ben-20230331

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 March 31, 2023


☐			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 April 24, 2023: 500,863,407.

Table of Contents

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	8
		Notes to Consolidated Financial Statements	10
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
	Item 4.	Controls and Procedures	42

PART II		Other Information
	Item 1.	Legal Proceedings	43
	Item 1A.	Risk Factors	43
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
	Item 6.	Exhibits	44

Exhibit Index			45
Signatures			46

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

FRANKLIN RESOURCES, INC.

CONSOLIDATED STATEMENTS OF INCOME

Unaudited


	Three Months Ended March 31,				Six Months Ended March 31,
(in millions, except per share data)	2023		2022		2023		2022
Operating Revenues
Investment management fees	$	1,573.3	$	1,649.2	$	3,205.1	$	3,409.7
Sales and distribution fees	301.4		370.2		593.3		768.4
Shareholder servicing fees	43.3		52.2		76.7		99.9
Other	9.2		9.4		19.2		27.0
Total operating revenues	1,927.2		2,081.0		3,894.3		4,305.0
Operating Expenses
Compensation and benefits	847.3		752.5		1,826.5		1,555.1
Sales, distribution and marketing	406.6		482.4		795.2		992.5
Information systems and technology	128.0		126.9		249.4		250.7
Occupancy	59.7		53.0		114.2		109.3
Amortization of intangible assets	86.0		60.4		169.2		118.7
General, administrative and other	144.5		142.8		290.7		258.0
Total operating expenses	1,672.1		1,618.0		3,445.2		3,284.3
Operating Income	255.1		463.0		449.1		1,020.7
Other Income (Expenses)
Investment and other income, net	125.6		27.7		216.7		84.7
Interest expense	(33.5)		(22.9)		(64.4)		(42.2)
Investment and other income of consolidated investment products, net	87.2		3.0		73.6		107.7
Expenses of consolidated investment products	(3.4)		(4.6)		(14.9)		(8.8)
Other income, net	175.9		3.2		211.0		141.4
Income before taxes	431.0		466.2		660.1		1,162.1
Taxes on income	92.9		107.1		153.2		258.2
Net income	338.1		359.1		506.9		903.9
Less: net income (loss) attributable to
Redeemable noncontrolling interests	83.2		(57.2)		81.7		(49.7)
Nonredeemable noncontrolling interests	60.7		66.7		65.4		150.8
Net Income Attributable to Franklin Resources, Inc.	$	194.2	$	349.6	$	359.8	$	802.8

Earnings per Share
Basic	$	0.38	$	0.68	$	0.70	$	1.57
Diluted	0.38		0.68		0.70		1.57

See Notes to Consolidated Financial Statements.

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FRANKLIN RESOURCES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Unaudited


(in millions)	Three Months Ended March 31,				Six Months Ended March 31,
	2023		2022		2023		2022
Net Income	$	338.1	$	359.1	$	506.9	$	903.9
Other Comprehensive Income (Loss)
Currency translation adjustments, net of tax	15.9		(16.3)		143.2		(23.2)
Net unrealized gains (losses) on defined benefit plans, net of tax	1.8		5.3		(0.8)		0.2
Net unrealized gains on investments, net of tax	0.2		—		0.2		—
Total other comprehensive income (loss)	17.9		(11.0)		142.6		(23.0)
Total comprehensive income	356.0		348.1		649.5		880.9
Less: comprehensive income (loss) attributable to
Redeemable noncontrolling interests	83.2		(57.2)		81.7		(49.7)
Nonredeemable noncontrolling interests	60.7		66.7		65.4		150.8
Comprehensive Income Attributable to Franklin Resources, Inc.	$	212.1	$	338.6	$	502.4	$	779.8

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)	March 31, 2023		September 30, 2022
Assets
Cash and cash equivalents	$	3,471.3	$	4,134.9
Receivables	1,300.8		1,264.8
Investments (including $987.1 and $613.5 at fair value at March 31, 2023 and September 30, 2022)	2,378.0		1,651.3
Assets of consolidated investment products
Cash and cash equivalents	807.3		647.6
Investments, at fair value	8,421.3		7,898.1
Property and equipment, net	749.8		743.3
Goodwill	6,007.2		5,778.6
Intangible assets, net	5,070.4		5,082.1
Operating lease right-of-use assets	454.1		464.5
Other	425.5		395.4
Total Assets	$	29,085.7	$	28,060.6

Liabilities
Compensation and benefits	$	1,206.3	$	1,464.4
Accounts payable and accrued expenses	501.2		466.2

Income taxes	486.9		523.1
Debt	3,364.6		3,376.4
Liabilities of consolidated investment products
Accounts payable and accrued expenses	478.0		646.9
Debt	7,153.1		5,457.7
Deferred tax liabilities	339.6		347.8
Operating lease liabilities	522.6		528.4
Other	1,630.3		1,425.0
Total liabilities	15,682.6		14,235.9
Commitments and Contingencies (Note 10)
Redeemable Noncontrolling Interests	960.5		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; 500,912,066 and 499,575,175 shares issued and outstanding at March 31, 2023 and September 30, 2022	50.1		50.0
Retained earnings	12,260.1		12,045.6
Accumulated other comprehensive loss	(478.4)		(621.0)
Total Franklin Resources, Inc. stockholders’ equity	11,831.8		11,474.6
Nonredeemable noncontrolling interests	610.8		824.3
Total stockholders’ equity	12,442.6		12,298.9
Total Liabilities, Redeemable Noncontrolling Interests and Stockholders’ Equity	$	29,085.7	$	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 six months ended March 31, 2023	Shares	Amount
Balance at October 1, 2022	499.6	$	50.0	$	—	$	12,045.6	$	(621.0)	$	11,474.6	$	824.3	$	12,298.9
Net income						165.6				165.6		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
Net income						194.2				194.2		60.7		254.9
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 distributions and other												(14.9)		(14.9)
Net deconsolidation of investment products												(324.2)		(324.2)
Adjustment to fair value of redeemable noncontrolling interests						44.7				44.7				44.7
Balance at March 31, 2023	500.9	$	50.1	$	—	$	12,260.1	$	(478.4)	$	11,831.8	$	610.8	$	12,442.6

See Notes to Consolidated Financial Statements.

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	Franklin Resources, Inc.											Non- redeemable Non- controlling Interests		Total Stockholders’ Equity
	Common Stock			Capital in Excess of Par Value		Retained Earnings		Accum- ulated Other Compre- hensive Loss		Stockholders’ Equity
(in millions)
for the six months ended March 31, 2022	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
Net income						349.6				349.6		66.7		416.3
Other comprehensive loss								(11.0)		(11.0)				(11.0)
Dividends declared on common stock ($0.29 per share)						(148.3)				(148.3)				(148.3)
Repurchase of common stock	(2.7)	(0.4)		(66.7)		(13.7)				(80.8)				(80.8)
Issuance of common stock	0.6	0.1		18.5						18.6				18.6
Stock-based compensation				48.2						48.2				48.2
Net distributions and other												(21.7)		(21.7)
Net deconsolidation of investment products												(39.6)		(39.6)
Adjustment to fair value of redeemable noncontrolling interests						(188.5)				(188.5)				(188.5)
Balance at March 31, 2022	500.4	$	50.0	$	—	$	11,891.3	$	(400.6)	$	11,540.7	$	648.9	$	12,189.6

See Notes to Consolidated Financial Statements.

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FRANKLIN RESOURCES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited


	Six Months Ended March 31,
(in millions)	2023		2022

Net Income	$	506.9	$	903.9
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Stock-based compensation	122.0		112.5
Amortization of deferred sales commissions	25.0		35.0
Depreciation and other amortization	52.9		42.7
Amortization of intangible assets	169.2		118.7
Net gains on investments	(48.5)		(2.7)
Income from investments in equity method investees	(118.8)		(51.7)
Net losses (gains) on investments of consolidated investment products	57.5		(62.6)
Net purchase of investments by consolidated investment products	(613.0)		(321.8)
Deferred income taxes	(55.7)		3.3
Other	68.7		10.0
Changes in operating assets and liabilities:
Increase in receivables and other assets	(144.4)		(121.6)
Increase in investments, net	(36.0)		(21.3)
Decrease in accrued compensation and benefits	(336.1)		(162.2)
Decrease in income taxes payable	(28.5)		(104.9)
Increase (decrease) in accounts payable, accrued expenses and other liabilities	85.4		(90.0)
Increase (decrease) in accounts payable and accrued expenses of consolidated investment products	3.7		(16.8)
Net cash (used in) provided by operating activities	(289.7)		270.5
Purchase of investments	(504.7)		(375.9)
Liquidation of investments	411.7		726.0
Purchase of investments by consolidated collateralized loan obligations	(2,097.6)		(2,170.2)
Liquidation of investments by consolidated collateralized loan obligations	618.8		1,058.8
Additions of property and equipment, net	(42.8)		(42.5)
Acquisitions, net of cash acquired	(500.5)		(372.3)
Payments of contingent consideration asset	5.5		12.6
Net (deconsolidation) consolidation of investment products	(85.4)		12.2
Net cash used in investing activities	(2,195.0)		(1,151.3)

[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]


	Six Months Ended March 31,
(in millions)	2023		2022

Issuance of common stock	$	13.4	$	13.6
Dividends paid on common stock	(301.8)		(290.5)
Repurchase of common stock	(17.8)		(104.3)



Proceeds from repurchase agreement	174.8		—
Proceeds from debt of consolidated investment products	2,258.7		3,016.9
Payments on debt of consolidated investment products	(688.3)		(1,609.9)
Payments on contingent consideration liabilities	(4.2)		(4.1)
Noncontrolling interests	485.8		254.2
Net cash provided by financing activities	1,920.6		1,275.9
Effect of exchange rate changes on cash and cash equivalents	60.2		(27.6)
Increase (decrease) in cash and cash equivalents	(503.9)		367.5
Cash and cash equivalents, beginning of period	4,782.5		4,647.2
Cash and Cash Equivalents, End of Period	$	4,278.6	$	5,014.7

Supplemental Disclosure of Cash Flow Information
Cash paid for income taxes	$	204.6	$	350.1
Cash paid for interest	47.1		54.7
Cash paid for interest by consolidated investment products	128.6		65.7

See Notes to Consolidated Financial Statements.

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FRANKLIN RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

(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. Total purchase price consisted of cash consideration of $594.1 million, which includes $188.3 million for certain securities held in Alcentra’s collateralized loan obligations (“CLOs”); deferred consideration of $62.0 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 was funded from existing cash. During the quarter ended March 31, 2023, cash consideration increased by $6.8 million due to a net working capital adjustment and deferred consideration increased by $1.6 million.

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:


(in millions)	Initial Estimated Fair Value		Adjustments		Revised Estimated Fair Value
as of November 1, 2022
Cash and cash equivalents	$	93.6	$	—	$	93.6
Receivables	57.2		(8.8)		48.4
Investments	285.3		1.6		286.9
Goodwill	152.6		52.7		205.3
Indefinite-lived intangible assets	89.9		—		89.9
Definite-lived intangible assets	55.7		—		55.7
Other assets	9.0		3.1		12.1
Deferred tax liabilities	—		(36.7)		(36.7)
Compensation and benefits and other liabilities	(71.0)		(3.5)		(74.5)
Total Identifiable Net Assets	$	672.3	$	8.4	$	680.7

The adjustments to the initial estimated fair values are a result of new information obtained about the 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.

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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 $3.5 million and $5.8 million for the three and six months ended March 31, 2023. These assets had a weighted-average remaining useful life of 4.9 years at March 31, 2023, with estimated remaining amortization expense as follows:


(in millions)
for the fiscal years ending September 30,	Amount
2023 (remainder of year)	$	7.0
2024	14.0
2025	14.0
2026	3.9
2027	2.9
Thereafter	8.1
Total	$	49.9

Costs incurred in connection with the acquisition were $14.1 million for the six months ended March 31, 2023.

Alcentra contributed $71.4 million of revenue and did not have a material impact to net income attributable to Franklin Resources, Inc. for the six months ended March 31, 2023. 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 March 31, 2023, other liabilities includes repurchase agreements of €125.5 million (equivalent to $136.1 million at March 31, 2023) and $40.8 million with maturity values of €132.3 million and $42.4 million, respectively. The Company has pledged Alcentra investments with a carrying value of $201.4 million as collateral as of March 31, 2023. 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 March 31,				Six Months Ended March 31,
	2023		2022		2023		2022
Net income attributable to Franklin Resources, Inc.	$	194.2	$	349.6	$	359.8	$	802.8
Less: allocation of earnings to participating nonvested stock and stock unit awards	9.0		15.1		16.7		34.3
Net Income Available to Common Stockholders	$	185.2	$	334.5	$	343.1	$	768.5

Weighted-average shares outstanding – basic	490.7		490.0		490.1		489.9
Dilutive effect of nonparticipating nonvested stock unit awards	0.7		0.5		0.7		0.6
Weighted-Average Shares Outstanding – Diluted	491.4		490.5