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 ~~June 30,~~December 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 ~~July 21, 2023: 498,977,820.~~January 22, 2024: 526,557,923.

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	87
		Notes to Consolidated Financial Statements	109
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2319
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4235
	Item 4.	Controls and Procedures	4236

PART II		Other Information
	Item 1.	Legal Proceedings	4337
	Item 1A.	Risk Factors	4337
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4437
	~~Item 5.~~	~~Other Information~~	44
	Item 6.	Exhibits	4437

Exhibit Index			4538
Signatures			4639

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

FRANKLIN RESOURCES, INC.

CONSOLIDATED STATEMENTS OF INCOME

Unaudited




		Three Months Ended June 30,				Nine Months Ended June 30,					Three Months Ended December 31,
(in millions, except per share data)	(in millions, except per share data)	2023		2022		2023		2022		(in millions, except per share data)		2023	2022
Operating Revenues	Operating Revenues
Investment management fees
Investment management fees
Investment management fees	Investment management fees	$	1,613.4	$	1,636.1	$	4,818.5	$	5,045.8
Sales and distribution fees	Sales and distribution fees	304.0		335.6		897.3		1,104.0
Shareholder servicing fees	Shareholder servicing fees	38.8		46.9		115.5		146.8
Other	Other	12.8		12.7		32.0		39.7
Total operating revenues	Total operating revenues	1,969.0		2,031.3		5,863.3		6,336.3
Operating Expenses	Operating Expenses
Compensation and benefits
Compensation and benefits
Compensation and benefits	Compensation and benefits	841.2		766.7		2,667.7		2,321.8
Sales, distribution and marketing	Sales, distribution and marketing	406.8		440.3		1,202.0		1,432.8
Information systems and technology	Information systems and technology	127.3		125.9		376.7		376.6
Occupancy	Occupancy	56.9		53.8		171.1		163.1
Amortization of intangible assets	Amortization of intangible assets	85.4		81.8		254.6		200.5
General, administrative and other	General, administrative and other	136.5		158.1		427.2		416.1
Total operating expenses	Total operating expenses	1,654.1		1,626.6		5,099.3		4,910.9
Operating Income	Operating Income	314.9		404.7		764.0		1,425.4
Other Income (Expenses)	Other Income (Expenses)
Investment and other income, net	Investment and other income, net	51.2		13.0		267.9		97.7
Investment and other income, net
Investment and other income, net
Interest expense	Interest expense	(34.9)		(28.9)		(99.3)		(71.1)
Investment and other income (losses) of consolidated investment products, net		1.7		(74.4)		75.3		33.3
Investment and other losses of consolidated investment products, net
Expenses of consolidated investment products	Expenses of consolidated investment products	(0.8)		(1.3)		(15.7)		(10.1)
Other income (expenses), net		17.2		(91.6)		228.2		49.8
Other income, net
Income before taxes	Income before taxes	332.1		313.1		992.2		1,475.2
Taxes on income	Taxes on income	84.1		89.5		237.3		347.7
Net income	Net income	248.0		223.6		754.9		1,127.5
Less: net income (loss) attributable to	Less: net income (loss) attributable to
Redeemable noncontrolling interests	Redeemable noncontrolling interests	26.8		(0.5)		108.5		(50.2)
Redeemable noncontrolling interests
Redeemable noncontrolling interests
Nonredeemable noncontrolling interests	Nonredeemable noncontrolling interests	(6.3)		(32.3)		59.1		118.5
Net Income Attributable to Franklin Resources, Inc.	Net Income Attributable to Franklin Resources, Inc.	$	227.5	$	256.4	$	587.3	$	1,059.2

Earnings per Share	Earnings per Share
Earnings per Share
Earnings per Share
Basic
Basic
Basic	Basic	$	0.44	$	0.50	$	1.14	$	2.07
Diluted	Diluted	0.44		0.50		1.14		2.07

See Notes to Consolidated Financial Statements.

Table of Contents

FRANKLIN RESOURCES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Unaudited


(in millions)	(in millions)	Three Months Ended June 30,				Nine Months Ended June 30,
		2023		2022		2023		2022
(in millions)										(in millions)	Three Months Ended December 31,
												2023	2022
Net Income	Net Income	$	248.0	$	223.6	$	754.9	$	1,127.5
Other Comprehensive Income (Loss)
Other Comprehensive Income
Currency translation adjustments, net of tax
Currency translation adjustments, net of tax
Currency translation adjustments, net of tax	Currency translation adjustments, net of tax	16.5		(100.6)		159.7		(123.8)
Net unrealized losses on defined benefit plans, net of tax	Net unrealized losses on defined benefit plans, net of tax	(0.6)		(2.4)		(1.4)		(2.2)
Net unrealized gains on investments, net of tax		—		—		0.2		—
Total other comprehensive income (loss)		15.9		(103.0)		158.5		(126.0)

Total other comprehensive income
Total other comprehensive income
Total other comprehensive income
Total comprehensive income	Total comprehensive income	263.9		120.6		913.4		1,001.5
Less: comprehensive income (loss) attributable to	Less: comprehensive income (loss) attributable to
Redeemable noncontrolling interests	Redeemable noncontrolling interests	26.8		(0.5)		108.5		(50.2)
Redeemable noncontrolling interests
Redeemable noncontrolling interests
Nonredeemable noncontrolling interests	Nonredeemable noncontrolling interests	(6.3)		(32.3)		59.1		118.5
Comprehensive Income Attributable to Franklin Resources, Inc.	Comprehensive Income Attributable to Franklin Resources, Inc.	$	243.4	$	153.4	$	745.8	$	933.2

See Notes to Consolidated Financial Statements.

Table of Contents

FRANKLIN RESOURCES, INC.

CONSOLIDATED BALANCE SHEETS

Unaudited


(in millions, except share and per share data)	(in millions, except share and per share data)	June 30, 2023		September 30, 2022		(in millions, except share and per share data)	December 31, 2023	September 30, 2023
Assets	Assets
Cash and cash equivalents	Cash and cash equivalents	$	3,728.6	$	4,134.9
Cash and cash equivalents
Cash and cash equivalents
Receivables	Receivables	1,341.9		1,264.8
Investments (including $867.3 and $613.5 at fair value at June 30, 2023 and September 30, 2022)		2,249.1		1,651.3
Investments (including $894.2 and $872.8 at fair value at December 31, 2023 and September 30, 2023)
Assets of consolidated investment products	Assets of consolidated investment products
Cash and cash equivalents
Cash and cash equivalents
Cash and cash equivalents	Cash and cash equivalents	659.0		647.6
Investments, at fair value	Investments, at fair value	9,639.0		7,898.1
Property and equipment, net	Property and equipment, net	806.1		743.3
Goodwill	Goodwill	6,012.3		5,778.6
Intangible assets, net	Intangible assets, net	4,994.9		5,082.1
Operating lease right-of-use assets	Operating lease right-of-use assets	431.0		464.5
Other	Other	372.7		395.4
Total Assets	Total Assets	$	30,234.6	$	28,060.6

Liabilities	Liabilities
Liabilities
Liabilities
Compensation and benefits
Compensation and benefits
Compensation and benefits	Compensation and benefits	$	1,461.2	$	1,464.4
Accounts payable and accrued expenses	Accounts payable and accrued expenses	563.5		466.2

Income taxes	Income taxes	448.6		523.1
Income taxes
Income taxes
Debt	Debt	3,358.7		3,376.4
Liabilities of consolidated investment products	Liabilities of consolidated investment products
Accounts payable and accrued expenses
Accounts payable and accrued expenses
Accounts payable and accrued expenses	Accounts payable and accrued expenses	565.4		646.9
Debt	Debt	7,988.7		5,457.7
Deferred tax liabilities	Deferred tax liabilities	450.7		347.8
Operating lease liabilities	Operating lease liabilities	494.8		528.4
Other	Other	1,313.7		1,425.0
Total liabilities	Total liabilities	16,645.3		14,235.9
Commitments and Contingencies (Note 10)	Commitments and Contingencies (Note 10)					Commitments and Contingencies (Note 10)
Redeemable Noncontrolling Interests	Redeemable Noncontrolling Interests	1,050.1		1,525.8
Stockholders’ Equity	Stockholders’ Equity
Preferred stock, $1.00 par value, 1,000,000 shares authorized; none issued	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; 499,012,841 and 499,575,175 shares issued and outstanding at June 30, 2023 and September 30, 2022		49.9		50.0
Preferred stock, $1.00 par value, 1,000,000 shares authorized; none issued
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; 494,734,214 and 495,937,891 shares issued and outstanding at December 31, 2023 and September 30, 2023
Retained earnings	Retained earnings	12,360.7		12,045.6
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(462.5)		(621.0)
Total Franklin Resources, Inc. stockholders’ equity	Total Franklin Resources, Inc. stockholders’ equity	11,948.1		11,474.6
Nonredeemable noncontrolling interests	Nonredeemable noncontrolling interests	591.1		824.3
Total stockholders’ equity	Total stockholders’ equity	12,539.2		12,298.9
Total Liabilities, Redeemable Noncontrolling Interests and Stockholders’ Equity	Total Liabilities, Redeemable Noncontrolling Interests and Stockholders’ Equity	$	30,234.6	$	28,060.6

See Notes to Consolidated Financial Statements.

Table of Contents

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
																									Franklin Resources, Inc.												Franklin Resources, Inc.							Non- redeemable Non- controlling Interests	Total Stockholders’ Equity
				Common Stock																											Common Stock			Capital in Excess of Par Value		Retained Earnings			Accum- ulated Other Compre- hensive Loss			Stockholders’ Equity
(in millions)			(in millions)						Common Stock						Capital in Excess of Par Value			Retained Earnings			Accum- ulated Other Compre- hensive Loss		Stockholders’ Equity				Non- redeemable Non- controlling Interests	Total Stockholders’ Equity		(in millions)
for the nine months ended June 30, 2023
Balance at October 1, 2022		499.6			$	50.0
Net income											165.6						165.6
for the three months ended December 31, 2023																										for the three months ended December 31, 2023			Non- redeemable Non- controlling Interests			Total Stockholders’ Equity	Capital in Excess of Par Value		Retained Earnings			Accum- ulated Other Compre- hensive Loss		Stockholders’ Equity	Shares		Amount
Balance at October 1, 2023
Net income (loss)
Other comprehensive income	Other comprehensive income														124.7			124.7					124.7
Dividends declared on common stock ($0.30 per share)												(153.6)						(153.6)					(153.6)
Dividends declared on common stock ($0.31 per share)
Repurchase of common stock	Repurchase of common stock			(0.5)			(0.1)				(69.1)			55.0						(14.2)					(14.2)
Issuance of common stock	Issuance of common stock			1.2			0.1		33.5									33.6					33.6
Stock-based compensation	Stock-based compensation								35.6									35.6					35.6
Net subscriptions and other	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	Adjustment to fair value of redeemable noncontrolling interests											44.7						44.7					44.7
Balance at March 31, 2023				500.9			$	50.1	$	—		$	12,260.1		$	(478.4)		$	11,831.8		$	610.8	$	12,442.6
Net income (loss)												227.5						227.5			(6.3)		221.2
Other comprehensive income															15.9			15.9					15.9
Dividends declared on common stock ($0.30 per share)												(152.9)						(152.9)					(152.9)
Repurchase of common stock				(2.0)			(0.2)		(15.9)			(34.8)						(50.9)					(50.9)
Issuance of common stock				0.1			—		3.6									3.6					3.6
Stock-based compensation									12.3									12.3					12.3
Net distributions and other																					(12.7)		(12.7)
Net deconsolidation of investment products																					(0.7)		(0.7)
Balance at December 31, 2023

Adjustment to fair value of redeemable noncontrolling interests												60.8						60.8					60.8
Balance at June 30, 2023				499.0			$	49.9	$	—		$	12,360.7		$	(462.5)		$	11,948.1		$	591.1	$	12,539.2


	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

See Notes to Consolidated Financial Statements.

~~Table of Contents~~

Franklin Resources, Inc. Non-
redeemable
Non-
controlling
Interests Total
Stockholders’
Equity
Common Stock Capital
in
Excess
of Par
Value Retained
Earnings Accum-
ulated
Other
Compre-
hensive
Loss Stockholders’
Equity
(in millions)
for the nine months ended
June 30, 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
Net income (loss) 256.4 256.4 (32.3) 224.1
Other comprehensive loss (103.0) (103.0) (103.0)
Dividends declared on common stock ($0.29 per share) (147.7) (147.7) (147.7)
Repurchase of common stock (2.0) (0.2) (48.3) (2.5) (51.0) (51.0)
Issuance of common stock — — 1.8 1.8 1.8
Stock-based compensation 46.5 46.5 46.5
Net distributions and other (24.8) (24.8)
Net deconsolidation of investment products (0.3) (0.3)
Acquisition 149.9 149.9
Balance at June 30, 2022 498.4 $ 49.8 $ — $ 11,997.5 $ (503.6) $ 11,543.7 $ 741.4 $ 12,285.1

~~See Notes to Consolidated Financial Statements.~~

Table of Contents

FRANKLIN RESOURCES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited


		Nine Months Ended June 30,					Three Months Ended December 31,
(in millions)	(in millions)	2023		2022		(in millions)	2023	2022

Net Income	Net Income	$	754.9	$	1,127.5
Adjustments to reconcile net income to net cash provided by operating activities:
Net Income
Net Income
Adjustments to reconcile net income to net cash used in operating activities:
Stock-based compensation
Stock-based compensation
Stock-based compensation	Stock-based compensation	137.9		160.9
Amortization of deferred sales commissions	Amortization of deferred sales commissions	37.2		49.6
Depreciation and other amortization	Depreciation and other amortization	78.3		68.8
Amortization of intangible assets	Amortization of intangible assets	254.6		200.5
Net (gains) losses on investments		(62.3)		32.9
Net gains on investments
Income from investments in equity method investees	Income from investments in equity method investees	(111.1)		(51.6)
Net losses on investments of consolidated investment products	Net losses on investments of consolidated investment products	116.0		22.0
Net purchase of investments by consolidated investment products	Net purchase of investments by consolidated investment products	(833.2)		(312.2)
Deferred income taxes	Deferred income taxes	50.8		55.9
Other	Other	99.2		33.0
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:
Increase in receivables and other assets		(69.8)		(97.3)
Decrease (increase) in receivables and other assets
Decrease (increase) in receivables and other assets
Decrease (increase) in receivables and other assets
Decrease (increase) in investments, net	Decrease (increase) in investments, net	6.4		(33.2)
Increase (decrease) in accrued compensation and benefits		(84.3)		45.1
Decrease in income taxes payable		(58.9)		(176.3)
Decrease in accrued compensation and benefits
Increase in income taxes payable
Increase (decrease) in accounts payable, accrued expenses and other liabilities	Increase (decrease) in accounts payable, accrued expenses and other liabilities	48.3		(9.1)
Increase (decrease) in accounts payable and accrued expenses of consolidated investment products		1.3		(26.2)
Net cash provided by operating activities		365.3		1,090.3
Increase in accounts payable and accrued expenses of consolidated investment products
Net cash used in operating activities
Purchase of investments	Purchase of investments	(665.1)		(676.5)
Liquidation of investments	Liquidation of investments	551.3		872.0
Purchase of investments by consolidated collateralized loan obligations	Purchase of investments by consolidated collateralized loan obligations	(3,465.6)		(3,198.4)
Liquidation of investments by consolidated collateralized loan obligations	Liquidation of investments by consolidated collateralized loan obligations	1,230.3		1,501.4
Additions of property and equipment, net	Additions of property and equipment, net	(121.5)		(55.6)
Acquisitions, net of cash acquired	Acquisitions, net of cash acquired	(500.5)		(1,354.7)
Payments of contingent consideration asset	Payments of contingent consideration asset	5.5		20.9
Payments of deferred consideration liability	Payments of deferred consideration liability	(241.8)		—
Net (deconsolidation) consolidation of investment products		(43.8)		211.0
Net deconsolidation of investment products
Net cash used in investing activities	Net cash used in investing activities	(3,251.2)		(2,679.9)

[Table continued on next page]

See Notes to Consolidated Financial Statements.

Table of Contents

FRANKLIN RESOURCES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited

[Table continued from previous page]


		Nine Months Ended June 30,					Three Months Ended December 31,
(in millions)	(in millions)	2023		2022		(in millions)	2023	2022

Issuance of common stock		$	13.4	$	13.6
Dividends paid on common stock
Dividends paid on common stock
Dividends paid on common stock	Dividends paid on common stock	(454.8)		(437.1)
Repurchase of common stock	Repurchase of common stock	(70.0)		(154.0)

Proceeds from repurchase agreement

Proceeds from repurchase agreement

Proceeds from repurchase agreement	Proceeds from repurchase agreement	174.8		—
Proceeds from debt of consolidated investment products	Proceeds from debt of consolidated investment products	3,213.6		4,345.2
Payments on debt of consolidated investment products	Payments on debt of consolidated investment products	(926.9)		(2,469.3)
Payments on contingent consideration liabilities	Payments on contingent consideration liabilities	(7.6)		(4.1)
Noncontrolling interests	Noncontrolling interests	482.5		194.9
Net cash provided by financing activities		2,425.0		1,489.2
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents	66.0		(68.1)
Decrease in cash and cash equivalents	Decrease in cash and cash equivalents	(394.9)		(168.5)
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	4,782.5		4,647.2
Cash and Cash Equivalents, End of Period	Cash and Cash Equivalents, End of Period	$	4,387.6	$	4,478.7

Supplemental Disclosure of Cash Flow Information	Supplemental Disclosure of Cash Flow Information
Supplemental Disclosure of Cash Flow Information
Supplemental Disclosure of Cash Flow Information
Cash paid for income taxes
Cash paid for income taxes
Cash paid for income taxes	Cash paid for income taxes	$	225.4	$	456.7
Cash paid for interest	Cash paid for interest	55.5		61.8
Cash paid for interest by consolidated investment products	Cash paid for interest by consolidated investment products	232.2		107.0

See Notes to Consolidated Financial Statements.

Table of Contents

FRANKLIN RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~June 30,~~December 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~~2023 (“fiscal year ~~2022”~~2023”).

Note 2 – ~~Acquisition~~New Accounting Guidance

~~BNY Alcentra Group Holdings, Inc.~~Accounting Guidance Not Yet Adopted

OnIn November ~~1, 2022,~~2023, the ~~Company acquired all of the outstanding ownership interests in BNY Alcentra Group Holdings, Inc. (together with its subsidiaries “Alcentra”~~Financial Accounting Standards Board (“FASB”) 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 hasissued 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~~amendment to the ~~initial estimated fair values~~existing segment reporting guidance. The amendment requires annual and interim disclosures of significant segment expenses that 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 changesregularly provided to the ~~assets acquired or liabilities assumed.~~

~~Table of Contents~~

chief operating decision maker by reportable segment and clarifies that single reportable segment entities are required to apply all existing segment disclosures in the guidance. The ~~goodwill~~amendment is ~~primarily attributable to expected growth opportunities from the combined operations and is not deductible~~effective 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 $9.3 million for the three and nine months ended June 30, 2023. These assets had a weighted-average remaining useful life of 4.8 years at June 30, 2023, with estimated remaining amortization expense as follows:

(in millions)
for the fiscal years ending September 30, Amount
2023 (remainder of year) $ 3.5
2024 14.0
2025 14.0
2026 3.9
2027 2.9
Thereafter 8.1
Total $ 46.4

~~Costs incurred in connection with the acquisition were $14.1 million for the nine months ended June 30, 2023.~~

Alcentra contributed $116.7 million of operating revenue and did not have a material impact to net income attributable to Franklin Resources, Inc. for the nine months ended June 30, 2023. Consequently, the Company has not presented pro forma combined results of operations for this acquisition.

~~In connection with the acquisition,~~ the Company on October 1, 2024, and is retrospectively applicable to all prior periods presented in its consolidated financial statements. The Company is currently evaluating the impact that the adoption will have on its consolidated financial statements.

In December ~~15, 2022 entered into repurchase agreements~~2023, the FASB issued an amendment to the existing income taxes guidance. The amendment requires the disclosure of additional information with respect to the reconciliation of the effective tax rate to the statutory rate for federal, state, and foreign income taxes and requires greater detail about significant reconciling items in the reconciliation. Additionally, the amendment requires disaggregated information pertaining to taxes paid, net of refunds received, for federal, state, and foreign income taxes. The amendment allows for either a ~~third-party financing company~~prospective or retrospective approach on adoption and is effective for ~~certain securities held by~~ the Company ~~in Alcentra’s CLOs. As of June 30, 2023, other liabilities includes repurchase agreements of $172.9 million with maturity values of €132.3 million and $42.4 million in local currency.~~on October 1, 2025. The Company is currently evaluating the impact that the adoption will have on its consolidated financial statements and has ~~pledged Alcentra investments with a carrying value of $179.3 million as collateral as of June 30, 2023. The repurchase agreements have contractual maturity dates ranging between 2029 to 2034.~~not yet determined its transition approach.

Note 3 – Earnings per Share

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


(in millions, except per share data)

(in millions, except per share data)	(in millions, except per share data)	Three Months Ended June 30,				Nine Months Ended June 30,				(in millions, except per share data)	Three Months Ended December 31,
		2023		2022		2023		2022				2023	2022
Net income attributable to Franklin Resources, Inc.	Net income attributable to Franklin Resources, Inc.	$	227.5	$	256.4	$	587.3	$	1,059.2
Less: allocation of earnings to participating nonvested stock and stock unit awards	Less: allocation of earnings to participating nonvested stock and stock unit awards	10.2		11.2		26.7		45.6
Net Income Available to Common Stockholders	Net Income Available to Common Stockholders	$	217.3	$	245.2	$	560.6	$	1,013.6

Weighted-average shares outstanding – basic	Weighted-average shares outstanding – basic	490.7		487.5		490.3		489.1
Weighted-average shares outstanding – basic
Weighted-average shares outstanding – basic
Dilutive effect of nonparticipating nonvested stock unit awards	Dilutive effect of nonparticipating nonvested stock unit awards	0.7		0.4		0.7		0.6
Weighted-Average Shares Outstanding – Diluted	Weighted-Average Shares Outstanding – Diluted	491.4		487.9		491.0		489.7

Earnings per Share	Earnings per Share
Earnings per Share
Earnings per Share
Basic
Basic
Basic	Basic	$	0.44	$	0.50	$	1.14	$	2.07
Diluted	Diluted	0.44		0.50		1.14		2.07

Table of Contents

Nonparticipating nonvested stock unit awards excluded from the calculation of diluted earnings per share because their effect would have been antidilutive were insignificant for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2023 and 2022.

~~Table of Contents~~

Note 4 – Revenues

Operating revenues by geographic area were as follows:


(in millions)	(in millions)	United States		Luxembourg		Asia-Pacific		Americas Excluding United States		Europe, Middle East and Africa, Excluding Luxembourg		Total		(in millions)	United States	Luxembourg	Asia-Pacific	Americas Excluding United States	Europe, Middle East and Africa, Excluding Luxembourg	Total
for the three months ended June 30, 2023
for the three months ended December 31, 2023
Investment management fees
Investment management fees
Investment management fees	Investment management fees	$	1,232.3	$	192.3	$	64.3	$	53.9	$	70.6	$	1,613.4
Sales and distribution fees	Sales and distribution fees	213.5		75.4		5.1		10.0		—		304.0
Shareholder servicing fees	Shareholder servicing fees	30.3		8.0		0.5		—		—		38.8
Other	Other	11.9		0.5		0.4		—		—		12.8
Total	Total	$	1,488.0	$	276.2	$	70.3	$	63.9	$	70.6	$	1,969.0

(in millions) United States Luxembourg Asia-Pacific Americas
Excluding
United
States Europe,
Middle East
and Africa,
Excluding
Luxembourg Total
for the nine months ended June 30, 2023
Investment management fees $ 3,672.9 $ 570.7 $ 214.4 $ 162.0 $ 198.5 $ 4,818.5
Sales and distribution fees 634.1 217.4 15.1 30.7 — 897.3
Shareholder servicing fees 90.2 23.5 1.6 0.2 — 115.5
Other 30.1 0.8 0.8 — 0.3 32.0
Total $ 4,427.3 $ 812.4 $ 231.9 $ 192.9 $ 198.8 $ 5,863.3

(in millions) United States Luxembourg Asia-Pacific Americas
Excluding
United
States Europe,
Middle East
and Africa,
Excluding
Luxembourg Total
for the three months ended June 30, 2022
Investment management fees $ 1,234.7 $ 211.6 $ 71.2 $ 59.4 $ 59.2 $ 1,636.1
Sales and distribution fees 238.1 80.2 5.8 11.5 — 335.6
Shareholder servicing fees 37.5 8.5 0.4 0.1 0.4 46.9
Other 12.0 0.3 0.2 — 0.2 12.7
Total $ 1,522.3 $ 300.6 $ 77.6 $ 71.0 $ 59.8 $ 2,031.3


(in millions)	(in millions)	United States		Luxembourg		Asia-Pacific		Americas Excluding United States		Europe, Middle East and Africa, Excluding Luxembourg		Total		(in millions)	United States	Luxembourg	Asia-Pacific	Americas Excluding United States	Europe, Middle East and Africa, Excluding Luxembourg	Total
for the nine months ended June 30, 2022
for the three months ended December 31, 2022
Investment management fees
Investment management fees
Investment management fees	Investment management fees	$	3,720.8	$	707.2	$	242.5	$	194.3	$	181.0	$	5,045.8
Sales and distribution fees	Sales and distribution fees	778.1		268.3		20.0		37.6		—		1,104.0
Shareholder servicing fees	Shareholder servicing fees	116.4		27.9		1.1		0.2		1.2		146.8
Other	Other	38.2		0.8		0.5		—		0.2		39.7
Total	Total	$	4,653.5	$	1,004.2	$	264.1	$	232.1	$	182.4	$	6,336.3

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

Revenues earned from sponsored funds were 83% of the Company’s total operating revenues for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2023 and ~~83% and 81% for the three and nine months ended June 30,~~ 2022.

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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)	(in millions)	June 30, 2023		September 30, 2022		(in millions)	December 31, 2023	September 30, 2023
Investments, at fair value	Investments, at fair value
Sponsored funds and separate accounts
Sponsored funds and separate accounts
Sponsored funds and separate accounts	Sponsored funds and separate accounts	$	616.6	$	413.0
Investments related to long-term incentive plans	Investments related to long-term incentive plans	202.3		143.3
Other equity and debt investments	Other equity and debt investments	48.4		57.2
Total investments, at fair value	Total investments, at fair value	867.3		613.5
Investments in equity method investees	Investments in equity method investees	1,118.5		771.5
Other investments	Other investments	263.3		266.3
Total	Total	$	2,249.1	$	1,651.3

The Company has entered into repurchase agreements with a third-party financing company for certain investments held by the Company. As of December 31, 2023, other liabilities includes repurchase agreements of $167.9 million with investments of $176.0 million in carrying value pledged as collateral. The repurchase agreements have contractual maturity dates ranging between 2029 to 2035.

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)	(in millions)	Level 1		Level 2		Level 3		NAV as a Practical Expedient		Total		(in millions)	Level 1	Level 2	Level 3	NAV as a Practical Expedient	Total
as of June 30, 2023
as of December 31, 2023
Assets
Assets
Assets	Assets
Investments, at fair value	Investments, at fair value
Investments, at fair value
Investments, at fair value
Sponsored funds and separate accounts
Sponsored funds and separate accounts
Sponsored funds and separate accounts	Sponsored funds and separate accounts	$	333.3	$	220.7	$	17.9	$	44.7	$	616.6
Investments related to long-term incentive plans	Investments related to long-term incentive plans	179.9		—		—		22.4		202.3
Other equity and debt investments	Other equity and debt investments	3.4		7.5		4.3		33.2		48.4
Contingent consideration asset		—		—		4.4		—		4.4

Total Assets Measured at Fair Value
Total Assets Measured at Fair Value
Total Assets Measured at Fair Value	Total Assets Measured at Fair Value	$	516.6	$	228.2	$	26.6	$	100.3	$	871.7

Liabilities	Liabilities
Liabilities
Liabilities
Securities sold short
Securities sold short
Securities sold short	Securities sold short	$	142.4	$	—	$	—	$	—	$	142.4
Contingent consideration liabilities	Contingent consideration liabilities	—		—		55.1		—		55.1
Total Liabilities Measured at Fair Value	Total Liabilities Measured at Fair Value	$	142.4	$	—	$	55.1	$	—	$	197.5

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(in millions)	(in millions)	Level 1		Level 2		Level 3		NAV as a Practical Expedient		Total		(in millions)	Level 1	Level 2	Level 3	NAV as a Practical Expedient	Total
as of September 30, 2022
as of September 30, 2023
Assets
Assets
Assets	Assets
Investments, at fair value	Investments, at fair value
Investments, at fair value
Investments, at fair value
Sponsored funds and separate accounts
Sponsored funds and separate accounts
Sponsored funds and separate accounts	Sponsored funds and separate accounts	$	289.5	$	55.4	$	14.1	$	54.0	$	413.0
Investments related to long-term incentive plans	Investments related to long-term incentive plans	143.3		—		—		—		143.3
Other equity and debt investments	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
Total Assets Measured at Fair Value
Total Assets Measured at Fair Value	Total Assets Measured at Fair Value	$	435.9	$	74.8	$	26.6	$	86.0	$	623.3

Liabilities	Liabilities
Liabilities
Liabilities
Securities sold short
Securities sold short
Securities sold short
Contingent consideration liabilities	Contingent consideration liabilities	$	—	$	—	$	31.6	$	—	$	31.6
Total Liabilities Measured at Fair Value

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

(in millions)

June 30,
2023

September 30,
2022

(in millions)

December 31,
2023

September 30,
2023

Nonredeemable investments1

Investments with known liquidation periods

33.2

32.8

Investments with known liquidation periods

Investments with unknown liquidation periods

17.4

29.4

Redeemable investments2

49.7

23.8

Redeemable investments2

Unfunded commitments

43.2

51.4

Unfunded commitments

_______________

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 ~~3.2~~3.1 years and ~~3.4~~2.9 years at ~~June 30,~~December 31, 2023 and September 30, ~~2022.~~2023.

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

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


(in millions)	(in millions)	Fair Value Level		June 30, 2023						September 30, 2022					(in millions)	Fair Value Level		December 31, 2023			September 30, 2023
			Carrying Value			Estimated Fair Value			Carrying Value			Estimated Fair Value					Carrying Value		Estimated Fair Value	Carrying Value		Estimated Fair Value
Financial Assets	Financial Assets
Cash and cash equivalents	Cash and cash equivalents	1		$	3,728.6		$	3,728.6		$	4,134.9		$	4,134.9
Cash and cash equivalents
Cash and cash equivalents
Other investments	Other investments
Time deposits
Time deposits
Time deposits	Time deposits	2		10.1			10.1			9.4			9.4
Equity securities	Equity securities	3		253.2			253.2			256.9			256.9

Financial Liability	Financial Liability
Financial Liability
Financial Liability
Debt	Debt	2		$	3,358.7		$	2,804.9		$	3,376.4		$	2,750.1
Debt
Debt

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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 69 CIPs, including 19 CLOs, as of ~~June 30,~~December 31, 2023 and 5970 CIPs, including 1520 CLOs, as of September 30, ~~2022.~~2023.

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


(in millions)	(in millions)	June 30, 2023		September 30, 2022		(in millions)	December 31, 2023	September 30, 2023
Assets	Assets
Cash and cash equivalents
Cash and cash equivalents
Cash and cash equivalents	Cash and cash equivalents	$	659.0	$	647.6
Receivables	Receivables	118.3		134.0
Investments, at fair value	Investments, at fair value	9,639.0		7,898.1
Total Assets	Total Assets	$	10,416.3	$	8,679.7

Liabilities	Liabilities
Liabilities
Liabilities
Accounts payable and accrued expenses
Accounts payable and accrued expenses
Accounts payable and accrued expenses	Accounts payable and accrued expenses	$	565.4	$	646.9
Debt	Debt	7,988.7		5,457.7
Other liabilities	Other liabilities	26.6		175.0
Total liabilities	Total liabilities	8,580.7		6,279.6
Redeemable Noncontrolling Interests	Redeemable Noncontrolling Interests	590.9		942.2
Stockholders’ Equity	Stockholders’ Equity
Franklin Resources, Inc.’s interests	Franklin Resources, Inc.’s interests	967.9		960.8
Franklin Resources, Inc.’s interests
Franklin Resources, Inc.’s interests
Nonredeemable noncontrolling interests	Nonredeemable noncontrolling interests	276.8		497.1
Total stockholders’ equity	Total stockholders’ equity	1,244.7		1,457.9
Total Liabilities, Redeemable Noncontrolling Interests and Stockholders’ Equity	Total Liabilities, Redeemable Noncontrolling Interests and Stockholders’ Equity	$	10,416.3	$	8,679.7

The CIPs did not have a significant impact on net income attributable to the Company during the three ~~and nine~~ months ended ~~June 30,~~December 31, 2023 and 2022.

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

Fair Value Measurements

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


(in millions)	(in millions)	Level 1		Level 2		Level 3		NAV as a Practical Expedient		Total		(in millions)	Level 1	Level 2	Level 3	NAV as a Practical Expedient	Total
as of June 30, 2023
as of December 31, 2023
Assets	Assets
Assets
Assets
Cash and cash equivalents of CLOs
Cash and cash equivalents of CLOs
Cash and cash equivalents of CLOs	Cash and cash equivalents of CLOs	$	457.5	$	—	$	—	$	—	$	457.5
Receivables of CLOs	Receivables of CLOs	—		60.3		—		—		60.3
Investments	Investments
Equity and debt securities	Equity and debt securities	201.8		771.4		568.2		150.3		1,691.7
Equity and debt securities
Equity and debt securities
Loans	Loans	—		7,943.6		3.7		—		7,947.3

Total Assets Measured at Fair Value
Total Assets Measured at Fair Value
Total Assets Measured at Fair Value	Total Assets Measured at Fair Value	$	659.3	$	8,775.3	$	571.9	$	150.3	$	10,156.8

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(in millions)	(in millions)	Level 1		Level 2		Level 3		NAV as a Practical Expedient		Total		(in millions)	Level 1	Level 2	Level 3	NAV as a Practical Expedient	Total
as of September 30, 2022
as of September 30, 2023
Assets	Assets
Assets
Assets
Cash and cash equivalents of CLOs
Cash and cash equivalents of CLOs
Cash and cash equivalents of CLOs	Cash and cash equivalents of CLOs	$	269.1	$	—	$	—	$	—	$	269.1
Receivables of CLOs	Receivables of CLOs	—		67.4		—		—		67.4
Investments	Investments
Equity and debt securities	Equity and debt securities	75.4		881.0		555.8		173.5		1,685.7
Equity and debt securities
Equity and debt securities
Loans	Loans	—		5,704.4		239.4		—		5,943.8
Real estate		—		—		268.6		—		268.6

Total Assets Measured at Fair Value
Total Assets Measured at Fair Value
Total Assets Measured at Fair Value	Total Assets Measured at Fair Value	$	344.5	$	6,652.8	$	1,063.8	$	173.5	$	8,234.6

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

(in millions)

June 30,
2023

September 30,
2022

(in millions)

December 31,
2023

September 30,
2023

Nonredeemable investments1

Investments with known liquidation periods

—

19.5

Investments with unknown liquidation periods

21.9

12.0

Redeemable investments2

128.4

142.0

Redeemable investments2

Unfunded commitments3

—

0.2

_______________

1The investments are expected to be returned through distributions over the life of the funds as a result of liquidations of the funds’ underlying assets. ~~As of June 30, 2023, there were no investments with known liquidation periods. Investments with known liquidation periods have an expected weighted-average life of 0.3 years at September 30, 2022.~~

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

3As of June 30, 2023, there were no investments with unfunded commitments. Of the total unfunded commitments, the Company was contractually obligated to fund $0.1 million based on its ownership percentage in the CIPs, at September 30, 2022.

~~Table of Contents~~

Changes in Level 3 assets were as follows:

(in millions) Equity and Debt
Securities Loans Total
Level 3
Assets
for the three months ended June 30, 2023
Balance at April 1, 2023 $ 539.0 $ 3.1 $ 542.1
Gains (losses) included in investment and other income (losses) of consolidated investment products, net (31.6) 0.1 (31.5)
Purchases 61.2 (0.2) 61.0
Sales and settlements (0.1) 0.2 0.1
Transfers into Level 3 — 0.5 0.5
Transfers out of Level 3 (0.3) — (0.3)
Balance at June 30, 2023 $ 568.2 $ 3.7 $ 571.9
Change in unrealized gains (losses) included in net income relating to assets held at June 30, 2023 $ (32.0) $ 0.1 $ (31.9)


(in millions)	Equity and Debt Securities		Loans		Total Level 3 Assets
for the three months ended December 31, 2023
Balance at October 1, 2023	$	584.9	$	—	$	584.9
Losses included in investment and other losses of consolidated investment products, net	(38.1)		—		(38.1)
Purchases	3.8		—		3.8
Sales	(0.2)		—		(0.2)

Transfers into Level 3	1.1		0.6		1.7

Balance at December 31, 2023	$	551.5	$	0.6	$	552.1
Change in unrealized losses included in net income relating to assets held at December 31, 2023	$	(37.8)	$	—	$	(37.8)

(in millions) Equity and Debt
Securities Real Estate Loans Total
Level 3
Assets
for the nine months ended June 30, 2023
Balance at October 1, 2022 $ 555.8 $ 268.6 $ 239.4 $ 1,063.8
Gains (losses) included in investment and other income (losses) of consolidated investment products, net (56.3) (9.0) 0.2 (65.1)
Purchases 83.7 86.1 58.4 228.2
Sales and settlements (25.1) — — (25.1)
Net (deconsolidations) consolidations 10.4 (345.7) (292.6) (627.9)
Transfers into Level 3 — — 3.6 3.6
Transfers out of Level 3 (0.3) — (5.3) (5.6)
Balance at June 30, 2023 $ 568.2 $ — $ 3.7 $ 571.9
Change in unrealized gains (losses) included in net income relating to assets held at June 30, 2023 $ (55.0) $ — $ 0.1 $ (54.9)

(in millions) Equity and Debt
Securities Real Estate Loans Total
Level 3
Assets
for the three months ended June 30, 2022
Balance at April 1, 2022 $ 595.4 $ 175.4 $ 33.6 $ 804.4
Gains (losses) included in investment and other income (losses) of consolidated investment products, net (31.7) 4.1 0.2 (27.4)
Purchases 6.5 61.0 (0.1) 67.4
Sales and settlements (13.1) — (0.1) (13.2)
Net deconsolidations — — (1.7) (1.7)
Transfers into Level 3 — — 5.7 5.7
Transfers out of Level 3 (0.1) — — (0.1)
Balance at June 30, 2022 $ 557.0 $ 240.5 $ 37.6 $ 835.1
Change in unrealized gains (losses) included in net income relating to assets held at June 30, 2022 $ (32.2) $ 4.1 $ 0.2 $ (27.9)

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(in millions) Equity and Debt
Securities Real Estate Loans Total
Level 3
Assets
for the nine months ended June 30, 2022
Balance at October 1, 2021 $ 453.3 $ 89.4 $ 20.5 $ 563.2
Gains included in investment and other income (losses) of consolidated investment products, net 138.6 18.4 0.2 157.2
Purchases 140.0 132.7 14.0 286.7
Sales and settlements (118.9) — (1.1) (120.0)
Net deconsolidations (55.0) — (1.7) (56.7)
Transfers into Level 3 0.1 — 5.7 5.8
Transfers out of Level 3 (1.1) — — (1.1)
Balance at June 30, 2022 $ 557.0 $ 240.5 $ 37.6 $ 835.1
Change in unrealized gains included in net income relating to assets held at June 30, 2022 $ 126.6 $ 18.4 $ — $ 145.0


(in millions)	Equity and Debt Securities		Real Estate		Loans		Total Level 3 Assets
for the three months ended December 31, 2022
Balance at October 1, 2022	$	555.8	$	268.6	$	239.4	$	1,063.8
Gains (losses) included in investment and other losses of consolidated investment products, net	(6.3)		3.7		0.1		(2.5)
Purchases	9.0		85.7		27.5		122.2
Sales	(5.6)		—		(0.2)		(5.8)
Net (deconsolidations) and consolidations	2.9		—		(202.1)		(199.2)



Balance at December 31, 2022	$	555.8	$	358.0	$	64.7	$	978.5
Change in unrealized gains included in net income relating to assets held at December 31, 2022	$	2.0	$	3.7	$	0.1	$	5.8

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

(in millions)

as of ~~June 30,~~December 31, 2023

Fair Value

Valuation Technique

Significant Unobservable Inputs

Range (Weighted Average1)

Equity and debt securities

~~568.2~~290.4

Market pricing

Private sale pricing

$~~0.01–~~0.37–$1,000.00 ($~~43.23)~~27.23) per share

Discount for lack of marketability

17.2%

261.1

Market comparable companies

Enterprise value/ Revenue multiple

1.2–31.2 (15.5)

Discount for lack of marketability

8.3%–12.0%~~–21.8% (16.4%~~ (9.9%)

(in millions)

as of September 30, 2023

Fair Value

Valuation Technique

Significant Unobservable Inputs

Range (Weighted Average1)

Equity and debt securities

346.0

Market pricing

Private sale pricing

$0.01–$1,000.00 ($23.88) per share

Discount for lack of marketability

21.9%

238.9

Market comparable companies

Enterprise value/ Revenue multiple

11.4–13.5 (12.1)

Discount for lack of marketability

11.2%–13.6% (12.2%)

(in millions)
as of September 30, 2022 Fair Value Valuation Technique Significant Unobservable Inputs
Range (Weighted Average1)
Equity and debt securities $ 555.8 Market pricing Private sale pricing $0.01–$558.45 ($33.31) per share
Discount for lack of marketability 23.5%–25.1% (24.9%)
Real estate 268.6 Discounted cash flow Discount rate 4.5%–6.3% (5.1%)
Exit capitalization rate 5.5%–6.8% (6.0%)
Loans 147.2 Market pricing Price $0.97–$0.98 ($0.98)
60.4 Discounted cash flow Discount rate 9.9%
31.9 Yield capitalization Credit spread 6.3%
Loan-to-value ratio 79.1%–88.1% (83.1%)

__________________

1Based on the relative fair value of the instruments.

If the relevant significant inputs used in the ~~market-based~~ valuations, other than discount for lack of ~~liquidity,~~marketability, were independently higher (lower) as of ~~June 30,~~December 31, 2023, the resulting fair value of the assets would be higher (lower). If the relevant significant inputs used in the ~~discounted cash flow valuations, as well as the~~ discount for lack of ~~liquidity used in the market-based valuations,~~marketability were independently higher (lower) as of ~~June 30,~~December 31, 2023, the resulting fair value of the assets would be lower (higher).

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

(in millions)

Fair Value
Level

June 30, 2023

September 30, 2022

(in millions)

Fair Value
Level

December 31, 2023

September 30, 2023

Carrying
Value

Estimated
Fair Value

Carrying
Value

Estimated
Fair Value

Carrying
Value

Estimated
Fair Value

Carrying
Value

Estimated
Fair Value

Financial Asset

Cash and cash equivalents

201.5

378.5

Cash and cash equivalents

Financial Liabilities

Debt of CLOs1

2 or 3

7,967.0

7,845.5

5,408.0

5,548.8

Other debt

21.7

11.5

49.7

42.4

__________________

1Substantially all was Level 2.

Debt

Debt of CIPs consisted of the following:


			June 30, 2023			September 30, 2022
		December 31, 2023													December 31, 2023						September 30, 2023
(in millions)	(in millions)		Amount		Weighted- Average Effective Interest Rate	Amount		Weighted- Average Effective Interest Rate	(in millions)	Amount			Weighted- Average Effective Interest Rate			Amount				Weighted- Average Effective Interest Rate
Debt of CLOs	Debt of CLOs		$	7,967.0	6.48%	$	5,408.0	2.78%	Debt of CLOs	$	7,839.6	7.41%		7.41%			$	8,210.0	7.12%			7.12%
Other debt	Other debt		21.7		6.00%	49.7		5.19%	Other debt	—		N/A		N/A			21.8		6.00%			6.00%
Total	Total		$	7,988.7		$	5,457.7

The debt of CIPs had fixed and floating interest rates ranging from 2.39% to ~~15.08%~~15.77% at ~~June 30,~~December 31, 2023, and from ~~1.42%~~2.39% to ~~8.51%~~15.49% at September 30, ~~2022.~~2023. The floating rates were based on the ~~London Interbank Offered Rate and~~ Secured Overnight Financing Rate.

The contractual maturities for the debt of CIPs at ~~June 30,~~December 31, 2023 were as follows:


(in millions)
for the fiscal years ending September 30,	Amount
~~2023~~2024 (remainder of year)	$	~~178.0~~59.8
~~2024~~	—
2025	—
2026	—
2027	—
2028	—
Thereafter	~~7,810.7~~7,779.8
Total	$	~~7,988.7~~7,839.6

Collateralized Loan Obligations

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


(in millions)	(in millions)	June 30, 2023		September 30, 2022		(in millions)	December 31, 2023	September 30, 2023
Unpaid principal balance	Unpaid principal balance	$	8,300.1	$	6,118.4
Difference between unpaid principal balance and fair value	Difference between unpaid principal balance and fair value	(200.3)		(356.1)
Fair Value	Fair Value	$	8,099.8	$	5,762.3

Investments 90 days or more past due were immaterial at ~~June 30,~~December 31, 2023 and September 30, ~~2022.~~

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2023.

The Company recognized ~~$6.5 million and $9.0~~$20.8 million of net gains and $2.3 million of net losses during the three ~~and nine~~ months ended ~~June 30,~~December 31, 2023 and ~~$4.9 million and $17.8 million of net gains during the three and nine months ended June 30,~~ 2022, related to its own economic interests in the CLOs. The aggregate principal amount due of the debt of CLOs was ~~$8,125.7~~$7,811.1 million and ~~$5,781.3~~$8,281.5 million at ~~June 30,~~December 31, 2023 and September 30, ~~2022.~~2023.

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Note 8 – Redeemable Noncontrolling Interests

Changes in redeemable noncontrolling interests were as follows:

(in millions) 2023 2022
CIPs Minority Interests Total CIPs Minority Interests Total
for the three months ended June 30,
Balance at beginning of period $ 445.6 $ 514.9 $ 960.5 $ 625.3 $ 512.8 $ 1,138.1
Net income (loss) 10.5 16.3 26.8 (16.5) 16.0 (0.5)
Net subscriptions (distributions) and other 30.2 (11.2) 19.0 5.4 (29.6) (24.2)
Net consolidations 104.6 — 104.6 380.3 — 380.3
Adjustment to fair value — (60.8) (60.8) — — —
Balance at End of Period $ 590.9 $ 459.2 $ 1,050.1 $ 994.5 $ 499.2 $ 1,493.7


(in millions)	(in millions)	2023										2022										(in millions)				2023			2022
		CIPs				Minority Interests		Total				CIPs				Minority Interests				Total						CIPs	Minority Interests	Total		CIPs	Minority Interests	Total
for the nine months ended June 30,
for the three months ended December 31,
Balance at beginning of period
Balance at beginning of period
Balance at beginning of period	Balance at beginning of period			$	942.2					$	583.6			$	1,525.8			$	622.5			$	310.5	$	933.0
Net income (loss)	Net income (loss)	68.5				40.0		108.5				(90.9)				40.7				(50.2)
Net subscriptions (distributions) and other	Net subscriptions (distributions) and other	498.2				(58.9)		439.3				320.0				(40.5)				279.5
Net consolidations (deconsolidations)	Net consolidations (deconsolidations)	(918.0)				—		(918.0)				142.9				—				142.9
Adjustment to fair value	Adjustment to fair value	—				(105.5)		(105.5)				—				188.5				188.5
Balance at End of Period	Balance at End of Period	$	590.9			$	459.2	$	1,050.1			$	994.5			$	499.2			$	1,493.7

Note 9 – Nonconsolidated Variable Interest Entities

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


(in millions)	(in millions)	June 30, 2023		September 30, 2022		(in millions)	December 31, 2023	September 30, 2023
Investments	Investments	$	949.6	$	718.0
Receivables	Receivables	216.7		165.4
Total	Total	$	1,166.3	$	883.4

While the Company has no legal or contractual obligation to do so, it routinely makes cash investments in the course of launching sponsored funds. As it has done in the past, the Company also may voluntarily elect to provide its sponsored funds with additional direct or indirect financial support based on its business objectives. The Company did not provide financial or other support to its sponsored funds assessed as VIEs during the ~~nine~~three months ended ~~June 30,~~December 31, 2023 or fiscal year ~~2022.~~2023.

Note 10 – Commitments and Contingencies

Legal Proceedings

India Credit Fund Closure Matters. During the ~~nine~~three months ended ~~June 30,~~December 31, 2023, there were no significant changes from the disclosure in the Form 10‑K for the fiscal year ended September 30, ~~2022. As of June 30, 2023, the amount reported as distributed to fund unitholders in the aggregate is INR 27,109.3 crore (approximately $3.3 billion).~~2023.

~~Table of Contents~~

Other Litigation Matters. The Company is from time to time involved in other litigation relating to claims arising in the normal course of business. Management is of the opinion that the ultimate resolution of such claims will not materially affect the Company’s business, financial position, results of operations or liquidity. In management’s opinion, an adequate accrual has been made as of ~~June 30,~~December 31, 2023 to provide for any probable losses that may arise from such matters for which the Company could reasonably estimate an amount.

Indemnifications and Guarantees

In the ordinary course of business or in connection with certain acquisition agreements, the Company enters into contracts that provide for indemnifications by the Company in certain circumstances. In addition, certain Company entities guarantee certain financial and performance-related obligations of various Franklin subsidiaries. The Company is also subject to certain legal requirements and agreements providing for indemnifications of directors, officers and personnel against liabilities and expenses they may incur under certain circumstances in connection with their service. The terms of these indemnities and guarantees vary pursuant to applicable facts and circumstances, and from agreement to agreement. Future payments for claims against the Company under these indemnities or guarantees could negatively impact the Company’s financial condition. In management’s opinion, no material loss was deemed probable or reasonably possible pursuant to such indemnification agreements and/or guarantees as of ~~June 30,~~December 31, 2023.

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Other Commitments and Contingencies

On November 1, 2023, the Company took possession of office space in New York City located at One Madison Avenue. At ~~June 30,~~the time of possession, the Company recognized an operating lease right-of-use asset and a corresponding operating lease liability of $396.6 million. The lease agreement is over sixteen years with an aggregate expected commitment of $707.3 million and is part of a corporate initiative to consolidate existing office space in New York City.

At December 31, 2023, there were no other material changes in the other commitments and contingencies as reported in the Company’s Annual Report on Form 10-K for fiscal year ~~2022.~~2023.

Note 11 – Stock-Based Compensation

Stock and stock unit award activity was as follows:


(shares in thousands)	(shares in thousands)	Time-Based Shares		Performance- Based Shares	Total Shares	Weighted- Average Grant-Date Fair Value		(shares in thousands)			Time-Based Shares	Performance- Based Shares	Total Shares	Weighted- Average Grant-Date Fair Value
for the nine months ended June 30, 2023
Nonvested balance at October 1, 2022			13,492		3,401	16,893			$	24.04
for the three months ended December 31, 2023
Nonvested balance at October 1, 2023
Nonvested balance at October 1, 2023
Nonvested balance at October 1, 2023
Granted	Granted	6,938		271	7,209	22.67
Vested	Vested	(1,799)		(138)	(1,937)	24.65
Forfeited/canceled	Forfeited/canceled	(357)		(177)	(534)	24.79
Nonvested Balance at June 30, 2023		18,274		3,357	21,631	$	23.51
Nonvested Balance at December 31, 2023

Total unrecognized compensation expense related to nonvested stock and stock unit awards was ~~$202.3~~$280.0 million at ~~June 30,~~December 31, 2023. This expense is expected to be recognized over a remaining weighted-average vesting period of ~~1.6~~2.0 years.

~~Table of Contents~~

Note 13 - Subsequent Event

On January 1, 2024, the Company acquired Putnam Investments (“Putnam”) from Great-West Lifeco Inc. (“Great-West”) for 31.6 million shares of its common stock (excludes shares to be granted under deferred compensation program), cash consideration paid at close of approximately $220 million for investments and other purchase-related amounts, and deferred cash consideration of $100.0 million to be paid during the third quarter of fiscal year 2024.

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

Note 12 – Investment and Other Income, Net

Investment and other income, net consisted of the following:




		Three Months Ended June 30,				Nine Months Ended June 30,					Three Months Ended December 31,
(in millions)	(in millions)	2023		2022		2023		2022		(in millions)		2023	2022
Dividend and interest income	Dividend and interest income	$	42.7	$	6.3	$	111.5	$	17.5
Gains (losses) on investments, net		13.8		(35.6)		62.3		(32.9)
Income (losses) from investments in equity method investees		(7.7)		(0.1)		111.1		51.6
Gains (losses) on derivatives, net		(5.1)		17.5		(19.4)		15.2
Gains on investments, net
Income from investments in equity method investees

Rental income	Rental income	11.1		9.6		35.1		27.9
Foreign currency exchange (losses) gains, net		(6.6)		14.5		(40.2)		24.2
Rental income
Rental income
Foreign currency exchange losses, net
Other, net	Other, net	3.0		0.8		7.5		(5.8)
Investment and other income, net	Investment and other income, net	$	51.2	$	13.0	$	267.9	$	97.7

Net gains ~~(losses)~~ recognized on equity securities measured at fair value and trading debt securities that were held by the Company were ~~$17.0 million and $95.7~~$68.5 million for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2023 and ~~$(50.3) million and $(79.1)~~$68.3 million for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2022.

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~~Note 13 - Subsequent Event~~

On July 25, 2023, the Company terminated its 364-day $500.0 million revolving credit facility and its 3-year $300.0 million term loan. On the date of termination, the 364-day revolving credit facility had no amounts outstanding and all amounts outstanding under the term loan were repaid with existing cash. Concurrent with the actions above, the Company entered into a 5-year $800.0 million revolving credit facility. As of the time of this filing, there were no borrowings outstanding under the 5-year credit facility.

~~Table of Contents~~

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 pandemic-related risks, 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, ~~2022~~2023 (“fiscal year ~~2022”~~2023”).

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.

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 ~~2022~~2023 filed with the U.S. Securities and Exchange Commission, and the consolidated financial statements and notes thereto included elsewhere in this Form 10-Q.

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. We may perform services directly or through third parties. We offer our services and products under our various distinct brand names, including, but not limited to, Franklin®, Templeton®, Legg Mason®, Alcentra®, Benefit Street Partners®, Brandywine Global Investment Management®, Clarion Partners®, ClearBridge Investments®, Fiduciary Trust International™, Franklin Bissett®, Franklin Mutual Series®, K2®, Lexington Partners®, Martin Currie®, O’Shaughnessy® Asset Management, Royce® Investment Partners and Western Asset Management Company®. We offer a broad product mix of fixed income, equity, 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.

2319

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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 the fiscal year ~~2022,~~2023, the amount and mix of our AUM are subject to significant fluctuations 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 ~~third~~first fiscal quarter, global equity markets provided positive returns led by developed markets, ~~particularly the U.S.,~~ reflecting ~~moderating inflation~~expectations that interest rate increases have ended and ~~signs of domestic economic strength despite rising interest rates.~~rate reductions will begin in calendar year 2024. The S&P 500 Index and MSCI World Index increased ~~8.7%~~11.7% and ~~7.0%~~11.5% for the ~~quarter and 25.7% and 26.9% for the fiscal year to date.~~quarter. The global bond markets ~~declined during the quarter but remained~~were also positive ~~for the fiscal year to date~~ as the Bloomberg Global Aggregate Index ~~decreased 1.5%~~increased 8.1% during the quarter and increased 6.0% for the fiscal year to date, reflecting divergence in monetary policy during the quarter as the Federal Reserve paused raising interest rates in June for the first time in over a year while other central banks continued to raise interest rates.quarter.

Our total AUM at ~~June 30,~~December 31, 2023 was ~~$1,431.5~~$1,455.5 billion, ~~10%~~6% higher than at September 30, ~~2022~~2023 and 4%5% higher than at ~~June 30,~~December 31, 2022. Monthly average AUM (“average AUM”) for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2023 ~~decreased 1% and 7%~~increased 3% from the same ~~periods~~period in the prior fiscal year.

On ~~November~~January 1, ~~2022,~~2024, we acquired ~~BNY Alcentra Group Holdings,~~Putnam Investments (“Putnam”), a global asset management firm, from Great-West Lifeco Inc. ~~(together with its subsidiaries, “Alcentra”~~(“Great-West”), one of the largest European credit and private debt managers, with global expertise in senior secured loans, high yield bonds, private credit, structured credit, special situations and multi-strategy credit strategies. Total purchase price included cash consideration of $594.1 million, which includes $188.3 million for certain securities held in Alcentra’s collateralized loan obligations; 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 had an acquisition-date fair value of $24.6 million..

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 that will provide a secure and stable environment. 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 ~~2022.~~2023.

~~Table of Contents~~

RESULTS OF OPERATIONS


		Three Months Ended June 30,						Percent Change				Nine Months Ended June 30,										Percent Change
										Three Months Ended December 31,
								Three Months Ended December 31,
								Three Months Ended December 31,																		Percent Change
(in millions, except per share data)	(in millions, except per share data)	2023			2022			Percent Change				2023					2022							Percent Change
Operating revenues
Operating revenues
Operating revenues	Operating revenues	$	1,969.0		$	2,031.3				(3	%)				$	5,863.3				$	6,336.3			(7	%)					$	1,991.1				$	1,967.1			1		%
Operating income	Operating income	314.9			404.7			(22	%)			764.0					1,425.4					(46	%)	Operating income					206.5					194.0				6		%
Operating margin1	Operating margin1	16.0		%	19.9		%					13.0		%			22.5		%

Net income attributable to Franklin Resources, Inc.	Net income attributable to Franklin Resources, Inc.	$	227.5		$	256.4		(11	%)			$	587.3				$	1,059.2				(45	%)

Net income attributable to Franklin Resources, Inc.

Net income attributable to Franklin Resources, Inc.																													$	251.3				$	165.6			52		%
Diluted earnings per share	Diluted earnings per share	0.44			0.50			(12	%)			1.14					2.07					(45	%)	Diluted earnings per share					0.50					0.32				56		%

As adjusted (non-GAAP):2	As adjusted (non-GAAP):2
As adjusted (non-GAAP):2
As adjusted (non-GAAP):2
Adjusted operating income
Adjusted operating income
Adjusted operating income	Adjusted operating income	$	476.8		$	566.9		(16	%)			$	1,312.1				$	1,829.4				(28	%)				$	417.0				$	395.1				6	%
Adjusted operating margin	Adjusted operating margin	30.5		%	35.3		%					29.0		%			37.0		%

Adjusted net income	Adjusted net income	$	326.1		$	416.0		(22	%)			$	905.2				$	1,461.2				(38	%)

Adjusted net income

Adjusted net income																													$	328.5				$	262.4			25		%
Adjusted diluted earnings per share	Adjusted diluted earnings per share	0.63			0.82			(23	%)			1.76					2.86					(38	%)	Adjusted diluted earnings per share					0.65					0.51				27		%

_________________

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.

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ASSETS UNDER MANAGEMENT

AUM by asset class was as follows:

(in billions) June 30,
2023 June 30,
2022 Percent
Change
Fixed Income $ 505.1 $ 536.3 (6 %)
Equity 458.0 424.9 8 %
Alternative 257.2 224.8 14 %
Multi-Asset 148.3 136.2 9 %
Cash Management 62.9 57.6 9 %
Total $ 1,431.5 $ 1,379.8 4 %

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(in billions)	December 31, 2023		December 31, 2022		Percent Change
Fixed Income	$	511.7	$	494.8	3	%
Equity	467.5		419.1		12	%
Alternative	256.2		257.4		0	%
Multi-Asset	154.6		141.4		9	%
Cash Management	65.5		75.0		(13	%)
Total	$	1,455.5	$	1,387.7	5	%

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

(in billions) Average AUM Percent
Change Mix of Average AUM
for the three months ended June 30, 2023 2022 2023 2022
Fixed Income $ 507.1 $ 563.4 (10 %) 36 % 39 %
Equity 442.8 467.8 (5 %) 31 % 33 %
Alternative 257.5 205.4 25 % 18 % 14 %
Multi-Asset 146.3 144.4 1 % 10 % 10 %
Cash Management 65.9 58.8 12 % 5 % 4 %
Total $ 1,419.6 $ 1,439.8 (1 %) 100 % 100 %


(in billions)	(in billions)	Average AUM				Percent Change				Mix of Average AUM						(in billions)			Average AUM										Percent Change						Mix of Average AUM
for the nine months ended June 30,		2023		2022				2023				2022
for the three months ended December 31,																for the three months ended December 31,			2023					2022											2023					2022
Fixed Income	Fixed Income	$	500.4	$	606.2			(17	%)			36	%			40	%	Fixed Income			$	489.7	$			$	490.3			0				0	%				35	%				36	%
Equity	Equity	431.8		510.4		(15	%)			31	%			34	%	Equity			439.2			417.3			417.3			5				5		%			32		%			31		%
Alternative	Alternative	250.6		172.9		45	%			18	%			12	%	Alternative			255.6			240.4			240.4			6				6		%			18		%			18		%
Multi-Asset	Multi-Asset	143.1		148.4		(4	%)			10	%			10	%	Multi-Asset			147.3			138.6			138.6			6				6		%			11		%			10		%
Cash Management	Cash Management	70.2		60.5		16	%			5	%			4	%	Cash Management			62.4			66.9			66.9			(7				(7		%)			4		%			5		%
Total	Total	$	1,396.1	$	1,498.4	(7	%)			100	%			100	%	Total			$	1,394.2		$		$	1,353.5		3				3		%			100		%			100		%

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
June 30, Percent
Change Nine Months Ended
June 30, Percent
Change
2023 2022 2023 2022
Beginning AUM $ 1,422.1 $ 1,477.5 (4 %) $ 1,297.4 $ 1,530.1 (15 %)
Long-term inflows 67.4 77.4 (13 %) 199.7 260.5 (23 %)
Long-term outflows (67.2) (97.2) (31 %) (214.1) (267.9) (20 %)
Long-term net flows 0.2 (19.8) NM (14.4) (7.4) 95%
Cash management net flows (7.3) 0.4 NM 5.9 (0.9) NM
Total net flows (7.1) (19.4) (63 %) (8.5) (8.3) 2%
Acquisitions — 57.2 (100%) 34.9 64.9 (46%)
Net market change, distributions and other 16.5 (135.5) NM 107.7 (206.9) NM
Ending AUM $ 1,431.5 $ 1,379.8 4 % $ 1,431.5 $ 1,379.8 4 %

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(in billions)	Three Months Ended December 31,					Percent Change
		2023			2022
Beginning AUM			$	1,374.2		$	1,297.4	6	%
Long-term inflows			68.9			70.5		(2	%)
Long-term outflows			(73.9)			(81.4)		(9	%)
Long-term net flows			(5.0)			(10.9)		(54	%)
Cash management net flows			4.7			17.5		(73	%)
Total net flows			(0.3)			6.6		NM
Acquisition			—			34.9		(100	%)
Net market change, distributions and other			81.6			48.8		67	%
Ending AUM			$	1,455.5		$	1,387.7	5	%

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

(in billions) Fixed Income Equity Alternative Multi-Asset Cash
Management Total
for the three months ended
June 30, 2023
AUM at April 1, 2023 $ 510.1 $ 437.1 $ 258.2 $ 146.1 $ 70.6 $ 1,422.1
Long-term inflows 26.5 23.0 7.3 10.6 — 67.4
Long-term outflows (29.6) (26.0) (3.3) (8.3) — (67.2)
Long-term net flows (3.1) (3.0) 4.0 2.3 — 0.2
Cash management net flows — — — — (7.3) (7.3)
Total net flows (3.1) (3.0) 4.0 2.3 (7.3) (7.1)
Net market change, distributions and other (1.9) 23.9 (5.0) (0.1) (0.4) 16.5
AUM at June 30, 2023 $ 505.1 $ 458.0 $ 257.2 $ 148.3 $ 62.9 $ 1,431.5

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(in billions)	Fixed Income		Equity		Alternative		Multi-Asset		Cash Management		Total
for the three months ended December 31, 2023
AUM at October 1, 2023	$	483.1	$	430.4	$	254.9	$	145.0	$	60.8	$	1,374.2
Long-term inflows	28.3		27.0		5.9		7.7		—		68.9
Long-term outflows	(36.7)		(26.8)		(3.2)		(7.2)		—		(73.9)
Long-term net flows	(8.4)		0.2		2.7		0.5		—		(5.0)
Cash management net flows	—		—		—		—		4.7		4.7
Total net flows	(8.4)		0.2		2.7		0.5		4.7		(0.3)
Net market change, distributions and other	37.0		36.9		(1.4)		9.1		—		81.6
AUM at December 31, 2023	$	511.7	$	467.5	$	256.2	$	154.6	$	65.5	$	1,455.5

AUM increased ~~$9.4~~$81.3 billion, or 1%6%, during the three months ended ~~June 30,~~December 31, 2023 due to the positive impact of ~~$16.5~~$81.6 billion of net market change, distributions and other, and ~~$0.2 billion of long-term net inflows (which includes $3.5 billion of long-term reinvested distributions), partially offset by $7.3~~$4.7 billion of cash management net ~~outflows. Long-term~~inflows, partially offset by $5.0 billion of long-term net ~~inflows included $3.2~~outflows, which include $10.8 billion ~~from a low-fee equity mandate.~~of long-term reinvested distributions. Net market change, distributions and other primarily consists of ~~$24.4~~$94.3 billion of market appreciation and a ~~$0.1~~$6.6 billion increase from foreign exchange revaluation, partially offset by ~~$8.0~~$19.3 billion of long-term distributions. The market appreciation occurred in substantially all asset classes, ~~with the exception of the alternative asset class, most significantly in the equity asset class, reflecting positive returns in the global equity markets.~~

AUM increased $51.7 billion or 4%, as compared to the prior year period. Long-term inflows decreased 13% to $67.4 billion, driven by lower inflows in fixed income, equity, and multi-asset open end funds, fixed income institutional separate accounts, multi-asset sub-advised mutual funds, and equity retail separate accounts, partially offset by higher inflows for multi-asset institutional separate accounts, alternative private funds, and equity sub-advised mutual funds. Long-term outflows decreased 31% to $67.2 billion driven by lower redemptions in fixed income and equity open end funds, fixed income and equity institutional separate accounts, multi-asset sub-advised mutual funds, and equity and fixed income retail separate accounts, partially offset by higher redemptions for multi-asset institutional separate accounts.

(in billions) Fixed Income Equity Alternative Multi-Asset Cash
Management Total
for the three months ended
June 30, 2022
AUM at April 1, 2022 $ 595.0 $ 515.4 $ 157.9 $ 151.9 $ 57.3 $ 1,477.5
Long-term inflows 35.2 24.5 5.9 11.8 — 77.4
Long-term outflows (49.5) (33.7) (3.8) (10.2) — (97.2)
Long-term net flows (14.3) (9.2) 2.1 1.6 — (19.8)
Cash management net flows — — — — 0.4 0.4
Total net flows (14.3) (9.2) 2.1 1.6 0.4 (19.4)
Acquisition — — 57.2 — — 57.2
Net market change, distributions and other (44.4) (81.3) 7.6 (17.3) (0.1) (135.5)
AUM at June 30, 2022 $ 536.3 $ 424.9 $ 224.8 $ 136.2 $ 57.6 $ 1,379.8

AUM decreased $97.7 billion or 7% during the three months ended June 30, 2022 due to the negative impact of $135.5 billion of net market change, distributions and other and $19.8 billion of long-term net outflows, partially offset by an acquisition of $57.2 billion and $0.4 billion of cash management net inflows. Net market change, distributions and other primarily consists of $117.3 billion of market depreciation, a $10.3 billion decrease from foreign exchange revaluation and $7.9 billion of long-term distributions. The market depreciation occurred in all long-term asset classes with the exception of the alternative asset class. Foreign exchange revaluation from AUM in products that are not U.S. dollar denominated, which represented 10% of total AUM as of June 30, 2022, was primarily due to a stronger U.S. dollar compared to the Australian dollar, Japanese Yen, Pound sterling and Euro.

AUM decreased $172.3 billion, or 11%, as compared to the prior year period. Long-term inflows decreased 8% to $77.4 billion, driven by lower inflows in fixed income, equity and alternative open-end funds and equity investment trusts, partially offset by higher inflows in multi-asset open end funds, alternative private closed-end funds and multi-asset and equity sub-advised mutual funds. Long-term outflows increased 8% to $97.2 billion driven by higher redemptions in fixed income

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open-end funds and institutional separate accounts, multi-asset sub-advised mutual funds, and equity retail separate accounts, partially offset by lower redemptions in equity sub-advised mutual funds, open-end funds and institutional separate accounts.

(in billions) Fixed Income Equity Alternative Multi-Asset Cash
Management Total
for the nine months ended
June 30, 2023
AUM at October 1, 2022 $ 490.9 $ 392.3 $ 225.1 $ 131.5 $ 57.6 $ 1,297.4
Long-term inflows 86.5 67.3 18.7 27.2 — 199.7
Long-term outflows (101.1) (78.3) (13.7) (21.0) — (214.1)
Long-term net flows (14.6) (11.0) 5.0 6.2 — (14.4)
Cash management net flows — — — — 5.9 5.9
Total net flows (14.6) (11.0) 5.0 6.2 5.9 (8.5)
Acquisition — — 34.9 — — 34.9
Net market change, distributions and other 28.8 76.7 (7.8) 10.6 (0.6) 107.7
AUM at June 30, 2023 $ 505.1 $ 458.0 $ 257.2 $ 148.3 $ 62.9 $ 1,431.5

AUM increased $134.1 billion, or 10%, during the nine months ended June 30, 2023 due to the positive impact of $107.7 billion of net market change, distributions and other, $34.9 billion from an acquisition, and $5.9 billion of cash management net inflows, partially offset by $14.4 billion of long-term net outflows. Net market change, distributions and other primarily consists of $131.0 billion of market appreciation, a $9.8 billion increase from foreign exchange revaluation, partially offset by $33.1 billion of long-term distributions. The market appreciation occurred in all asset classes with the exception of the alternative asset class, most significantly in the equity and fixed income asset classes and reflected positive returns in the global equity and fixed income markets. Foreign exchange revaluation from AUM in products that are not U.S. dollar denominated was primarily due to a weaker U.S. dollar compared to the Euro, Australian dollar, Japanese Yen and Pound ~~Sterling, Brazilian Real and Australian dollar.~~Sterling.

Long-term inflows decreased ~~23%~~2% to ~~$199.7~~$68.9 billion, as compared to the prior year period, driven by lower inflows in fixed income open end funds, alternative private open end funds, and equity and alternative institutional separate accounts, partially offset by higher inflows in alternative private closed end funds and fixed income separately managed accounts. Decreased inflows for open end mutual funds include the impact of lower reinvested distributions, which were $10.8 billion in the current year period, as compared to $12.1 billion in the prior year period. Long-term outflows decreased 9% to $73.9 billion due to lower outflows in fixed income open end funds, fixed income and alternative institutional separate accounts, equity separately managed accounts and alternative private open end funds, partially offset by higher outflows in fixed income separately managed accounts, equity sub-advised mutual funds and multi-asset high net worth accounts.


(in billions)	Fixed Income		Equity		Alternative		Multi-Asset		Cash Management		Total
for the three months ended December 31, 2022
AUM at October 1, 2022	$	490.9	$	392.3	$	225.1	$	131.5	$	57.6	$	1,297.4
Long-term inflows	28.5		27.2		6.5		8.3		—		70.5
Long-term outflows	(41.8)		(26.9)		(6.8)		(5.9)		—		(81.4)
Long-term net flows	(13.3)		0.3		(0.3)		2.4		—		(10.9)
Cash management net flows	—		—		—		—		17.5		17.5
Total net flows	(13.3)		0.3		(0.3)		2.4		17.5		6.6
Acquisition	—		—		34.9		—		—		34.9
Net market change, distributions and other	17.2		26.5		(2.3)		7.5		(0.1)		48.8
AUM at December 31, 2022	$	494.8	$	419.1	$	257.4	$	141.4	$	75.0	$	1,387.7

AUM increased $90.3 billion, or 7%, during the three months ended December 31, 2022 due to the positive impact of $48.8 billion of net market change, distributions and other, $34.9 billion from an acquisition, and $17.5 billion of cash management net inflows, partially offset by $10.9 billion of long-term net outflows. Long-term net outflows included a $2.1 billion fixed income institutional redemption that had minimal impact on revenue. Net market change, distributions and other primarily consists of $58.5 billion of market appreciation, an $8.8 billion increase from foreign exchange revaluation, partially offset by $18.5 billion of long-term distributions. The market appreciation occurred in all asset classes with the exception of the alternative asset class and reflected positive returns in the global equity and fixed income markets. Foreign exchange revaluation from AUM in products that are not U.S. dollar denominated was primarily due to a weaker U.S. dollar compared to the Euro, Japanese Yen, Australian dollar and Pound Sterling.

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Long-term inflows decreased 34% to $70.5 billion, as compared to the prior year period, driven by lower inflows in equity, multi-asset, and fixed income open end funds, fixed income institutional separate accounts, sub-advised CITs, and equity retail separate accounts. Decreased inflows for open end mutual funds include the impact of lower reinvested distributions, which were ~~$18.0~~$12.1 billion in the current year ~~period,~~quarter, as compared to ~~$29.5~~$23.5 billion in the prior year ~~period.~~quarter. Long-term outflows decreased ~~20%~~2% to ~~$214.1~~$81.4 billion due to lower outflows in ~~fixed income and~~ equity open end funds and multi-asset and equity sub-advised mutual ~~funds, fixed income and equity institutional separate accounts, and equity retail separate accounts.~~

(in billions) Fixed Income Equity Alternative Multi-Asset Cash
Management Total
for the nine months ended
June 30, 2022
AUM at October 1, 2021 $ 650.3 $ 523.6 $ 145.2 $ 152.4 $ 58.6 $ 1,530.1
Long-term inflows 112.2 100.4 16.6 31.3 — 260.5
Long-term outflows (126.3) (103.0) (11.5) (27.1) — (267.9)
Long-term net flows (14.1) (2.6) 5.1 4.2 — (7.4)
Cash management net flows — — — — (0.9) (0.9)
Total net flows (14.1) (2.6) 5.1 4.2 (0.9) (8.3)
Acquisitions — 4.6 58.0 2.3 — 64.9
Net market change, distributions and other (99.9) (100.7) 16.5 (22.7) (0.1) (206.9)
AUM at June 30, 2022 $ 536.3 $ 424.9 $ 224.8 $ 136.2 $ 57.6 $ 1,379.8

AUM decreased $150.3 billion or 10% during the nine months ended June 30, 2022 due to the negative impact of $206.9 billion of net market change, distributions and other, $7.4 billion of long-term net outflows and $0.9 billion of cash management net outflows, partially offset by $64.9 billion from acquisitions. Net market change, distributions and other primarily consists of $152.5 billion of market depreciation, $42.6 billion of long-term distributions and an $11.8 billion decrease from foreign exchange revaluation. The market depreciation occurred in all asset classes with the exception of the alternative asset class. Foreign exchange revaluation from AUM in products that are not U.S. dollar denominated was primarily due to a stronger U.S. dollar compared to the Japanese Yen, Euro, Pound Sterling and Australian dollar.

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Long-term inflows decreased 7% to $260.5 billion, as compared to the prior-year period, driven by lower inflows in fixed income open-end funds and institutional separate accounts, partially offset by higher inflows for alternative private closed end funds. Long-term outflows decreased 10% to $267.9 billion due to lower outflows in fixed income institutional separate accounts and equity open-end funds, partially offset by higher outflows ~~for multi-asset sub-advised mutual~~in fixed income and alternative institutional separate accounts, fixed income open end funds, and alternative private open end funds.

AUM by sales region was as follows:


(in billions)	(in billions)	June 30, 2023		June 30, 2022		Percent Change		(in billions)	December 31, 2023			December 31, 2022				Percent Change
United States	United States	$	1,026.0	$	1,034.3	(1	%)	United States	$	1,019.4	$	$	993.1	3			3		%
International	International
Europe, Middle East and Africa	Europe, Middle East and Africa	162.0		133.6		21	%
Europe, Middle East and Africa
Europe, Middle East and Africa									180.6			164.3				10		%
Asia-Pacific	Asia-Pacific	129.6		131.1		(1	%)	Asia-Pacific	150.5		115.5		115.5		30			30		%
Americas, excl. U.S.	Americas, excl. U.S.	113.9		80.8		41	%	Americas, excl. U.S.	105.0		114.8		114.8		(9			(9		%)
Total international	Total international	405.5		345.5		17	%	Total international	436.1		394.6		394.6		11			11		%
Total	Total	$	1,431.5	$	1,379.8	4	%	Total	$	1,455.5	$	$	1,387.7	5			5		%

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 June 30, 2023			1-Year		3-Year		5-Year		10-Year		1-Year		3-Year		5-Year		10-Year
		Peer Group Comparison1																								Peer Group Comparison1							Benchmark Comparison2
		% of Mutual Fund AUM in Top Two Peer Group Quartiles																								% of Mutual Fund AUM in Top Two Peer Group Quartiles							% of Strategy Composite AUM Exceeding Benchmark
as of December 31, 2023																			as of December 31, 2023	1-Year		3-Year		5-Year			10-Year		1-Year		3-Year			5-Year		10-Year
Fixed Income	Fixed Income		43	%	45	%	47	%	64	%	85	%	54	%	93	%	90	%	Fixed Income	69	%	37	%	38	%		66	%	78	%	44	%		89	%	90	%
Equity	Equity		54	%	52	%	68	%	56	%	48	%	45	%	47	%	37	%	Equity	55	%	42	%	43	%		59	%	47	%	38	%		37	%	32	%
Total AUM3	Total AUM3		44	%	58	%	66	%	51	%	63	%	53	%	67	%	63	%	Total AUM3	51	%	50	%	37	%		54	%	61	%	46	%		60	%	61	%

__________________

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 36%, ~~36%~~35%, 35% and ~~34%~~33% of our total AUM as of ~~June 30,~~December 31, 2023.

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 ~~50%~~51%, 51%, 50%~~, 49%~~ and ~~47%~~46% of our total AUM as of ~~June 30,~~December 31, 2023.

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 18% and ~~10%~~11% of our total AUM at ~~June 30,~~December 31, 2023.

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

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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.

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OPERATING REVENUES

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


(in millions)	(in millions)	Three Months Ended June 30,				Percent Change				Nine Months Ended June 30,								Percent Change
		2023		2022				2023				2022
(in millions)																					(in millions)	Three Months Ended December 31,						Percent Change

Investment management fees
Investment management fees
Investment management fees	Investment management fees	$	1,613.4	$	1,636.1			(1	%)			$	4,818.5			$	5,045.8			(5	%)			$	1,652.2		$			$	1,631.8		1		1		%
Sales and distribution fees	Sales and distribution fees	304.0		335.6		(9	%)			897.3				1,104.0				(19	%)	Sales and distribution fees			296.4			291.9				291.9			2		2		%
Shareholder servicing fees	Shareholder servicing fees	38.8		46.9		(17	%)			115.5				146.8				(21	%)	Shareholder servicing fees			32.5			33.4				33.4			(3		(3		%)
Other	Other	12.8		12.7		1	%			32.0				39.7				(19	%)	Other			10.0			10.0				10.0			0%			0%
Total Operating Revenues	Total Operating Revenues	$	1,969.0	$	2,031.3	(3	%)			$	5,863.3			$	6,336.3			(7	%)	Total Operating Revenues			$	1,991.1		$			$	1,967.1		1		1		%

Investment Management Fees

Investment management fees ~~decreased $22.7 million and $227.3~~increased $20.4 million for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2023 primarily due to a ~~1% and 7% decrease~~3% increase in average AUM and higher catch-up fees recognized at the closing of fundraising rounds in a secondary private fund, partially offset by ~~higher~~lower performance fees. The ~~decrease~~increase in average AUM occurred primarily in the ~~fixed income~~alternative and equity asset classes, partially offset by ~~an increase~~a decrease in the ~~alternative~~cash management asset ~~class that includes the acquisitions of Lexington Partners L.P. (“Lexington”) on April 1, 2022 and Alcentra on November 1, 2022.~~class.

Our effective investment management fee rate excluding performance fees (annualized investment management fees excluding performance fees divided by average AUM) ~~was 42.0 and 41.9~~increased to 42.4 basis points for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2023, ~~as compared to 42.3 and 41.8~~from 41.7 basis points for the same period in the prior fiscal ~~year.~~year, primarily due to higher catch-up fees recognized at the closing of fundraising rounds in a secondary private equity fund.

Performance fees were ~~$125.9~~$166.4 million and ~~$446.1~~$209.0 million for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2023 and ~~$119.3 million and $364.3 million for the same periods in the prior fiscal year.~~2022. The ~~increase for both periods~~decrease was primarily due to ~~$11.6~~a $72.0 million ~~and $164.1 million of~~decrease in performance fees earned by Lexington Partners L.P. (“Lexington”), which were passed through as compensation expense per the terms of the acquisition agreement, partially offset by ~~lower~~higher performance fees earned by ~~our~~ other alternative specialist investment ~~managers for both the three and nine months ended June 30, 2023.~~managers.

Sales and Distribution Fees

Sales and distribution fees by revenue driver are presented below.


(in millions)	(in millions)	Three Months Ended June 30,				Percent Change				Nine Months Ended June 30,								Percent Change
		2023		2022				2023				2022
(in millions)																					(in millions)	Three Months Ended December 31,						Percent Change

Asset-based fees
Asset-based fees
Asset-based fees	Asset-based fees	$	251.0	$	272.5			(8	%)			$	743.7			$	890.5			(16	%)			$	246.0		$			$	245.0		0		0		%
Sales-based fees	Sales-based fees	53.0		63.1		(16	%)			153.6				213.5				(28	%)	Sales-based fees			50.4			46.9				46.9			7		7		%
Sales and Distribution Fees	Sales and Distribution Fees	$	304.0	$	335.6	(9	%)			$	897.3			$	1,104.0			(19	%)	Sales and Distribution Fees			$	296.4		$			$	291.9		2		2		%

Asset-based distribution fees ~~decreased $21.5 million and $146.8~~increased $1.0 million for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2023 primarily due ~~decreases of 6% and 15%~~to a 1% increase in the related average AUM, ~~and~~partially offset by a higher mix of ~~lower-fee~~lower fee assets.

Sales-based fees ~~decreased $10.1 million and $59.9~~increased $3.5 million for the three ~~and nine~~ months ended ~~June 30, 2023 primarily due to decreases of 11% and 26% in commissionable sales.~~

~~Shareholder Servicing Fees~~

~~Shareholder servicing fees decreased $8.1 million and $31.3 million for the three and nine months ended June 30,~~December 31, 2023 primarily due to a ~~reduction~~10% increase in ~~fee rates charged for transfer agency services in the U.S. and lower levels of related global AUM.~~commissionable sales.

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OPERATING EXPENSES

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




		Three Months Ended June 30,				Percent Change				Nine Months Ended June 30,								Percent Change				Three Months Ended December 31,		Percent Change
(in millions)	(in millions)	2023		2022				2023				2022
Compensation and benefits
Compensation and benefits
Compensation and benefits	Compensation and benefits	$	841.2	$	766.7			10	%			$	2,667.7			$	2,321.8			15	%			$	968.3		$		$	979.2		(1		(1		%)
Sales, distribution and marketing	Sales, distribution and marketing	406.8		440.3		(8	%)			1,202.0				1,432.8				(16	%)	Sales, distribution and marketing			400.8			388.6			388.6			3		3		%
Information systems and technology	Information systems and technology	127.3		125.9		1	%			376.7				376.6				0	%	Information systems and technology			131.0			121.4			121.4			8		8		%
Occupancy	Occupancy	56.9		53.8		6	%			171.1				163.1				5	%	Occupancy			66.7			54.5			54.5			22		22		%
Amortization of intangible assets	Amortization of intangible assets	85.4		81.8		4	%			254.6				200.5				27	%	Amortization of intangible assets			85.8			83.2			83.2			3		3		%
General, administrative and other	General, administrative and other	136.5		158.1		(14	%)			427.2				416.1				3	%	General, administrative and other			132.0			146.2			146.2			(10		(10		%)
Total Operating Expenses	Total Operating Expenses	$	1,654.1	$	1,626.6	2	%			$	5,099.3			$	4,910.9			4	%	Total Operating Expenses			$	1,784.6		$		$	1,773.1		1		1		%

Compensation and Benefits

The components of compensation and benefits expenses are presented below.


		Three Months Ended June 30,				Percent Change				Nine Months Ended June 30,								Percent Change
								Three Months Ended December 31,
						Three Months Ended December 31,
						Three Months Ended December 31,																Percent Change
(in millions)	(in millions)	2023		2022		Percent Change				2023				2022						Percent Change
Salaries, wages and benefits
Salaries, wages and benefits
Salaries, wages and benefits	Salaries, wages and benefits	$	373.9	$	366.5			2	%			$	1,131.6			$	1,078.9			5	%			$	370.9		$		$	360.6		3			3		%
Incentive compensation	Incentive compensation	400.0		364.3		10	%			1,150.1				1,136.4				1	%	Incentive compensation			418.3			383.9			383.9			9			9		%
Acquisition-related retention	Acquisition-related retention	21.3		44.2		(52	%)			108.1				118.4				(9	%)	Acquisition-related retention			69.1			63.6			63.6			9			9		%
Acquisition-related performance fee pass through		11.6		—		NM				164.1				0.4				NM
Other1		34.4		(8.3)		NM				113.8				(12.3)				NM
Acquisition-related performance fee pass through1																				Acquisition-related performance fee pass through1			72.6					144.5					(50		%)
Other1,2																				Other1,2			37.4					26.6					41		%
Compensation and Benefits Expenses	Compensation and Benefits Expenses	$	841.2	$	766.7	10	%			$	2,667.7			$	2,321.8			15	%	Compensation and Benefits Expenses			$	968.3		$		$	979.2		(1			(1		%)

_______________

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 ~~$7.4 million and $52.7~~$10.3 million for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2023, primarily due to ~~the recent acquisitions and~~ annual salary increases and the acquisition of Alcentra on November 1, 2022, partially offset by the impact of headcount reductions.

Incentive compensation increased ~~$35.7 million and $13.7~~$34.4 million for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2023 primarily due to ~~recent acquisitions, and an increase~~higher incentive compensation at specialist investment managers, partially offset by a decrease in expense for deferred compensation awards, due in part to ~~an increase in~~lower annual acceleration for retirement-eligible ~~employees in~~employees.

Acquisition-related retention expenses increased $5.5 million for the ~~nine-month period. These increases were~~three months ended December 31, 2023 primarily due to higher costs associated with recent acquisitions, partially offset by lower ~~incentive compensation at specialist investment managers and lower bonus expectations based on our annual performance.~~

~~Acquisition-related retention expenses decreased $22.9 million and $10.3 million for the three and nine months ended June 30, 2023 primarily due to lower compensation~~costs associated with performance-based ~~awards, partially offset by an increase due to the acquisition of Alcentra.~~awards.

Acquisition-related performance fee pass through expenses ~~increased $11.6 million and $163.7~~decreased $71.9 million for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2023, due to ~~higher~~lower performance fees earned by Lexington.

Other compensation and benefits were ~~$34.4~~$37.4 million and ~~$(8.3)~~$26.6 million for the three months ended ~~June 30, 2023 and 2022 and $113.8 million and $(12.3) million for the nine months ended June 30,~~December 31, 2023 and 2022. The three ~~and nine~~ months ended ~~June 30,~~December 31, 2023 and 2022 included the impact of ~~$10.1~~$19.0 million and ~~$26.3~~$5.6 million of market gains on investments related to our deferred compensation ~~plans, while the three and nine months ended June 30, 2022 included the impact of $19.3 million and $30.4 million of losses on investments related to our deferred compensation~~ plans. Special termination benefits ~~increased $11.5 million and $47.1~~decreased $4.2 million for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2023 primarily due to ~~workforce optimization initiatives and~~ the acquisition of ~~Alcentra.~~Alcentra in the prior year, partially offset by higher costs associated with workforce optimization initiatives. Compensation related to minority interests increased ~~$1.8 million and $22.3~~$1.6 million for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2023.

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We expect to incur additional acquisition-related retention expenses, including costs associated with the acquisition of Putnam, of approximately ~~$70~~$250 million during the remainder of the current fiscal year, and annual amounts beginning at approximately ~~$240~~$190 million in the fiscal year ending September 30, ~~2024~~2025 and decreasing over the following two fiscal years by approximately ~~$80~~$20 million and ~~$20~~$90 million. At ~~June 30,~~December 31, 2023, our global workforce had decreased to approximately ~~9,300~~9,100 employees from approximately ~~9,800~~9,400 at ~~June 30,~~December 31, 2022.

Sales, Distribution and Marketing

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




		Three Months Ended June 30,				Percent Change				Nine Months Ended June 30,								Percent Change				Three Months Ended December 31,		Percent Change
(in millions)	(in millions)	2023		2022				2023				2022
Asset-based expenses	Asset-based expenses	$	344.0	$	367.0			(6	%)			$	1,018.9			$	1,182.8			(14	%)
Asset-based expenses
Asset-based expenses																							$	340.5		$	331.9			3		%
Sales-based expenses	Sales-based expenses	50.6		58.7		(14	%)			145.9				200.4				(27	%)	Sales-based expenses			46.9		44.3		44.3		6			6		%
Amortization of deferred sales commissions	Amortization of deferred sales commissions	12.2		14.6		(16	%)			37.2				49.6				(25	%)	Amortization of deferred sales commissions			13.4		12.4		12.4		8			8		%
Sales, Distribution and Marketing	Sales, Distribution and Marketing	$	406.8	$	440.3	(8	%)			$	1,202.0			$	1,432.8			(16	%)	Sales, Distribution and Marketing			$	400.8	$	$	388.6	3			3		%

Asset-based expenses ~~decreased $23.0 million and $163.9~~increased $8.6 million for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2023 primarily due to ~~decreases of 7%~~higher marketing support fees and ~~13%~~a 1% increase in the related average ~~AUM and, for the nine months ended June 30 2023, higher mix of lower-fee assets.~~AUM. 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 $8.1 million and $54.5~~increased $2.6 million for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2023 due to ~~lower~~a 10% increase in commissionable sales.

Amortization of deferred sales commissions decreased $2.4 million and $12.4 million for the three and nine months ended June 30, 2023, primarily due to lower sales of shares sold without a front-end sales charge.

Occupancy

Occupancy expenses increased ~~$3.1 million and $8.0~~$12.2 million for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2023, primarily due to new leased office space located at One Madison Avenue, associated with an initiative to consolidate our office space in New York City, and lower sublease income.

Information Systems and Technology

Information systems and technology expenses increased $9.6 million for the three months ended December 31, 2023, primarily due to higher ~~utility costs~~outsourced data services and ~~leasehold and building depreciation for both the three and nine months ended June 30, 2023.~~software costs.

Amortization of intangible assets

Amortization of intangible assets increased ~~$3.6 million and $54.1~~$2.6 million for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2023, primarily due to intangible assets recognized as part of the ~~acquisitions~~acquisition of ~~Lexington on April 1, 2022 and~~ Alcentra on November 1, 2022.

General, Administrative and Other

General, administrative and other operating expenses decreased ~~$21.6~~$14.2 million for the three months ended ~~June 30,~~December 31, 2023 ~~and increased $11.1 million for the nine months ended June 30, 2023. The decrease for the three months ended June 30, 2023 was~~ primarily due to a ~~$16.4~~$14.9 million decrease in acquisition-related costs ~~driven by lower professional fees and costs associated with our global brand campaign~~related to the acquisition of Alcentra in the prior year quarter, a $2.1 million decrease in placement fees, and a ~~$3.8~~$1.5 million ~~adjustment to increase the fair value of contingent consideration liabilities recognized~~decrease in ~~the prior year quarter. The increase for the nine months ended June 30, 2023 was primarily due to~~other taxes, offset in part by a ~~$26.8~~$5.3 million increase in travel and entertainment and conference costs as activity has resumed post-pandemic, a $9.7 million increase in placement fees, and a net credit of $7.7 million recognized in the prior year to adjust the fair value of contingent consideration assets and liabilities. These increases were partially offset by a $14.7 million decrease in third-party sub-advisory service fees and a $14.2 million decrease in acquisition-related costs, primarilyexpenses due to ~~costs associated with our global brand campaign in the prior year.~~

higher activity levels.

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OTHER INCOME (EXPENSES)

Other income (expenses) consisted of the following:


		Three Months Ended June 30,				Percent Change					Nine Months Ended June 30,							Percent Change
								Three Months Ended December 31,
						Three Months Ended December 31,
						Three Months Ended December 31,																	Percent Change
(in millions)	(in millions)	2023		2022		Percent Change					2023				2022					Percent Change
Investment and other income, net	Investment and other income, net	$	51.2	$	13.0			$	267.9				$	97.7
Investment and other income, net
Investment and other income, net																								$	173.2				$	91.1				90	%
Interest expense	Interest expense	(34.9)		(28.9)				21		%			(99.3)				(71.1)			40	%	Interest expense				(18.8)		(30.9)			(30.9)		(39				(39	%)
Investment and other income (losses) of consolidated investment products, net		1.7		(74.4)		NM					75.3				33.3			126	%
Investment and other losses of consolidated investment products, net																				Investment and other losses of consolidated investment products, net				(23.8)					(13.6)					75	%
Expenses of consolidated investment products	Expenses of consolidated investment products	(0.8)		(1.3)		(38	%)				(15.7)				(10.1)			55	%	Expenses of consolidated investment products				(5.9)			(11.5)			(11.5)		(49			(49	%)
Other Income (Expenses), Net		$	17.2	$	(91.6)	NM					$	228.2			$	49.8		358	%
Other Income, Net																				Other Income, Net				$	124.7				$	35.1				255	%

Investment and other income, net increased ~~$38.2 million and $170.2~~$82.1 million for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2023 primarily due to higher net gains on investments ~~in the current year periods as compared to~~and income from equity method investments, lower net foreign currency exchange losses, ~~in the prior year~~ and an increase in dividend and interest income.

Investments held by the Company generated net gains of ~~$13.8 million and $62.3~~$60.1 million in the three ~~and nine~~ months ended ~~June 30,~~December 31, 2023, as compared to net ~~losses~~gains of ~~$35.6 million and $32.9~~$45.5 million for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2022. The net gains in both the current ~~year periods~~ and ~~net losses in the~~ prior year period were primarily from investments in nonconsolidated funds and separate accounts and assets invested for deferred compensation plans. ~~The net losses in the prior year were partially offset by net gains from investments measured at cost adjusted for observable price changes.~~

Equity method investees generated ~~losses of $7.7 million and~~ income of ~~$111.1~~$56.9 million for the three ~~and nine~~ months ended ~~June 30, 2023. The losses~~December 31, 2023, as compared to income of $33.2 million in the ~~three months ended June 30, 2023 were~~prior year, primarily ~~due to a $7.5 million other-than-temporary impairment of an equity method investment, and the income in the nine months ended June 30, 2023 was largely~~ related to various ~~global~~ alternative and equity funds, and included $68.0 million which was fully offset in noncontrolling interest. Equity method investees generated losses of $0.1 million and income of $51.6 million for the three and nine months ended June 30, 2022, largely related to various global equity ~~and alternative~~ funds. ~~The nine months ended June 30, 2022 also reflects a $52.6 million gain recognized on the sale of our investment in Embark in the prior year.~~

Net foreign currency exchange losses were ~~$6.6 million and $40.2~~$7.4 million for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2023, as compared to net ~~gains~~losses of ~~$14.5 million and $24.2~~$27.1 million for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2022. The ~~decrease was primarily due to~~U.S. dollar weakened less in the ~~impact of the weakening of the U.S. dollar~~current year against the Euro and British Pound, which resulted in lower foreign exchange losses on cash and cash equivalents denominated in U.S. dollars held by our European subsidiaries.

Dividend and interest income increased ~~$36.4 million and $94.0~~$18.3 million for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2023, ~~as compared to the prior year periods,~~ primarily due to higher ~~yields.~~yields and higher balances.

Interest expense ~~increased $6.0 million and $28.2~~decreased $12.1 million for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2023 primarily due to ~~an increase~~a decrease in interest recognized on tax ~~reserves and higher interest on debt. The nine months ended June 30, 2023 also increased due to accretion on Lexington deferred consideration.~~reserves.

Investments held by consolidated investment products (“CIPs”) generated ~~investment and other income~~losses of ~~$1.7 million and $75.3~~$23.8 million in the three ~~and nine~~ months ended ~~June 30,~~December 31, 2023, largely related to ~~gains~~losses on holdings of various alternative and equity funds. Investments held by CIPs generated losses of $13.6 million in the prior year period, largely related to losses on holdings of various equity and fixed income funds, substantially offset by losses on holdings of various alternative funds. Investments held by CIPs generated investment and other losses of $74.4 million in the three months ended June 30, 2022, largely related to losses on holdings of various alternative, equity, and fixed income funds. Investments held by CIPs generated investment and other income of $33.3 million in the nine months ended June 30, 2022, largely related to gains on holdings of various alternative funds, partially offset by ~~losses~~gains on ~~holdings of~~ various ~~equity and fixed income~~alternative funds.

Expenses of ~~consolidated investments products~~CIPs decreased ~~$0.5 million and increased~~ $5.6 million for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2023, due to activity of the funds.

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Our cash, cash equivalents and investments portfolio by asset class and accounting classification at ~~June 30,~~December 31, 2023, excluding third-party assets of CIPs, was as follows:


			Accounting Classification1										Total
		Accounting Classification1														Accounting Classification1	Total
(in millions)	(in millions)		Cash and Cash Equivalents		Investments at Fair Value		Equity Method Investments		Other Investments		Direct Investments in CIPs				Total
Cash and Cash Equivalents	Cash and Cash Equivalents		$	3,728.6	$	—	$	—	$	—	$	—
Cash and Cash Equivalents
Cash and Cash Equivalents
Investments	Investments
Alternative
Alternative
Alternative	Alternative		—		308.5		815.9		73.8		524.0		1,722.2
Equity	Equity		—		281.8		229.5		152.7		100.4		764.4
Fixed Income	Fixed Income		—		170.9		61.1		36.8		281.8		550.6
Multi-Asset	Multi-Asset		—		106.1		12.0		—		61.7		179.8
Total investments	Total investments		—		867.3		1,118.5		263.3		967.9		3,217.0
Total Cash and Cash Equivalents and Investments2, 3	Total Cash and Cash Equivalents and Investments2, 3		$	3,728.6	$	867.3	$	1,118.5	$	263.3	$	967.9	$	6,945.6

______________

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 ~~2022~~2023 for information on investment accounting classifications.

2Total cash and cash equivalents and investments includes ~~$4,124.4~~$4,145.4 million used for operational activities, including investments in sponsored funds and other products, and ~~$333.6~~$327.3 million necessary to comply with regulatory requirements.

3Total cash and cash equivalents and investments includes ~~$277.6~~$313.7 million attributable to employee-owned and other third-party investments made through partnerships which are offset in nonredeemable noncontrolling ~~interests.~~interests and approximately $370 million of investments that are subject to long-term repurchase agreements and other financing arrangements.

TAXES ON INCOME

Our effective income tax rate was ~~25.3%~~22.6% and ~~23.9%~~26.3% for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2023 ~~as compared to 28.6%~~ and ~~23.6% for the three and nine months ended June 30,~~ 2022. The rate decrease ~~for the three-month period~~ was primarily due to benefits ~~from~~related to the release of ~~valuation allowances for capital losses~~tax reserves due to statute of limitation expiration and ~~activity of CIPs for which there is no related~~settlements, and tax ~~impact, partially offset by additional state tax expense.~~benefits from stock-based compensation.

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.

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“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 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.

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•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.

◦Write off of noncontrolling interests related to the wind down of an acquired business.

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

•Special termination benefits 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.

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


(in millions)

(in millions)	(in millions)	Three Months Ended June 30,				Nine Months Ended June 30,				(in millions)	Three Months Ended December 31,
		2023		2022		2023		2022				2023		2022
Operating income	Operating income	$	314.9	$	404.7	$	764.0	$	1,425.4	Operating income					$	206.5		$	194.0
Add (subtract):	Add (subtract):
Elimination of operating revenues upon consolidation of investment products*	Elimination of operating revenues upon consolidation of investment products*	12.1		13.0		26.3		38.5
Elimination of operating revenues upon consolidation of investment products*
Elimination of operating revenues upon consolidation of investment products*															11.4			5.1
Acquisition-related retention	Acquisition-related retention	21.3		44.2		108.1		118.4		Acquisition-related retention					69.1			63.6
Compensation and benefits expense from gains (losses) on deferred compensation, net		10.1		(19.3)		26.3		(30.4)
Compensation and benefits expense from gains on deferred compensation, net										Compensation and benefits expense from gains on deferred compensation, net					19.0			5.6
Other acquisition-related expenses	Other acquisition-related expenses	8.7		31.5		45.3		58.9		Other acquisition-related expenses					6.8			22.6
Amortization of intangible assets	Amortization of intangible assets	85.4		81.8		254.6		200.5		Amortization of intangible assets					85.8			83.2
Special termination benefits	Special termination benefits	12.2		0.7		54.9		7.8		Special termination benefits					6.7			10.9
Compensation and benefits expense related to minority interests in certain subsidiaries	Compensation and benefits expense related to minority interests in certain subsidiaries	12.1		10.3		32.6		10.3		Compensation and benefits expense related to minority interests in certain subsidiaries					11.7			10.1
Adjusted operating income	Adjusted operating income	$	476.8	$	566.9	$	1,312.1	$	1,829.4	Adjusted operating income					$	417.0		$	395.1

Total operating revenues	Total operating revenues	$	1,969.0	$	2,031.3	$	5,863.3	$	6,336.3
Total operating revenues
Total operating revenues															$	1,991.1		$	1,967.1
Add (subtract):	Add (subtract):
Acquisition-related pass through performance fees
Acquisition-related pass through performance fees
Acquisition-related pass through performance fees	Acquisition-related pass through performance fees	(11.6)		—		(164.1)		(0.4)					(72.6)				(144.5)
Sales and distribution fees	Sales and distribution fees	(304.0)		(335.6)		(897.3)		(1,104.0)		Sales and distribution fees					(296.4)			(291.9)
Allocation of investment management fees for sales, distribution and marketing expenses	Allocation of investment management fees for sales, distribution and marketing expenses	(102.8)		(104.7)		(304.7)		(328.8)		Allocation of investment management fees for sales, distribution and marketing expenses					(104.4)			(96.7)
Elimination of operating revenues upon consolidation of investment products*	Elimination of operating revenues upon consolidation of investment products*	12.1		13.0		26.3		38.5		Elimination of operating revenues upon consolidation of investment products*					11.4			5.1
Adjusted operating revenues	Adjusted operating revenues	$	1,562.7	$	1,604.0	$	4,523.5	$	4,941.6	Adjusted operating revenues					$	1,529.1		$	1,439.1

Operating margin	Operating margin	16.0%		19.9%		13.0%		22.5%
Operating margin
Operating margin															10.4%			9.9%
Adjusted operating margin	Adjusted operating margin	30.5%		35.3%		29.0%		37.0%		Adjusted operating margin					27.3%			27.5%

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(in millions, except per share data)

(in millions, except per share data)	(in millions, except per share data)	Three Months Ended June 30,				Nine Months Ended June 30,				(in millions, except per share data)	Three Months Ended December 31,
		2023		2022		2023		2022				2023	2022
Net income attributable to Franklin Resources, Inc.	Net income attributable to Franklin Resources, Inc.	$	227.5	$	256.4	$	587.3	$	1,059.2
Add (subtract):	Add (subtract):
Net (income) loss of consolidated investment products*		1.5		(6.8)		6.4		3.3
Net loss of consolidated investment products*
Net loss of consolidated investment products*
Net loss of consolidated investment products*
Acquisition-related retention	Acquisition-related retention	21.3		44.2		108.1		118.4
Other acquisition-related expenses	Other acquisition-related expenses	12.7		37.6		61.5		65.4
Amortization of intangible assets	Amortization of intangible assets	85.4		81.8		254.6		200.5

Special termination benefits	Special termination benefits	12.2		0.7		54.9		7.8
Net (gains) losses on deferred compensation plan investments not offset by compensation and benefits expense		(0.5)		6.1		(14.1)		8.6
Unrealized investment (gains) losses		9.4		45.7		(23.2)		117.8
Special termination benefits
Special termination benefits
Net gains on deferred compensation plan investments not offset by compensation and benefits expense
Unrealized investment gains
Interest expense for amortization of debt premium	Interest expense for amortization of debt premium	(6.3)		(6.3)		(19.0)		(18.9)
Net compensation and benefits expense related to minority interests in certain subsidiaries not offset by net income (loss) attributable to redeemable noncontrolling interests	Net compensation and benefits expense related to minority interests in certain subsidiaries not offset by net income (loss) attributable to redeemable noncontrolling interests	(1.0)		0.5		(0.9)		0.5
Net income tax expense of adjustments	Net income tax expense of adjustments	(36.1)		(43.9)		(110.4)		(101.4)
Adjusted net income	Adjusted net income	$	326.1	$	416.0	$	905.2	$	1,461.2

Diluted earnings per share	Diluted earnings per share	$	0.44	$	0.50	$	1.14	$	2.07
Diluted earnings per share
Diluted earnings per share
Adjusted diluted earnings per share	Adjusted diluted earnings per share	0.63		0.82		1.76		2.86

__________________

*The impact of CIPs is summarized as follows:


(in millions)	(in millions)	Three Months Ended June 30,				Nine Months Ended June 30,
		2023		2022		2023		2022
(in millions)										(in millions)	Three Months Ended December 31,
												2023	2022
Elimination of operating revenues upon consolidation	Elimination of operating revenues upon consolidation	$	(12.1)	$	(13.0)	$	(26.3)	$	(38.5)
Other income (expense), net		7.3		(33.6)		67.4		48.8
Less: income (loss) attributable to noncontrolling interests		(3.3)		(53.4)		47.5		13.6
Net income (loss)		$	(1.5)	$	6.8	$	(6.4)	$	(3.3)
Other expense, net
Less: loss attributable to noncontrolling interests
Net income

LIQUIDITY AND CAPITAL RESOURCES

Cash flows were as follows:


			Nine Months Ended June 30,
		Three Months Ended December 31,								Three Months Ended December 31,
(in millions)	(in millions)		2023		2022		(in millions)	2023	2022
Operating cash flows	Operating cash flows		$	365.3	$	1,090.3
Investing cash flows	Investing cash flows		(3,251.2)		(2,679.9)
Financing cash flows	Financing cash flows		2,425.0		1,489.2

Net cash ~~provided by~~used in operating activities decreased during the ~~nine~~three months ended ~~June 30,~~December 31, 2023 primarily due to ~~higher~~lower net purchases of investments by CIPs ~~lower~~and higher net income adjusted for non-cash items, partially offset by decreases in accounts payable and ~~higher payments of~~ accrued ~~compensation~~expenses as compared to increases in the prior year, increases in receivables and ~~benefits.~~other assets as compared to decreases in the prior year, and lower taxes payable. Net cash used in investing activities ~~increased~~decreased primarily due to ~~higher~~cash paid for an acquisition in the prior year, lower net purchases of investments by collateralized loan obligations (“CLOs”), and net ~~purchases~~liquidations of investments as compared to ~~net liquidations in the prior year and net deconsolidation of CIPs as compared to net consolidation~~purchases in the prior year, partially offset by ~~lower~~a deferred consideration payment. Net cash ~~paid for acquisitions~~used in ~~the current year. Net~~financing activities, as compared to net cash provided by financing activities ~~increased~~in the prior year, was primarily due to ~~higher~~lower net proceeds on debt of CIPs, ~~higher~~lower net subscriptions in CIPs by noncontrolling interests, and proceeds from repurchase ~~agreements.~~agreements in the prior year.

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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)

June 30,
2023

September 30,
2022

(in millions)

December 31,
2023

September 30,
2023

Assets

Cash and cash equivalents

3,633.9

4,086.8

Receivables

1,223.6

1,130.8

Investments

1,044.8

830.0

Total Liquid Assets

5,902.3

6,047.6

Liability

Debt

3,358.7

3,376.4

Debt

Liquidity

Liquid assets consist of cash and cash equivalents, receivables and certain investments. Cash and cash equivalents at ~~June 30,~~December 31, 2023 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 ~~June 30,~~December 31, 2023, Franklin’s outstanding senior notes had an aggregate principal amount due of $1,600.0 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 ~~$1,584.6~~$1,585.6 million. At ~~June 30,~~December 31, 2023, Legg Mason’s outstanding senior notes had an aggregate principal amount due of $1,250.0 million. The notes have fixed interest rates from 3.950% to 5.625% with interest paid semi-annually and have an aggregate carrying value, inclusive of unamortized premium, of ~~$1,474.1~~$1,461.3 million at ~~June 30,~~December 31, 2023. ~~Effective August 2, 2021,~~ Franklin ~~agreed to~~ unconditionally and irrevocably ~~guarantee~~guarantees all of the outstanding notes issued by Legg Mason.

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.

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~~On July 25, 2023, we terminated our undrawn 364-day revolving credit facility with~~We maintain an ~~aggregate commitment of $500.0 million and our 3-year term loan with an aggregate commitment of $300.0 million. The term loan was repaid with existing cash. The 36~~4-day revolving credit facility and term loan credit agreement contained 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 3.00 to 1.00. ~~We were in compliance with all debt covenants at June 30, 2023. Concurrently, the Company entered into a~~ $800.0 million 5-year revolving credit facility that 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. This facility remains undrawn as of the time of this filing. We were in compliance with all debt covenants at December 31, 2023.

At ~~June 30,~~December 31, 2023, 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 operating 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 ~~share-based~~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 ~~$0.90~~$0.31 per share during the ~~nine~~three months ended ~~June 30,~~December 31, 2023 and ~~$0.87~~$0.30 per share during the ~~nine~~three months ended ~~June 30,~~December 31, 2022. 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.~~factors, including the terms of any 10b5-1 stock purchase plan that may be in effect at any given time. During the three ~~and nine~~ months ended ~~June 30,~~December 31, 2023, we repurchased ~~2.0 million and 2.6~~2.4 million shares of our common stock at a cost of ~~$50.9~~$58.8 million and $68.7 million. At June 30, 2023, 21.8 million shares remained available for repurchase under the authorization of 80.0 million shares approved by our Board of Directors in April 2018. During the three and nine months ended June 30, 2022, we repurchased ~~2.0 million and 5.4~~0.5 million shares of our common stock at a cost of ~~$51.0~~$14.2 million ~~and $153.5 million.~~

~~We redeemed $244.7 million, net of investments, from our sponsored products during the nine months ended June 30, 2023 and invested $19.7 million, net of redemptions,~~ in the prior year period.

~~On September 27, 2022 we entered into a lease agreement for office space in New York City located at One Madison Avenue with occupancy expected~~ In December 2023, our Board of Directors authorized the repurchase of up to ~~begin in early fiscal year 2024 with~~ an ~~aggregate expected commitment of $766.7 million over 16 years. This is part of an initiative to consolidate our existing office space in New York City.~~

~~On May 31, 2023, we entered into a definitive agreement to acquire Putnam Investments, LLC from Great-West Lifeco, Inc. (“Great-West”) for 33.3~~additional 27.2 million shares of our common stock ~~that~~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. At December 31, 2023, 39.5 million shares remained available for repurchase under the authorization approved by our Board of Directors.

On January 1, 2024, we ~~will issue to~~acquired Putnam from Great-West for 31.6 million shares of our common stock, cash consideration paid at ~~closing~~close of approximately $220 million for investments and other purchase-related amounts, and deferred cash consideration of $100.0 million to be paid during the third quarter of fiscal year 2024. The cash consideration paid at close was funded from existing cash and we expect to fund the deferred consideration from existing cash and sources of liquidity. In addition, the Company will pay up to $375.0 million between the third and seventh anniversaries of the closing date related to revenue growth targets from the strategic partnership with Great-West and its affiliates which will be recognized in ~~cash 180 days after closing. We plan to pay the cash portion with cash on hand.~~operating income.

On November 1, ~~2022,~~2023, we ~~acquired all of the outstanding ownership interests~~paid $60.8 million in ~~BNY Alcentra Group Holdings, Inc. from The Bank of New York Mellon Corporation. Total purchase consideration consisted of~~deferred cash consideration related to our acquisition of approximately $594.1 million, which includes $188.3 million for certain securities held in Alcentra’s CLOs; deferred consideration of $62.0 million; and contingent consideration of up to $350.0 million to be paid upon the achievement of certain performance thresholds over the next four years that has an acquisition-date fair value of $24.6 million. We paid the purchase priceAlcentra from ~~our~~ existing cash.

~~Table~~ We expect to make additional deferred cash payments related to our acquisition of ~~Contents~~

~~On December 15, 2022, we entered into repurchase agreements with a third-party financing company for certain securities held in Alcentra’s CLOs. Under the terms~~Lexington of ~~the repurchase agreements, we received cash proceeds of approximately $175.0~~$400 million ~~with pledged collateral consisting of Alcentra investments with a carrying value of $179.3~~and $100 million ~~at June 30, 2023. The repurchase agreements have contractual maturity dates ranging between 2029 to 2034.~~

On April 1, 2022, we acquired all of the outstanding ownership interests in Lexington for cash consideration of approximately $1.0 billion and additional payments of $750.0 million to be paid in cash over the next three years. The first additional payment of $250.0 million was made during the third quarter ~~ended June 30, 2022~~of fiscal year 2024 and 2025 from ~~our~~ existing ~~cash.~~cash and sources of liquidity.

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. While we have no legal or contractual obligation to do so, 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 financial or other support to our sponsored funds during the ~~nine~~three months ended ~~June 30,~~December 31, 2023.

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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 ~~2022.~~2023.

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. As of ~~June 30,~~December 31, 2023, we were the primary beneficiary of 6461 investment product VIEs.

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, ~~2022,~~2023, 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 ~~nine~~three months ended ~~June 30,~~December 31, 2023, 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.

~~Table of Contents~~

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 ~~June 30,~~December 31, 2023, Level 3 assets represented 5% of total assets measured at fair value, which primarily related to CIPs’ investments in equity and debt securities. There were insignificant transfers into and out of Level 3 during the ~~nine~~three months ended ~~June 30,~~December 31, 2023.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

During the ~~nine~~three months ended ~~June 30,~~December 31, 2023, there were no material changes from the market risk disclosures in our Form 10‑K for the fiscal year ended September 30, ~~2022.~~2023.

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Item 4. Controls and Procedures.

The Company’s management evaluated, with the participation of the Company’s principal executive and principal financial officers, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of ~~June 30,~~December 31, 2023. Based on their evaluation, the Company’s principal executive and principal financial officers concluded that the Company’s disclosure controls and procedures as of ~~June 30,~~December 31, 2023 were designed and are functioning effectively to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to management, including the principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.

There has been no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the Company’s fiscal quarter ended ~~June 30,~~December 31, 2023, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

For a description of our legal proceedings, please see the description set forth in the “Legal Proceedings” section in Note 10 – Commitments and Contingencies in the notes to consolidated financial statements in Item 1 of Part I of this Form 10‑Q, which is incorporated herein by reference.

Item 1A. Risk Factors.

~~The following Risk Factor disclosure supplements~~There were no material changes from the ~~discussion of our~~ Risk Factors previously disclosed in our last Annual Report on Form 10-K for fiscal year ~~2022. The~~2023. These Risk Factors ~~disclosed in our last Annual Report on Form 10-K and the Risk Factors below~~ could materially and adversely affect our business, financial condition and results of operations, and our business also could be impacted by other risk factors that are not presently known to us or that we currently consider to be immaterial. Further, our disclosure of a risk should not be interpreted to imply that the risk has not already developed or materialized.

~~Volatility and disruption of our business and financial markets and adverse changes in the global economy may significantly affect our results of operations and put pressure on our financial results.~~

We derive substantially all of our operating revenues and income from providing investment management and related services to investors in jurisdictions worldwide through our investment products, which include our 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. We may perform services directly or through third parties. The asset management industry continues to experience disruption and challenges, including increased fee pressure, regulatory changes, an increasing and changing role of technology in asset management services, the continuous introduction of new products and services, and the consolidation of financial services firms through mergers and acquisitions. Further, banking and financial markets have currently and in the past experienced and may continue, from time to time, to experience volatility and disruption worldwide. For example, the closures in March 2023 of Silicon Valley Bank and Signature Bank in the United States and the acquisition in June 2023 of Credit Suisse Group AG have resulted in market disruption and volatility and could lead to greater instability and a deterioration of confidence in the credit and financial markets. Declines in global economic conditions have resulted, and may continue to result, in significant decreases in our AUM, revenues and income, and future declines may further negatively impact our financial results. Such declines have had, and may in the future have, a material adverse impact on our business. We may need to modify our business, strategies or operations and we may be subject to additional constraints or costs in order to compete in a changing global economy and business environment.

Individual financial, equity, debt and commodity markets may be adversely affected by financial, economic, political, electoral, diplomatic or other instabilities that are particular to the country or region in which a market is located, including without limitation local acts of terrorism, economic crises, political protests, war, insurrection or other business, social or political crises. For example, the Russian invasion of Ukraine, and the threat that Russia’s military aggression may expand beyond Ukraine, has significantly impacted the global economy and financial markets, which has had, and may continue to have, an adverse effect on our investment performance and flows in certain products. Global economic conditions, exacerbated by war, terrorism, social, civil or political unrest, natural disasters, public health crises, such as epidemics or pandemics, or financial crises, changes in the equity, debt or commodity marketplaces, changes in currency exchange rates, interest rates, inflation rates, the yield curve, defaults by trading counterparties, bond defaults, revaluation and bond market liquidity risks, geopolitical risks, the imposition of economic sanctions and other factors that are difficult to predict, affect the mix, market values and levels of our AUM. Changing market conditions could also cause an impairment to the value of our goodwill and other intangible assets.

~~Table of Contents~~

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The following table provides information with respect to the shares of our common stock that we repurchased during the three months ended ~~June 30,~~December 31, 2023.

Month Total Number of
Shares Purchased Average Price
Paid per
Share Total Number of Shares
Purchased as Part of
Publicly Announced Plans
or Programs Maximum Number of
Shares that May Yet Be
Purchased Under the Plans
or Programs
April 2023 23,773 $ 26.90 23,773 23,717,399
May 2023 9,143 24.58 9,143 23,708,256
June 2023 1,938,836 25.82 1,938,836 21,769,420
Total 1,971,752 1,971,752


Month	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
October 2023	1,240,037	$	23.83	1,240,037	13,505,416
November 2023	725,713	24.16		725,713	12,779,703
December 2023	457,523	25.63		457,523	39,535,964
Total	2,423,273			2,423,273

Under our stock repurchase program, which is not subject to an expiration date, we can repurchase shares of our common stock from time to time in the open market and in private transactions in accordance with applicable laws and regulations, including without limitation applicable federal securities laws. In order to pay taxes due in connection with the vesting of employee and executive officer stock and stock unit awards, we may repurchase shares under our program using a net stock issuance method. In ~~April 2018, we announced that~~December 2023, our Board of Directors authorized the repurchase of up to ~~80.0~~an additional 27.2 million ~~additional~~ 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.

~~Item 5. Other Information.~~

~~Rule 10b5-1 Trading Plan~~

On June 10, 2023, Mariann Byerwalter, a member of our Board of Directors, entered into a Rule 10b5-1 stock trading plan. Ms. Byerwalter’s plan provides for the sale of 6,011 shares of our common stock on October 10, 2023. Ms. Byerwalter’s trading plan was entered into during an open insider trading window and is intended to satisfy the affirmative defense of Rule 10b5-1(c) under the Exchange Act and our policies regarding insider transactions.

Item 6. Exhibits.

The exhibits listed on the Exhibit Index to this Form 10-Q are incorporated herein by reference.

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EXHIBIT INDEX


Exhibit No.						Description

3.1						Certificate of Incorporation of Registrant, as filed November 28, 1969, incorporated by reference to Exhibit (3)(i) to our Annual Report on Form 10-K for the fiscal year ended September 30, 1994 (File No. 001-09318) (the “1994 Annual Report”)

3.2						Certificate of Amendment of Certificate of Incorporation of Registrant, as filed March 1, 1985, incorporated by reference to Exhibit 3(ii) to the 1994 Annual Report

3.3						Certificate of Amendment of Certificate of Incorporation of Registrant, as filed April 1, 1987, incorporated by reference to Exhibit 3(iii) to the 1994 Annual Report

3.4						Certificate of Amendment of Certificate of Incorporation of Registrant, as filed February 2, 1994, incorporated by reference to Exhibit 3(iv) to the 1994 Annual Report

3.5						Certificate of Amendment of Certificate of Incorporation of Registrant, as filed February 4, 2005, incorporated by reference to Exhibit (3)(i)(e) to our Quarterly Report on Form 10-Q for the period ended December 31, 2004 (File No. 001-09318)

3.6						Amended and Restated Bylaws of Registrant (as adopted and effective June 29, 2021), incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on July 1, 2021 (File No. 001-09318)

31.1						Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

31.2						Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

32.1						Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

32.2						Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

101						The following materials from Registrant’s Quarterly Report on Form 10-Q for the quarter ended ~~June 30,~~December 31, 2023, formatted in Inline Extensible Business Reporting Language (iXBRL), include: (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) related notes (filed herewith)

104						Cover Page Interactive Data File (formatted in iXBRL and contained in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

FRANKLIN RESOURCES, INC.

Date:

~~July 28, 2023~~January 29, 2024

By:

/s/ Matthew Nicholls

Matthew Nicholls

Executive Vice President, Chief Financial Officer and Chief Operating Officer

Date:

~~July 28, 2023~~January 29, 2024

By:

/s/ Gwen L. Shaneyfelt

Gwen L. Shaneyfelt

Chief Accounting Officer

4639


(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