filings.toolsItem 1. Financial Statements.
105K characters. Original on sec.gov · Markdown
Item 1. Financial Statements.
FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Unaudited
| Three Months Ended June 30, | Nine Months Ended June 30, | |||||||||||||||||||||||||
| (in millions, except per share data) | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||
| Operating Revenues | ||||||||||||||||||||||||||
| Investment management fees | $ | 1,689.9 | $ | 1,613.4 | $ | 5,056.0 | $ | 4,818.5 | ||||||||||||||||||
| Sales and distribution fees | 358.3 | 304.0 | 1,013.0 | 897.3 | ||||||||||||||||||||||
| Shareholder servicing fees | 61.8 | 38.8 | 162.3 | 115.5 | ||||||||||||||||||||||
| Other | 12.9 | 12.8 | 35.5 | 32.0 | ||||||||||||||||||||||
| Total operating revenues | 2,122.9 | 1,969.0 | 6,266.8 | 5,863.3 | ||||||||||||||||||||||
| Operating Expenses | ||||||||||||||||||||||||||
| Compensation and benefits | 893.8 | 841.2 | 2,890.3 | 2,667.7 | ||||||||||||||||||||||
| Sales, distribution and marketing | 481.1 | 406.8 | 1,366.2 | 1,202.0 | ||||||||||||||||||||||
| Information systems and technology | 156.6 | 127.3 | 442.7 | 376.7 | ||||||||||||||||||||||
| Occupancy | 104.8 | 56.9 | 247.7 | 171.1 | ||||||||||||||||||||||
| Amortization of intangible assets | 84.0 | 85.4 | 254.4 | 254.6 | ||||||||||||||||||||||
| General, administrative and other | 180.1 | 136.5 | 507.2 | 427.2 | ||||||||||||||||||||||
| Total operating expenses | 1,900.4 | 1,654.1 | 5,708.5 | 5,099.3 | ||||||||||||||||||||||
| Operating Income | 222.5 | 314.9 | 558.3 | 764.0 | ||||||||||||||||||||||
| Other Income (Expenses) | ||||||||||||||||||||||||||
| Investment and other income, net | 74.5 | 49.8 | 300.2 | 200.3 | ||||||||||||||||||||||
| Interest expense | (25.7) | (34.9) | (72.2) | (99.3) | ||||||||||||||||||||||
| Investment and other income of consolidated investment products, net | 37.6 | 1.7 | 103.7 | 75.3 | ||||||||||||||||||||||
| Expenses of consolidated investment products | (8.8) | (0.8) | (20.6) | (15.7) | ||||||||||||||||||||||
| Other income, net | 77.6 | 15.8 | 311.1 | 160.6 | ||||||||||||||||||||||
| Income before taxes | 300.1 | 330.7 | 869.4 | 924.6 | ||||||||||||||||||||||
| Taxes on income | 68.1 | 84.1 | 205.8 | 237.3 | ||||||||||||||||||||||
| Net income | 232.0 | 246.6 | 663.6 | 687.3 | ||||||||||||||||||||||
| Less: net income (loss) attributable to | ||||||||||||||||||||||||||
| Redeemable noncontrolling interests | 43.0 | 26.8 | 95.3 | 108.5 | ||||||||||||||||||||||
| Nonredeemable noncontrolling interests | 15.0 | (7.7) | 18.8 | (8.5) | ||||||||||||||||||||||
| Net Income Attributable to Franklin Resources, Inc. | $ | 174.0 | $ | 227.5 | $ | 549.5 | $ | 587.3 | ||||||||||||||||||
| Earnings per Share | ||||||||||||||||||||||||||
| Basic | $ | 0.32 | $ | 0.44 | $ | 1.04 | $ | 1.14 | ||||||||||||||||||
| Diluted | 0.32 | 0.44 | 1.03 | 1.14 |
See Notes to Consolidated Financial Statements.
FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Unaudited
| (in millions) | Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
| Net Income | $ | 232.0 | $ | 246.6 | $ | 663.6 | $ | 687.3 | ||||||||||||||||||
| Other Comprehensive Income (Loss) | ||||||||||||||||||||||||||
| Currency translation adjustments, net of tax | (8.5) | 16.5 | 21.1 | 159.7 | ||||||||||||||||||||||
| Net unrealized gains (losses) on defined benefit plans, net of tax | (0.1) | (0.6) | 0.3 | (1.4) | ||||||||||||||||||||||
| Net unrealized gains (losses) on investments, net of tax | (0.1) | — | — | 0.2 | ||||||||||||||||||||||
| Total other comprehensive income (loss) | (8.7) | 15.9 | 21.4 | 158.5 | ||||||||||||||||||||||
| Total comprehensive income | 223.3 | 262.5 | 685.0 | 845.8 | ||||||||||||||||||||||
| Less: comprehensive income (loss) attributable to | ||||||||||||||||||||||||||
| Redeemable noncontrolling interests | 43.0 | 26.8 | 95.3 | 108.5 | ||||||||||||||||||||||
| Nonredeemable noncontrolling interests | 15.0 | (7.7) | 18.8 | (8.5) | ||||||||||||||||||||||
| Comprehensive Income Attributable to Franklin Resources, Inc. | $ | 165.3 | $ | 243.4 | $ | 570.9 | $ | 745.8 |
See Notes to Consolidated Financial Statements.
FRANKLIN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
Unaudited
| (in millions, except share and per share data) | June 30, 2024 | September 30, 2023 | ||||||||||||
| Assets | ||||||||||||||
| Cash and cash equivalents | $ | 3,378.5 | $ | 3,686.4 | ||||||||||
| Receivables | 1,570.5 | 1,348.4 | ||||||||||||
| Investments (including $720.4 and $872.8 at fair value at June 30, 2024 and September 30, 2023) | 2,224.5 | 2,222.0 | ||||||||||||
| Assets of consolidated investment products | ||||||||||||||
| Cash and cash equivalents | 733.2 | 716.0 | ||||||||||||
| Investments, at fair value | 11,631.6 | 9,637.2 | ||||||||||||
| Property and equipment, net | 904.8 | 800.1 | ||||||||||||
| Goodwill | 6,198.5 | 6,003.8 | ||||||||||||
| Intangible assets, net | 5,267.8 | 4,902.2 | ||||||||||||
| Operating lease right-of-use assets | 844.3 | 406.3 | ||||||||||||
| Other | 501.2 | 398.8 | ||||||||||||
| Total Assets | $ | 33,254.9 | $ | 30,121.2 | ||||||||||
| Liabilities | ||||||||||||||
| Compensation and benefits | $ | 1,691.7 | $ | 1,665.1 | ||||||||||
| Accounts payable and accrued expenses | 532.2 | 530.0 | ||||||||||||
| Income taxes | 382.6 | 513.5 | ||||||||||||
| Debt | 3,035.0 | 3,052.8 | ||||||||||||
| Liabilities of consolidated investment products | ||||||||||||||
| Accounts payable and accrued expenses | 716.6 | 349.7 | ||||||||||||
| Debt | 9,637.7 | 8,231.8 | ||||||||||||
| Deferred tax liabilities | 421.1 | 450.4 | ||||||||||||
| Operating lease liabilities | 975.6 | 467.8 | ||||||||||||
| Other | 961.0 | 1,286.2 | ||||||||||||
| Total liabilities | 18,353.5 | 16,547.3 | ||||||||||||
| Commitments and Contingencies (Note 11) | ||||||||||||||
| Redeemable Noncontrolling Interests | 1,266.2 | 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; 522,059,992 and 495,937,891 shares issued and outstanding at June 30, 2024 and September 30, 2023 | 52.2 | 49.6 | ||||||||||||
| Capital in excess of par | 984.6 | — | ||||||||||||
| Retained earnings | 12,321.3 | 12,376.6 | ||||||||||||
| Accumulated other comprehensive loss | (487.9) | (509.3) | ||||||||||||
| Total Franklin Resources, Inc. stockholders’ equity | 12,870.2 | 11,916.9 | ||||||||||||
| Nonredeemable noncontrolling interests | 765.0 | 630.9 | ||||||||||||
| Total stockholders’ equity | 13,635.2 | 12,547.8 | ||||||||||||
| Total Liabilities, Redeemable Noncontrolling Interests and Stockholders’ Equity | $ | 33,254.9 | $ | 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 nine months ended June 30, 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 | |||||||||||||||||||||||||||||||||||
| Net income | 174.0 | 174.0 | 15.0 | 189.0 | ||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | (8.7) | (8.7) | (8.7) | |||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared on common stock ($0.31 per share) | (167.0) | (167.0) | (167.0) | |||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | (4.3) | (0.4) | (101.1) | — | (101.5) | (101.5) | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock | 0.2 | — | 4.5 | 4.5 | 4.5 | |||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 58.9 | 58.9 | 58.9 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net subscriptions and other | 29.4 | 29.4 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Adjustment to fair value of redeemable noncontrolling interests | 48.9 | 48.9 | 48.9 | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2024 | 522.1 | $ | 52.2 | $ | 984.6 | $ | 12,321.3 | $ | (487.9) | $ | 12,870.2 | $ | 765.0 | $ | 13,635.2 |
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 nine months ended June 30, 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 | |||||||||||||||||||||||||||||||||||
| Net income (loss) | 227.5 | 227.5 | (7.7) | 219.8 | ||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | 15.9 | 15.9 | 15.9 | |||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared on common stock ($0.30 per share) | (152.9) | (152.9) | (152.9) | |||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | (2.0) | (0.2) | (15.9) | (34.8) | (50.9) | (50.9) | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock | 0.1 | — | 3.6 | 3.6 | 3.6 | |||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 12.3 | 12.3 | 12.3 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net distributions and other | (11.3) | (11.3) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net deconsolidation of investment products | (0.7) | (0.7) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Adjustment to fair value of redeemable noncontrolling interests | 60.8 | 60.8 | 60.8 | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | 499.0 | $ | 49.9 | $ | — | $ | 12,360.7 | $ | (462.5) | $ | 11,948.1 | $ | 591.1 | $ | 12,539.2 |
See Notes to Consolidated Financial Statements.
FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
| Nine Months Ended June 30, | ||||||||||||||
| (in millions) | 2024 | 2023 | ||||||||||||
| Net Income | $ | 663.6 | $ | 687.3 | ||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||
| Stock-based compensation | 194.6 | 137.9 | ||||||||||||
| Amortization of deferred sales commissions | 43.3 | 37.2 | ||||||||||||
| Depreciation and other amortization | 86.5 | 78.3 | ||||||||||||
| Amortization of intangible assets | 254.4 | 254.6 | ||||||||||||
| Net gains on investments | (17.3) | (62.3) | ||||||||||||
| Income from investments in equity method investees | (122.3) | (43.5) | ||||||||||||
| Net losses on investments of consolidated investment products | 19.4 | 116.0 | ||||||||||||
| Net purchase of investments by consolidated investment products | (459.5) | (833.2) | ||||||||||||
| Deferred income taxes | (35.0) | 50.8 | ||||||||||||
| Other | 135.3 | 58.6 | ||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||
| Increase in receivables and other assets | (61.4) | (69.8) | ||||||||||||
| Decrease in investments, net | 23.8 | 6.4 | ||||||||||||
| Decrease in accrued compensation and benefits | (35.0) | (84.3) | ||||||||||||
| Decrease in income taxes payable | (127.8) | (58.9) | ||||||||||||
| Increase (decrease) in accounts payable, accrued expenses and other liabilities | (55.8) | 48.3 | ||||||||||||
| Increase (decrease) in accounts payable and accrued expenses of consolidated investment products | (93.7) | 1.3 | ||||||||||||
| Net cash provided by operating activities | 413.1 | 324.7 | ||||||||||||
| Purchase of investments | (952.0) | (665.1) | ||||||||||||
| Liquidation of investments | 1,149.5 | 524.3 | ||||||||||||
| Purchase of investments by consolidated collateralized loan obligations | (4,099.1) | (3,465.6) | ||||||||||||
| Liquidation of investments by consolidated collateralized loan obligations | 3,034.0 | 1,230.3 | ||||||||||||
| Additions of property and equipment, net | (107.3) | (121.5) | ||||||||||||
| Acquisitions, net of cash acquired (including $281.4 in cash and cash equivalents of consolidated investment products in fiscal year 2024) | 175.1 | (500.5) | ||||||||||||
| Payments of contingent consideration asset | — | 5.5 | ||||||||||||
| Payments of deferred consideration liability | (434.9) | (241.8) | ||||||||||||
| Net consolidation (deconsolidation) of investment products | 12.0 | (43.8) | ||||||||||||
| Net cash used in investing activities | (1,222.7) | (3,278.2) | ||||||||||||
[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]
| Nine Months Ended June 30, | ||||||||||||||
| (in millions) | 2024 | 2023 | ||||||||||||
| Issuance of common stock | $ | 7.3 | $ | 13.4 | ||||||||||
| Dividends paid on common stock | (489.3) | (454.8) | ||||||||||||
| Repurchase of common stock | (172.0) | (70.0) | ||||||||||||
| Proceeds from repurchase agreement | — | 174.8 | ||||||||||||
| Payments on repurchase agreement | (45.8) | — | ||||||||||||
| Proceeds from debt of consolidated investment products | 1,617.6 | 3,213.6 | ||||||||||||
| Payments on debt of consolidated investment products | (609.2) | (926.9) | ||||||||||||
| Payments on contingent consideration liabilities | (5.1) | (7.6) | ||||||||||||
| Noncontrolling interests | 202.9 | 550.1 | ||||||||||||
| Net cash provided by financing activities | 506.4 | 2,492.6 | ||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | 12.5 | 66.0 | ||||||||||||
| Decrease in cash and cash equivalents | (290.7) | (394.9) | ||||||||||||
| Cash and cash equivalents, beginning of period | 4,402.4 | 4,782.5 | ||||||||||||
| Cash and Cash Equivalents, End of Period | $ | 4,111.7 | $ | 4,387.6 | ||||||||||
| Supplemental Disclosure of Cash Flow Information | ||||||||||||||
| Cash paid for income taxes | $ | 357.9 | $ | 225.4 | ||||||||||
| Cash paid for interest | 67.5 | 55.5 | ||||||||||||
| Cash paid for interest by consolidated investment products | 522.2 | 232.2 |
See Notes to Consolidated Financial Statements.
FRANKLIN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 (“SEC”). 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 nine months ended June 30, 2023 are as follows:
| (in millions) | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2023 | ||||||||||||||||||||||||||||||||||||
| As Reported | Adjustments | As Revised | As Reported | Adjustments | As Revised | |||||||||||||||||||||||||||||||||
| Operating Income | $ | 314.9 | $ | — | $ | 314.9 | $ | 764.0 | $ | — | $ | 764.0 | ||||||||||||||||||||||||||
| Other income, net | ||||||||||||||||||||||||||||||||||||||
| Investment and other income, net | 51.2 | (1.4) | 49.8 | 267.9 | (67.6) | 200.3 | ||||||||||||||||||||||||||||||||
| Other income, net | 17.2 | (1.4) | 15.8 | 228.2 | (67.6) | 160.6 | ||||||||||||||||||||||||||||||||
| Income before taxes | 332.1 | (1.4) | 330.7 | 992.2 | (67.6) | 924.6 | ||||||||||||||||||||||||||||||||
| Net income | 248.0 | (1.4) | 246.6 | 754.9 | (67.6) | 687.3 | ||||||||||||||||||||||||||||||||
| Less: net income (loss) attributable to nonredeemable noncontrolling interest | (6.3) | (1.4) | (7.7) | 59.1 | (67.6) | (8.5) | ||||||||||||||||||||||||||||||||
| Net Income Attributable to Franklin Resources, Inc. | 227.5 | — | 227.5 | 587.3 | — | 587.3 |
The impact on the consolidated statement of cash flows for the nine months ended June 30, 2023 are as follows:
| (in millions) | Nine Months Ended June 30, 2023 | |||||||||||||||||||
| As Reported | Adjustments | As Revised | ||||||||||||||||||
| Net cash provided by (used in) operating activities | $ | 365.3 | $ | (40.6) | $ | 324.7 | ||||||||||||||
| Net cash used in investing activities | (3,251.2) | (27.0) | (3,278.2) | |||||||||||||||||
| Net cash provided by financing activities | 2,425.0 | 67.6 | 2,492.6 | |||||||||||||||||
| Decrease in cash and cash equivalents | (394.9) | — | (394.9) |
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 paid on July 1, 2024. The cash consideration paid at close and the deferred cash consideration were funded from existing cash. 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 | (27.4) | |||||||||||||||||||
| Total Purchase Consideration | $ | 1,234.4 |
1Excludes shares 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. The remaining shares were subject to a 180-day lock-up following the date of closing which has expired.
The acquisition of Putnam accelerates the Company’s growth in the retirement sector by increasing the amount of the Company’s defined contribution AUM. Additionally, the acquisition expands the Company’s insurance assets, further strengthening its presence in these key market segments to better serve clients.
The following table summarizes the initial and revised 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) | Initial Estimated Fair Value | Adjustments | Revised Estimated Fair Value | |||||||||||||||||
| as of January 1, 2024 | ||||||||||||||||||||
| Cash and cash equivalents | $ | 101.1 | $ | — | $ | 101.1 | ||||||||||||||
| Receivables | 118.9 | — | 118.9 | |||||||||||||||||
| Investments | 111.2 | — | 111.2 | |||||||||||||||||
| Assets of consolidated investment products | ||||||||||||||||||||
| Cash and cash equivalents | 281.4 | — | 281.4 | |||||||||||||||||
| Investments, at fair value | 849.5 | — | 849.5 | |||||||||||||||||
| Property and equipment | 87.1 | (5.7) | 81.4 | |||||||||||||||||
| Goodwill | 189.8 | 0.4 | 190.2 | |||||||||||||||||
| Indefinite-lived intangible assets | 542.5 | 14.7 | 557.2 | |||||||||||||||||
| Definite-lived intangible asset | 52.9 | 4.8 | 57.7 | |||||||||||||||||
| Operating lease right-of-use assets | 109.2 | — | 109.2 | |||||||||||||||||
| Other assets | 20.4 | — | 20.4 | |||||||||||||||||
| Compensation and benefits | (57.8) | — | (57.8) | |||||||||||||||||
| Accounts payable and accrued expenses | (40.9) | (11.4) | (52.3) | |||||||||||||||||
| Liabilities of consolidated investment products | ||||||||||||||||||||
| Accounts payable and accrued expenses | (259.6) | — | (259.6) | |||||||||||||||||
| Debt | (706.8) | — | (706.8) | |||||||||||||||||
| Operating lease liabilities | (109.2) | — | (109.2) | |||||||||||||||||
| Other liabilities | (12.1) | — | (12.1) | |||||||||||||||||
| Redeemable noncontrolling interests | (20.2) | — | (20.2) | |||||||||||||||||
| Nonredeemable noncontrolling interests | (25.8) | — | (25.8) | |||||||||||||||||
| Total Identifiable Net Assets | $ | 1,231.6 | $ | 2.8 | $ | 1,234.4 |
The adjustments to the initial estimated fair values are primarily a result of new information obtained about facts that existed as of the acquisition date. 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 $1.6 million and $2.9 million for the three and nine months ended June 30, 2024. The estimated remaining amortization expense is $1.4 million for the year and $5.8 million per year thereafter.
Transaction costs incurred in connection with the acquisition were $18.3 million for the nine months ended June 30, 2024. These costs are primarily comprised of professional fees, recorded in general, administrative and other expenses. The Company also incurred $132.0 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 June 30, 2024 were approximately $430 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 June 30, | Nine Months Ended June 30, | ||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
| Net income attributable to Franklin Resources, Inc. | $ | 174.0 | $ | 227.5 | $ | 549.5 | $ | 587.3 | ||||||||||||||||||
| Less: allocation of earnings to participating nonvested stock and stock unit awards | 7.5 | 10.2 | 23.8 | 26.7 | ||||||||||||||||||||||
| Net Income Available to Common Stockholders | $ | 166.5 | $ | 217.3 | $ | 525.7 | $ | 560.6 | ||||||||||||||||||
| Weighted-average shares outstanding – basic | 516.5 | 490.7 | 507.2 | 490.3 | ||||||||||||||||||||||
| Dilutive effect of nonparticipating nonvested stock unit awards | 0.7 | 0.7 | 0.8 | 0.7 | ||||||||||||||||||||||
| Weighted-Average Shares Outstanding – Diluted | 517.2 | 491.4 | 508.0 | 491.0 | ||||||||||||||||||||||
| Earnings per Share | ||||||||||||||||||||||||||
| Basic | $ | 0.32 | $ | 0.44 | $ | 1.04 | $ | 1.14 | ||||||||||||||||||
| Diluted | 0.32 | 0.44 | 1.03 | 1.14 |
There were no nonparticipating nonvested stock unit awards excluded from the calculation of diluted earnings per share because their effect would have been antidilutive for the three and nine months ended June 30, 2024 and such awards were insignificant for the three and nine months ended June 30, 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 June 30, 2024 | ||||||||||||||||||||||||||||||||||||||
| Investment management fees | $ | 1,273.7 | $ | 216.2 | $ | 71.8 | $ | 59.1 | $ | 69.1 | $ | 1,689.9 | ||||||||||||||||||||||||||
| Sales and distribution fees | 256.8 | 86.7 | 4.7 | 10.1 | — | 358.3 | ||||||||||||||||||||||||||||||||
| Shareholder servicing fees | 53.2 | 8.1 | 0.5 | — | — | 61.8 | ||||||||||||||||||||||||||||||||
| Other | 12.7 | — | 0.2 | — | — | 12.9 | ||||||||||||||||||||||||||||||||
| Total | $ | 1,596.4 | $ | 311.0 | $ | 77.2 | $ | 69.2 | $ | 69.1 | $ | 2,122.9 |
| (in millions) | United States | Luxembourg | Asia-Pacific | Americas Excluding United States | Europe, Middle East and Africa, Excluding Luxembourg | Total | ||||||||||||||||||||||||||||||||
| for the nine months ended June 30, 2024 | ||||||||||||||||||||||||||||||||||||||
| Investment management fees | $ | 3,819.8 | $ | 630.1 | $ | 210.2 | $ | 173.8 | $ | 222.1 | $ | 5,056.0 | ||||||||||||||||||||||||||
| Sales and distribution fees | 718.8 | 250.3 | 14.3 | 29.6 | — | 1,013.0 | ||||||||||||||||||||||||||||||||
| Shareholder servicing fees | 136.8 | 23.6 | 1.8 | 0.1 | — | 162.3 | ||||||||||||||||||||||||||||||||
| Other | 31.1 | 0.7 | 3.4 | — | 0.3 | 35.5 | ||||||||||||||||||||||||||||||||
| Total | $ | 4,706.5 | $ | 904.7 | $ | 229.7 | $ | 203.5 | $ | 222.4 | $ | 6,266.8 |
| (in millions) | United States | Luxembourg | Asia-Pacific | Americas Excluding United States | Europe, Middle East and Africa, Excluding Luxembourg | Total | ||||||||||||||||||||||||||||||||
| for the three months ended June 30, 2023 | ||||||||||||||||||||||||||||||||||||||
| Investment management fees | $ | 1,232.3 | $ | 192.3 | $ | 64.3 | $ | 53.9 | $ | 70.6 | $ | 1,613.4 | ||||||||||||||||||||||||||
| Sales and distribution fees | 213.5 | 75.4 | 5.1 | 10.0 | — | 304.0 | ||||||||||||||||||||||||||||||||
| Shareholder servicing fees | 30.3 | 8.0 | 0.5 | — | — | 38.8 | ||||||||||||||||||||||||||||||||
| Other | 11.9 | 0.5 | 0.4 | — | — | 12.8 | ||||||||||||||||||||||||||||||||
| Total | $ | 1,488.0 | $ | 276.2 | $ | 70.3 | $ | 63.9 | $ | 70.6 | $ | 1,969.0 |
| (in millions) | United States | Luxembourg | Asia-Pacific | Americas Excluding United States | Europe, Middle East and Africa, Excluding Luxembourg | Total | ||||||||||||||||||||||||||||||||
| for the nine months ended June 30, 2023 | ||||||||||||||||||||||||||||||||||||||
| Investment management fees | $ | 3,672.9 | $ | 570.7 | $ | 214.4 | $ | 162.0 | $ | 198.5 | $ | 4,818.5 | ||||||||||||||||||||||||||
| Sales and distribution fees | 634.1 | 217.4 | 15.1 | 30.7 | — | 897.3 | ||||||||||||||||||||||||||||||||
| Shareholder servicing fees | 90.2 | 23.5 | 1.6 | 0.2 | — | 115.5 | ||||||||||||||||||||||||||||||||
| Other | 30.1 | 0.8 | 0.8 | — | 0.3 | 32.0 | ||||||||||||||||||||||||||||||||
| Total | $ | 4,427.3 | $ | 812.4 | $ | 231.9 | $ | 192.9 | $ | 198.8 | $ | 5,863.3 |
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 82% of the Company’s total operating revenues for the three and nine months ended June 30, 2024 and 83% for the three and nine months ended June 30, 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) | June 30, 2024 | September 30, 2023 | ||||||||||||
| Investments, at fair value | ||||||||||||||
| Sponsored funds and separate accounts | $ | 417.5 | $ | 630.5 | ||||||||||
| Investments related to long-term incentive plans | 247.1 | 191.6 | ||||||||||||
| Other equity and debt investments | 55.8 | 50.7 | ||||||||||||
| Total investments, at fair value | 720.4 | 872.8 | ||||||||||||
| Investments in equity method investees | 1,227.2 | 1,089.2 | ||||||||||||
| Other investments | 276.9 | 260.0 | ||||||||||||
| Total | $ | 2,224.5 | $ | 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 June 30, 2024, other liabilities includes repurchase agreements of $135.9 million with investments of $148.6 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 June 30, 2024 | ||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||
| Investments, at fair value | ||||||||||||||||||||||||||||||||
| Sponsored funds and separate accounts | $ | 226.9 | $ | 143.2 | $ | 7.0 | $ | 40.4 | $ | 417.5 | ||||||||||||||||||||||
| Investments related to long-term incentive plans | 220.2 | — | — | 26.9 | 247.1 | |||||||||||||||||||||||||||
| Other equity and debt investments | 3.9 | 10.2 | 2.6 | 39.1 | 55.8 | |||||||||||||||||||||||||||
| Total Assets Measured at Fair Value | $ | 451.0 | $ | 153.4 | $ | 9.6 | $ | 106.4 | $ | 720.4 | ||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||||||||
| Securities sold short | $ | 150.2 | $ | — | $ | — | $ | — | $ | 150.2 | ||||||||||||||||||||||
| Contingent consideration liabilities | — | — | 46.1 | — | 46.1 | |||||||||||||||||||||||||||
| Total Liabilities Measured at Fair Value | $ | 150.2 | $ | — | $ | 46.1 | $ | — | $ | 196.3 |
| (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) | June 30, 2024 | September 30, 2023 | ||||||||||||
| Nonredeemable investments****1 | ||||||||||||||
| Investments with known liquidation periods | $ | 34.7 | $ | 32.1 | ||||||||||
| Investments with unknown liquidation periods | 16.3 | 17.4 | ||||||||||||
| Redeemable investments****2 | 55.4 | 50.2 | ||||||||||||
| Unfunded commitments | 14.0 | 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 2.3 years and 2.9 years at June 30, 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 | June 30, 2024 | September 30, 2023 | |||||||||||||||||||||||||||||
| Carrying Value | Estimated Fair Value | Carrying Value | Estimated Fair Value | |||||||||||||||||||||||||||||
| Financial Assets | ||||||||||||||||||||||||||||||||
| Cash and cash equivalents | 1 | $ | 3,378.5 | $ | 3,378.5 | $ | 3,686.4 | $ | 3,686.4 | |||||||||||||||||||||||
| Other investments | ||||||||||||||||||||||||||||||||
| Time deposits | 2 | 9.4 | 9.4 | 9.9 | 9.9 | |||||||||||||||||||||||||||
| Equity securities | 3 | 267.5 | 267.5 | 250.1 | 250.1 | |||||||||||||||||||||||||||
| Financial Liability | ||||||||||||||||||||||||||||||||
| Debt | 2 | $ | 3,035.0 | $ | 2,532.2 | $ | 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 85 CIPs, including 25 CLOs, as of June 30, 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) | June 30, 2024 | September 30, 2023 | ||||||||||||
| Assets | ||||||||||||||
| Cash and cash equivalents | $ | 733.2 | $ | 716.0 | ||||||||||
| Receivables | 345.9 | 166.7 | ||||||||||||
| Investments, at fair value | 11,631.6 | 9,637.2 | ||||||||||||
| Total Assets | $ | 12,710.7 | $ | 10,519.9 | ||||||||||
| Liabilities | ||||||||||||||
| Accounts payable and accrued expenses | $ | 716.6 | $ | 349.7 | ||||||||||
| Debt | 9,637.7 | 8,231.8 | ||||||||||||
| Other liabilities | 39.4 | 25.1 | ||||||||||||
| Total liabilities | 10,393.7 | 8,606.6 | ||||||||||||
| Redeemable Noncontrolling Interests | 719.3 | 580.1 | ||||||||||||
| Stockholders’ Equity | ||||||||||||||
| Franklin Resources, Inc.’s interests | 1,241.0 | 1,033.9 | ||||||||||||
| Nonredeemable noncontrolling interests | 356.7 | 299.3 | ||||||||||||
| Total stockholders’ equity | 1,597.7 | 1,333.2 | ||||||||||||
| Total Liabilities, Redeemable Noncontrolling Interests and Stockholders’ Equity | $ | 12,710.7 | $ | 10,519.9 |
The CIPs did not have a significant impact on net income attributable to the Company during the three and nine months ended June 30, 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 June 30, 2024 | ||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||
| Cash and cash equivalents of CLOs | $ | 514.0 | $ | — | $ | — | $ | — | $ | 514.0 | ||||||||||||||||||||||
| Receivables of CLOs | — | 214.7 | — | — | 214.7 | |||||||||||||||||||||||||||
| Investments | ||||||||||||||||||||||||||||||||
| Equity and debt securities | 266.5 | 1,055.6 | 578.0 | 164.5 | 2,064.6 | |||||||||||||||||||||||||||
| Loans | — | 9,567.0 | — | — | 9,567.0 | |||||||||||||||||||||||||||
| Total Assets Measured at Fair Value | $ | 780.5 | $ | 10,837.3 | $ | 578.0 | $ | 164.5 | $ | 12,360.3 | ||||||||||||||||||||||
| (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) | June 30, 2024 | September 30, 2023 | ||||||||||||
| Nonredeemable investments****1 | ||||||||||||||
| Investments with unknown liquidation periods | $ | 23.6 | $ | 21.8 | ||||||||||
| Redeemable investments****2 | 140.9 | 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 June 30, 2024 | ||||||||||||||||||||||||||
| Balance at April 1, 2024 | $ | 591.0 | ||||||||||||||||||||||||
| Losses included in investment and other income of consolidated investment products, net | (29.8) | |||||||||||||||||||||||||
| Purchases | 17.5 | |||||||||||||||||||||||||
| Sales | (0.7) | |||||||||||||||||||||||||
| Balance at June 30, 2024 | $ | 578.0 | ||||||||||||||||||||||||
| Change in unrealized losses included in net income relating to assets held at June 30, 2024 | $ | (29.8) |
| (in millions) | Equity and Debt Securities | |||||||||||||||||||||||||
| for the nine months ended June 30, 2024 | ||||||||||||||||||||||||||
| Balance at October 1, 2023 | $ | 584.9 | ||||||||||||||||||||||||
| Acquisition | 29.6 | |||||||||||||||||||||||||
| Losses included in investment and other income of consolidated investment products, net | (68.0) | |||||||||||||||||||||||||
| Purchases | 44.1 | |||||||||||||||||||||||||
| Sales | (1.2) | |||||||||||||||||||||||||
| Net deconsolidations | (12.5) | |||||||||||||||||||||||||
| Transfers into Level 3 | 1.1 | |||||||||||||||||||||||||
| Balance at June 30, 2024 | $ | 578.0 | ||||||||||||||||||||||||
| Change in unrealized losses included in net income relating to assets held at June 30, 2024 | $ | (67.4) |
| (in millions) | Equity and Debt Securities | Loans | Total Level 3 Assets | |||||||||||||||||||||||
| for the three months ended June 30, 2023 | ||||||||||||||||||||||||||
| Balance at April 1, 2023 | $ | 539.0 | $ | 3.1 | $ | 542.1 | ||||||||||||||||||||
| Gains (losses) included in investment and other income of consolidated investment products, net | (31.6) | 0.1 | (31.5) | |||||||||||||||||||||||
| Purchases | 61.2 | (0.2) | 61.0 | |||||||||||||||||||||||
| Sales | (0.1) | 0.2 | 0.1 | |||||||||||||||||||||||
| Transfers into Level 3 | — | 0.5 | 0.5 | |||||||||||||||||||||||
| Transfers out of Level 3 | (0.3) | — | (0.3) | |||||||||||||||||||||||
| Balance at June 30, 2023 | $ | 568.2 | $ | 3.7 | $ | 571.9 | ||||||||||||||||||||
| Change in unrealized gains (losses) included in net income relating to assets held at June 30, 2023 | $ | (32.0) | $ | 0.1 | $ | (31.9) |
| (in millions) | Equity and Debt Securities | Real Estate | Loans | Total Level 3 Assets | ||||||||||||||||||||||
| for the nine months ended June 30, 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 | (56.3) | (9.0) | 0.2 | (65.1) | ||||||||||||||||||||||
| Purchases | 83.7 | 86.1 | 58.4 | 228.2 | ||||||||||||||||||||||
| Sales | (25.1) | — | — | (25.1) | ||||||||||||||||||||||
| Net (deconsolidations) consolidations | 10.4 | (345.7) | (292.6) | (627.9) | ||||||||||||||||||||||
| Transfers into Level 3 | — | — | 3.6 | 3.6 | ||||||||||||||||||||||
| Transfers out of Level 3 | (0.3) | — | (5.3) | (5.6) | ||||||||||||||||||||||
| Balance at June 30, 2023 | $ | 568.2 | $ | — | $ | 3.7 | $ | 571.9 | ||||||||||||||||||
| Change in unrealized gains (losses) included in net income relating to assets held at June 30, 2023 | $ | (55.0) | $ | — | $ | 0.1 | $ | (54.9) |
Valuation techniques and significant unobservable inputs used in Level 3 fair value measurements were as follows:
| (in millions) | ||||||||||||||||||||||||||
| as of June 30, 2024 | Fair Value | Valuation Technique | Significant Unobservable Inputs | Range (Weighted Average1) | ||||||||||||||||||||||
| Equity and debt securities | $ | 253.0 | Market pricing | Private sale pricing | $0.01–$1,000.00 ($76.55) per share | |||||||||||||||||||||
| Discount for lack of marketability | 8.2%–19.5% (9.0%) | |||||||||||||||||||||||||
| 282.1 | Market comparable companies | Enterprise value/ Revenue multiple | 1.5–21.2 (13.1) | |||||||||||||||||||||||
| Discount for lack of marketability | 6.5%–16.1% (12.8%) | |||||||||||||||||||||||||
| 42.9 | Discounted cash flow | Discount rate | 6.7% | |||||||||||||||||||||||
| (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 June 30, 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 June 30, 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 | June 30, 2024 | September 30, 2023 | |||||||||||||||||||||||||||||
| Carrying Value | Estimated Fair Value | Carrying Value | Estimated Fair Value | |||||||||||||||||||||||||||||
| Financial Asset | ||||||||||||||||||||||||||||||||
| Cash and cash equivalents | 1 | $ | 219.2 | $ | 219.2 | $ | 363.7 | $ | 363.7 | |||||||||||||||||||||||
| Financial Liabilities | ||||||||||||||||||||||||||||||||
| Debt of CLOs1 | 2 or 3 | $ | 9,607.7 | $ | 9,352.6 | $ | 8,210.0 | $ | 8,013.2 | |||||||||||||||||||||||
| Other debt | 2 or 3 | 30.0 | 30.0 | 21.8 | 8.6 | |||||||||||||||||||||||||||
1Substantially all was Level 2.
Debt
Debt of CIPs consisted of the following:
| June 30, 2024 | September 30, 2023 | |||||||||||||||||||||||||
| (in millions) | Amount | Weighted- Average Effective Interest Rate | Amount | Weighted- Average Effective Interest Rate | ||||||||||||||||||||||
| Debt of CLOs | $ | 9,607.7 | 7.44% | $ | 8,210.0 | 7.12% | ||||||||||||||||||||
| Other debt | 30.0 | 4.19% | 21.8 | 6.00% | ||||||||||||||||||||||
| Total | $ | 9,637.7 | $ | 8,231.8 |
The debt of CIPs had fixed and floating interest rates ranging from 0.25% to 15.76% at June 30, 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 June 30, 2024 were as follows:
| (in millions) | ||||||||
| for the fiscal years ending September 30, | Amount | |||||||
| 2024 (remainder of year) | $ | 57.3 | ||||||
| 2025 | 68.8 | |||||||
| 2026 | 24.3 | |||||||
| 2027 | — | |||||||
| 2028 | — | |||||||
| Thereafter | 9,487.3 | |||||||
| Total | $ | 9,637.7 |
Collateralized Loan Obligations
The unpaid principal balance and fair value of the investments of CLOs were as follows:
| (in millions) | June 30, 2024 | September 30, 2023 | ||||||||||||
| Unpaid principal balance | $ | 9,709.2 | $ | 8,317.5 | ||||||||||
| Difference between unpaid principal balance and fair value | 32.4 | (120.7) | ||||||||||||
| Fair Value | $ | 9,741.6 | $ | 8,196.8 |
Investments 90 days or more past due were immaterial at June 30, 2024 and September 30, 2023.
The Company recognized $9.4 million and $39.9 million of net gains during the three and nine months ended June 30, 2024 and $6.5 million and $9.0 million of net gains during the three and nine months ended June 30, 2023, related to its own economic interests in the CLOs. The aggregate principal amount due of the debt of CLOs was $9,488.5 million and $8,281.5 million at June 30, 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 June 30, | ||||||||||||||||||||||||||||||||||||||
| Balance at beginning of period | $ | 643.5 | $ | 610.4 | $ | 1,253.9 | $ | 445.6 | $ | 514.9 | $ | 960.5 | ||||||||||||||||||||||||||
| Net income | 30.8 | 12.2 | 43.0 | 10.5 | 16.3 | 26.8 | ||||||||||||||||||||||||||||||||
| Net subscriptions (distributions) and other | 142.3 | (26.8) | 115.5 | 30.2 | (11.2) | 19.0 | ||||||||||||||||||||||||||||||||
| Net consolidations (deconsolidations) | (97.3) | — | (97.3) | 104.6 | — | 104.6 | ||||||||||||||||||||||||||||||||
| Adjustment to fair value | — | (48.9) | (48.9) | — | (60.8) | (60.8) | ||||||||||||||||||||||||||||||||
| Balance at End of Period | $ | 719.3 | $ | 546.9 | $ | 1,266.2 | $ | 590.9 | $ | 459.2 | $ | 1,050.1 |
| (in millions) | 2024 | 2023 | ||||||||||||||||||||||||||||||||||||
| CIPs | Minority Interests | Total | CIPs | Minority Interests | Total | |||||||||||||||||||||||||||||||||
| for the nine months ended June 30, | ||||||||||||||||||||||||||||||||||||||
| Balance at beginning of period | $ | 580.1 | $ | 446.0 | $ | 1,026.1 | $ | 942.2 | $ | 583.6 | $ | 1,525.8 | ||||||||||||||||||||||||||
| Net income | 60.6 | 34.7 | 95.3 | 68.5 | 40.0 | 108.5 | ||||||||||||||||||||||||||||||||
| Net subscriptions (distributions) and other | 171.9 | (42.7) | 129.2 | 498.2 | (58.9) | 439.3 | ||||||||||||||||||||||||||||||||
| Net deconsolidations | (113.5) | — | (113.5) | (918.0) | — | (918.0) | ||||||||||||||||||||||||||||||||
| Acquisition | 20.2 | — | 20.2 | — | — | — | ||||||||||||||||||||||||||||||||
| Adjustment to fair value | — | 108.9 | 108.9 | — | (105.5) | (105.5) | ||||||||||||||||||||||||||||||||
| Balance at End of Period | $ | 719.3 | $ | 546.9 | $ | 1,266.2 | $ | 590.9 | $ | 459.2 | $ | 1,050.1 |
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) | June 30, 2024 | September 30, 2023 | ||||||||||||
| Investments | $ | 1,021.9 | $ | 925.9 | ||||||||||
| Receivables | 209.9 | 206.1 | ||||||||||||
| Total | $ | 1,231.8 | $ | 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 nine months ended June 30, 2024 or fiscal year 2023.
Note 11 – Commitments and Contingencies
Legal Proceedings
India Credit Fund Closure Matters. During the nine months ended June 30, 2024, there were no significant changes from the disclosure in the Form 10‑K for the fiscal year ended September 30, 2023.
Other Litigation and Regulatory Matters. Following the launch of an internal investigation focusing on certain past trade allocations of treasury derivatives in select Western Asset Management (“WAM”) managed accounts, WAM received notification of parallel investigations by the SEC and U.S. Department of Justice. The Company is cooperating with the investigations.
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 June 30, 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 June 30, 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 June 30, 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 nine months ended June 30, 2024 | ||||||||||||||||||||||||||
| Nonvested balance at October 1, 2023 | 12,782 | 3,099 | 15,881 | $ | 23.09 | |||||||||||||||||||||
| Granted | 11,909 | 627 | 12,536 | 25.86 | ||||||||||||||||||||||
| Vested | (1,255) | (162) | (1,417) | 23.86 | ||||||||||||||||||||||
| Forfeited/canceled | (305) | (500) | (805) | 22.11 | ||||||||||||||||||||||
| Nonvested Balance at June 30, 2024 | 23,131 | 3,064 | 26,195 | $ | 24.40 |
Total unrecognized compensation expense related to nonvested stock and stock unit awards was $254.6 million at June 30, 2024. This expense is expected to be recognized over a remaining weighted-average vesting period of 2.0 years.
Note 13 – Investment and Other Income, Net
Investment and other income, net consisted of the following:
| Three Months Ended June 30, | Nine Months Ended June 30, | |||||||||||||||||||||||||
| (in millions) | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||
| Dividend and interest income | $ | 39.8 | $ | 42.7 | $ | 132.6 | $ | 111.5 | ||||||||||||||||||
| Gains (losses) on investments, net | (24.3) | 13.8 | 17.3 | 62.3 | ||||||||||||||||||||||
| Income (losses) from investments in equity method investees | 41.0 | (9.1) | 122.3 | 43.5 | ||||||||||||||||||||||
| Gains (losses) on derivatives, net | 3.1 | (5.1) | (11.5) | (19.4) | ||||||||||||||||||||||
| Rental income | 11.1 | 11.1 | 32.8 | 35.1 | ||||||||||||||||||||||
| Foreign currency exchange gains (losses), net | 1.2 | (6.6) | (7.5) | (40.2) | ||||||||||||||||||||||
| Other, net | 2.6 | 3.0 | 14.2 | 7.5 | ||||||||||||||||||||||
| Investment and other income, net | $ | 74.5 | $ | 49.8 | $ | 300.2 | $ | 200.3 |
Net gains (losses) recognized on equity securities measured at fair value and trading debt securities that were held by the Company were $(6.9) million and $76.0 million for the three and nine months ended June 30, 2024 and $17.0 million and $95.7 million for the three and nine months ended June 30, 2023.
Note 14 - Subsequent Event
On July 15, 2024, the Company repaid all of the outstanding $250.0 million 3.950% senior notes due July 2024 issued by Legg Mason at the principal amount plus accrued and unpaid interest of $4.9 million.
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