Item 1. Financial Statements.

103K characters. Original on sec.gov · Markdown

Item 1. Financial Statements.

FRANKLIN RESOURCES, INC.

CONSOLIDATED STATEMENTS OF INCOME

Unaudited


	Three Months Ended March 31,				Six Months Ended March 31,
(in millions, except per share data)	2024		2023		2024		2023
Operating Revenues
Investment management fees	$	1,713.9	$	1,573.3	$	3,366.1	$	3,205.1
Sales and distribution fees	358.3		301.4		654.7		593.3
Shareholder servicing fees	68.0		43.3		100.5		76.7
Other	12.6		9.2		22.6		19.2
Total operating revenues	2,152.8		1,927.2		4,143.9		3,894.3
Operating Expenses
Compensation and benefits	1,028.2		847.3		1,996.5		1,826.5
Sales, distribution and marketing	484.3		406.6		885.1		795.2
Information systems and technology	155.1		128.0		286.1		249.4
Occupancy	76.2		59.7		142.9		114.2
Amortization of intangible assets	84.6		86.0		170.4		169.2
General, administrative and other	195.1		144.5		327.1		290.7
Total operating expenses	2,023.5		1,672.1		3,808.1		3,445.2
Operating Income	129.3		255.1		335.8		449.1
Other Income (Expenses)
Investment and other income, net	52.5		60.6		225.7		150.5
Interest expense	(27.7)		(33.5)		(46.5)		(64.4)
Investment and other income of consolidated investment products, net	89.9		87.2		66.1		73.6
Expenses of consolidated investment products	(5.9)		(3.4)		(11.8)		(14.9)
Other income, net	108.8		110.9		233.5		144.8
Income before taxes	238.1		366.0		569.3		593.9
Taxes on income	62.8		92.9		137.7		153.2
Net income	175.3		273.1		431.6		440.7
Less: net income (loss) attributable to
Redeemable noncontrolling interests	42.8		83.2		52.3		81.7
Nonredeemable noncontrolling interests	8.3		(4.3)		3.8		(0.8)
Net Income Attributable to Franklin Resources, Inc.	$	124.2	$	194.2	$	375.5	$	359.8

Earnings per Share
Basic	$	0.23	$	0.38	$	0.71	$	0.70
Diluted	0.23		0.38		0.71		0.70

See Notes to Consolidated Financial Statements.

FRANKLIN RESOURCES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Unaudited


(in millions)		Three Months Ended March 31,						Six Months Ended March 31,
	2024			2023			2024			2023
Net Income		$	175.3		$	273.1		$	431.6		$	440.7
Other Comprehensive Income (Loss)
Currency translation adjustments, net of tax		(29.5)			15.9			29.6			143.2
Net unrealized gains (losses) on defined benefit plans, net of tax		0.5			1.8			0.4			(0.8)
Net unrealized gains on investments, net of tax		0.1			0.2			0.1			0.2
Total other comprehensive income (loss)		(28.9)			17.9			30.1			142.6
Total comprehensive income		146.4			291.0			461.7			583.3
Less: comprehensive income (loss) attributable to
Redeemable noncontrolling interests		42.8			83.2			52.3			81.7
Nonredeemable noncontrolling interests		8.3			(4.3)			3.8			(0.8)
Comprehensive Income Attributable to Franklin Resources, Inc.		$	95.3		$	212.1		$	405.6		$	502.4

See Notes to Consolidated Financial Statements.

FRANKLIN RESOURCES, INC.

CONSOLIDATED BALANCE SHEETS

Unaudited


(in millions, except share and per share data)	March 31, 2024		September 30, 2023
Assets
Cash and cash equivalents	$	3,300.2	$	3,686.4
Receivables	1,449.6		1,348.4
Investments (including $899.7 and $872.8 at fair value at March 31, 2024 and September 30, 2023)	2,377.7		2,222.0
Assets of consolidated investment products
Cash and cash equivalents	824.1		716.0
Investments, at fair value	11,149.1		9,637.2
Property and equipment, net	899.3		800.1
Goodwill	6,198.9		6,003.8
Intangible assets, net	5,331.3		4,902.2
Operating lease right-of-use assets	895.9		406.3
Other	481.6		398.8
Total Assets	$	32,907.7	$	30,121.2

Liabilities
Compensation and benefits	$	1,412.6	$	1,665.1
Accounts payable and accrued expenses	573.7		530.0

Income taxes	333.3		513.5
Debt	3,041.0		3,052.8
Liabilities of consolidated investment products
Accounts payable and accrued expenses	744.4		349.7
Debt	9,131.0		8,231.8
Deferred tax liabilities	438.1		450.4
Operating lease liabilities	983.2		467.8
Other	1,414.8		1,286.2
Total liabilities	18,072.1		16,547.3
Commitments and Contingencies (Note 11)
Redeemable Noncontrolling Interests	1,253.9		1,026.1
Stockholders’ Equity
Preferred stock, $1.00 par value, 1,000,000 shares authorized; none issued	—		—
Common stock, $0.10 par value, 1,000,000,000 shares authorized; 526,185,104 and 495,937,891 shares issued and outstanding at March 31, 2024 and September 30, 2023	52.6		49.6
Capital in excess of par	1,022.3		—
Retained earnings	12,265.4		12,376.6
Accumulated other comprehensive loss	(479.2)		(509.3)
Total Franklin Resources, Inc. stockholders’ equity	12,861.1		11,916.9
Nonredeemable noncontrolling interests	720.6		630.9
Total stockholders’ equity	13,581.7		12,547.8
Total Liabilities, Redeemable Noncontrolling Interests and Stockholders’ Equity	$	32,907.7	$	30,121.2

See Notes to Consolidated Financial Statements.

FRANKLIN RESOURCES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Unaudited


		Franklin Resources, Inc.																Non- redeemable Non- controlling Interests		Total Stockholders’ Equity
	Common Stock					Capital in Excess of Par Value			Retained Earnings			Accum- ulated Other Compre- hensive Loss			Stockholders’ Equity
(in millions)
for the six months ended March 31, 2024	Shares		Amount
Balance at October 1, 2023		495.9		$	49.6		$	—		$	12,376.6		$	(509.3)		$	11,916.9	$	630.9	$	12,547.8
Net income (loss)										251.3						251.3		(4.5)		246.8
Other comprehensive income													59.0			59.0				59.0
Dividends declared on common stock ($0.31 per share)										(167.6)						(167.6)				(167.6)
Repurchase of common stock		(2.4)		(0.2)			(66.6)			8.0						(58.8)				(58.8)
Issuance of common stock		1.2		0.1			26.7									26.8				26.8
Stock-based compensation							39.9									39.9				39.9
Net subscriptions and other																		9.6		9.6
Adjustment to fair value of redeemable noncontrolling interests										(65.9)						(65.9)				(65.9)
Balance at December 31, 2023		494.7		$	49.5		$	—		$	12,402.4		$	(450.3)		$	12,001.6	$	636.0	$	12,637.6
Net income										124.2						124.2		8.3		132.5
Other comprehensive loss													(28.9)			(28.9)				(28.9)
Dividends declared on common stock ($0.31 per share)										(169.3)						(169.3)				(169.3)
Repurchase of common stock		(0.4)		(0.1)			(11.6)			—						(11.7)				(11.7)
Issuance of common stock		0.3		—			10.7									10.7				10.7
Stock-based compensation							86.3									86.3				86.3
Acquisition		31.6		3.2			936.9									940.1		25.8		965.9
Net subscriptions and other																		63.1		63.1
Net deconsolidation of investment products																		(12.6)		(12.6)
Adjustment to fair value of redeemable noncontrolling interests										(91.9)						(91.9)				(91.9)
Balance at March 31, 2024		526.2		$	52.6		$	1,022.3		$	12,265.4		$	(479.2)		$	12,861.1	$	720.6	$	13,581.7

See Notes to Consolidated Financial Statements.


		Franklin Resources, Inc.																Non- redeemable Non- controlling Interests		Total Stockholders’ Equity
	Common Stock					Capital in Excess of Par Value			Retained Earnings			Accum- ulated Other Compre- hensive Loss			Stockholders’ Equity
(in millions)
for the six months ended March 31, 2023	Shares		Amount
Balance at October 1, 2022		499.6		$	50.0		$	—		$	12,045.6		$	(621.0)		$	11,474.6	$	824.3	$	12,298.9

Net income										165.6						165.6		3.5		169.1
Other comprehensive income													124.7			124.7				124.7
Dividends declared on common stock ($0.30 per share)										(153.6)						(153.6)				(153.6)
Repurchase of common stock		(0.5)		(0.1)			(69.1)			55.0						(14.2)				(14.2)
Issuance of common stock		1.2		0.1			33.5									33.6				33.6
Stock-based compensation							35.6									35.6				35.6
Net subscriptions and other																		97.1		97.1
Net deconsolidation of investment products																		(35.7)		(35.7)
Balance at December 31, 2022		500.3		$	50.0		$	—		$	12,112.6		$	(496.3)		$	11,666.3	$	889.2	$	12,555.5
Net income (loss)										194.2						194.2		(4.3)		189.9
Other comprehensive income													17.9			17.9				17.9
Dividends declared on common stock ($0.30 per share)										(153.8)						(153.8)				(153.8)
Repurchase of common stock		(0.1)		—			(66.0)			62.4						(3.6)				(3.6)
Issuance of common stock		0.7		0.1			25.2									25.3				25.3
Stock-based compensation							40.8									40.8				40.8
Net subscriptions and other																		50.1		50.1
Net deconsolidation of investment products																		(324.2)		(324.2)
Adjustment to fair value of redeemable noncontrolling interests										44.7						44.7				44.7
Balance at March 31, 2023		500.9		$	50.1		$	—		$	12,260.1		$	(478.4)		$	11,831.8	$	610.8	$	12,442.6

See Notes to Consolidated Financial Statements.

FRANKLIN RESOURCES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited


	Six Months Ended March 31,
(in millions)	2024		2023

Net Income	$	431.6	$	440.7
Adjustments to reconcile net income to net cash used in operating activities:
Stock-based compensation	132.0		122.0
Amortization of deferred sales commissions	28.3		25.0
Depreciation and other amortization	57.5		52.9
Amortization of intangible assets	170.4		169.2
Net gains on investments	(41.6)		(48.5)
Income from investments in equity method investees	(81.3)		(52.6)
Net (gains) losses on investments of consolidated investment products	(3.0)		57.5
Net purchase of investments by consolidated investment products	(232.2)		(613.0)
Deferred income taxes	(15.0)		(55.7)
Other	57.4		28.8
Changes in operating assets and liabilities:
Increase in receivables and other assets	(55.1)		(144.4)
Decrease (increase) in investments, net	10.0		(36.0)
Decrease in accrued compensation and benefits	(316.0)		(336.1)
Decrease in income taxes payable	(177.2)		(28.5)
Increase in accounts payable, accrued expenses and other liabilities	22.6		85.4
Increase (decrease) in accounts payable and accrued expenses of consolidated investment products	(103.7)		3.7
Net cash used in operating activities	(115.3)		(329.6)
Purchase of investments	(501.0)		(504.7)
Liquidation of investments	543.6		385.4
Purchase of investments by consolidated collateralized loan obligations	(2,294.3)		(2,097.6)
Liquidation of investments by consolidated collateralized loan obligations	1,769.9		618.8
Additions of property and equipment, net	(61.2)		(42.8)
Acquisitions, net of cash acquired (including $281.4 in cash and cash equivalents of consolidated investment products in fiscal year 2024)	177.9		(500.5)
Payments of contingent consideration asset	—		5.5
Payments of deferred consideration liability	(60.8)		—
Net consolidation (deconsolidation) of investment products	15.1		(85.4)
Net cash used in investing activities	(410.8)		(2,221.3)

[Table continued on next page]

See Notes to Consolidated Financial Statements.

FRANKLIN RESOURCES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited

[Table continued from previous page]


	Six Months Ended March 31,
(in millions)	2024		2023

Issuance of common stock	$	7.3	$	13.4
Dividends paid on common stock	(321.4)		(301.8)
Repurchase of common stock	(70.5)		(17.8)



Proceeds from repurchase agreement	—		174.8
Proceeds from debt of consolidated investment products	587.4		2,258.7
Payments on debt of consolidated investment products	(35.5)		(688.3)
Payments on contingent consideration liabilities	(2.9)		(4.2)
Noncontrolling interests	67.7		552.0
Net cash provided by financing activities	232.1		1,986.8
Effect of exchange rate changes on cash and cash equivalents	15.9		60.2
Decrease in cash and cash equivalents	(278.1)		(503.9)
Cash and cash equivalents, beginning of period	4,402.4		4,782.5
Cash and Cash Equivalents, End of Period	$	4,124.3	$	4,278.6

Supplemental Disclosure of Cash Flow Information
Cash paid for income taxes	$	318.4	$	204.6
Cash paid for interest	51.3		47.1
Cash paid for interest by consolidated investment products	345.6		128.6

See Notes to Consolidated Financial Statements.

FRANKLIN RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024

(Unaudited)

Note 1 – Basis of Presentation

The unaudited interim financial statements of Franklin Resources, Inc. (“Franklin”) and its consolidated subsidiaries (collectively, the “Company”) included herein have been prepared in accordance with the instructions to Form 10-Q and the rules and regulations of the U.S. Securities and Exchange Commission. Under these rules and regulations, some information and footnote disclosures normally included in financial statements prepared under accounting principles generally accepted in the United States of America have been shortened or omitted. Management believes that all adjustments necessary for a fair statement of the financial position and the results of operations for the periods shown have been made. All adjustments are normal and recurring. Management also believes that the accounting estimates are appropriate, and the resulting balances are reasonable; however, due to the inherent uncertainties in making estimates, actual amounts may differ from these estimates. These financial statements should be read together with the Company’s audited financial statements included in its Annual Report on Form 10-K for the fiscal year ended September 30, 2023 (“fiscal year 2023”).

During the quarter ended March 31, 2024, the Company identified that it did not eliminate the investment income from certain consolidated limited partnerships for the fiscal year ended September 30, 2023, resulting in offsetting adjustments to investment and other income, net and net income attributable to nonredeemable noncontrolling interest. The Company is not entitled to the economic returns associated with the underlying investments held by these limited partnerships.

There is no impact on operating income, net income attributable to Franklin Resources, Inc., earnings per share, total assets, total liabilities, retained earnings or total shareholders’ equity. There is no impact on the financial results attributable to the Company’s shareholders. The Company has determined this did not result in a material misstatement to its previously issued consolidated financial statements. For comparability, the Company has revised the comparative prior period amounts included in the consolidated statements of income, consolidated statements of stockholders’ equity, consolidated statements of cash flows, and related footnote disclosures.

The impacts on the consolidated statements of income for the three and six months ended March 31, 2023 are as follows:


(in millions)	Three Months Ended March 31, 2023						Six Months Ended March 31, 2023
	As Reported		Adjustments		As Revised		As Reported		Adjustments		As Revised
Operating Income	$	255.1	$	—	$	255.1	$	449.1	$	—	$	449.1
Other income, net
Investment and other income, net	125.6		(65.0)		60.6		216.7		(66.2)		150.5
Other income, net	175.9		(65.0)		110.9		211.0		(66.2)		144.8
Income before taxes	431.0		(65.0)		366.0		660.1		(66.2)		593.9
Net income	338.1		(65.0)		273.1		506.9		(66.2)		440.7
Less: net income (loss) attributable to nonredeemable noncontrolling interest	60.7		(65.0)		(4.3)		65.4		(66.2)		(0.8)
Net Income Attributable to Franklin Resources, Inc.	194.2		—		194.2		359.8		—		359.8

The impact on the consolidated statement of cash flows for the six months ended March 31, 2023 are as follows:


(in millions)	Six Months Ended March 31, 2023
	As Reported		Adjustments		As Revised
Net cash used in operating activities	$	(289.7)	$	(39.9)	$	(329.6)
Net cash used in investing activities	(2,195.0)		(26.3)		(2,221.3)
Net cash provided by financing activities	1,920.6		66.2		1,986.8
Decrease to cash and cash equivalents	(503.9)		—		(503.9)

Note 2 – New Accounting Guidance

Accounting Guidance Not Yet Adopted

In November 2023, the Financial Accounting Standards Board (“FASB”) issued an amendment to the existing segment reporting guidance. The amendment requires annual and interim disclosures of significant segment expenses that are regularly provided to the chief operating decision maker by reportable segment and clarifies that single reportable segment entities are required to apply all existing segment disclosures in the guidance. The amendment is effective for the Company on October 1, 2024, and is retrospectively applicable to all prior periods presented in its consolidated financial statements. The Company is currently evaluating the impact that the adoption will have on its consolidated financial statements.

In December 2023, the FASB issued an amendment to the existing income taxes guidance. The amendment requires the disclosure of additional information with respect to the reconciliation of the effective tax rate to the statutory rate for federal, state, and foreign income taxes and requires greater detail about significant reconciling items in the reconciliation. Additionally, the amendment requires disaggregated information pertaining to taxes paid, net of refunds received, for federal, state, and foreign income taxes. The amendment allows for either a prospective or retrospective approach on adoption and is effective for the Company on October 1, 2025. The Company is currently evaluating the impact that the adoption will have on its consolidated financial statements and has not yet determined its transition approach.

Note 3 – Acquisition

Putnam Investments

On January 1, 2024, the Company acquired Putnam Investments (“Putnam”) from Great-West Lifeco Inc. (“Great-West”) for 31.61 million shares of its common stock, cash consideration paid at close of $221.7 million for investments and other purchase-related amounts, and deferred cash consideration of $100.0 million to be paid during the third quarter of fiscal year 2024. The cash consideration paid at close was funded from existing cash and we expect to fund the deferred cash consideration from existing cash and sources of liquidity. See below for a summary of the total purchase consideration transferred at closing:


(in millions)	Total
Equity consideration1, 2	$	940.1
Cash consideration	221.7
Deferred cash consideration	100.0
Less: Other adjustments3	(30.2)
Total Purchase Consideration	$	1,231.6

1Excludes shares to be granted under a deferred compensation program.

2Market price on closing date of $29.79.

3Primarily relates to payments treated as future compensation expense.

Great-West became a long-term shareholder of the Company with an approximate 6.0% stake in the common stock of the Company as of the acquisition date. Shares representing 4.9% of the Company’s outstanding Common Stock at closing are subject to a five-year lock-up, and the remaining shares are subject to a 180-day lock-up following the date of closing.

The acquisition of Putnam accelerates the Company’s growth in the retirement sector by increasing the amount of the Company’s defined contribution AUM and expanding insurance assets, further strengthening the Company’s presence in these key market segments to better serve clients.

The following table summarizes the estimated fair value amounts recognized for the assets acquired and liabilities assumed and resulting goodwill as of the acquisition date. The issuance of common stock consideration represents a non-cash financing activity related to the statement of cash flows.


(in millions)	Estimated Fair Value
as of January 1, 2024
Cash and cash equivalents	$	101.1
Receivables	118.9
Investments	111.2
Assets of consolidated investment products
Cash and cash equivalents	281.4
Investments, at fair value	849.5
Property and equipment	87.1
Goodwill	189.8
Indefinite-lived intangible assets	542.5
Definite-lived intangible asset	52.9
Operating lease right-of-use assets	109.2
Other assets	20.4
Compensation and benefits	(57.8)
Accounts payable and accrued expenses	(40.9)
Liabilities of consolidated investment products
Accounts payable and accrued expenses	(259.6)
Debt	(706.8)
Operating lease liabilities	(109.2)
Other liabilities	(12.1)
Redeemable noncontrolling interests	(20.2)
Nonredeemable noncontrolling interests	(25.8)
Total Identifiable Net Assets	$	1,231.6

The purchase price allocation is preliminary and subject to change during the measurement period, which is not to exceed one year from the acquisition date. At this time, the Company does not expect material changes to the assets acquired or liabilities assumed.

The goodwill is primarily attributable to expected growth opportunities from the combined operations and is expected to be deductible for tax purposes. The definite-lived intangible asset relates to trade name, which is amortized over its estimated useful life of 10.0 years. Amortization expense related to the trade name was $1.3 million for the period ended March 31, 2024. The estimated remaining amortization expense is $5.3 million per year.

Transaction costs incurred in connection with the acquisition were $17.8 million for the six months ended March 31, 2024. These costs are primarily comprised of professional fees, recorded in general, administrative and other expenses. The Company also incurred $103.0 million of acquisition-related compensation and benefits expense during the period, primarily related to the acceleration of expense for historical Putnam compensation arrangements, retention bonuses and termination benefits.

In addition, the Company will pay up to $375.0 million between the third and seventh anniversaries of the closing date related to revenue growth targets from the strategic partnership with Great-West and its affiliates which will be recognized in operating income.

Operating revenues of the acquired business from January 1, 2024 through March 31, 2024 were approximately $210 million. Net Income is not available to be separately reported due to the ongoing integration of the combined businesses.

Note 4 – Earnings per Share

The components of basic and diluted earnings per share were as follows:


(in millions, except per share data)		Three Months Ended March 31,						Six Months Ended March 31,
	2024			2023			2024			2023
Net income attributable to Franklin Resources, Inc.		$	124.2		$	194.2		$	375.5		$	359.8
Less: allocation of earnings to participating nonvested stock and stock unit awards		7.2			9.0			16.3			16.7
Net Income Available to Common Stockholders		$	117.0		$	185.2		$	359.2		$	343.1

Weighted-average shares outstanding – basic		518.4			490.7			502.6			490.1
Dilutive effect of nonparticipating nonvested stock unit awards		0.8			0.7			0.8			0.7
Weighted-Average Shares Outstanding – Diluted		519.2			491.4			503.4			490.8

Earnings per Share
Basic		$	0.23		$	0.38		$	0.71		$	0.70
Diluted		0.23			0.38			0.71			0.70

Nonparticipating nonvested stock unit awards excluded from the calculation of diluted earnings per share because their effect would have been antidilutive were insignificant for the three and six months ended March 31, 2024 and 2023.

Note 5 – Revenues

Operating revenues by geographic area were as follows:


(in millions)	United States		Luxembourg		Asia-Pacific		Americas Excluding United States		Europe, Middle East and Africa, Excluding Luxembourg		Total
for the three months ended March 31, 2024
Investment management fees	$	1,285.5	$	222.2	$	69.9	$	63.2	$	73.1	$	1,713.9
Sales and distribution fees	256.3		87.1		5.0		9.9		—		358.3
Shareholder servicing fees	59.4		7.9		0.7		—		—		68.0
Other	9.4		0.2		3.0		—		—		12.6
Total	$	1,610.6	$	317.4	$	78.6	$	73.1	$	73.1	$	2,152.8


(in millions)	United States		Luxembourg		Asia-Pacific		Americas Excluding United States		Europe, Middle East and Africa, Excluding Luxembourg		Total
for the six months ended March 31, 2024
Investment management fees	$	2,546.1	$	413.9	$	138.4	$	114.7	$	153.0	$	3,366.1
Sales and distribution fees	462.0		163.6		9.6		19.5		—		654.7
Shareholder servicing fees	83.6		15.5		1.3		0.1		—		100.5
Other	18.4		0.7		3.2		—		0.3		22.6
Total	$	3,110.1	$	593.7	$	152.5	$	134.3	$	153.3	$	4,143.9


(in millions)	United States		Luxembourg		Asia-Pacific		Americas Excluding United States		Europe, Middle East and Africa, Excluding Luxembourg		Total
for the three months ended March 31, 2023
Investment management fees	$	1,165.8	$	196.6	$	82.5	$	56.3	$	72.1	$	1,573.3
Sales and distribution fees	212.4		73.6		5.0		10.4		—		301.4
Shareholder servicing fees	34.6		7.8		0.7		0.2		—		43.3
Other	8.5		0.3		0.1		—		0.3		9.2
Total	$	1,421.3	$	278.3	$	88.3	$	66.9	$	72.4	$	1,927.2


(in millions)	United States		Luxembourg		Asia-Pacific		Americas Excluding United States		Europe, Middle East and Africa, Excluding Luxembourg		Total
for the six months ended March 31, 2023
Investment management fees	$	2,440.6	$	378.4	$	150.1	$	108.1	$	127.9	$	3,205.1
Sales and distribution fees	420.6		142.0		10.0		20.7		—		593.3
Shareholder servicing fees	59.9		15.5		1.1		0.2		—		76.7
Other	18.2		0.3		0.4		—		0.3		19.2
Total	$	2,939.3	$	536.2	$	161.6	$	129.0	$	128.2	$	3,894.3

Operating revenues are attributed to geographic areas based on the locations of the subsidiaries that provide the services, which may differ from the regions in which the related investment products are sold.

Revenues earned from sponsored funds were 83% of the Company’s total operating revenues for the three and six months ended March 31, 2024 and March 31, 2023.

Note 6 – Investments

The disclosures below include details of the Company’s investments, excluding those of consolidated investment products (“CIPs”). See Note 8 – Consolidated Investment Products for information related to the investments held by these entities.

Investments consisted of the following:


(in millions)	March 31, 2024		September 30, 2023
Investments, at fair value
Sponsored funds and separate accounts	$	588.6	$	630.5
Investments related to long-term incentive plans	258.5		191.6
Other equity and debt investments	52.6		50.7
Total investments, at fair value	899.7		872.8
Investments in equity method investees	1,216.7		1,089.2
Other investments	261.3		260.0
Total	$	2,377.7	$	2,222.0

The Company has entered into repurchase agreements with a third-party financing company for certain investments held by the Company. As of March 31, 2024, other liabilities includes repurchase agreements of $150.6 million with investments of $158.2 million in carrying value pledged as collateral. The repurchase agreements have contractual maturity dates ranging between 2029 to 2035.

Note 7 – Fair Value Measurements

The disclosures below include details of the Company’s fair value measurements, excluding those of CIPs. See Note 8 – Consolidated Investment Products for information related to fair value measurements of the assets and liabilities of these entities.

The assets and liabilities measured at fair value on a recurring basis were as follows:


(in millions)	Level 1		Level 2		Level 3		NAV as a Practical Expedient		Total
as of March 31, 2024
Assets
Investments, at fair value
Sponsored funds and separate accounts	$	318.3	$	211.6	$	16.4	$	42.3	$	588.6
Investments related to long-term incentive plans	232.8		—		—		25.7		258.5
Other equity and debt investments	3.6		9.0		1.0		39.0		52.6

Total Assets Measured at Fair Value	$	554.7	$	220.6	$	17.4	$	107.0	$	899.7

Liabilities
Securities sold short	$	199.3	$	—	$	—	$	—	$	199.3
Contingent consideration liabilities	—		—		51.4		—		51.4
Total Liabilities Measured at Fair Value	$	199.3	$	—	$	51.4	$	—	$	250.7


(in millions)	Level 1		Level 2		Level 3		NAV as a Practical Expedient		Total
as of September 30, 2023
Assets
Investments, at fair value
Sponsored funds and separate accounts	$	356.5	$	211.9	$	18.5	$	43.6	$	630.5
Investments related to long-term incentive plans	168.2		—		—		23.4		191.6
Other equity and debt investments	3.4		11.3		3.3		32.7		50.7

Total Assets Measured at Fair Value	$	528.1	$	223.2	$	21.8	$	99.7	$	872.8

Liabilities
Securities sold short	$	158.3	$	—	$	—	$	—	$	158.3
Contingent consideration liabilities	—		—		55.0		—		55.0
Total Liabilities Measured at Fair Value	$	158.3	$	—	$	55.0	$	—	$	213.3

Investments for which fair value was estimated using reported NAV as a practical expedient primarily consist of nonredeemable private equity, debt and infrastructure funds, and redeemable alternative credit, global equity and private real estate funds. These investments were as follows:


(in millions)	March 31, 2024		September 30, 2023
Nonredeemable investments1
Investments with known liquidation periods	$	36.7	$	32.1
Investments with unknown liquidation periods	16.4		17.4

Redeemable investments2	53.9		50.2

Unfunded commitments	43.1		43.1

1The investments are expected to be returned through distributions over the life of the funds as a result of liquidations of the funds’ underlying assets. Investments with known liquidation periods have an expected weighted-average life of 2.6 years and 2.9 years at March 31, 2024 and September 30, 2023.

2Investments are redeemable on a semi-monthly, monthly and quarterly basis.

Financial instruments that were not measured at fair value were as follows:


(in millions)	Fair Value Level	March 31, 2024				September 30, 2023
	Carrying Value	Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial Assets
Cash and cash equivalents	1	$	3,300.2	$	3,300.2	$	3,686.4	$	3,686.4
Other investments
Time deposits	2	10.1		10.1		9.9		9.9
Equity securities	3	251.2		251.2		250.1		250.1

Financial Liability
Debt	2	$	3,041.0	$	2,552.1	$	3,052.8	$	2,419.4

Note 8 – Consolidated Investment Products

CIPs consist of mutual and other investment funds, limited partnerships and similar structures and CLOs, all of which are sponsored by the Company, and include both voting interest entities and variable interest entities (“VIEs”). The Company had 81 CIPs, including 22 CLOs, as of March 31, 2024 and 70 CIPs, including 20 CLOs, as of September 30, 2023.

The balances related to CIPs included in the Company’s consolidated balance sheets were as follows:


(in millions)	March 31, 2024		September 30, 2023
Assets
Cash and cash equivalents	$	824.1	$	716.0
Receivables	185.6		166.7
Investments, at fair value	11,149.1		9,637.2
Total Assets	$	12,158.8	$	10,519.9

Liabilities
Accounts payable and accrued expenses	$	744.4	$	349.7
Debt	9,131.0		8,231.8
Other liabilities	49.2		25.1
Total liabilities	9,924.6		8,606.6
Redeemable Noncontrolling Interests	643.5		580.1
Stockholders’ Equity
Franklin Resources, Inc.’s interests	1,255.5		1,033.9
Nonredeemable noncontrolling interests	335.2		299.3
Total stockholders’ equity	1,590.7		1,333.2
Total Liabilities, Redeemable Noncontrolling Interests and Stockholders’ Equity	$	12,158.8	$	10,519.9

The CIPs did not have a significant impact on net income attributable to the Company during the three and six months ended March 31, 2024 and 2023.

The Company has no right to the CIPs’ assets, other than its direct equity investments in them and investment management and other fees earned from them. The debt holders of the CIPs have no recourse to the Company’s assets beyond the level of its direct investment; therefore the Company bears no other risks associated with the CIPs’ liabilities.

Fair Value Measurements

Assets of CIPs measured at fair value on a recurring basis were as follows:


(in millions)	Level 1		Level 2		Level 3		NAV as a Practical Expedient		Total
as of March 31, 2024
Assets
Cash and cash equivalents of CLOs	$	548.3	$	—	$	—	$	—	$	548.3
Receivables of CLOs	—		76.1		—		—		76.1
Investments
Equity and debt securities	307.7		865.8		591.0		160.2		1,924.7
Loans	—		9,224.4		—		—		9,224.4

Total Assets Measured at Fair Value	$	856.0	$	10,166.3	$	591.0	$	160.2	$	11,773.5


(in millions)	Level 1		Level 2		Level 3		NAV as a Practical Expedient		Total
as of September 30, 2023
Assets
Cash and cash equivalents of CLOs	$	352.3	$	—	$	—	$	—	$	352.3
Receivables of CLOs	—		116.7		—		—		116.7
Investments
Equity and debt securities	210.9		642.6		584.9		154.0		1,592.4
Loans	—		8,044.8		—		—		8,044.8

Total Assets Measured at Fair Value	$	563.2	$	8,804.1	$	584.9	$	154.0	$	10,106.2

Investments for which fair value was estimated using reported NAV as a practical expedient consist of a redeemable U.S. equity fund, a redeemable global hedge fund and nonredeemable private debt funds. These investments were as follows:


(in millions)	March 31, 2024		September 30, 2023
Nonredeemable investments1

Investments with unknown liquidation periods	$	23.9	$	21.8

Redeemable investments2	136.3		132.2

1The investments are expected to be returned through distributions over the life of the funds as a result of liquidations of the funds’ underlying assets.

2Investments are redeemable on a monthly basis and liquidation periods are unknown.

Changes in Level 3 assets were as follows:


(in millions)	Equity and Debt Securities
for the three months ended March 31, 2024
Balance at January 1, 2024	$	551.5
Acquisition	29.6
Losses included in investment and other income of consolidated investment products, net	(0.1)
Purchases	22.8
Sales	(0.3)
Net deconsolidations	(12.5)


Balance at March 31, 2024	$	591.0
Change in unrealized gains included in net income relating to assets held at March 31, 2024	$	—


(in millions)	Equity and Debt Securities
for the six months ended March 31, 2024
Balance at October 1, 2023	$	584.9
Acquisition	29.6
Losses included in investment and other income of consolidated investment products, net	(38.2)
Purchases	26.6
Sales	(0.5)
Net deconsolidations	(12.5)
Transfers into Level 3	1.1

Balance at March 31, 2024	$	591.0
Change in unrealized losses included in net income relating to assets held at March 31, 2024	$	(37.6)


(in millions)	Equity and Debt Securities		Real Estate		Loans		Total Level 3 Assets
for the three months ended March 31, 2023
Balance at January 1, 2023	$	555.8	$	358.0	$	64.7	$	978.5
Losses included in investment and other income of consolidated investment products, net	(18.4)		(12.7)		—		(31.1)
Purchases	13.5		0.4		31.1		45.0
Sales	(19.4)		—		—		(19.4)
Net (deconsolidations) consolidations	7.5		(345.7)		(90.5)		(428.7)
Transfers into Level 3	—		—		3.1		3.1
Transfers out of Level 3	—		—		(5.3)		(5.3)

Balance at March 31, 2023	$	539.0	$	—	$	3.1	$	542.1
Change in unrealized losses included in net income relating to assets held at March 31, 2023	$	(25.0)	$	—	$	—	$	(25.0)


(in millions)	Equity and Debt Securities		Real Estate		Loans		Total Level 3 Assets
for the six months ended March 31, 2023
Balance at October 1, 2022	$	555.8	$	268.6	$	239.4	$	1,063.8
Gains (losses) included in investment and other income of consolidated investment products, net	(24.7)		(9.0)		0.1		(33.6)
Purchases	22.5		86.1		58.6		167.2
Sales	(25.0)		—		(0.2)		(25.2)
Net (deconsolidations) consolidations	10.4		(345.7)		(292.6)		(627.9)
Transfers into Level 3	—		—		3.1		3.1
Transfers out of Level 3	—		—		(5.3)		(5.3)

Balance at March 31, 2023	$	539.0	$	—	$	3.1	$	542.1
Change in unrealized losses included in net income relating to assets held at March 31, 2023	$	(22.3)	$	—	$	—	$	(22.3)

Valuation techniques and significant unobservable inputs used in Level 3 fair value measurements were as follows:


(in millions)
as of March 31, 2024		Fair Value			Valuation Technique		Significant Unobservable Inputs		Range (Weighted Average1)
Equity and debt securities		$	298.3		Market pricing		Private sale pricing		$0.37–$1,000.00 ($60.33) per share
		Discount for lack of marketability			18.8%–24.5% (22.2%)
	248.7			Market comparable companies		Enterprise value/ Revenue multiple		1.5–22.4 (15.1)
				Discount for lack of marketability		7.4%–9.9% (8.8%)
	44.0			Discounted cash flow		Discount rate		6.4%


(in millions)
as of September 30, 2023		Fair Value			Valuation Technique		Significant Unobservable Inputs	Range (Weighted Average1)
Equity and debt securities		$	346.0		Market pricing		Private sale pricing	$0.01–$1,000.00 ($23.88) per share
				Discount for lack of marketability		21.9%
	238.9	Market comparable companies			Enterprise value/ Revenue multiple		11.4–13.5 (12.1)
Discount for lack of marketability		11.2%–13.6% (12.2%)

1Based on the relative fair value of the instruments.

If the relevant significant inputs used in the market-based valuations, other than discount for lack of marketability, were independently higher (lower) as of March 31, 2024, the resulting fair value of the assets would be higher (lower). If the relevant significant inputs used in the discounted cash flow, as well as the discount for lack of marketability used in the market-based valuations, were independently higher (lower) as of March 31, 2024, the resulting fair value of the assets would be lower (higher).

Financial instruments of CIPs that were not measured at fair value were as follows:


(in millions)	Fair Value Level	March 31, 2024				September 30, 2023
	Carrying Value	Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial Asset
Cash and cash equivalents	1	$	275.8	$	275.8	$	363.7	$	363.7

Financial Liabilities
Debt of CLOs1	2 or 3	$	9,116.0	$	8,867.4	$	8,210.0	$	8,013.2
Other debt	2 or 3	15.0		15.0		21.8		8.6

1Substantially all was Level 2.

Debt

Debt of CIPs consisted of the following:


	March 31, 2024			September 30, 2023
(in millions)	Amount		Weighted- Average Effective Interest Rate	Amount		Weighted- Average Effective Interest Rate
Debt of CLOs	$	9,116.0	7.54%	$	8,210.0	7.12%
Other debt	15.0		5.57%	21.8		6.00%
Total	$	9,131.0		$	8,231.8

The debt of CIPs had fixed and floating interest rates ranging from 0.25% to 15.86% at March 31, 2024, and from 2.39% to 15.49% at September 30, 2023. The floating rates were based on the Secured Overnight Financing Rate.

The contractual maturities for the debt of CIPs at March 31, 2024 were as follows:


(in millions)
for the fiscal years ending September 30,	Amount
2024 (remainder of year)		$	191.5
2025		15.0
2026		—
2027		—
2028		—
Thereafter		8,924.5
Total		$	9,131.0

Collateralized Loan Obligations

The unpaid principal balance and fair value of the investments of CLOs were as follows:


(in millions)	March 31, 2024		September 30, 2023
Unpaid principal balance	$	9,365.9	$	8,317.5
Difference between unpaid principal balance and fair value	22.4		(120.7)
Fair Value	$	9,388.3	$	8,196.8

Investments 90 days or more past due were immaterial at March 31, 2024 and September 30, 2023.

The Company recognized $9.7 million and $30.5 million of net gains during the three and six months ended March 31, 2024 and $4.8 million and $2.5 million of net gains during the three and six months ended March 31, 2023, related to its own economic interests in the CLOs. The aggregate principal amount due of the debt of CLOs was $9,037.2 million and $8,281.5 million at March 31, 2024 and September 30, 2023.

Note 9 – Redeemable Noncontrolling Interests

Changes in redeemable noncontrolling interests were as follows:


(in millions)		2024									2023
	CIPs			Minority Interests			Total			CIPs			Minority Interests			Total
for the three months ended March 31,
Balance at beginning of period		$	555.3		$	523.2		$	1,078.5		$	1,379.7		$	599.5		$	1,979.2
Net income		32.7			10.1			42.8			70.2			13.0			83.2
Net subscriptions (distributions) and other		(8.5)			(14.8)			(23.3)			289.6			(52.9)			236.7
Net consolidations (deconsolidations)		43.8			—			43.8			(1,293.9)			—			(1,293.9)
Acquisition		20.2			—			20.2			—			—			—
Adjustment to fair value		—			91.9			91.9			—			(44.7)			(44.7)
Balance at End of Period		$	643.5		$	610.4		$	1,253.9		$	445.6		$	514.9		$	960.5


(in millions)		2024									2023
	CIPs			Minority Interests			Total			CIPs			Minority Interests			Total
for the six months ended March 31,
Balance at beginning of period		$	580.1		$	446.0		$	1,026.1		$	942.2		$	583.6		$	1,525.8
Net income		29.8			22.5			52.3			58.0			23.7			81.7
Net subscriptions (distributions) and other		29.6			(15.9)			13.7			468.0			(47.7)			420.3
Net deconsolidations		(16.2)			—			(16.2)			(1,022.6)			—			(1,022.6)
Acquisition		20.2			—			20.2			—			—			—
Adjustment to fair value		—			157.8			157.8			—			(44.7)			(44.7)
Balance at End of Period		$	643.5		$	610.4		$	1,253.9		$	445.6		$	514.9		$	960.5

Note 10 – Nonconsolidated Variable Interest Entities

VIEs for which the Company is not the primary beneficiary consist of sponsored funds and other investment products in which the Company has an equity ownership interest. The Company’s maximum exposure to loss from these VIEs consists of equity investments, investment management and other fee receivables as follows:


(in millions)	March 31, 2024		September 30, 2023
Investments	$	1,030.7	$	925.9
Receivables	217.9		206.1
Total	$	1,248.6	$	1,132.0

While the Company has no legal or contractual obligation to do so, it routinely makes cash investments in the course of launching sponsored funds. As it has done in the past, the Company also may voluntarily elect to provide its sponsored funds with additional direct or indirect financial support based on its business objectives. The Company did not provide financial or other support to its sponsored funds assessed as VIEs during the six months ended March 31, 2024 or fiscal year 2023.

Note 11 – Commitments and Contingencies

Legal Proceedings

India Credit Fund Closure Matters. During the six months ended March 31, 2024, there were no significant changes from the disclosure in the Form 10‑K for the fiscal year ended September 30, 2023.

Other Litigation Matters. The Company is from time to time involved in other 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 the Company’s business, financial position, results of operations or liquidity. In management’s opinion, an adequate accrual has been made as of March 31, 2024 to provide for any probable losses that may arise from such matters for which the Company could reasonably estimate an amount.

Indemnifications and Guarantees

In the ordinary course of business or in connection with certain acquisition agreements, the Company enters into contracts that provide for indemnifications by the Company in certain circumstances. In addition, certain Company entities guarantee certain financial and performance-related obligations of various Franklin subsidiaries. The Company is also subject to certain legal requirements and agreements providing for indemnifications of directors, officers and personnel against liabilities and expenses they may incur under certain circumstances in connection with their service. The terms of these indemnities and guarantees vary pursuant to applicable facts and circumstances, and from agreement to agreement. Future payments for claims against the Company under these indemnities or guarantees could negatively impact the Company’s financial condition. In management’s opinion, no material loss was deemed probable or reasonably possible pursuant to such indemnification agreements and/or guarantees as of March 31, 2024.

Other Commitments and Contingencies

On November 1, 2023, the Company took possession of office space in New York City located at One Madison Avenue. At the time of possession, the Company recognized an operating lease right-of-use asset and a corresponding operating lease liability of $396.6 million. The lease agreement is over sixteen years with an aggregate expected commitment of $707.3 million and is part of a corporate initiative to consolidate existing office space in New York City.

At March 31, 2024, there were no other material changes in the other commitments and contingencies as reported in the Company’s Annual Report on Form 10-K for fiscal year 2023.

Note 12 – Stock-Based Compensation

Stock and stock unit award activity was as follows:


(shares in thousands)	Time-Based Shares	Performance- Based Shares	Total Shares	Weighted- Average Grant-Date Fair Value
for the six months ended March 31, 2024
Nonvested balance at October 1, 2023	12,782	3,099	15,881	$	23.09
Granted	11,829	442	12,271	25.89
Vested	(1,117)	(162)	(1,279)	23.49
Forfeited/canceled	(270)	(303)	(573)	21.87
Nonvested Balance at March 31, 2024	23,224	3,076	26,300	$	24.40

Total unrecognized compensation expense related to nonvested stock and stock unit awards was $314.3 million at March 31, 2024. This expense is expected to be recognized over a remaining weighted-average vesting period of 2.1 years.

Note 13 – Investment and Other Income, Net

Investment and other income, net consisted of the following:


	Three Months Ended March 31,				Six Months Ended March 31,
(in millions)	2024		2023		2024		2023
Dividend and interest income	$	38.0	$	32.3	$	92.8	$	68.8
Gains (losses) on investments, net	(18.5)		3.0		41.6		48.5
Income from investments in equity method investees	24.4		20.6		81.3		52.6

Rental income	10.9		13.4		21.7		24.0
Foreign currency exchange losses, net	(1.3)		(6.5)		(8.7)		(33.6)
Other, net	(1.0)		(2.2)		(3.0)		(9.8)
Investment and other income, net	$	52.5	$	60.6	$	225.7	$	150.5

Net gains recognized on equity securities measured at fair value and trading debt securities that were held by the Company were $9.5 million and $86.1 million for the three and six months ended March 31, 2024 and $13.1 million and $78.2 million for the three and six months ended March 31, 2023.

Previous: Cover and table of contents · Next: Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.