Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

FORWARD-LOOKING STATEMENTS

This Form 10-Q and the documents incorporated by reference herein may include forward-looking statements that reflect our current views with respect to future events, financial performance and market conditions. Such statements are provided under the “safe harbor” protection of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements that do not relate solely to historical or current facts and generally can be identified by words or phrases written in the future tense and/or preceded by words such as “anticipate,” “believe,” “could,” “depends,” “estimate,” “expect,” “intend,” “likely,” “may,” “plan,” “potential,” “seek,” “should,” “will,” “would,” or other similar words or variations thereof, or the negative thereof, but these terms are not the exclusive means of identifying such statements.

Forward-looking statements involve a number of known and unknown risks, uncertainties and other important factors that may cause actual results and outcomes to differ materially from any future results or outcomes expressed or implied by such forward-looking statements, including market and volatility risks, investment performance and reputational risks, global operational risks, competition and distribution risks, third-party risks, technology and security risks, human capital risks, cash management risks, and legal and regulatory risks. The forward-looking statements contained in this Form 10-Q or that are incorporated by reference herein are qualified in their entirety by reference to the risks and uncertainties disclosed in this Form 10-Q and/or discussed under the headings “Risk Factors” and “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2025 (“fiscal year 2025”).

While forward-looking statements are our best prediction at the time that they are made, you should not rely on them and are cautioned against doing so. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other possible future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. They are neither statements of historical fact nor guarantees or assurances of future performance. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them.

The initiation or unfavorable resolution of legal proceedings or other claims and regulatory and other governmental investigations or inquiries, including the Western Asset Management (“WAM”) investigations described under the heading “Risk Factors” and in “Note 15 - Commitments and Contingencies” to our audited financial statements contained in our Annual Report on Form 10-K for fiscal year 2025, and in “Note 10 - Commitments and Contingencies” to our unaudited interim financial statements contained in this Form 10-Q, may result in additional costs, monetary judgments, settlements or other remedies, including fines, penalties, restitution and/or alterations in our business practices or those of our specialist investment managers. In addition, these matters may cause reputational harm to us or our specialist investment managers and could result in additional expenses and collateral costs, outflows of assets under management or other financial impacts that could materially affect our results of operations and the price of our common stock.

If a circumstance occurs after the date of this Form 10-Q that causes any of our forward-looking statements to be inaccurate, whether as a result of new information, future developments or otherwise, we undertake no obligation to announce publicly the change to our expectations, or to make any revision to our forward-looking statements, to reflect any change in assumptions, beliefs or expectations, or any change in events, conditions or circumstances upon which any forward-looking statement is based, unless required by law.

In this section, we discuss and analyze the results of operations and financial condition of Franklin Resources, Inc. (“Franklin”) and its subsidiaries (collectively, the “Company”). The following discussion should be read in conjunction with our Annual Report on Form 10-K for fiscal year 2025 filed with the U.S. Securities and Exchange Commission (the “SEC”), and the consolidated financial statements and notes thereto included elsewhere in this Form 10-Q. Words such as “we,” “us,” “our” and similar terms refer to the Company.

OVERVIEW

Franklin is a holding company with subsidiaries operating under our Franklin Templeton® and/or subsidiary brand names. We are a global investment management organization that derives operating revenues and net income from providing investment management and related services to investors in jurisdictions worldwide. We deliver our investment capabilities through a variety of investment products, which include our sponsored funds, as well as institutional and high-net-worth separate accounts, retail separately managed account programs, sub-advised products and other investment vehicles. Related services include fund administration, sales and distribution, and shareholder servicing, which we may perform directly or outsource to third parties. We offer our services and products under our various distinct brand names, including, but not limited to, Alcentra®, Apera®, Benefit Street Partners®, Brandywine Global Investment Management®, Canvas®, Clarion Partners®, ClearBridge Investments®, Fiduciary Trust International™, Franklin®, Franklin Mutual Series®, K2®, Legg Mason®, Lexington Partners®, O’Shaughnessy®, Putnam®, Royce®, Templeton®, and Western Asset Management Company®. We offer a broad product mix of equity, fixed income, alternative, multi-asset and cash management asset classes and solutions that meet a wide variety of specific investment goals and needs for individual and institutional investors. We also provide sub-advisory services to certain investment products sponsored by other companies which may be sold to investors under the brand names of those other companies or on a co-branded basis.

The level of our revenues depends largely on the level and relative mix of assets under management (“AUM”). As noted in the “Risk Factors” section of our Annual Report on Form 10-K for fiscal year 2025, the amount and mix of our AUM are subject to significant fluctuations, including as a result of reputational harm, that can negatively impact our revenues and income. The level of our revenues also depends on the fees charged for our services, which are based on contracts with our funds and customers, fund sales, and the number of shareholder transactions and accounts. These arrangements could change in the future.

During our first fiscal quarter, U.S. and global equity markets provided positive returns, reflecting strong earnings growth in multiple sectors, easing inflation, and expectations of continued interest rate reductions. The S&P 500 Index increased 2.7% and the MSCI World Index increased 3.2% for the quarter. Global bond markets remained relatively flat as the Bloomberg Global Aggregate Index increased 0.2% during the quarter.

Our total AUM at December 31, 2025 was $1,684.0 billion, 1% higher than at September 30, 2025 and 7% higher than at December 31, 2024. Monthly average AUM (“average AUM”) for the three months ended December 31, 2025 increased 3% from the same period in the prior fiscal year.

On October 1, 2025, we acquired Apera Asset Management (“Apera”), a pan-European private credit firm.

The business and regulatory environments in which we operate globally remain complex, uncertain and subject to change. We are subject to various laws, rules and regulations globally that impose restrictions, limitations, registration, reporting and disclosure requirements on our business, and add complexity to our global compliance operations.

Uncertainties regarding the global economy remain for the foreseeable future. As we continue to confront the challenges of the current economic and regulatory environments, we remain focused on the investment performance of our products and on providing high quality service to our clients. We continuously perform reviews of our business model. While we remain focused on expense management, we will also seek to attract, retain and develop personnel and invest strategically in systems and technology to support our evolving business. We will continue to seek to protect and further our brand recognition while developing and maintaining broker-dealer and client relationships. The success of these and other strategies may be influenced by the factors discussed in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year 2025.

RESULTS OF OPERATIONS


	Three Months Ended December 31,						Percent Change
(in millions, except per share data)		2025				2024
Operating revenues			$	2,327.1			$	2,251.6		3	%
Operating income			281.0				219.0			28	%
Operating margin1			12.1		%		9.7		%

Net income attributable to Franklin Resources, Inc.			$	255.5			$	163.6		56	%
Diluted earnings per share			0.46				0.29			59	%

As adjusted (non-GAAP):2
Adjusted operating income			$	437.3			$	412.8		6	%
Adjusted operating margin			25.0		%		24.5		%

Adjusted net income			$	378.4			$	320.5		18	%
Adjusted diluted earnings per share			0.70				0.59			19	%

1Defined as operating income divided by operating revenues.

2“Adjusted operating income,” “adjusted operating margin,” “adjusted net income” and “adjusted diluted earnings per share” are based on methodologies other than generally accepted accounting principles. See “Supplemental Non-GAAP Financial Measures” for definitions and reconciliations of these measures.

ASSETS UNDER MANAGEMENT

AUM by asset class was as follows:


(in billions)	December 31, 2025		December 31, 2024		Percent Change
Equity	$	697.2	$	620.0	12	%
Fixed Income	437.7		469.5		(7	%)
Alternative	273.8		248.8		10	%
Multi-Asset	198.8		174.0		14	%
Cash Management	76.5		63.4		21	%
Total	$	1,684.0	$	1,575.7	7	%

Average AUM and the mix of average AUM by asset class are shown below.


(in billions)	Average AUM 1				Percent Change			Mix of Average AUM
for the three months ended December 31,	2025		2024				2025			2024
Equity	$	693.6	$	629.1	10	%		41	%		38	%
Fixed Income	437.5		516.8		(15	%)		26	%		32	%
Alternative	268.6		248.8		8	%		16	%		15	%
Multi-Asset	196.6		175.6		12	%		12	%		11	%
Cash Management	79.8		64.2		24	%		5	%		4	%
Total	$	1,676.1	$	1,634.5	3	%		100	%		100	%

1Average AUM is calculated as the average of the month-end AUM for the trailing four months.

Components of the change in AUM are shown below. Net market change, distributions and other includes appreciation (depreciation), distributions to investors that represent return on investments and return of capital, and foreign exchange revaluation.


(in billions)	Three Months Ended December 31,
	2025 1	2024 2
Beginning AUM		$	1,661.2	$	1,678.6
Long-term inflows		118.6		96.9
Long-term outflows		(90.6)		(146.9)
Long-term net flows		28.0		(50.0)
Cash management net flows		(1.2)		—
Total net flows		26.8		(50.0)
Acquisition		6.1		—
Net market change, distributions and other		(10.1)		(52.9)
Ending AUM		$	1,684.0	$	1,575.7

1Beginning in fiscal year 2026, non-fee generating uncalled capital commitments, which were previously included in net market change, distributions, and other, are reflected in long-term inflows in the period the capital is committed.

2Long-term inflows and outflows were each revised from previously reported amounts to reflect fund activity of $0.9 billion settling in January 2025. The revision did not impact net flows or ending AUM.

Components of the change in AUM by asset class were as follows:


(in billions)	Equity		Fixed Income		Alternative 1		Multi-Asset		Cash Management		Total
for the three months ended December 31, 2025
AUM at October 1, 2025	$	686.2	$	438.7	$	263.9	$	193.9	$	78.5	$	1,661.2
Long-term inflows	61.1		33.5		10.8		13.2		—		118.6
Long-term outflows	(41.3)		(35.9)		(4.2)		(9.2)		—		(90.6)
Long-term net flows	19.8		(2.4)		6.6		4.0		—		28.0
Cash management net flows	—		—		—		—		(1.2)		(1.2)
Total net flows	19.8		(2.4)		6.6		4.0		(1.2)		26.8
Acquisition	—		—		6.1		—		—		6.1
Net market change, distributions and other	(8.8)		1.4		(2.8)		0.9		(0.8)		(10.1)
AUM at December 31, 2025	$	697.2	$	437.7	$	273.8	$	198.8	$	76.5	$	1,684.0

AUM increased $22.8 billion, or 1%, during the three months ended December 31, 2025 due to $28.0 billion of long-term net inflows, inclusive of $6.6 billion of long-term net outflows at WAM, and $6.1 billion from the acquisition of Apera, partially offset by the negative impact of $10.1 billion of net market change, distributions and other, and $1.2 billion of cash management net outflows. Long-term net inflows include $28.9 billion of long-term reinvested distributions. Net market change, distributions and other primarily consists of $43.2 billion of distributions, primarily from the equity asset class, partially offset by $33.7 billion of market appreciation. The market appreciation occurred in all asset classes, most significantly in the equity asset class, and reflected positive returns in the global equity markets.

Long-term inflows increased 22% to $118.6 billion, as compared to the prior period, driven by higher inflows in equity open-end funds, alternative private funds, equity and fixed income exchange traded funds, fixed income and multi-asset separately managed accounts, and fixed income institutional separate accounts, partially offset by lower inflows in equity sub-advised mutual funds. Long-term outflows decreased 38% to $90.6 billion, substantially due to lower outflows across multiple fixed income vehicles at WAM, partially offset by slightly higher outflows in fixed income vehicles across other specialist investment managers and in alternative institutional separate accounts.


(in billions)	Equity		Fixed Income		Alternative 1		Multi-Asset		Cash Management		Total
for the three months ended December 31, 2024
AUM at October 1, 2024	$	632.1	$	556.4	$	249.9	$	176.2	$	64.0	$	1,678.6
Long-term inflows	55.9		26.4		3.4		11.2		—		96.9
Long-term outflows	(43.4)		(93.1)		(2.6)		(7.8)		—		(146.9)
Long-term net flows	12.5		(66.7)		0.8		3.4		—		(50.0)
Cash management net flows	—		—		—		—		—		—
Total net flows	12.5		(66.7)		0.8		3.4		—		(50.0)

Net market change, distributions and other	(24.6)		(20.2)		(1.9)		(5.6)		(0.6)		(52.9)
AUM at December 31, 2024	$	620.0	$	469.5	$	248.8	$	174.0	$	63.4	$	1,575.7

1Long-term inflows and outflows were each revised from previously reported amounts to reflect fund activity of $0.9 billion settling in January 2025. The revision did not impact net flows or ending AUM.

AUM by sales region was as follows:


(in billions)	December 31, 2025		December 31, 2024		Percent Change
United States1	$	1,195.7	$	1,102.5	8	%
International
Europe, Middle East and Africa	227.0		193.7		17	%
Asia-Pacific	167.4		165.2		1	%
Americas, excl. U.S.1	93.9		114.3		(18	%)
Total international	488.3		473.2		3	%
Total	$	1,684.0	$	1,575.7	7	%

1Effective in fiscal year 2026, Cayman-domiciled money market fund assets are included in United States reflecting the underlying investor base. This change resulted in a 12% reduction of AUM in the Americas, excluding U.S.

The region in which investment products are sold may differ from the geographic area in which we provide investment management and related services to the products.

Investment Performance Overview

A key driver of our overall success is the long-term investment performance of our investment products. A measure of the performance of these products is the percentage of AUM exceeding peer group medians and benchmarks. We compare the relative performance of our mutual funds against peers, and of our strategy composites against benchmarks.

The performance of our mutual fund products against peer group medians and of our strategy composites against benchmarks is presented in the table below.


	Peer Group Comparison1								Benchmark Comparison2
	% of Mutual Fund AUM in Top Two Peer Group Quartiles								% of Strategy Composite AUM Exceeding Benchmark
as of December 31, 2025	1-Year		3-Year		5-Year		10-Year		1-Year		3-Year		5-Year		10-Year
Equity	49	%	60	%	54	%	55	%	41	%	40	%	36	%	47	%
Fixed Income	74	%	77	%	71	%	76	%	68	%	76	%	78	%	91	%
Total AUM3	49	%	57	%	65	%	55	%	48	%	54	%	51	%	64	%

1Mutual fund performance is sourced from Morningstar and measures the percent of ranked AUM in the top two quartiles versus peers. Total mutual fund AUM measured for the 1-, 3-, 5- and 10-year periods represents 39%, 39%, 38% and 36% of our total AUM as of December 31, 2025.

2Strategy composite performance measures the percent of composite AUM beating its benchmark. The benchmark comparisons are based on each account’s/composite’s (strategy composites may include retail separately managed accounts and mutual fund assets managed as part of the same strategy) return as compared to a market index that has been selected to be generally consistent with the asset class of the account/composite. Total strategy composite AUM measured for the 1-, 3-, 5- and 10-year periods represents 55%, 55%, 55% and 50% of our total AUM as of December 31, 2025.

3Total mutual fund AUM includes performance of our alternative and multi-asset funds, and total strategy composite AUM includes performance of our alternative composites. Alternative and multi-asset AUM represent 16% and 12% of our total AUM at December 31, 2025.

Mutual fund performance data includes U.S. and cross-border domiciled mutual funds and exchange-traded funds, excludes cash management and fund of funds, and assumes the reinvestment of dividends.

Past performance is not indicative of future results. For strategy composite AUM included in institutional and retail separately managed accounts and investment funds managed in the same strategy as separate accounts, performance comparisons are based on gross-of-fee performance. For investment funds which are not managed in a separate account format, performance comparisons are based on net-of-fee performance. These performance comparisons do not reflect the actual performance of any specific separate account or investment fund; individual separate account and investment fund performance may differ. The information in this presentation is provided solely for use in connection with this document, and is not directed toward existing or potential clients of Franklin.

OPERATING REVENUES

The table below presents the percentage change in each operating revenue category.


(in millions)	Three Months Ended December 31,			Percent Change
	2025	2024
Investment management fees		$	1,847.9	$	1,799.3	3	%
Sales and distribution fees		388.7		375.5		4	%
Shareholder servicing fees		70.9		63.5		12	%
Other		19.6		13.3		47	%
Total Operating Revenues		$	2,327.1	$	2,251.6	3	%

Investment Management Fees

Investment management fees increased $48.6 million for the three months ended December 31, 2025 primarily due to an increase in average equity, multi-asset, and alternative AUM, and the acquisition of Apera, partially offset by the impact of WAM outflows and a decrease in performance fees.

Our effective investment management fee rate excluding performance fees (annualized investment management fees excluding performance fees divided by average AUM) was 40.6 basis points for the three months ended December 31, 2025, as compared to 40.2 basis points for the three months ended December 31, 2024.

Performance fees were $131.6 million and $141.6 million for the three months ended December 31, 2025 and 2024. The decrease was primarily due to changes in the amount of performance fees earned by our alternative specialist investment managers.

Sales and Distribution Fees

Sales and distribution fees by revenue driver are presented below.


(in millions)		Three Months Ended December 31,					Percent Change
	2025			2024
Asset-based fees		$	324.6		$	309.1	5	%
Sales-based fees		64.1			66.4		(3	%)
Sales and Distribution Fees		$	388.7		$	375.5	4	%

Asset-based distribution fees increased $15.5 million for the three months ended December 31, 2025 primarily due to an increase of 3% in the related average AUM and a higher mix of non-U.S. equity and multi-asset funds and U.S. equity and alternative funds, which generate higher fees.

Sales-based fees decreased $2.3 million for the three months ended December 31, 2025, primarily due to a decrease of 6% in commissionable sales.

Shareholder Servicing Fees

Shareholder servicing fees increased $7.4 million for the three months ended December 31, 2025 primarily due to higher levels of related AUM and increased revenue related to fees earned on a contractual basis.

Other

Other revenue increased $6.3 million for the three months ended December 31, 2025 primarily due to higher loan origination fees earned by certain of our alternative asset managers.

OPERATING EXPENSES

The table below presents the percentage change in each operating expense category.


	Three Months Ended December 31,					Percent Change
(in millions)		2025			2024
Compensation and benefits			$	1,030.7		$	991.4	4	%
Sales, distribution and marketing			540.9			512.3		6	%
Information systems and technology			157.0			156.0		1	%
Occupancy			66.8			75.1		(11	%)
Amortization of intangible assets			55.1			112.6		(51	%)

General, administrative and other			195.6			185.2		6	%
Total Operating Expenses			$	2,046.1		$	2,032.6	1	%

Compensation and Benefits

The components of compensation and benefits expenses are presented below.


	Three Months Ended December 31,					Percent Change
(in millions)		2025			2024
Salaries, wages and benefits			$	428.5		$	423.6	1	%
Incentive compensation			471.0			439.4		7	%
Acquisition-related retention1			35.7			45.8		(22	%)
Acquisition-related performance fee pass through1			51.8			69.1		(25	%)
Other1,2			43.7			13.5		224	%
Compensation and Benefits Expenses			$	1,030.7		$	991.4	4	%

1See “Supplemental Non-GAAP Financial Measures” for additional information.

2Includes impact of gains and losses on investments related to deferred compensation plans, which is offset in investment and other income (losses), net; minority interests in certain subsidiaries, which is offset in net income (loss) attributable to redeemable noncontrolling interests; and special termination benefits.

Salaries, wages and benefits increased $4.9 million for the three months ended December 31, 2025, primarily due to annual salary increases, higher employee insurance costs, and the acquisition of Apera, partially offset by the impact of headcount reductions resulting from cost savings initiatives.

Incentive compensation increased $31.6 million for the three months ended December 31, 2025, primarily due to higher bonus expense based on expectations of our annual performance, higher deferred compensation expense and higher sales-related commissions.

Acquisition-related retention expenses decreased $10.1 million for the three months ended December 31, 2025, primarily due to lower costs associated with recent acquisitions.

Other compensation and benefits increased $30.2 million for the three months ended December 31, 2025, primarily due to a $15.6 million increase in special termination benefits, primarily due to higher costs associated with workforce optimization initiatives, and higher net market gains on investments related to our deferred compensation plans.

At December 31, 2025, our global workforce decreased to approximately 9,900 employees from approximately 10,100 at December 31, 2024.

Sales, Distribution and Marketing

Sales, distribution and marketing expenses by cost driver are presented below.


	Three Months Ended December 31,					Percent Change
(in millions)		2025			2024
Asset-based expenses			$	457.8		$	428.2	7	%
Sales-based expenses			60.3			63.9		(6	%)
Amortization of deferred sales commissions			22.8			20.2		13	%
Sales, Distribution and Marketing			$	540.9		$	512.3	6	%

Asset-based expenses increased $29.6 million for the three months ended December 31, 2025 primarily due to an increase of 4% in the related average AUM, higher marketing support fees, and a higher mix of non-U.S. equity and multi-asset funds and U.S. equity and alternative funds, which generate higher fees. Distribution expenses are generally not directly correlated with distribution fee revenues due to certain fee structures that do not provide full recovery of distribution costs.

Sales-based expenses decreased $3.6 million for the three months ended December 31, 2025 primarily due to a decrease of 6% in commissionable sales.

Occupancy

Occupancy expenses decreased $8.3 million for the three months ended December 31, 2025, primarily due to consolidation of our office space in New York City.

Information Systems and Technology

Information systems and technology expenses increased $1.0 million for the three months ended December 31, 2025, primarily due to higher software costs partially offset by lower technology consulting costs.

Amortization of Intangible Assets

Amortization of intangible assets decreased $57.5 million for the three months ended December 31, 2025, primarily due to intangible assets which became fully amortized during prior year, partially offset by an increase in amortization due to the reclassification of certain indefinite-lived intangible assets to definite lived intangible assets and a reduction in the useful lives of certain definite-lived intangible assets related to trade names.

General, Administrative and Other

General, administrative and other operating expenses increased $10.4 million for the three months ended December 31, 2025, primarily due to an increase of $15.5 million in fund-related expenses, driven by higher transfer agency expenses, higher placement fees, and higher sub-advisory expenses, an increase of $4.3 million in advertising expenses, and a $2.3 million increase in travel and entertainment. These increases were partially offset by a $13.1 million decrease in legal and other professional fees, inclusive of a $10.0 million increase in insurance recoveries.

OTHER INCOME (EXPENSES)

Other income (expenses) consisted of the following:


	Three Months Ended December 31,					Percent Change
(in millions)		2025			2024
Investment and other income, net:
Dividend and interest income			$	54.6		$	43.1	27	%
Losses on investments, net			(8.6)			(57.1)		(85	%)
Income (losses) from investments in equity method investees			11.5			(7.6)		NM
Losses on crypto assets, net			(6.4)			—		NM
Rental income			11.3			11.2		1	%
Foreign currency exchange (losses) gains, net			(4.0)			14.5		NM
Other, net			21.9			6.4		242	%
Investment and other income, net			80.3			10.5		665	%
Interest expense			(20.4)			(23.1)		(12	%)
Investment and other income of consolidated investment products, net			124.9			114.1		9	%
Expenses of consolidated investment products			(14.0)			(7.3)		92	%
Other Income, Net			$	170.8		$	94.2	81	%

Dividend and interest income increased $11.5 million for the three months ended December 31, 2025, primarily due to a dividend earned from a strategic investment.

Investments held by the Company generated net losses of $8.6 million and $57.1 million for the three months ended December 31, 2025 and 2024. The net losses in the current year were primarily from investments in nonconsolidated funds and separate accounts, partially offset by gains from assets invested for deferred compensation plans, while the net losses in the prior year were primarily from investments in nonconsolidated funds and separate accounts and assets invested for deferred compensation plans.

Equity method investees generated income of $11.5 million for the three months ended December 31, 2025, as compared to losses of $7.6 million in the prior year, largely related to various global alternative funds and global equity funds.

Net foreign currency exchange losses were $4.0 million for the three months ended December 31, 2025, as compared to net gains of $14.5 million in the prior year period. The U.S. dollar weakened in the current year period against the Euro and British Pound, which resulted in net foreign exchange losses on cash and cash equivalents denominated in U.S. dollars held by certain of our European subsidiaries, as compared to strengthening against the same currencies, which resulted in net foreign exchange gains, in the prior year period.

Other, net increased $15.5 million for the three months December 31, 2025, primarily due to a gain recognized on the sale of owned office space.

Interest expense decreased $2.7 million for the three months ended December 31, 2025 primarily due to interest recognized in the prior year on the $400 million senior notes which were repaid in March 31, 2025.

Investments held by consolidated investment products (“CIPs”) generated gains and other income of $124.9 million and $114.1 million for the three months ended December 31, 2025 and 2024, largely related to gains on holdings of various alternative, equity, and multi-asset funds, and in the prior year, fixed income funds.

Expenses of CIPs increased $6.7 million for the three months ended December 31, 2025, due to activity of the funds.

TAXES ON INCOME

Our effective income tax rate was 23.2% and 25.9% for the three months ended December 31, 2025 and 2024. The rate decrease for the three month period was primarily due to excess tax benefits related to stock-based compensation in the current year, as compared to excess tax expense in the prior year, and a higher proportion of foreign earnings in lower-tax jurisdictions, partially offset by activity of CIPs for which there is no related tax impact.

Our effective income tax rate reflects the relative contributions of earnings in the jurisdictions in which we operate, which have varying tax rates. Changes in our pre-tax income mix, tax rates or tax legislation in such jurisdictions may affect our effective income tax rate and net income.

SUPPLEMENTAL NON-GAAP FINANCIAL MEASURES

As supplemental information, we are providing performance measures for “adjusted operating income,” “adjusted operating margin,” “adjusted net income” and “adjusted diluted earnings per share,” each of which is based on methodologies other than generally accepted accounting principles (“non-GAAP measures”). Management believes these non-GAAP measures are useful indicators of our financial performance and may be helpful to investors in evaluating our relative performance against industry peers.

“Adjusted operating income,” “adjusted operating margin,” “adjusted net income” and “adjusted diluted earnings per share” are defined below, followed by reconciliations of operating income, operating margin, net income attributable to Franklin Resources, Inc. and diluted earnings per share on a U.S. GAAP basis to these non-GAAP measures. Non-GAAP measures should not be considered in isolation from, or as substitutes for, any financial information prepared in accordance with U.S. GAAP, and may not be comparable to other similarly titled measures of other companies. Additional reconciling items may be added in the future to these non-GAAP measures if deemed appropriate.

Adjusted Operating Income

We define adjusted operating income as operating income adjusted to exclude the following:

Elimination of operating revenues upon consolidation of investment products.
Acquisition-related items:

◦Acquisition-related retention compensation.

◦Other acquisition-related expenses including professional fees, technology costs and fair value adjustments related to contingent consideration assets and liabilities.

◦Amortization of intangible assets.

◦Impairment of intangible assets and goodwill, if any.

Special termination benefits and other expenses related to workforce optimization initiatives related to past acquisitions and certain initiatives undertaken by the Company.
Impact on compensation and benefits expense from gains and losses on investments related to deferred compensation plans, which is offset in investment and other income (losses), net.
Impact on compensation and benefits expense related to minority interests in certain subsidiaries, which is offset in net income (loss) attributable to redeemable noncontrolling interests.

Adjusted Operating Margin

We calculate adjusted operating margin as adjusted operating income divided by adjusted operating revenues. We define adjusted operating revenues as operating revenues adjusted to exclude the following:

Elimination of operating revenues upon consolidation of investment products.
Acquisition-related performance-based investment management fees which are passed through as compensation and benefits expense.
Sales and distribution fees and a portion of investment management fees allocated to cover sales, distribution and marketing expenses paid to the financial advisers and other intermediaries who sell our funds on our behalf.

Adjusted Net Income and Adjusted Diluted Earnings Per Share

We define adjusted net income as net income attributable to Franklin Resources, Inc. adjusted to exclude the following:

Activities of CIPs.
Acquisition-related items:

◦Acquisition-related retention compensation.

◦Other acquisition-related expenses including professional fees, technology costs and fair value adjustments related to contingent consideration assets and liabilities.

◦Amortization of intangible assets.

◦Impairment of intangible assets and goodwill, if any.

◦Interest expense for amortization of debt premium from acquisition-date fair value adjustment.

Special termination benefits and other expenses related to workforce optimization initiatives related to past acquisitions and certain initiatives undertaken by the Company.
Net gains or losses on investments related to deferred compensation plans which are not offset by compensation and benefits expense.
Net compensation and benefits expense related to minority interests in certain subsidiaries not offset by net income (loss) attributable to redeemable noncontrolling interests.
Unrealized investment gains and losses.
Net income tax expense of the above adjustments based on the respective blended rates applicable to the adjustments.

We define adjusted diluted earnings per share as diluted earnings per share adjusted to exclude the per share impacts of the adjustments applied to net income in calculating adjusted net income.

In calculating our non-GAAP measures, we adjust for the impact of CIPs because it is not considered reflective of our underlying results of operations. Acquisition-related items and special termination benefits are excluded to facilitate comparability to other asset management firms. We adjust for compensation and benefits expense related to funded deferred compensation plans because it is partially offset in other income (expense), net. We adjust for compensation and benefits expense and net income (loss) attributable to redeemable noncontrolling interests to reflect the economics of certain profits interest arrangements. Sales and distribution fees and a portion of investment management fees generally cover sales, distribution and marketing expenses and, therefore, are excluded from adjusted operating revenues. In addition, when calculating adjusted net income and adjusted diluted earnings per share we exclude unrealized investment gains and losses included in investment and other income (losses) because the related investments are generally expected to be held long term.

The calculations of adjusted operating income, adjusted operating margin, adjusted net income and adjusted diluted earnings per share are as follows:


(in millions)	Three Months Ended December 31,
	2025	2024
Operating income		$	281.0	$	219.0
Add (subtract):
Elimination of operating revenues upon consolidation of investment products*		16.0		12.5
Acquisition-related retention		35.7		45.8
Compensation and benefits expense from gains on deferred compensation, net		13.6		0.9
Other acquisition-related expenses		5.8		9.4
Amortization of intangible assets		55.1		112.6

Special termination benefits		16.0		0.4
Compensation and benefits expense related to minority interests in certain subsidiaries		14.1		12.2
Adjusted operating income		$	437.3	$	412.8

Total operating revenues		$	2,327.1	$	2,251.6
Add (subtract):
Acquisition-related pass through performance fees		(55.0)		(69.1)
Sales and distribution fees		(388.7)		(375.5)
Allocation of investment management fees for sales, distribution and marketing expenses		(152.2)		(136.8)
Elimination of operating revenues upon consolidation of investment products*		16.0		12.5
Adjusted operating revenues		$	1,747.2	$	1,682.7

Operating margin		12.1%		9.7%
Adjusted operating margin		25.0%		24.5%


(in millions, except per share data)	Three Months Ended December 31,
	2025	2024
Net income attributable to Franklin Resources, Inc.		$	255.5	$	163.6
Add (subtract):
Net loss of consolidated investment products*		0.7		4.2
Acquisition-related retention		35.7		45.8
Other acquisition-related expenses		7.5		12.7
Amortization of intangible assets		55.1		112.6

Special termination benefits		16.0		0.4
Net losses on deferred compensation plan investments not offset by compensation and benefits expense		3.5		1.3
Unrealized investment losses		20.2		31.5
Interest expense for amortization of debt premium		(5.0)		(4.9)
Net compensation and benefits expense related to minority interests in certain subsidiaries not offset by net income attributable to redeemable noncontrolling interests		7.4		4.1
Net income tax expense of adjustments		(18.2)		(50.8)
Adjusted net income		$	378.4	$	320.5

Diluted earnings per share		$	0.46	$	0.29
Adjusted diluted earnings per share		0.70		0.59

*The impact of CIPs is summarized as follows:


(in millions)	Three Months Ended December 31,
	2025	2024
Elimination of operating revenues upon consolidation		$	(16.0)	$	(12.5)
Other income, net		74.8		61.5
Less: income attributable to noncontrolling interests		59.5		53.2
Net loss		$	(0.7)	$	(4.2)

LIQUIDITY AND CAPITAL RESOURCES

Cash flows were as follows:


	Three Months Ended December 31,
(in millions)	2025		2024
Operating cash flows	$	(255.1)	$	(145.2)
Investing cash flows	(317.2)		(656.5)
Financing cash flows	487.4		87.9

Net cash used in operating activities increased during the three months ended December 31, 2025 primarily due to timing of cash payments and receipts, reflected in changes in accounts payable and accrued expenses and receivables partially offset by lower payments for incentive compensation and accounts payable and accrued expenses of CIPs. Net cash used in investing activities decreased primarily due to lower net purchases of investments, proceeds from the sale of property, plant and equipment and lower net purchases of investments by collateralized loan obligations (“CLOs”) partially offset by cash paid for an acquisition in the current year. Net cash provided by financing activities increased primarily due to higher net proceeds on debt of CIPs partially offset by lower net subscriptions in CIPs by noncontrolling interests.

The assets and liabilities of CIPs attributable to third-party investors do not impact our liquidity and capital resources. We have no right to the CIPs’ assets, other than our direct equity investment in them and investment management and other fees earned from them. The debt holders of the CIPs have no recourse to our assets beyond the level of our direct investment, therefore we bear no other risks associated with the CIPs’ liabilities. Accordingly, the assets and liabilities of CIPs, other than our direct investments in them, are excluded from the amounts and discussion below.

Our liquid assets and debt consisted of the following:


(in millions)	December 31, 2025		September 30, 2025
Assets
Cash and cash equivalents	$	2,636.6	$	3,050.1
Receivables	1,281.2		1,228.6
Investments	1,221.1		1,367.5
Total Liquid Assets	$	5,138.9	$	5,646.2

Liability
Debt	$	2,357.3	$	2,362.0

Liquidity

Liquid assets consist of cash and cash equivalents, receivables and certain investments. Cash and cash equivalents at December 31, 2025 primarily consist of money market funds and deposits with financial institutions. Liquid investments consist of investments in sponsored and other funds, direct investments in redeemable CIPs, other equity and debt securities, and time deposits with maturities greater than three months.

We utilize a significant portion of our liquid assets to satisfy operational and regulatory requirements and fund capital contributions to sponsored and other products. Certain of our subsidiaries are required by our internal policy or regulation to maintain minimum levels of cash and/or capital, and may be restricted in their ability to transfer cash to their parent companies. Should we require more capital than is available for use, we could elect to reduce the level of discretionary activities, such as share repurchases or investments in sponsored and other products, we could raise capital through debt or equity issuances, or utilize existing or new credit facilities. These alternatives could result in increased interest expense, decreased dividend or interest income, or other dilution to our earnings.

Capital Resources

We believe that we can meet our present and reasonably foreseeable operating cash needs and future commitments through existing liquid assets, continuing cash flows from operations, amounts available under the credit facility discussed below, the ability to issue debt or equity securities and borrowing capacity under our uncommitted commercial paper private placement program.

In prior fiscal years, we issued senior unsecured unsubordinated notes for general corporate purposes and to redeem outstanding notes. At December 31, 2025, Franklin’s outstanding senior notes had an aggregate principal amount due of $1,200.0 million. The notes have fixed interest rates from 1.600% to 2.950% with interest paid semi-annually and have an aggregate carrying value, inclusive of unamortized discounts and debt issuance costs, of $1,188.9 million. At December 31, 2025, Legg Mason’s outstanding senior notes had an aggregate principal amount due of $1,000.0 million. The notes have fixed interest rates from 4.750% to 5.625% with interest paid semi-annually and have an aggregate carrying value, inclusive of unamortized premium, of $1,168.4 million at December 31, 2025. Franklin unconditionally and irrevocably guarantees all of the outstanding notes issued by Legg Mason. We intend to repay the $450 million 4.750% senior notes due March 2026 from existing cash and other sources of liquidity.

The senior notes contain an optional redemption feature that allows us to redeem each series of notes prior to maturity in whole or in part at any time, at a make-whole redemption price. The indentures governing the senior notes contain limitations on our ability and the ability of our subsidiaries to pledge voting stock or profit participating equity interests in our subsidiaries to secure other debt without similarly securing the notes equally and ratably. In addition, the indentures include requirements that must be met if we consolidate or merge with, or sell all of our assets to, another entity.

On December 11, 2025, we entered into a Joinder and Commitment Increase Agreement (the “Joinder Agreement”) which amends the Amended and Restated Credit Agreement (the “Credit Agreement”) dated as of April 30, 2025. Pursuant to the Joinder Agreement, the aggregate commitments have increased by $400.0 million such that the total aggregate commitments under the Credit Agreement are $1.5 billion.

On January 8, 2026, we borrowed $150.0 million under the Credit Agreement. The borrowing remains outstanding at the time of this filing and the proceeds were used for general corporate purposes. Interest is payable semi-annually on any outstanding amounts and is based on the Term Secured Overnight Financing Rate (“Term SOFR”) plus a credit spread of 87.5 basis points and a Term SOFR adjustment of 10 basis points. The Credit Agreement contains a financial performance covenant requiring that the Company maintain a consolidated net leverage ratio, measured as of the last day of each fiscal quarter, of no greater than 3.25 to 1.00. We were in compliance with all debt covenants at December 31, 2025.

At December 31, 2025, we had $500.0 million of short-term commercial paper available for issuance under an uncommitted private placement program which has been inactive since 2012 and is unrated.

Our ability to access the capital markets in a timely manner depends on a number of factors, including our credit rating, the condition of the global economy, investors’ willingness to purchase our securities, interest rates, credit spreads and the valuation levels of equity markets. If we are unable to access capital markets in a timely manner, our business could be adversely impacted.

Uses of Capital

We expect that our main uses of cash will be to invest in and grow our business including through acquisitions, pay stockholder dividends, invest in our products, pay income taxes and expenses of the business, enhance technology infrastructure and business processes, repurchase shares of our common stock, and repay and service debt. While we expect to continue to repurchase shares to offset dilution from stock-based compensation, and expect to continue to repurchase shares opportunistically from time to time, we will likely spend more of our post-dividend free cash flow investing in our business, including seed capital and acquiring resources to help grow our investment teams and operations.

We typically declare cash dividends on a quarterly basis, subject to approval by our Board of Directors. We declared regular dividends of $0.33 per share during the three months ended December 31, 2025 and $0.32 per share during the three months ended December 31, 2024. We currently expect to continue paying comparable regular dividends on a quarterly basis to holders of our common stock depending upon earnings and other relevant factors.

We maintain a stock repurchase program to manage our equity capital with the objective of maximizing shareholder value. Our stock repurchase program is effected through open-market purchases and private transactions in accordance with applicable laws and regulations, and is not subject to an expiration date. The size and timing of these purchases will depend on business conditions, price, market and other factors, including the terms of any 10b5-1 stock purchase plan that may be in effect at any given time. During the three months ended December 31, 2025, we repurchased 1.8 million shares of our common stock at a cost of $41.9 million and we repurchased 0.3 million shares of our common stock at a cost of $5.8 million in the prior year period. In December 2025, our Board of Directors authorized the repurchase of up to an additional 20.8 million shares of our common stock in either open market or private transactions, for a total of up to 40.0 million shares available for repurchase under the stock repurchase program as of such authorization date. At December 31, 2025, 38.3 million shares remained available for repurchase under this authorization.

On October 1, 2025, we completed the acquisition of Apera Asset Management for cash consideration of €65.2 million net of closing adjustments, funded from existing cash. In addition, we will pay up to €125.0 million in cash through the fifth anniversary of the closing date based on achieving revenue targets.

As part of our acquisition of Putnam, which closed on January 1, 2024, we 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 Lifeco, Inc. which will be recognized in operating income.

While we have no legal or contractual obligation to do so, we routinely make cash investments in the course of launching sponsored funds. The funds that we manage have their own resources available for purposes of providing liquidity to meet shareholder redemptions, including securities that can be sold or provided to investors as in-kind redemptions, and lines of credit. Increased liquidity risks and redemptions have required, and may continue to require, increased cash in the form of loans or other lines of credit to help settle redemptions and for other related purposes. We have in certain instances voluntarily elected to provide the funds with direct or indirect financial support based on our business objectives. We did not provide significant additional financial or other support to our sponsored funds during the three months ended December 31, 2025.

Our cash, cash equivalents and investments portfolio by asset class and accounting classification at December 31, 2025, excluding third-party assets of CIPs, was as follows:


	Accounting Classification1										Total
(in millions)	Cash and Cash Equivalents		Investments at Fair Value		Equity Method Investments		Other Investments		Direct Investments in CIPs
Cash and Cash Equivalents	$	2,672.1	$	—	$	—	$	—	$	—	$	2,672.1
Investments
Alternative	—		451.9		726.4		168.6		633.8		1,980.7
Equity	—		344.1		224.7		167.5		214.8		951.1
Fixed Income	—		211.6		54.3		34.9		113.5		414.3
Multi-Asset	—		55.4		(0.4)		—		124.8		179.8
Total investments	—		1,063.0		1,005.0		371.0		1,086.9		3,525.9
Total Cash and Cash Equivalents and Investments2, 3	$	2,672.1	$	1,063.0	$	1,005.0	$	371.0	$	1,086.9	$	6,198.0

1See Note 1 – Significant Accounting Policies in the notes to consolidated financial statements in Item 8 of Part II of our Annual Report on Form 10-K for fiscal year 2025 for information on investment accounting classifications.

2Total cash and cash equivalents and investments includes $4,429.5 million maintained for operational activities, including investments in sponsored funds and other products, and $452.8 million necessary to comply with regulatory requirements.

3Total cash and cash equivalents and investments includes approximately $365 million attributable to employee-owned and other third-party investments made through partnerships which are offset in noncontrolling interests, approximately $352 million of investments that are subject to long-term repurchase agreements and other net financing arrangements, and approximately $440 million of cash and investments related to deferred compensation plans.

CRITICAL ACCOUNTING POLICIES

Our consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America, which require the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. These estimates, judgments and assumptions are affected by our application of accounting policies. Further, concerns about the global economic outlook have adversely affected, and may continue to adversely affect, our business, financial condition and results of operations including the estimates and assumptions made by management. Actual results could differ from the estimates. Described below are the updates to our critical accounting policies disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for fiscal year 2025.

Consolidation

We consolidate our subsidiaries and investment products in which we have a controlling financial interest. We have a controlling financial interest when we own a majority of the voting interest in a voting interest entity or are the primary beneficiary of a variable interest entity (“VIE”). Our VIEs are primarily investment products and our variable interests consist of our equity ownership interests in and investment management fees earned from these products.

Business Combinations

Business combinations are accounted for by recognizing the acquired assets, including separately identifiable intangible assets, and assumed liabilities at their acquisition-date estimated fair values. Any excess of the purchase consideration over the acquisition-date fair values of these identifiable assets and liabilities is recognized as goodwill. Goodwill and indefinite-lived intangible assets are tested for impairment annually and when an event occurs or circumstances change that more likely than not reduce the fair value of the related reporting unit or indefinite-lived intangible asset below its carrying value. Definite-lived intangible assets are tested for impairment quarterly.

Subsequent to the annual impairment tests performed as of August 1, 2025, we monitored both macroeconomic and entity-specific factors, including changes in our AUM to determine whether circumstances have changed that would more likely than not reduce the fair value of the reporting unit below its carrying value or indicate that the other indefinite-lived intangible assets might be impaired. We also monitored fluctuations of our common stock per share price to evaluate our market capitalization relative to the reporting unit as a whole. During the three months ended December 31, 2025, there were no events

or circumstances which would indicate that goodwill, indefinite-lived intangible assets or definite-lived intangible assets might be impaired.

While we believe that the assumptions used to estimate fair value in our impairment tests are reasonable and appropriate, future changes in the assumptions could result in recognition of impairment.

Fair Value Measurements

Our investments are primarily recorded at fair value or amounts that approximate fair value on a recurring basis. We use a three-level fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based on whether the inputs to those valuation techniques are observable or unobservable.

As of December 31, 2025, Level 3 assets represented 4% of total assets measured at fair value, which primarily related to CIPs’ investments in equity and debt securities. There were no transfers into and $16.8 million transfers out of Level 3 during the three months ended December 31, 2025.

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