "are
expected to", "will continue", "is anticipated", "estimate", "project" or
similar expressions are intended to identify "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 implementation and completion of the phases of the
Company's Year 2000 plan; projections of expenditures and financial items
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 possible contingency 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.
Information contained in this section regarding the Company's Year 2000
preparations is provided as of April 20, 1999, unless otherwise stated. Because
the Year 2000 project is an ongoing Company-wide endeavor, the state of the
Company's progress changes daily.
The Company's mission-critical securities trading systems, portfolio accounting
systems, customer service systems, general ledger systems, and several of its
international and domestic transfer agency systems, have been certified as Year
2000 compliant and are operating in production. The Company intends to have all
but one of its remaining mission-critical systems, a replacement sales and
marketing system, certified by June 1, 1999.
The Company participated in the Securities Industry Association "Streetwide
Testing" which ended on April 17, 1999. This testing was successful and revealed
no significant problems in the Company's systems. Due to the use of its domestic
transfer agency system during Streetwide Testing, the Company delayed completion
of some of its Year 2000 certification efforts on that system.
The Company has now resumed certification testing of the domestic transfer
agency system and expects such testing will be finished in the near future.
Successful tests have been completed on certain primary processes such as the
establishment of new accounts and transactions which cross the century line. No
material problems have been encountered to date in the remediation and testing
of the system.
The Company's Year 2000 compliance plan is comprised of four phases: Assessment,
Remediation, Testing and Implementation. The Company considers a system to be
Year 2000 compliant when it has passed a number of prescribed tests established
by the Company, viewed as the industry standard or suggested by regulators.
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.
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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 prioritizes the Year 2000 certification of
mission-critical systems over other systems and further prioritizes information
technology ("IT") systems in general over non-IT systems. The following
percentages refer only to mission-critical IT systems.
Phase of % of Mission
Project Critical Complete
--------------------------------------
Assessment 100%
Remediation 97%
Testing 85%
Implementation 85%
The non mission-critical systems of the Company are either maintained by the
Company's Information Systems & Technology ("IS&T") department or are end-user
maintained systems. These systems are prioritized as "high", "medium" or "low"
in the Company's Year 2000 plan. The IS&T systems have been given high priority,
while the end user systems have been given lower priorities. The percentages
below include only the IS&T-managed systems. Additional systems were added to
the pool of non-mission critical systems during the quarter ended March 31,
1999, causing the Remediation completion percentage to drop by 1% from
previously reported figures.
Phase of % of Non Mission Critical
Project IS&T Systems Complete
-------------------------------------------
Assessment 100%
Remediation 98%
Testing 84%
Implementation 79%
NON-IT SYSTEMS. Non-IT systems include such items as building environment
controls and elevators, electrical and security systems, public utility power
supplies, phone company systems, and embedded computer chips in devices such as
fax machines and copiers. Other than third-party long distance telephone and
data lines and public utility electrical power, the Company's business
operations are not heavily dependent on non-IT components or systems, and none
of the Company's mission-critical systems is a non-IT system. Based upon the
Company's ongoing assessment and information received from third parties, very
few of the Company's non-IT systems will require remediation. The only such
system identified to date as not being Year 2000 compliant is the internal
building security system that the Company uses in certain of its leased
properties. The Company has ordered a Year 2000 software upgrade from the vendor
of this system. The Company does not expect to experience any material effects
related to the Year 2000 compliance of non-IT systems unless there are general
public utility problems beyond the Company's control.
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THIRD PARTIES AND YEAR 2000. The Company's business operations are heavily
dependent upon a complex worldwide network of IT systems that are owned and
managed by third parties; including 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. The Company is in the process of validating and reviewing
the responses received to date from these suppliers of mission-critical systems
and in some cases is seeking additional information, written assurances of
certification, or test scripts. To date, no mission-critical third-party
supplier has informed the Company that it would not be Year 2000 compliant by
the millenium date.
COST ESTIMATES. The total estimated costs through March 2000 associated with the
Year 2000 project range from $50 million to $60 million, including an
unallocated reserve. The estimated costs consist mainly of internal and
third-party labor costs which are expensed as incurred. The total amount
expended on the project through March 31, 1999 was approximately $26 million.
The Company's estimates of the total costs to complete the Year 2000 project
will continue to be refined in future periods. 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. The Company is developing comprehensive worldwide
contingency plans, including identification of those mission-critical systems
for which it is practical to develop a contingency plan. The Company currently
expects to have its contingency plans complete and in place by September 1999.
However, in an operation as complex and geographically dispersed as the
Company's business there are, in certain cases, limited alternatives to some of
its mission-critical systems or public utilities. While redundant systems and
back-up power supplies are in place to address communication or power
interruptions, if certain public utilities fail in multiple locations or
mission-critical systems are not made Year 2000 compliant or 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.
The Company's contingency plans are based on critical processes required to
support the Company's worldwide business units, linking these processes to
systems, and providing work-arounds to mitigate the loss of such systems. A
software planning tool has been employed to facilitate the creation of
contingency plans. Business continuity planning specialists are assisting in the
contingency planning process in each of the Company's global business areas.
The Company has formed a Year 2000 cross-over team with representatives from
each major business function around the globe, including IS&T. The cross-over
team will identify what the Company must do before, during and after the Year
2000 cross-over. The Company's computer systems, including customer information
records, are already routinely backed-up and the cross-over team is preparing
processes to address any unusual occurrences related to the Year 2000
cross-over.
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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 governmental 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. Also, investors concerned
about the Year 2000 issues could withdraw monies from the Company's funds
resulting in a decline in assets under management which could have a material
adverse effect upon the Company's business, financial condition and results of
operations.
Factors that could influence the impact of the Year 2000 problem include the
success of the Company in identifying systems and programs that are affected.
Other facts 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.
The failure of organizations such as those mentioned above under "Third Parties
and Year 2000" to resolve their own issues with respect to the Year 2000 problem
could have a material adverse effect on the Company's business, financial
condition and results of operations.
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: April 21, 1999 /s/ Leslie M. Kratter
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LESLIE M. KRATTER
Vice President
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