ben-20221231

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(MARK ONE)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-09318

FRANKLIN RESOURCES, INC.

(Exact name of registrant as specified in its charter)


Delaware			13-2670991
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

One Franklin Parkway, San Mateo, CA 94403

(Address of principal executive offices) (Zip code)

(650) 312-2000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.10 per share	BEN	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☒

Accelerated Filer

☐

Non-accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

Number of shares of the registrant’s common stock outstanding at January 23, 2023: 500,357,847.

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INDEX TO FORM 10-Q


			Page
PART I		Financial Information
	Item 1.	Financial Statements (unaudited)
		Consolidated Statements of Income	3
		Consolidated Statements of Comprehensive Income	4
		Consolidated Balance Sheets	5
		Consolidated Statements of Stockholders’ Equity	6
		Consolidated Statements of Cash Flows	7
		Notes to Consolidated Financial Statements	9
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
	Item 4.	Controls and Procedures	37

PART II		Other Information
	Item 1.	Legal Proceedings	38
	Item 1A.	Risk Factors	38
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
	Item 6.	Exhibits	38

Exhibit Index			39
Signatures			40

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

FRANKLIN RESOURCES, INC.

CONSOLIDATED STATEMENTS OF INCOME

Unaudited


	Three Months Ended December 31,
(in millions, except per share data)		2022		2021
Operating Revenues
Investment management fees		$	1,631.8	$	1,760.5
Sales and distribution fees		291.9		398.2
Shareholder servicing fees		33.4		47.7
Other		10.0		17.6
Total operating revenues		1,967.1		2,224.0
Operating Expenses
Compensation and benefits		979.2		802.6
Sales, distribution and marketing		388.6		510.1
Information systems and technology		121.4		123.8
Occupancy		54.5		56.3
Amortization of intangible assets		83.2		58.3
General, administrative and other		146.2		115.2
Total operating expenses		1,773.1		1,666.3
Operating Income		194.0		557.7
Other Income (Expenses)
Investment and other income, net		91.1		57.0
Interest expense		(30.9)		(19.3)
Investment and other income (losses) of consolidated investment products, net		(13.6)		104.7
Expenses of consolidated investment products		(11.5)		(4.2)
Other income, net		35.1		138.2
Income before taxes		229.1		695.9
Taxes on income		60.3		151.1
Net income		168.8		544.8
Less: net income (loss) attributable to
Redeemable noncontrolling interests		(1.5)		7.5
Nonredeemable noncontrolling interests		4.7		84.1
Net Income Attributable to Franklin Resources, Inc.		$	165.6	$	453.2

Earnings per Share
Basic		$	0.32	$	0.89
Diluted		0.32		0.88

See Notes to Consolidated Financial Statements.

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FRANKLIN RESOURCES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Unaudited


(in millions)	Three Months Ended December 31,
		2022		2021
Net Income		$	168.8	$	544.8
Other Comprehensive Income (Loss)
Currency translation adjustments, net of tax		127.3		(6.9)
Net unrealized losses on defined benefit plans, net of tax		(2.6)		(5.1)
Total other comprehensive income (loss)		124.7		(12.0)
Total comprehensive income		293.5		532.8
Less: comprehensive income (loss) attributable to
Redeemable noncontrolling interests		(1.5)		7.5
Nonredeemable noncontrolling interests		4.7		84.1
Comprehensive Income Attributable to Franklin Resources, Inc.		$	290.3	$	441.2

See Notes to Consolidated Financial Statements.

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FRANKLIN RESOURCES, INC.

CONSOLIDATED BALANCE SHEETS

Unaudited


(in millions, except share and per share data)	December 31, 2022		September 30, 2022
Assets
Cash and cash equivalents	$	3,547.8	$	4,134.9
Receivables	1,291.8		1,264.8
Investments (including $969.6 and $613.5 at fair value at December 31, 2022 and September 30, 2022)	2,045.8		1,651.3
Assets of consolidated investment products
Cash and cash equivalents	954.4		647.6
Investments, at fair value	8,735.6		7,898.1
Property and equipment, net	759.9		743.3
Goodwill	5,942.8		5,778.6
Intangible assets, net	5,154.7		5,082.1
Operating lease right-of-use assets	475.7		464.5
Other	426.6		395.4
Total Assets	$	29,335.1	$	28,060.6

Liabilities
Compensation and benefits	$	1,057.7	$	1,464.4
Accounts payable and accrued expenses	604.9		466.2

Income taxes	665.6		523.1
Debt	3,370.5		3,376.4
Liabilities of consolidated investment products
Accounts payable and accrued expenses	594.3		646.9
Debt	6,164.5		5,457.7
Deferred tax liabilities	258.2		347.8
Operating lease liabilities	539.0		528.4
Other	1,545.7		1,425.0
Total liabilities	14,800.4		14,235.9
Commitments and Contingencies (Note 10)
Redeemable Noncontrolling Interests	1,979.2		1,525.8
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; 500,265,643 and 499,575,175 shares issued and outstanding at December 31, 2022 and September 30, 2022	50.0		50.0
Retained earnings	12,112.6		12,045.6
Accumulated other comprehensive loss	(496.3)		(621.0)
Total Franklin Resources, Inc. stockholders’ equity	11,666.3		11,474.6
Nonredeemable noncontrolling interests	889.2		824.3
Total stockholders’ equity	12,555.5		12,298.9
Total Liabilities, Redeemable Noncontrolling Interests and Stockholders’ Equity	$	29,335.1	$	28,060.6

See Notes to Consolidated Financial Statements.

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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 three months ended December 31, 2022	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		4.7		170.3
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												95.9		95.9
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


	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 three months ended December 31, 2021	Shares	Amount
Balance at October 1, 2021	501.8	$	50.2	$	—	$	11,550.8	$	(377.6)	$	11,223.4	$	587.2	$	11,810.6

Net income						453.2				453.2		84.1		537.3
Other comprehensive loss								(12.0)		(12.0)				(12.0)
Dividends declared on common stock ($0.29 per share)						(148.9)				(148.9)				(148.9)
Repurchase of common stock	(0.7)	—		(58.8)		37.1				(21.7)				(21.7)
Issuance of common stock	1.4	0.1		47.6						47.7				47.7
Stock-based compensation				11.2						11.2				11.2
Net distributions and other												(27.8)		(27.8)
Balance at December 31, 2021	502.5	$	50.3	$	—	$	11,892.2	$	(389.6)	$	11,552.9	$	643.5	$	12,196.4

See Notes to Consolidated Financial Statements.

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FRANKLIN RESOURCES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited


	Three Months Ended December 31,
(in millions)	2022		2021

Net Income	$	168.8	$	544.8
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Stock-based compensation	69.5		59.4
Amortization of deferred sales commissions	12.4		18.4
Depreciation and other amortization	25.1		22.4
Amortization of intangible assets	83.2		58.3
Net gains on investments	(45.5)		(25.8)
Income from investments in equity method investees	(33.2)		(24.7)
Net losses (gains) on investments of consolidated investment products	72.3		(88.0)
Net purchase of investments by consolidated investment products	(259.2)		(67.9)
Deferred income taxes	(122.5)		(34.8)
Other	17.8		8.3
Changes in operating assets and liabilities:
Decrease (increase) in receivables and other assets	14.6		(140.6)
Increase in investments, net	(13.6)		(44.6)
Decrease in accrued compensation and benefits	(481.6)		(273.1)
Increase in income taxes payable	158.8		174.5
Increase (decrease) in accounts payable, accrued expenses and other liabilities	59.8		(6.3)
Increase (decrease) in accounts payable and accrued expenses of consolidated investment products	17.0		(13.9)
Net cash (used in) provided by operating activities	(256.3)		166.4
Purchase of investments	(234.4)		(321.7)
Liquidation of investments	217.6		388.8
Purchase of investments by consolidated collateralized loan obligations	(822.5)		(839.2)
Liquidation of investments by consolidated collateralized loan obligations	328.7		435.2
Additions of property and equipment, net	(27.4)		(16.7)
Acquisitions, net of cash acquired	(493.7)		(372.3)
Payments of contingent consideration asset	2.9		3.9
Net deconsolidation of investment products	(13.8)		(6.6)
Net cash used in investing activities	(1,042.6)		(728.6)

[Table continued on next page]

See Notes to Consolidated Financial Statements.

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FRANKLIN RESOURCES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited

[Table continued from previous page]


	Three Months Ended December 31,
(in millions)	2022		2021

Dividends paid on common stock	$	(148.4)	$	(143.1)
Repurchase of common stock	(14.2)		(21.7)



Proceeds from repurchase agreement	174.8		—
Proceeds from debt of consolidated investment products	955.3		1,727.6
Payments on debt of consolidated investment products	(277.9)		(1,228.1)
Payments on contingent consideration liabilities	(2.0)		(4.0)
Noncontrolling interests	271.3		136.6
Net cash provided by financing activities	958.9		467.3
Effect of exchange rate changes on cash and cash equivalents	59.7		(8.0)
Decrease in cash and cash equivalents	(280.3)		(102.9)
Cash and cash equivalents, beginning of period	4,782.5		4,647.2
Cash and Cash Equivalents, End of Period	$	4,502.2	$	4,544.3

Supplemental Disclosure of Cash Flow Information
Cash paid for income taxes	$	13.2	$	17.6
Cash paid for interest	4.3		8.5
Cash paid for interest by consolidated investment products	50.5		37.4

See Notes to Consolidated Financial Statements.

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FRANKLIN RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022

(Unaudited)

Note 1 – Basis of Presentation

The unaudited interim financial statements of Franklin Resources, Inc. (“Franklin”) and its consolidated subsidiaries (collectively, the “Company”) included herein have been prepared in accordance with the instructions to Form 10-Q and the rules and regulations of the U.S. Securities and Exchange Commission. Under these rules and regulations, some information and footnote disclosures normally included in financial statements prepared under accounting principles generally accepted in the United States of America have been shortened or omitted. Management believes that all adjustments necessary for a fair statement of the financial position and the results of operations for the periods shown have been made. All adjustments are normal and recurring. Management also believes that the accounting estimates are appropriate, and the resulting balances are reasonable; however, due to the inherent uncertainties in making estimates, actual amounts may differ from these estimates. These financial statements should be read together with the Company’s audited financial statements included in its Annual Report on Form 10-K for the fiscal year ended September 30, 2022 (“fiscal year 2022”).

Note 2 – Acquisition

BNY Alcentra Group Holdings, Inc.

On November 1, 2022, the Company acquired all of the outstanding ownership interests in BNY Alcentra Group Holdings, Inc. (together with its subsidiaries “Alcentra”) from The Bank of New York Mellon Corporation, for cash consideration of $587.3 million, which includes $188.3 million for certain securities held in Alcentra’s collateralized loan obligations (“CLOs”); deferred consideration of $60.4 million due November 1, 2023; and contingent consideration to be paid upon the achievement of certain performance thresholds over the next four years of up to $350.0 million that has an acquisition-date fair value of $24.6 million. The consideration paid at close was funded from existing cash.

The following table summarizes the estimated fair value amounts recognized for the assets acquired and liabilities assumed and resulting goodwill as of the acquisition date:


(in millions)	Estimated Fair Value
as of November 1, 2022
Cash and cash equivalents	$	93.6
Receivables	57.2
Investments	285.3
Goodwill	152.6
Indefinite-lived intangible assets	89.9
Definite-lived intangible assets	55.7
Other assets	9.0
Compensation and benefits and other liabilities	(71.0)
Total Identifiable Net Assets	$	672.3

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; however, deferred tax assets and liabilities could materially change due to the use of preliminary valuation assumptions.

The goodwill is primarily attributable to expected growth opportunities from the combined operations and is not deductible for tax purposes. The definite-lived intangible assets relate to acquired investment management contracts and trade names, which are amortized over their estimated useful lives ranging from 3.0 years to 10.0 years. Amortization expense related to the definite-lived intangible assets was $2.3 million for the period ended December 31, 2022. These assets had a weighted-average remaining useful life of 5.1 years at December 31, 2022, with estimated remaining amortization expense as follows:

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(in millions)
for the fiscal years ending September 30,	Amount
2023 (remainder of year)	$	10.5
2024	14.0
2025	14.0
2026	3.9
2027	2.9
Thereafter	8.1
Total	$	53.4

Costs incurred in connection with the acquisition were $14.1 million for the three months ended December 31, 2022.

Alcentra contributed $27.7 million of revenue and did not have a material impact to net income attributable to Franklin Resources, Inc. for the period ended December 31, 2022. Consequently, the Company has not presented pro forma combined results of operations for this acquisition.

In connection with the acquisition, the Company on December 15, 2022 entered into repurchase agreements with a third-party financing company for certain securities held by the Company in Alcentra’s CLOs. As of December 31, 2022, other liabilities includes repurchase agreements of €125.2 million (equivalent to $134.0 million at December 31, 2022) and $40.8 million with maturity values of €132.3 million and $42.4 million. The Company has pledged Alcentra investments with a carrying value of $198.9 million as collateral as of December 31, 2022. The repurchase agreements have contractual maturity dates ranging between 2029 to 2034.

Note 3 – Earnings per Share

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


(in millions, except per share data)	Three Months Ended December 31,
		2022		2021
Net income attributable to Franklin Resources, Inc.		$	165.6	$	453.2
Less: allocation of earnings to participating nonvested stock and stock unit awards		7.7		19.3
Net Income Available to Common Stockholders		$	157.9	$	433.9

Weighted-average shares outstanding – basic		489.6		489.8
Dilutive effect of nonparticipating nonvested stock unit awards		0.6		0.8
Weighted-Average Shares Outstanding – Diluted		490.2		490.6

Earnings per Share
Basic		$	0.32	$	0.89
Diluted		0.32		0.88

Nonparticipating nonvested stock unit awards excluded from the calculation of diluted earnings per share because their effect would have been antidilutive were insignificant for the three months ended December 31, 2022 and 2021.

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Note 4 – 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 December 31, 2022
Investment management fees	$	1,274.8	$	181.8	$	67.6	$	51.8	$	55.8	$	1,631.8
Sales and distribution fees	208.2		68.4		5.0		10.3		—		291.9
Shareholder servicing fees	25.3		7.7		0.4		—		—		33.4
Other	9.7		—		0.3		—		—		10.0
Total	$	1,518.0	$	257.9	$	73.3	$	62.1	$	55.8	$	1,967.1


(in millions)	United States		Luxembourg		Asia-Pacific		Americas Excluding United States		Europe, Middle East and Africa, Excluding Luxembourg		Total
for the three months ended December 31, 2021
Investment management fees	$	1,284.0	$	258.4	$	81.8	$	70.3	$	66.0	$	1,760.5
Sales and distribution fees	278.4		98.8		7.6		13.4		—		398.2
Shareholder servicing fees	36.8		10.1		0.4		0.1		0.3		47.7
Other	17.1		0.3		0.2		—		—		17.6
Total	$	1,616.3	$	367.6	$	90.0	$	83.8	$	66.3	$	2,224.0

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

Revenues earned from sponsored funds were 83% and 81% of the Company’s total operating revenues for the three months ended December 31, 2022 and 2021.

Note 5 – Investments

The disclosures below include details of the Company’s investments, excluding those of consolidated investment products (“CIPs”). See Note 7 – Consolidated Investment Products for information related to the investments held by these entities.

Investments consisted of the following:


(in millions)	December 31, 2022		September 30, 2022
Investments, at fair value
Sponsored funds and separate accounts	$	708.9	$	413.0
Investments related to long-term incentive plans	213.9		143.3
Other equity and debt investments	46.8		57.2
Total investments, at fair value	969.6		613.5
Investments in equity method investees	830.7		771.5
Other investments	245.5		266.3
Total	$	2,045.8	$	1,651.3

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Note 6 – Fair Value Measurements

The disclosures below include details of the Company’s fair value measurements, excluding those of CIPs. See Note 7 – 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 December 31, 2022
Assets
Investments, at fair value
Sponsored funds and separate accounts	$	366.8	$	275.7	$	18.7	$	47.7	$	708.9
Investments related to long-term incentive plans	192.2		—		—		21.7		213.9
Other equity and debt investments	3.0		11.3		—		32.5		46.8
Contingent consideration asset	—		—		6.9		—		6.9
Total Assets Measured at Fair Value	$	562.0	$	287.0	$	25.6	$	101.9	$	976.5

Liabilities
Contingent consideration liabilities	$	—	$	—	$	53.8	$	—	$	53.8


(in millions)	Level 1		Level 2		Level 3		NAV as a Practical Expedient		Total
as of September 30, 2022
Assets
Investments, at fair value
Sponsored funds and separate accounts	$	289.5	$	55.4	$	14.1	$	54.0	$	413.0
Investments related to long-term incentive plans	143.3		—		—		—		143.3
Other equity and debt investments	3.1		19.4		2.7		32.0		57.2
Contingent consideration asset	—		—		9.8		—		9.8
Total Assets Measured at Fair Value	$	435.9	$	74.8	$	26.6	$	86.0	$	623.3

Liabilities
Contingent consideration liabilities	$	—	$	—	$	31.6	$	—	$	31.6

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


(in millions)	December 31, 2022		September 30, 2022
Nonredeemable investments1
Investments with known liquidation periods	$	31.7	$	32.8
Investments with unknown liquidation periods	21.9		29.4

Redeemable investments2	48.3		23.8

Unfunded commitments	51.4		51.4

_______________

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 3.5 years and 3.4 years at December 31, 2022 and September 30, 2022.

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	December 31, 2022				September 30, 2022
		Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial Assets
Cash and cash equivalents	1	$	3,547.8	$	3,547.8	$	4,134.9	$	4,134.9
Other investments
Time deposits	2	10.7		10.7		9.4		9.4
Equity securities	3	234.8		234.8		256.9		256.9

Financial Liability
Debt	2	$	3,370.5	$	2,792.4	$	3,376.4	$	2,750.1

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Note 7 – 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 62 CIPs, including 16 CLOs, as of December 31, 2022 and 59 CIPs, including 15 CLOs, as of September 30, 2022.

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

(in millions)

December 31,
2022