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 December 31, 2001
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.)
One Franklin Parkway, San Mateo, CA 94403
(Address of Principal Executive Offices)
(Zip Code)
(650) 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 CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Outstanding: 261,386,285 shares, common stock, par value $.10 per share at
January 31, 2002.
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PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
Three months ended
December 31
(in thousands, except per share data) 2001 2000
- -------------------------------------------------------------------------------------------------
OPERATING REVENUES:
Investment management fees $356,798 $345,785
Underwriting and distribution fees 192,007 164,362
Shareholder servicing fees 47,341 48,222
Other, net 22,061 5,705
- -------------------------------------------------------------------------------------------------
TOTAL OPERATING REVENUES 618,207 564,074
- -------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Underwriting and distribution 172,267 145,684
Compensation and benefits 160,143 141,859
Information systems, technology and occupancy 74,594 57,528
Advertising and promotion 26,425 22,126
Amortization of deferred sales commissions 16,743 18,236
Amortization of intangible assets 4,375 9,909
Other 20,795 19,754
- -------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 475,342 415,096
- -------------------------------------------------------------------------------------------------
Operating income 142,865 148,978
OTHER INCOME/(EXPENSES):
Investment and other income 18,329 49,956
Interest expense (3,168) (2,270)
- -------------------------------------------------------------------------------------------------
Other income, net 15,161 47,686
- -------------------------------------------------------------------------------------------------
Income before taxes on income 158,026 196,664
Taxes on income 39,507 47,199
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NET INCOME $118,519 $149,465
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Earnings per share:
Basic and diluted $0.45 $0.61
Dividends per share $0.070 $0.065
The accompanying notes are an integral part of these consolidated financial statements.
2
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FRANKLIN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
UNAUDITED
DECEMBER 31 SEPTEMBER 30
(in thousands) 2001 2001
- -------------------------------------------------------------------------------------------------
ASSETS:
Current assets:
Cash and cash equivalents $718,170 $497,241
Receivables:
Sponsored investment products 242,666 233,086
Other 53,520 63,079
Investment securities, available-for-sale 1,103,176 1,027,975
Prepaid expenses and other 100,830 108,895
- ---------------------------------------------------------------------------------------------
Total current assets 2,218,362 1,930,276
- ---------------------------------------------------------------------------------------------
Banking/finance assets:
Cash and cash equivalents 70,158 71,736
Loans receivable, net 349,043 555,314
Investment securities, available-for-sale 551,387 484,280
Other 14,127 117,914
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Total banking/finance assets 984,715 1,229,244
- ---------------------------------------------------------------------------------------------
Other assets:
Deferred sales commissions 119,716 104,082
Property and equipment, net 435,275 449,626
Intangible assets, net 697,440 702,198
Goodwill 1,287,005 1,286,622
Receivable from banking/finance group 60,854 307,214
Other 286,236 256,388
- ---------------------------------------------------------------------------------------------
Total other assets 2,886,526 3,106,130
- ---------------------------------------------------------------------------------------------
TOTAL ASSETS $6,089,603 $6,265,650
=============================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
3
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FRANKLIN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
UNAUDITED
DECEMBER 31 SEPTEMBER 30
(in thousands except share data) 2001 2001
- ---------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Current liabilities:
Compensation and benefits 144,601 221,672
Current maturities of long-term debt 8,275 8,361
Accounts payable and accrued expenses 130,463 127,918
Commissions 84,002 83,518
Income taxes 14,421 11,925
Other 3,921 4,039
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Total current liabilities 385,683 457,433
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Banking/finance liabilities:
Payable to Parent 60,854 307,214
Deposits 695,241 723,608
Other 79,956 39,839
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Total banking/finance liabilities 836,051 1,070,661
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Other liabilities:
Long-term debt 583,793 566,013
Other 191,959 193,647
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Total other liabilities 775,752 759,660
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Total liabilities 1,997,486 2,287,754
- ---------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock, $1.00 par value, 1,000,000 shares
authorized; none issued - -
Common stock, $0.10 par value, 500,000,000 shares
authorized; 261,341,550 and 260,797,545 shares
issued and outstanding, for December and
September, respectively 26,134 26,080
Capital in excess of par value 675,932 657,878
Retained earnings 3,443,156 3,342,979
Accumulated other comprehensive loss (53,105) (49,041)
- ---------------------------------------------------------------------------------------------
Total stockholders' equity 4,092,117 3,977,896
- ---------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,089,603 $6,265,650
=============================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
4
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FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED THREE MONTHS
ENDED
DECEMBER 31
(in thousands) 2001 2000
- -------------------------------------------------------------------------------------------
Net income $118,519 $149,465
Adjustments to reconcile net income to net cash
Provided by operating activities:
Decrease in receivables, prepaid expenses and other 107,148 19,726
Advances of deferred sales commissions (34,616) (20,098)
Increase in other current liabilities 44,536 12,025
Increase in income taxes payable 2,495 10,303
Increase in commissions payable 484 10,705
Decrease in accrued compensation and benefits (54,533) (82,809)
Depreciation and amortization 45,399 50,333
Gains on disposition of assets (3,387) (31,572)
- -------------------------------------------------------------------------------------------
Net cash provided by operating activities 226,045 118,078
- -------------------------------------------------------------------------------------------
Purchase of investments (688,946) (44,183)
Liquidation of investments 541,013 439,418
Purchase of banking/finance investments (30,389) (5,939)
Liquidation of banking/finance investments 7,825 3,269
Proceeds from securitization of loans receivable 299,980 -
Net origination of loans receivable (94,983) (31,440)
Addition of property and equipment (9,656) (18,055)
Acquisition of subsidiaries, net of cash acquired - (94,483)
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Net cash provided by investing activities 24,844 248,587
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(Decrease)/ increase in bank deposits (28,367) 658
Exercise of common stock options 2,904 1,020
Dividends paid on common stock (16,891) (14,623)
Purchase of stock (7,688) (7,906)
Issuance of debt 20,157 60,533
Payments on debt (1,653) (68,607)
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Net cash used in financing activities (31,538) (28,925)
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Increase in cash and cash equivalents 219,351 337,740
Cash and cash equivalents, beginning of period 568,977 746,005
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Cash and cash equivalents, end of period $788,328 $1,083,745
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SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION:
Value of common stock issued, principally restricted stock $23,752 $23,811
The accompanying notes are an integral part of these consolidated financial statements.
5
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FRANKLIN RESOURCES, INC.
Notes to Consolidated Financial Statements
December 31, 2001
(Unaudited)
1. Basis of Presentation
---------------------
We have prepared these unaudited interim financial statements of Franklin
Resources, Inc. and its consolidated subsidiaries (the "Company") in
accordance with the instructions to Form 10-Q and pursuant to the rules and
regulations of the Securities and Exchange Commission. We have condensed or
omitted certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles pursuant to such rules and regulations. In our
opinion, all appropriate adjustments necessary for a fair statement of the
results of operations have been made for the periods shown. All adjustments
are of a normal recurring nature. You should read these financial
statements in conjunction with our audited financial statements included in
our Annual Report on Form 10-K for the fiscal year ended September 30,
2001.
2. Debt
----
In May 2001, we received approximately $490 million in net proceeds upon
the closing of the sale of $877 million principal amount at maturity of
zero-coupon convertible senior notes due 2031 (the "Convertible Notes"). At
December 31, 2001, the amount included in long-term debt in respect of the
Convertible Notes was $501 million in principal and $6 million of accrued
interest. The Convertible Notes, which were offered to qualified
institutional buyers only, carry a yield to maturity of 1.875% per annum,
with an initial conversion premium of 43%. Each of the $1,000 (principal
amount at maturity) Convertible Notes is convertible into 9.3604 shares of
our common stock. We may redeem the Convertible Notes for cash on or after
May 11, 2006 at their accreted value. We may be required to repurchase the
Convertible Notes at their accreted value, at the option of the holders, on
May 11 of 2003, 2004, 2006, 2011, 2016, 2021 and 2026. In this event, we
may choose to pay the purchase price for such repurchases in cash or shares
of our common stock.
We did not have any commercial paper outstanding or medium term notes
issued at December 31, 2001.
3. Comprehensive Income
--------------------
The following table shows comprehensive income for the three months ended
December 31, 2001 and 2000.
(in thousands) 2001 2000
------------------------------------------------------------------------
Net income $118,519 $149,465
Change in net unrealized gain (loss) on
available-for-sale securities, net of tax 2,571 (35,730)
------------------------------------------------------------------------
Foreign currency translation adjustment (6,635) (4,060)
------------------------------------------------------------------------
Comprehensive income $114,455 $109,675
========================================================================
6
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4. Segment Information
-------------------
We have two operating segments: investment management and banking/finance.
The investment management segment derives substantially all of its revenues
and net income from providing investment advisory, fund administration,
distribution and related services to our sponsored investment products. The
banking/finance segment offers consumer lending and selected retail-banking
services to high net-worth individuals and corporations.
Financial information for our two operating segments for the quarters ended
December 31, 2001 and 2000 is presented in the table below. Operating
revenues of the banking/finance segment are reported net of interest
expense and provision for loan losses.
Income
Assets before Operating
(in thousands) taxes revenues
------------------------------------------------------------------------------------
As of and for the quarter ended
December 31, 2001
Investment management $5,104,888 $142,681 $598,959
Banking/finance 984,715 15,345 19,248
------------------------------------------------------------------------------------
Company totals $6,089,603 $158,026 $618,207
====================================================================================
As of and for the quarter ended
December 31, 2000
Investment management $3,753,206 $195,143 $557,360
Banking/finance 339,171 1,521 6,714
------------------------------------------------------------------------------------
Company totals $4,092,377 $196,664 $564,074
====================================================================================
5. Earnings per Share
------------------
Earnings per share were computed as follows:
Three months ended
December 31
(in thousands except per share amounts) 2001 2000
------------------------------------------------------------------------------------
Net income $118,519 $149,465
====================================================================================
Weighted-average shares outstanding - basic 260,981 243,708
Incremental shares from assumed conversions 655 701
------------------------------------------------------------------------------------
Weighted-average shares outstanding - diluted 261,636 244,409
====================================================================================
Earnings per share:
Basic and diluted $0.45 $0.61
7
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6. Securitization of Loans Receivable
----------------------------------
In December 2001, we sold auto loans receivable with a net book value of
$306.3 million to a securitization trust. The gross sale proceeds of this
securitization were $319.7 million and we recorded a pre-tax gain of $13.4
million on the transaction. Significant assumptions used in determining the
gain were an excess cash flow discount rate of 12% and a cumulative credit
loss rate of 3.76%.
7. Commitments and Contingencies
-----------------------------
Under an operating lease for our global corporate headquarters in San
Mateo, California, we are contingently liable for approximately $145
million in residual guarantees, representing approximately 85% of the total
construction costs of $170 million. The lease is classified as an operating
lease as the net present value of the minimum lease payments, including the
residual guarantee estimate, was less than 90% of the fair value of the
leased property at the inception of the lease.
In February 2001, we signed an agreement with IBM under which IBM assumed
management of our data center and distributed server operations. Under the
terms of the agreement, we may terminate the agreement any time after March
2004. If we were to terminate the agreement, we would incur a termination
charge. The maximum termination charge payable depends on service levels
prior to our termination of the agreement, and the amount of costs IBM
would incur in winding down the services. Based on December 31, 2001
service levels, this termination fee would approximate $37.4 million. We do
not consider it likely that we will incur this cost. Under the terms of the
agreement, we also must pay IBM a transition charge of approximately $2.7
million in March 2003.
We lease office space and equipment under long-term operating leases.
Future minimum lease payments under non-cancelable leases are not material.
At December 31, 2001, the banking/finance operating segment had commitments
to extend credit aggregating $252.2 million, principally under its credit
card lines, and standby letters of credit totaling $10.2 million, which are
secured by marketable securities.
We are involved in various claims and legal proceedings that are considered
normal in our business. While it is not feasible to predict or determine
the final outcome of these proceedings, we do not believe that they should
have a material adverse effect on our financial position, results of
operations or liquidity.
8. Banking Regulatory Ratios
-------------------------
Following the acquisition of Fiduciary Trust Company International
("Fiduciary") in April 2001, we became a bank holding company and a
financial holding company subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could
have a direct material effect on our financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective
action, we must meet specific capital guidelines that involve quantitative
measures of our assets, liabilities, and certain off-balance sheet items as
calculated under regulatory
8
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accounting practices. Our capital amounts and classification are also
subject to qualitative judgements by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require us to maintain minimum amounts and ratios of total and Tier 1
capital (as defined in the regulations) to risk-weighted assets (as defined
in the regulations) and of Tier 1 capital to average assets (as defined in
the regulations). We believe that, as of December 31, 2001, we exceed the
capital adequacy requirements listed below.
Three months Minimum for To be well
ended capital capitalized
December 31, adequacy under prompt
(in thousands) 2001 purposes corrective
action
---------------------------------------- --------------- -------------- ---------------
Total Capital $2,071,789 N/A N/A
Tier 1 Capital $2,062,748 N/A N/A
Tier 1 Capital (to average assets) 50% 3% 5%
Tier 1 Capital (to risk-weighted assets) 84% 4% 6%
Total Capital (to risk-weighted assets) 84% 8% 10%
9. Adoption of New Accounting Standards
------------------------------------
Effective October 1, 2001, we adopted Statement of Financial Accounting
Standard No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS
142 applies to all goodwill and identified intangible assets acquired in a
business combination. Under the new standard, all goodwill and
indefinite-lived intangible assets, including that acquired before initial
application of the standard, will not be amortized but will be tested for
impairment at least annually. Accordingly, effective October 1, 2001, we
ceased amortization on goodwill and indefinite-lived assets, which resulted
in an amortization expense reduction of approximately $12.5 million ($9.4
million net of tax) and a $0.04 increase in basic and diluted earnings per
share. Our goodwill and intangible assets are primarily attributable to our
investment management operating segment. Indefinite-lived intangible assets
represent the value of management contracts related to our mutual funds and
other investment products. At December 31, 2001 we had not recorded any
impairment of our goodwill and indefinite-lived assets. In accordance with
the new pronouncement, we are currently reviewing our goodwill and
intangible assets for impairment. This process will be completed by March
31, 2002.
9
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The following table reflects our results adjusted as though we had adopted
SFAS 142 on October 1, 2000.
Three months ended
December 31
(in thousands except per share amounts) 2001 2000
------------------------------------------------------------------------------------
Net income as reported $118,519 $149,465
Goodwill amortization - 5,732
Indefinite-lived intangibles amortization - 3,288
Tax effect at effective tax rate - (2,165)
Net income as adjusted $118,519 $156,320
Basic and diluted earnings per share as reported $0.45 $0.61
Basic and diluted earnings per share as adjusted $0.45 $0.64
Intangible assets at December 31, 2001 were as follows:
Gross
Carrying Accumulated Net Carrying
(in thousands) Amount amortization Amount
--------------------------------------------------------------------------------------
Amortized intangible assets:
Customer base $232,191 $(11,783) $220,408
Other 31,545 (17,440) 14,105
----------------------------------------------------
263,736 (29,223) 234,513
Non-amortized intangible assets:
Management contracts 462,927 - 462,927
-------------------------------------------------
Intangible Assets, net $726,663 $(29,223) $697,440
Substantially all of the intangible assets relate to the investment
management operating segment.
Estimated amortization expense for each of the 5 succeeding fiscal years is
as follows:
(in thousands) Amount
-----------------------------------------------------------------
Fiscal year ended September 30:
2002 $17,109
2003 16,951
2004 16,951
2005 16,951
2006 16,951
10
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On October 1, 2001, we also adopted Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS 144"). This statement addresses financial accounting and
reporting for the impairment or disposal of long- lived assets and broadens
the definition of what constitutes a discontinued operation and how the
results of a discontinued operation are to be measured and presented. The
impact of SFAS 144 on our reported operating results, financial position
and existing financial statement disclosure was not material.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
In this section, we discuss our results of operations and our financial
condition. We also make some statements relating to the future, which are called
"forward-looking" statements. Although we do our best to make clear and accurate
forward-looking statements, the actual results and outcomes could be
significantly different from those that we discuss in this document. For this
reason, you should not rely too heavily on these forward-looking statements. You
should review the "Risk Factors" section below, where we discuss these
statements in more detail.
GENERAL
The majority of our operating revenues, operating expenses and net income are
derived from providing investment management and related services to retail
mutual funds, institutional and high net-worth and separate accounts, and other
investment products. This is our primary business activity and operating
segment.
Our sponsored investment products include a broad range of domestic and
global/international equity, hybrid, fixed-income and money market mutual funds,
as well as other investment products that meet a wide variety of specific
investment needs of individuals and institutions.
The level of our revenues is largely dependent upon the level and relative
composition of assets under management. To a lesser degree, our revenues are
also dependent on the level of mutual fund sales and the number of mutual fund
shareholder accounts. The fees charged for our services are based on contracts
between our subsidiary entities and our sponsored investment products or our
clients. These arrangements could change in the future.
Our secondary business activity and operating segment is banking/finance. Our
banking/finance group offers selected retail-banking services to high net-worth
individuals and corporations and consumer lending.
11
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ASSETS UNDER MANAGEMENT
December 31 December 31
(in billions) 2001 2000
- ------------------------------------------------------------------------------------------
Equity:
Global/international $89.4 $96.4
Domestic (U.S.) 51.7 50.0
- ------------------------------------------------------------------------------------------
Total equity 141.1 146.4
- ------------------------------------------------------------------------------------------
Hybrid 38.6 10.1
Fixed-income:
Tax-free 48.3 45.0
Taxable
Domestic 25.1 16.2
Global/international 7.4 3.7
- ------------------------------------------------------------------------------------------
Total fixed-income 80.8 64.9
- ------------------------------------------------------------------------------------------
Money 5.8 5.5
- ------------------------------------------------------------------------------------------
Total $266.3 $226.9
==========================================================================================
Simple monthly average for the three-month period (1) $256.4 $226.5
==========================================================================================
(1) Investment management fees from approximately 45% of our assets under management at
December 31, 2001 are calculated using a daily average.
Our assets under management at December 31, 2001 were $266.3 billion, 17% higher
than they were a year ago. Simple monthly average assets during the quarter
ended December 31, 2001 increased 13% this quarter over the same period a year
ago. The change in the absolute level and simple monthly average assets under
management was mainly due to the addition of Fiduciary assets under management
acquired in April 2001, offset by market depreciation year over year.
The following table shows the relative composition of assets under management.
As of December 31, 2001 2000
- -------------------------------------------------------------------------------------------
Percentage of total assets under management
Equity 53% 65%
Fixed-income 30% 29%
Hybrid 15% 4%
Money 2% 2%
- -------------------------------------------------------------------------------------------
Total 100% 100%
The change in the composition of assets under management resulted from the
inclusion of the Fiduciary assets under management throughout the period ended
December 2001 and the market depreciation in equity assets. Approximately 64% of
Fiduciary's assets under management were classified as hybrid assets at the time
of acquisition in April 2001. This change in mix had the additional effect of
lowering our effective fee rate on assets managed as a greater percentage of
12
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assets under management are in the fixed-income and hybrid categories which
generally carry a lower management fee than equity assets.
The change in our assets under management was as follows.
Three months ended
December 31, Percent
(in billions) 2001 2000 Change
- -----------------------------------------------------------------------------------------
Beginning assets under management $246.4 $229.9 7%
Sales 18.9 12.7 49%
Reinvested dividends 2.6 5.4 (52)%
Redemptions (15.5) (15.5) 0%
Acquisitions - 3.7 (100)%
Appreciation/ (depreciation) 13.9 (9.3) N/A
- -----------------------------------------------------------------------------------------
Ending assets under management $266.3 $226.9 17%
The acquisitions of Bissett and Associates Investment Management Ltd.
("Bissett") in October 2000 and Fiduciary in April 2001 increased our assets
under management by $3.7 and $45.8 billion, respectively. For the quarter ended
December 31, 2001, sales and reinvested dividends exceeded redemptions ("net
inflows") complex-wide by $6.0 billion, compared to net inflows of $2.6 billion
in the same period last year. Market appreciation of $13.9 billion in the
quarter ended December 31, 2001 occurred within the Domestic and
Global/international equity markets. The chart below summarizes changes in
assets by product class.
13
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Three months ended December 31 Percent
(in billions) 2001 2000 Change
- ---------------------------------------------------------------------------------------
GLOBAL/INTERNATIONAL EQUITY
Beginning assets under management $80.2 $97.6 (18)%
Sales 7.2 3.7 95%
Reinvested dividends 0.8 2.9 (72)%
Redemptions (6.9) (6.7) 3%
Acquisitions - 2.2 (100)%
Appreciation/ (depreciation) 8.1 (3.3) N/A
- ---------------------------------------------------------------------------------------
Ending assets under management 89.4 96.4 (7)%
DOMESTIC EQUITY
Beginning assets under management 44.5 53.9 (17)%
Sales 3.4 3.4 0%
Reinvested dividends 1.1 1.7 (35)%
Redemptions (2.2) (2.3) (4)%
Acquisitions - - -
Appreciation/ (depreciation) 4.9 (6.7) N/A
- ---------------------------------------------------------------------------------------
Ending assets under management 51.7 50.0 3%
HYBRID
Beginning assets under management 36.1 9.3 288%
Sales 1.2 0.2 500%
Reinvested dividends 0.1 0.2 (50)%
Redemptions (0.5) (0.4) 25%
Acquisitions - 1.1 -
Appreciation/ (depreciation) 1.7 (0.3) N/A
- ---------------------------------------------------------------------------------------
Ending assets under management 38.6 10.1 282%
TAX-FREE INCOME
Beginning assets under management 48.4 44.0 10%
Sales 1.6 0.9 78%
Reinvested dividends 0.3 0.3 0%
Redemptions (1.2) (1.2) 0%
Acquisitions - - -
(Depreciation)/ appreciation (0.8) 1.0 N/A
- ---------------------------------------------------------------------------------------
Ending assets under management 48.3 45.0 7%
TAXABLE FIXED INCOME
Beginning assets under management 31.6 19.8 60%
Sales 2.6 1.5 73%
Reinvested dividends 0.2 0.2 0%
Redemptions (2.0) (1.3) 54%
Acquisitions - 0.4 (100)%
Appreciation/ (depreciation) 0.1 (0.7) N/A
- ---------------------------------------------------------------------------------------
Ending assets under management 32.5 19.9 63%
MONEY
Beginning assets under management 5.6 5.3 6%
Sales 2.9 3.0 (3)%
Reinvested dividends 0.1 0.1 0%
Redemptions (2.7) (3.6) (25)%
Acquisitions - - -
(Depreciation)/ appreciation (0.1) 0.7 N/A
- ---------------------------------------------------------------------------------------
Ending assets under management $5.8 $5.5 5%
- ---------------------------------------------------------------------------------------
TOTAL ENDING ASSETS UNDER MANAGEMENT $266.3 $226.9 17%
- ---------------------------------------------------------------------------------------
14
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RESULTS OF OPERATIONS
Three months ended
December 31 Percent
2001 2000 Change
- --------------------------------------------------------------------------------
Net income (in millions) $118.5 $149.5 (21)%
Earnings per share
Basic and diluted $0.45 $0.61 (26)%
Operating margin 23% 26% -
EBITDA margin (1) 30% 38% -
- --------------------------------------------------------------------------------
(1) EBITDA margin is earnings before interest, taxes on income, depreciation and
the amortization of intangibles (not including amortization of deferred sales
commissions) divided by total revenues.
Net income during the quarter ended December 31, 2001 decreased 21% compared to
the same quarter last year. This was due to slightly lower operating income,
with higher operating revenues this quarter being offset by compensation and
benefit cost increases related to the Fiduciary acquisition and retention
bonuses, increased underwriting and distribution expenses from increased sales
activity, higher information systems, technology and occupancy expenses, and
increased advertising and promotion activity. The majority of the decline in net
income is attributable to a decline in other income. We recognized investment
portfolio and real estate gains of approximately $28 million in the period ended
December 31, 2000.
OPERATING REVENUE
Three months ended
December 31 Percent
(in millions) 2001 2000 Change
- --------------------------------------------------------------------------------
Investment management fees $356.8 $345.8 3%
Underwriting and distribution fees 192.0 164.4 17%
Shareholder servicing fees 47.3 48.2 (2)%
Other, net 22.1 5.7 288%
- --------------------------------------------------------------------------------
Total operating revenues $618.2 $564.1 10%
- --------------------------------------------------------------------------------
SUMMARY
Total operating revenues for the quarter ended December 31, 2001 increased 10%
over the same period last year. The acquisition of Fiduciary in April 2001
provided higher investment management fees from higher average assets under
management, despite lower effective fee rates resulting from the change in the
mix of assets under management. In addition, the Company benefited from
increased banking/finance segment revenues included in other, net resulting from
the net gain related to the auto loan securitization completed in December 2001.
Underwriting and distribution fees increased following improved sales
performance and higher assets under management.
INVESTMENT MANAGEMENT FEES
Investment management fees, accounting for 58% of our operating revenues in the
quarter ended December 31, 2001, include both investment advisory and business
management fees. These fees are generally calculated under contractual
arrangements with our sponsored investment products,
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institutional and high net-worth clients as a percentage of the market value of
assets under management. Annual rates vary by investment objective and type of
services provided. In return for these fees, we provide a combination of
investment advisory, administrative and other management services based on the
needs of our clients.
Investment management fees for the quarter ended December 31, 2001 increased 3%
over the same period last year, primarily due to the Fiduciary acquisition and
net sales (including dividend re-investments), which increased the simple
monthly average assets under management. This increase was partially offset by a
shift in our asset mix toward fixed-income and hybrid investment products and
market depreciation experienced year over year. This shift in asset mix led to a
decrease in our effective investment management fee rate (investment management
fees divided by simple monthly average assets under management). The effective
investment management fee rate declined to 0.56% compared to 0.61% in the same
period last year.
UNDERWRITING AND DISTRIBUTION FEES
Underwriting commissions are earned from the sale of certain classes of
sponsored investment products that have a sales commission paid at the time of
purchase. Sales at reduced or zero commissions are offered on certain classes of
shares and for sales to shareholders or intermediaries that exceed specified
minimum amounts. Thus, as the mix of sales change, so will our commission
revenue. Distribution fees are paid by our sponsored investment products in
return for sales, marketing and distribution efforts on their behalf. While
other contractual arrangements exist in other locations, in the United States,
distribution fees include 12b-1 plan fees, which are subject to maximum pay-out
levels based upon a percentage of the assets in each fund. A significant portion
of underwriting commissions and distribution fees are paid to the brokers and
other intermediaries who sell our sponsored investment products to the investing
public on our behalf. See the description of underwriting and distribution
expenses below.
Overall, underwriting and distribution fees for the quarter ended December 31,
2001 increased 17% over the same period last year. Commission revenues increased
45% over the same period last year primarily due to a 49% increase in product
sales. Distribution fees increased 5% over the same period last year resulting
from the change in asset mix across regional jurisdictions.
SHAREHOLDER SERVICING FEES
Shareholder servicing fees are generally fixed charges per shareholder account
that vary with the particular type of fund and the service being rendered. In
certain instances, some sponsored investment products are charged these fees
based on the level of assets under management. Fees are received as compensation
for providing transfer agency services which include providing customer
statements, transaction processing, customer service and tax reporting. In the
U.S., transfer agency services agreements provide that closed accounts in a
given calendar year remain billable through the second quarter of the following
calendar year at a reduced rate. In Canada, the agreements provide that accounts
closed in the previous calendar year remain billable for four months after the
end of the calendar year. Accordingly, the level of fees will vary with the
split of total billable accounts between open and closed accounts, the period in
which closed accounts are no longer billable, and the growth in new accounts.
Shareholder servicing fees decreased 2% primarily as a result of a decrease in
the total number of billable accounts.
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OTHER, NET
Other, net consists primarily of revenues from the banking/finance operating
segment and custody services related to Fiduciary. Revenues from the
banking/finance operating segment include operating revenues, consisting
primarily of interest income on loans, servicing income, and investment income
on banking/finance investment securities, which are offset by interest expense,
and the provision for anticipated loan losses.
Other, net for the quarter ended December 31, 2001 increased 288% over the same
period last year. This increase was principally due to the net impact of the
recognition of a gain of $13.4 million resulting from the sale of a portion of
our auto loan portfolio in December 2001, the increase resulting from the
addition of the Fiduciary banking and custody activities from the date of
acquisition to those of the Company, offset by an increase in the allowance for
loan losses of our banking/finance operating segment.
OPERATING EXPENSES
Three months ended
December 31 Percent
(in millions) 2001 2000 Change
-------------------------------------------------------------------------------
Underwriting and distribution $172.3 $145.7 18%
Compensation and benefits 160.1 141.9 13%
Information systems, technology and 74.6 57.5 30%
occupancy
Advertising and promotion 26.4 22.1 19%
Amortization of deferred sales 16.7 18.2 (8)%
commissions
Amortization of intangible assets 4.4 9.9 (56)%
Other 20.8 19.8 5%
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Total operating expenses $475.3 $415.1 15%
===============================================================================
SUMMARY
Operating expenses for the quarter ended December 31, 2001 increased 15% over
the same period last year. This increase was primarily caused by the addition of
the operating costs and retention bonus expense of Fiduciary, increased
information systems, technology and occupancy, underwriting and distribution
expenses, offset by decreased amortization of intangible assets and deferred
sales commission expense.
UNDERWRITING AND DISTRIBUTION
Underwriting and distribution includes sales commissions and distribution fees
paid to brokers and other third parties for selling, distributing and providing
ongoing services to investors in our sponsored investment products. During the
quarter ended December 31, 2001, underwriting and distribution expense increased
18% over the same period last year consistent with the increase in underwriting
and distribution revenues.
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COMPENSATION AND BENEFITS
Compensation and benefits for the quarter ended December 31, 2001 increased 13%
over the same period last year. This increase was primarily due to the addition
of Fiduciary employees during the year and related retention bonuses. The
increase was partially offset by the decision made by management during the
quarter to reduce employee salaries from 5 to 10%. Merit salary awards are
normally given annually in October and are based upon the performance of the
individual employee, market conditions and position description. We decided not
to provide merit increases to employees in October 2001. Management will review
this decision in April 2002. The number of employees at December 31, 2001 was
approximately 6,600 as compared to the approximately 6,300 at the same time last
year. Without the addition of Fiduciary staff, the employee headcount would have
decreased from the prior year by approximately 400. In order to hire and retain
our key employees, we are committed to keeping our salaries and benefit packages
competitive, which means that the level of compensation and benefits may
increase more quickly or decrease more slowly than our revenues at certain
points in our growth cycle.
INFORMATION SYSTEMS, TECHNOLOGY AND OCCUPANCY
Information systems, technology and occupancy costs for the quarter ended
December 31, 2001 increased 30% compared to the same period last year. This
increase was primarily due to the charges and costs in connection with IBM's
assumption of the management of our data center and distributed server
operations, the added technology and occupancy costs of the Fiduciary
acquisition, and the increase in amortization expense related to our capitalized
expenditures on technology initiatives. During the past year, we embarked on a
number of hardware upgrades, purchased, developed and installed new software
applications, re-engineered our technology infrastructure and global network
architecture, replaced or upgraded older versions of software applications, and
developed and implemented e-business strategies to improve our service levels,
work environment and productivity. The extent of the work declined from the
previous year as we slowed down a number of initiatives and delayed the start of
other technology projects.
Details of capitalized information systems and technology costs were as follows:
Three months ended
December 31
(in thousands) 2001 2000
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Net book value at beginning of period $162,857 $156,895
Additions during period, net of disposals and other adjustments 7,526 14,840
Net assets acquired through acquisitions - 782
Amortization during period (19,062) (17,291)
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Net book value at end of period $151,321 $155,226
ADVERTISING AND PROMOTION
Advertising and promotion for the quarter ended December 31, 2001 increased 19%
compared to the same period last year. This increase resulted primarily from
increased promotion and advertising activity to assist in educating the sales
channels and the investing public about the strong relative investment
performance of our sponsored investment products during the latter half of
fiscal 2001 and in the current year.
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AMORTIZATION OF DEFERRED SALES COMMISSIONS
Amortization of deferred sales commissions decreased 8% compared to the same
period last year. This decrease was principally a result of the change in sales
mix and absolute sales of class B and C share products. Certain fund classes,
namely class B and C, are sold without a front-end sales charge to shareholders,
while, at the same time, our distribution subsidiaries pay a commission to
selling brokers and other intermediaries. Similarly, class A shares are sold
without a front-end sales charge to shareholders when certain minimum investment
criteria are met, yet our U.S. distribution subsidiaries pay a commission on the
sale. We defer and amortize this up front commission over a 1 to 8 year period.
Thus, as the balance of the deferred sales commission asset changes on our
balance sheet, so does the amortization expense. We have also arranged to
finance certain deferred commission assets ("DCA") arising from our U.S.,
Canadian and European operations through Lightning Finance Company Limited
("LFL"), a company in which we have an ownership interest. As a result of the
arrangement with LFL, Canadian and European DCA are no longer recorded in our
financial statements. Generally, U.S. DCA sold to LFL under the U.S. agreement
are retained in our financial statements until resold by LFL, which occurs at
least once annually.
AMORTIZATION OF INTANGIBLE ASSETS
Amortization of intangible assets decreased 56% compared to the same period last
year. This decrease was due to the adoption of Statement of Financial Accounting
Standard No. 142 "Goodwill and Other Intangible Assets" on October 1, 2001.
Under the new accounting standard we ceased to amortize goodwill and indefinite-
lived intangible assets. This resulted in a reduction in amortization expense of
approximately $9 million for the quarter ended December 31, 2001, as compared to
the quarter ended December 31, 2000.
OTHER INCOME (EXPENSE)
Investment and other income is comprised primarily of dividends from investments
in our sponsored mutual funds, interest income from investments in bonds and
government securities, realized gains and losses on investments, foreign
currency exchange gains and losses, and other miscellaneous income including the
gain or loss on disposal of property.
Other income (expense) for the quarter ended December 31, 2001 decreased 68%
compared to the same period last year. During the quarter ended December 31,
2000, we recognized additional net realized gains of approximately $19.6 million
from the sale of certain sponsored investment products held by the Company for
investment. In addition, realized gains of $8.2 million were included in other
income related to the $32.9 million gain on the sale of our headquarters
building in San Mateo, which was recognized over 12-month leaseback period
through June 2001.
TAXES ON INCOME
Our effective income tax rate for the quarter ended December 31, 2001 increased
to 25% compared to 24% in the same period last year consistent with increased
revenues generated in the U.S. The effective tax rate will continue to be
reflective of the relative contributions of foreign earnings that are subject to
reduced tax rates and that are not currently included in U.S. taxable income.
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MATERIAL CHANGES IN FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2001, we had $788.3 million in cash and cash equivalents, as
compared to $569.0 million at September 30, 2001. Liquid assets, which consist
of cash and cash equivalents, investments available-for-sale and current
receivables increased to $2,739.1 million at December 31, 2001 from $2,377.4
million at September 30, 2001. At December 31, 2001, approximately $850 million
was available to us under unused commercial paper and medium-term note programs.
In addition, in fiscal 2001 we filed a shelf registration statement with the
Securities and Exchange Commission permitting the issuance of debt and equity
securities of up to $300 million. Our revolving credit facilities at December
31, 2001 totaled $500 million, of which, $200 million was under a 364-day
facility. The remaining $300 million facility will expire in May 2003. We also
have $350 million available in uncommitted bank lines under the Federal Reserve
Funds system.
Cash provided by operating activities was $226 million in the quarter ended
December 31, 2001 compared to $118.1 million in the same period last year. This
increase was due mainly to a decrease in our banking/finance operating segment
receivables and other assets following a similar increase in those assets in the
quarter ended September 30, 2001. Net cash provided by investing activities
during the current quarter included $182.4 million from the banking/finance
segment offset by the use of $147.9 million for the purchase of investments, net
of sales. Net cash used in financing activities during the current period was
$31.5 million.
Outstanding debt increased to $592.1 million at December 31, 2001 compared to
$574.4 million at September 30, 2001. Debt consists primarily of the Convertible
Notes. The Convertible Notes carry a yield to maturity of 1.875% per annum to
maturity. Other short-term and long-term debt totaling $85.1 million is
principally related to the financing of our Class B and C shares sales.
Long-term debt has various maturity dates through fiscal 2006 and thereafter.
We have arranged with LFL for non-recourse financing of sales commissions
advanced on sales of our B and C shares globally. The sales commissions that we
have financed through LFL during the quarter ended December 31, 2001
approximated $29.4 million.
We expect that the principal uses of cash will be to increase assets under
management through expansion of our business, make strategic acquisitions, fund
property and equipment acquisitions, pay operating expenses of the business,
enhance our technology infrastructure, improve our business processes, pay
shareholder dividends, repay and service debt, and acquire shares of the
Company. We expect to finance future increases in investment in our
banking/finance activities through operating cash flows, debt, increased deposit
base, or through the securitization of a portion of the receivables from
consumer lending activities. We believe that our existing liquid assets,
together with the expected continuing cash flow from operations, our borrowing
capacity under current credit facilities, our ability to issue debt or equity
securities and our sales commission financing arrangement will be sufficient to
meet our present and reasonably foreseeable operating cash needs.
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RISK FACTORS
WE FACE STRONG COMPETITION FROM NUMEROUS AND SOMETIMES LARGER COMPANIES. We
compete with numerous investment management companies, stock brokerage and
investment banking firms, insurance companies, banks, savings and loan
associations and other financial institutions. Continuing consolidation in the
financial services industry has created stronger competitors with greater
financial resources and broader distribution channels than our own.
Additionally, competing securities dealers whom we rely upon to distribute our
mutual funds also sell their own proprietary funds and investment products,
which could limit the distribution of our investment products. To the extent
that existing or potential customers, including securities dealers, decide to
invest in or distribute the products of our competitors, the sales of our
products as well as our market share, revenues and net income could decline.
CHANGES IN THE DISTRIBUTION CHANNELS ON WHICH WE DEPEND COULD REDUCE OUR
REVENUES AND HINDER OUR GROWTH. We derive nearly all of our fund sales through
broker/dealers and other similar investment advisors. Increasing competition for
these distribution channels has caused our distribution costs to rise and could
cause further increases in the future. Higher distribution costs lower our net
revenues and earnings. Additionally, if one of the major financial advisors who
distribute our products were to cease their operations, it could have a
significant adverse impact on our revenues and earnings. Moreover, our failure
to maintain strong business relationships with these advisors would impair our
ability to distribute and sell our products, which would have a negative effect
on our level of assets under management, related revenues and overall business
and financial condition.
WE HAVE BECOME SUBJECT TO AN INCREASED RISK OF ASSET VOLATILITY FROM CHANGES IN
THE GLOBAL EQUITY MARKETS. We have become subject to an increased risk of asset
volatility from changes in the domestic and global equity markets due to the
recent terrorist attacks. Declines in these markets have caused in the past, and
would cause in the future, a decline in our revenue and income.
THE LEVELS OF OUR ASSETS UNDER MANAGEMENT, WHICH IN TURN IMPACT REVENUES, ARE
SUBJECT TO SIGNIFICANT FLUCTUATIONS. Global economic conditions, changes in the
equity market place, interest rates, inflation rates, the yield curve and other
factors that are difficult to predict affect the mix, market values, and levels
of our assets under management. Changing market conditions may cause a shift in
our asset mix towards fixed-income products and a related decline in our revenue
and income, since we derive higher fee revenues and income from equity assets
than from fixed-income products we manage. Similarly, our securitized consumer
receivables business is subject to marketplace fluctuation.
WE FACE RISKS ASSOCIATED WITH CONDUCTING OPERATIONS IN NUMEROUS FOREIGN
COUNTRIES. We sell mutual funds and offer investment advisory and related
services in many different regulatory jurisdictions around the world, and intend
to continue to expand our operations internationally. Regulators in these
jurisdictions could change their policies or laws in a manner that might
restrict or otherwise impede our ability to distribute or register investment
products in their respective markets.
OUR INABILITY TO MEET CASH NEEDS COULD HAVE A NEGATIVE EFFECT ON OUR FINANCIAL
CONDITION AND BUSINESS OPERATIONS. Our ability to meet anticipated cash needs
depends upon factors including our asset value, our creditworthiness as
perceived by lenders and the market value of our stock. Similarly, our ability
to securitize and hedge future loan portfolios and credit card receivables, and
to obtain continued financing for class B shares, is also subject to the
market's perception of those assets, finance rates offered by competitors, and
the general market for private debt. If we are unable to obtain these funds and
financing, we may be forced to incur unanticipated costs or revise our business
plans.
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WE FACE COMPETITION IN HIRING AND RETAINING QUALIFIED EMPLOYEES. Our continued
success will depend upon our ability to attract and retain qualified personnel.
If we are not able to attract and retain qualified employees, our overall
business condition and revenues could suffer.
OUR EMERGING MARKET PORTFOLIOS AND RELATED REVENUES ARE VULNERABLE TO
MARKET-SPECIFIC POLITICAL AND ECONOMIC RISKS. Our emerging market portfolios and
revenues derived from managing these portfolios are subject to significant risks
of loss from political and diplomatic developments, currency fluctuations,
social instability, changes in governmental polices, expropriation,
nationalization, asset confiscation and changes in legislation related to
foreign ownership. Foreign trading markets, particularly in some emerging market
countries are often smaller, less liquid, less regulated and significantly more
volatile than the U.S. and other established markets.
DIVERSE AND STRONG COMPETITION LIMITS THE INTEREST RATES THAT WE CAN CHARGE ON
CONSUMER LOANS. We compete with many types of institutions for consumer loans,
which can provide loans at significantly below-market interest rates in
connection with automobile sales. Our inability to compete effectively against
these companies or to maintain our relationships with the various automobile
dealers through whom we offer consumer loans could limit the growth of our
consumer loan business. Economic and credit market downturns could reduce the
ability of our customers to repay loans, which could cause our consumer loan
portfolio losses to increase.
THE SEPTEMBER 11, 2001 WORLD TRADE CENTER TRAGEDY MAY ADVERSELY AFFECT OUR
ABILITY TO ACHIEVE THE BENEFITS WE EXPECT FROM THE RECENT ACQUISITION OF
FIDUCIARY. The September 11, 2001 tragedy at the World Trade Center resulted in
the destruction of our Fiduciary headquarters, loss of 87 of our employees,
additional operating expenses to re-establish and relocate our operations, and
asset write-offs, all of which could adversely affect or delay our ability to
achieve the anticipated benefits from the acquisition. Overcoming this tragedy
and achieving the anticipated benefits of the acquisition will depend on close
collaboration between management and key personnel of the two companies in a
timely and efficient manner.
THE FIDUCIARY ACQUISITION COULD ADVERSELY AFFECT OUR COMBINED FINANCIAL RESULTS
OR THE MARKET PRICE OF OUR COMMON STOCK. If the benefits of the acquisition over
time do not exceed the costs associated with the acquisition, including any
dilution to our shareholders resulting from the issuance of shares in connection
with the acquisition, our financial results, including earnings per share, could
be adversely affected.
WE ARE SUBJECT TO FEDERAL RESERVE BOARD REGULATION. Upon completion of our
acquisition of Fiduciary, we became a bank holding company and a financial
holding company subject to the supervision and regulation of the Federal Reserve
Board under the Bank Holding Company Act of 1956. The Federal Reserve Board may
impose limitations, restrictions, or prohibitions on our activities if the
Federal Reserve Board believes that we do not have the appropriate financial and
managerial resources to commence or conduct an activity or make an acquisition,
and the Federal Reserve Board may take actions as appropriate to enforce
applicable federal law.
TECHNOLOGY AND OPERATING RISK COULD CONSTRAIN OUR OPERATIONS. We are highly
dependent on the integrity of our technology, operating systems and premises.
Although we have in place certain disaster recovery plans, we may experience
system delays and interruptions as a result of natural disasters, power
failures, acts of war, and third party failures, which could negatively impact
our operations.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, our financial position is subject to market
risk: the potential loss due to changes in the value of investments resulting
from fluctuations in interest rates, foreign exchange and/or equity prices.
Management is responsible for managing this risk. We have also established a
Risk Management Committee to provide a framework to assist management to
identify assess and manage market and other risks.
We are exposed to changes in interest rates primarily in our debt transactions
and portfolio debt holdings available for sale, which are carried at fair value.
As of December 31, 2001, a significant percentage of our outstanding debt is at
fixed interest rates. In our banking/finance segment, we monitor the net
interest rate margin and the average maturity of interest earning assets and
funding sources. In addition, we have considered the potential impact of the
effect on the banking/finance segment, our outstanding debt and portfolio debt
holdings, individually and collectively, of a 100 basis point (1%) movement in
market interest rates. We do not expect this change would have a material impact
on our operating revenues or results of operations in either scenario.
We operate primarily in the United States, but also provide services and earn
revenues in Canada, the Bahamas, Europe, Asia, South America, Africa and
Australia. The majority of these revenues and associated expenses, however, are
denominated in U.S. dollars. Therefore, our exposure to foreign currency
fluctuations in our revenues and expenses is not material at this time. This
situation may change in the future as our business continues to grow outside the
United States.
We are exposed to equity price fluctuations as investments available for sale
are carried at fair value. To mitigate this risk, we maintain a diversified
investment portfolio.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material developments in the litigation previously reported
in our Form 10-K for the period ended September 30, 2001 as filed with the
Securities and Exchange Commission on December 26, 2001. We are involved from
time to time in litigation relating to claims arising in the normal course of
business. Management is of the opinion that the ultimate resolution of such
claims will not materially affect our business or financial position.
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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 incorporated by reference to
Exhibit 3(ii) to the Company's Form 10-K for the
fiscal year ended September 30, 1999
Exhibit 4.1 Indenture between Franklin Resources, Inc. and The
Bank of New York dated May 11, 2001 incorporated by
reference to Exhibit 4.2 to the Registrant's
Registration Statement on Form S-3, filed on August 6,
2001
Exhibit 4.2 Registration Rights Agreement between Franklin
Resources, Inc. and Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch") dated May 11,
2001 incorporated by reference to Exhibit 4.4 to the
Registrant's Registration Statement on Form S-3, filed
on August 6, 2001
Exhibit 12 Computations of ratios of earnings to fixed charges
(b) Reports on Form 8-K:
(i) Form 8-K filed on October 25, 2001 reporting under
Item 5 "Other Events" an earnings press release, dated
October 25, 2001, and including said press release
as an Exhibit under Item 7 "Financial Statements and
Exhibits."
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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 thereunto duly authorized.
FRANKLIN RESOURCES, INC.
------------------------
Registrant.
Date: February 13, 2002 /s/ Martin L. Flanagan
----------------------
MARTIN L. FLANAGAN
President, Member-Office of the President,
Chief Financial Officer and Chief Operating
Officer
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