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Item 1. Financial Statements

2023-01-30 compared with 2022-07-28 · 117 added, 330 removed, 446 unchanged (50% of the section changed)

3 unchanged sentences

Three Months Ended

June 30, Nine Months Ended

(in millions, except per share data) 2022 2021

19 unchanged sentences

Expenses of consolidated investment products ( 11.5 ) ( 4.2 )

Other income (expenses), net ( 91.6 ) 77.3 49.8 362.7

Other income, net 35.1 138.2

Income before taxes 229.1 695.9

13 unchanged sentences

(in millions) Three Months Ended

June 30, Nine Months Ended

2022 2021 2022 2021

Net Income $ 168.8 $ 544.8

1 unchanged sentence

Currency translation adjustments, net of tax 127.3 ( 6.9 )

Net unrealized gains (losses) on defined benefit plans, net of tax ( 2.4 ) ( 0.2 ) ( 2.2 ) 0.2

Net unrealized losses on defined benefit plans, net of tax ( 2.6 ) ( 5.1 )

Total other comprehensive income (loss) 124.7 ( 12.0 )

8 unchanged sentences

CONSOLIDATED BALANCE SHEETS

(in millions, except share and per share data) June 30,

(in millions, except share and per share data) December 31,

2022 September 30,

1 unchanged sentence

Receivables 1,291.8 1,264.8

Investments (including $ 660.8 and $ 588.3 at fair value at June 30, 2022 and September 30, 2021)

Investments (including $ 969.6 and $ 613.5 at fair value at December 31, 2022 and September 30, 2022)

2,045.8 1,651.3

10 unchanged sentences

Accounts payable and accrued expenses 604.9 466.2

Commissions 209.8 259.8

Income taxes 665.6 523.1

12 unchanged sentences

Common stock, $ 0.10 par value, 1,000,000,000 shares authorized;

498,356,132 and 501,807,677 shares issued and outstanding at June 30, 2022 and September 30, 2021

500,265,643 and 499,575,175 shares issued and outstanding at December 31, 2022 and September 30, 2022

Retained earnings 12,112.6 12,045.6

16 unchanged sentences

(in millions)

for the nine months ended

June 30, 2022 Shares Amount

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 loss ( 12.0 ) ( 12.0 ) ( 12.0 )

Other comprehensive income 124.7 124.7 124.7

Dividends declared on common stock ($ 0.30 per share)

6 unchanged sentences

35.6 35.6 35.6

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 subscriptions and other 95.9 95.9

Net deconsolidation of investment products ( 35.7 ) ( 35.7 )

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.

FRANKLIN RESOURCES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS ’ EQUITY

Balance at December 31, 2022 500.3 $ 50.0 $ — $ 12,112.6 $ ( 496.3 ) $ 11,666.3 $ 889.2 $ 12,555.5

Franklin Resources, Inc.

6 unchanged sentences

(in millions)

for the nine months ended

June 30, 2021 Shares Amount

for the three months ended

December 31, 2021 Shares Amount

Balance at October 1, 2021 501.8 $ 50.2 $ — $ 11,550.8 $ ( 377.6 ) $ 11,223.4 $ 587.2 $ 11,810.6

Adoption of new accounting guidance

( 3.3 ) ( 3.3 ) ( 3.3 )

Net income 453.2 453.2 84.1 537.3

Other comprehensive income 92.9 92.9 92.9

Dividends declared on common stock ($ 0.28 per share)

( 144.0 ) ( 144.0 ) ( 144.0 )

Repurchase of common stock ( 2.1 ) ( 0.2 ) ( 39.9 ) ( 5.5 ) ( 45.6 ) ( 45.6 )

Issuance of common stock 12.5 1.2 32.5 33.7 33.7

Stock-based compensation 7.4 7.4 7.4

Net subscriptions and other 93.3 93.3

Balance at December 31, 2020 505.5 $ 50.5 $ — $ 10,665.1 $ ( 314.7 ) $ 10,400.9 $ 878.7 $ 11,279.6

Net income 381.8 381.8 91.6 473.4

Other comprehensive loss ( 12.0 ) ( 12.0 ) ( 12.0 )

4 unchanged sentences

Stock-based compensation 11.2 11.2 11.2

Net subscriptions and other 16.5 16.5

Net deconsolidation of investment products ( 31.6 ) ( 31.6 )

Adjustment to fair value of redeemable noncontrolling interests

( 52.3 ) ( 52.3 ) ( 52.3 )

Balance at March 31, 2021 504.3 $ 50.4 $ — $ 10,861.5 $ ( 348.5 ) $ 10,563.4 $ 955.2 $ 11,518.6

Net income (loss) 438.4 438.4 ( 0.5 ) 437.9

Other comprehensive income 22.4 22.4 22.4

Dividends declared on common stock ($ 0.28 per share)

( 143.3 ) ( 143.3 ) ( 143.3 )

Repurchase of common stock ( 1.4 ) ( 0.1 ) ( 40.7 ) ( 5.6 ) ( 46.4 ) ( 46.4 )

Issuance of common stock — — 0.2 0.2 0.2

Stock-based compensation 40.5 40.5 40.5

Net subscriptions and other 87.9 87.9

Net deconsolidation of investment products ( 487.0 ) ( 487.0 )

Balance at June 30, 2021 502.9 $ 50.3 $ — $ 11,151.0 $ ( 326.1 ) $ 10,875.2 $ 555.6 $ 11,430.8

Net distributions and other ( 27.8 ) ( 27.8 )

Balance at December 31, 2021 502.5 $ 50.3 $ — $ 11,892.2 $ ( 389.6 ) $ 11,552.9 $ 643.5 $ 12,196.4

See Notes to Consolidated Financial Statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

Three Months Ended

(in millions) 2022 2021

Net Income $ 168.8 $ 544.8

Adjustments to reconcile net income to net cash provided by operating activities:

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Stock-based compensation 69.5 59.4

2 unchanged sentences

Amortization of intangible assets 83.2 58.3

Net losses (gains) on investments 32.9 ( 67.7 )

Net gains on investments ( 45.5 ) ( 25.8 )

Income from investments in equity method investees ( 33.2 ) ( 24.7 )

4 unchanged sentences

Changes in operating assets and liabilities:

Increase in receivables and other assets ( 97.3 ) ( 115.2 )

Decrease (increase) in investments, net ( 33.2 ) 15.6

Increase (decrease) in accrued compensation and benefits 45.1 ( 88.9 )

Increase (decrease) in commissions payable ( 50.0 ) 14.2

Decrease in income taxes payable ( 176.3 ) ( 50.4 )

Decrease (increase) in receivables and other assets 14.6 ( 140.6 )

Increase in investments, net ( 13.6 ) ( 44.6 )

Decrease in accrued compensation and benefits ( 481.6 ) ( 273.1 )

Increase in income taxes payable 158.8 174.5

Increase (decrease) in accounts payable, accrued expenses and other liabilities 59.8 ( 6.3 )

Increase (decrease) in accounts payable and accrued expenses of consolidated investment products 17.0 ( 13.9 )

Net cash provided by operating activities 1,090.3 739.3

Net cash (used in) provided by operating activities ( 256.3 ) 166.4

Purchase of investments ( 234.4 ) ( 321.7 )

2 unchanged sentences

Liquidation of investments by consolidated collateralized loan obligations 328.7 435.2

Decrease in loans receivable, net — 42.7

Additions of property and equipment, net ( 27.4 ) ( 16.7 )

Acquisitions, net of cash acquired ( 493.7 ) ( 372.3 )

( 1,354.7 ) —

Payments of contingent consideration asset 2.9 3.9

Net consolidation (deconsolidation) of investment products 211.0 ( 135.9 )

Net deconsolidation of investment products ( 13.8 ) ( 6.6 )

Net cash used in investing activities ( 1,042.6 ) ( 728.6 )

4 unchanged sentences

[Table continued from previous page]

Nine Months Ended

Three Months Ended

(in millions) 2022 2021

Issuance of common stock $ 13.6 $ 11.0

Dividends paid on common stock $ ( 148.4 ) $ ( 143.1 )

Repurchase of common stock ( 14.2 ) ( 21.7 )

Proceeds from issuance of debt — 748.3

Payment of debt issuance costs — ( 6.7 )

Payment on debt — ( 250.0 )

Proceeds from repurchase agreement 174.8 —

Proceeds from debt of consolidated investment products 955.3 1,727.6

4 unchanged sentences

Effect of exchange rate changes on cash and cash equivalents 59.7 ( 8.0 )

Increase (decrease) in cash and cash equivalents ( 168.5 ) 371.3

Decrease in cash and cash equivalents ( 280.3 ) ( 102.9 )

Cash and cash equivalents, beginning of period 4,782.5 4,647.2

7 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

December 31, 2022

Note 1 – Basis of Presentation

8 unchanged sentences

These financial statements should be read together with the Company’s audited financial statements included in its Annual Report on Form 10-K for the fiscal year ended September 30, 2022 (“fiscal year 2022”).

Certain comparative amounts for the prior fiscal year period have been reclassified to conform to the financial statement presentation as of and for the period ended June 30, 2022.

Note 2 – Acquisitions

Lexington Partners L.P.

On April 1, 2022, the Company acquired all of the outstanding ownership interests in Lexington Partners L.P.

(“Lexington”), a leading global manager of secondary private equity and co-investment funds, for cash consideration of $ 984.7 million paid at the time of close and deferred consideration of $ 750.0 million that has an acquisition-date fair value of $ 706.4 million.

Note 2 – Acquisition

BNY Alcentra Group Holdings, Inc.

On November 1, 2022, the Company acquired all of the outstanding ownership interests in BNY Alcentra Group Holdings, Inc.

(together with its subsidiaries “Alcentra”) from The Bank of New York Mellon Corporation, for cash consideration of $ 587.3 million, which includes $ 188.3 million for certain securities held in Alcentra’s collateralized loan obligations (“CLOs”);

deferred consideration of $ 60.4 million due November 1, 2023;

and contingent consideration to be paid upon the achievement of certain performance thresholds over the next four years of up to $ 350.0 million that has an acquisition-date fair value of $ 24.6 million.

The consideration paid at close was funded from existing cash.

In connection with the acquisition, the Company granted a 25 % profits interest in Lexington and performance-based cash retention awards that both vest over approximately five years.

The acquisition bolsters the Company’s alternative asset capabilities, complementing its existing strengths in real estate, private credit, and hedge fund strategies.

The preliminary allocation of estimated fair values of the assets acquired and liabilities and noncontrolling interests assumed was as follows:

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

(in millions) Estimated Fair Value

as of April 1, 2022

as of November 1, 2022

Cash and cash equivalents $ 93.6

Receivables 57.2

Investments 285.3

Goodwill 152.6

Indefinite-lived intangible assets 89.9

Definite-lived intangible assets 55.7

Investments 163.0

Operating lease right-of-use assets 84.4

Other assets and liabilities, net 28.1

Operating lease liabilities ( 91.8 )

Nonredeemable noncontrolling interests ( 149.9 )

Other assets 9.0

Compensation and benefits and other liabilities ( 71.0 )

Total Identifiable Net Assets $ 672.3

The goodwill is primarily attributable to expected growth opportunities from the combined operations and is deductible for tax purposes.

The purchase price allocation is preliminary and subject to change during the measurement period, which is not to exceed one year from the acquisition date.

At this time, the Company does not expect material changes to the assets acquired or liabilities assumed;

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

The goodwill is primarily attributable to expected growth opportunities from the combined operations and is not deductible for tax purposes.

The definite-lived intangible assets relate to acquired investment management contracts and trade names, which are amortized over their estimated useful lives ranging from 3.0 years to 10.0 years.

Amortization expense related to the definite-lived intangible assets was $ 21.3 million for the period ended June 30, 2022.

These assets had a weighted-average remaining useful life of 7.3 years at June 30, 2022, with estimated remaining amortization expense as follows:

Amortization expense related to the definite-lived intangible assets was $ 2.3 million for the period ended December 31, 2022.

These assets had a weighted-average remaining useful life of 5.1 years at December 31, 2022, with estimated remaining amortization expense as follows:

(in millions)

2 unchanged sentences

Thereafter 8.1

Total $ 530.7

Costs incurred in connection with the acquisition were $ 16.3 million for the nine months ended June 30, 2022.

Lexington contributed $ 90.7 million of revenue and did not have a material impact to net income attributable to Franklin Resources, Inc.

for the period ended June 30, 2022.

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

Alcentra contributed $ 27.7 million of revenue and did not have a material impact to net income attributable to Franklin Resources, Inc.

for the period ended December 31, 2022.

Consequently, the Company has not presented pro forma combined results of operations for this acquisition.

O’Shaughnessy Asset Management, LLC

On December 31, 2021, the Company acquired all of the outstanding ownership interests in O’Shaughnessy Asset Management, LLC (“OSAM”), a leading quantitative asset management firm, for cash consideration paid of approximately $ 300.0 million, excluding future payments to be made subject to the attainment of certain performance measures.

The acquisition resulted in $ 262.3 million of goodwill attributable to expected growth opportunities and synergies from the combined operations and is deductible for tax purposes.

In connection with the acquisition, the Company on December 15, 2022 entered into repurchase agreements with a third-party financing company for certain securities held by the Company in Alcentra’s CLOs.

As of December 31, 2022, other liabilities includes repurchase agreements of €125.2 million (equivalent to $ 134.0 million at December 31, 2022) and $ 40.8 million with maturity values of € 132.3 million and $ 42.4 million.

The Company has pledged Alcentra investments with a carrying value of $ 198.9 million as collateral as of December 31, 2022.

The repurchase agreements have contractual maturity dates ranging between 2029 to 2034.

Note 3 – Earnings per Share

1 unchanged sentence

(in millions, except per share data) Three Months Ended

June 30, Nine Months Ended

2022 2021 2022 2021

Net income attributable to Franklin Resources, Inc.

1 unchanged sentence

allocation of earnings to participating nonvested stock and stock unit awards

11.2 19.4 45.6 50.6

Net Income Available to Common Stockholders $ 157.9 $ 433.9

1 unchanged sentence

Dilutive effect of nonparticipating nonvested stock unit awards

0.4 0.7 0.6 0.6

Weighted-Average Shares Outstanding – Diluted 490.2 490.6

2 unchanged sentences

Diluted 0.32 0.88

Nonparticipating nonvested stock unit awards excluded from the calculation of diluted earnings per share because their effect would have been antidilutive were insignificant for the three and nine months ended June 30, 2022 and 2021.

Note 4 – Revenues

3 unchanged sentences

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

12.0 0.3 0.2 — 0.2 12.7

$ 1,522.3 $ 300.6 $ 77.6 $ 71.0 $ 59.8 $ 2,031.3

(in millions) United States Luxembourg Asia-Pacific Americas

States Europe,

Luxembourg Total

for the nine months ended June 30, 2022

Investment management fees

$ 3,720.8 $ 707.2 $ 242.5 $ 194.3 $ 181.0 $ 5,045.8

Sales and distribution fees

778.1 268.3 20.0 37.6 — 1,104.0

Shareholder servicing fees

116.4 27.9 1.1 0.2 1.2 146.8

38.2 0.8 0.5 — 0.2 39.7

$ 4,653.5 $ 1,004.2 $ 264.1 $ 232.1 $ 182.4 $ 6,336.3

(in millions) United States Luxembourg Asia-Pacific Americas

States Europe,

Luxembourg Total

for the three months ended June 30, 2021

for the three months ended December 31, 2022

Investment management fees

9 unchanged sentences

Luxembourg Total

for the nine months ended June 30, 2021

for the three months ended December 31, 2021

Investment management fees

7 unchanged sentences

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

Revenues earned from sponsored funds were 83 % and 81 % of the Company’s total operating revenues for the three and nine months ended June 30, 2022 and 78 % and 80 % for the three and nine months ended June 30, 2021.

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

Note 5 – Investments

2 unchanged sentences

Investments consisted of the following:

(in millions) June 30,

(in millions) December 31,

2022 September 30,

7 unchanged sentences

Total $ 2,045.8 $ 1,651.3

The Company recognized other-than-temporary impairment of $ 8.7 million and $ 29.9 million in earnings during the three and nine months ended June 30, 2022.

Note 6 – Fair Value Measurements

4 unchanged sentences

Expedient Total

as of June 30, 2022

as of December 31, 2022

Investments, at fair value

17 unchanged sentences

These investments were as follows:

(in millions) June 30,

(in millions) December 31,

2022 September 30,

Nonredeemable investments 1

Investments with unknown liquidation periods $ 35.8 $ 46.6

Investments with known liquidation periods $ 31.7 $ 32.8

Investments with unknown liquidation periods 21.9 29.4

Redeemable investments 2

2 unchanged sentences

1 The 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 3.6 years and 4.0 years at June 30, 2022 and September 30, 2021.

2 Investments are redeemable on a monthly and quarterly basis.

Changes in the Level 3 assets and liabilities were as follows:

(in millions) Investments Contingent Consideration Asset Contingent Consideration Liabilities Investments Contingent Consideration Asset Contingent Consideration Liabilities

for the three months ended June 30,

Balance at beginning of period $ 21.9 $ 17.1 $ ( 56.5 ) $ 19.5 $ 29.1 $ ( 25.3 )

Total realized and unrealized gains (losses)

Included in investment and other income, net 1.2 — — 0.2 — —

Included in general, administrative and other expense — — ( 3.7 ) — — —

Purchases 3.8 — — 5.3 — —

Sales ( 1.6 ) — — ( 0.3 ) — —

Settlements ( 1.1 ) ( 8.3 ) — — ( 5.0 ) —

Consolidation of investment product

( 5.0 ) — — — — —

Foreign exchange revaluation — — 0.1 — — —

Balance at End of Period $ 19.2 $ 8.8 $ ( 60.1 ) $ 24.7 $ 24.1 $ ( 25.3 )

Change in unrealized gains (losses) included in net income relating to assets and liabilities held at end of period $ ( 0.3 ) $ — $ ( 3.7 ) $ 0.2 $ — $ —

(in millions) Investments Contingent Consideration Asset Contingent Consideration Liabilities Investments Contingent Consideration Asset Contingent Consideration Liabilities

for the nine months ended June 30,

Balance at beginning of period $ 24.6 $ 19.4 $ ( 42.4 ) $ 17.4 $ 39.7 $ ( 25.3 )

Acquisitions — — ( 24.5 ) — — —

Total realized and unrealized gains (losses)

Included in investment and other income, net ( 0.4 ) — — — — —

Included in general, administrative and other expense — 10.3 ( 2.6 ) — — —

Purchases 14.1 — — 13.8 — —

Sales ( 7.9 ) — — ( 5.8 ) — —

Settlements ( 4.3 ) ( 20.9 ) 9.1 ( 0.5 ) ( 15.6 ) —

Consolidation of investment product

( 5.0 ) — — — — —

Transfers out of Level 3

( 1.9 ) — — ( 0.2 ) — —

Foreign exchange revaluation — — 0.3 — — —

Balance at End of Period $ 19.2 $ 8.8 $ ( 60.1 ) $ 24.7 $ 24.1 $ ( 25.3 )

Change in unrealized gains (losses) included in net income relating to assets and liabilities held at end of period $ ( 0.7 ) $ 10.3 $ ( 2.4 ) $ — $ — $ —

Investments with known liquidation periods have an expected weighted-average life of 3.5 years and 3.4 years at December 31, 2022 and September 30, 2022.

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

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

(in millions) Fair Value

Level June 30, 2022 September 30, 2021

Level December 31, 2022 September 30, 2022

Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value

6 unchanged sentences

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

Note 7 – Debt

On January 10, 2022, the Company entered into a bi-lateral credit agreement with Bank of America, N.A.

to establish a 364 day revolving credit facility with an aggregate commitment of $ 500.0 million.

As of June 30, 2022, there were no amounts outstanding.

There were no other material changes to the Company’s debt during the nine months ended June 30, 2022.

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 58 CIPs, including 14 CLOs, as of June 30, 2022 and 60 CIPs, including 10 CLOs, as of September 30, 2021.

The Company had 62 CIPs, including 16 CLOs, as of December 31, 2022 and 59 CIPs, including 15 CLOs, as of September 30, 2022.

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

(in millions) June 30,

(in millions) December 31,

2022 September 30,

14 unchanged sentences

$ 9,781.6 $ 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, 2022 and 2021.

The CIPs did not have a significant impact on net income attributable to the Company during the three months ended December 31, 2022 and 2021.

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.

4 unchanged sentences

Expedient Total

as of June 30, 2022

as of December 31, 2022

Cash and cash equivalents of CLOs $ 494.3 $ — $ — $ — $ 494.3

13 unchanged sentences

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, nonredeemable private equity funds and a redeemable U.S.

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,

(in millions) December 31,

2022 September 30,

6 unchanged sentences

1 The 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 0.5 year at June 30, 2022 and 1.3 years at September 30, 2021.

Investments with known liquidation periods have an expected weighted-average life of 0.3 years at December 31, 2022 and September 30, 2022.

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

3 Of the total unfunded commitments, the Company was contractually obligated to fund $ 0.1 million and $ 0.2 million based on its ownership percentage in the CIPs, at June 30, 2022 and September 30, 2021.

3 Of the total unfunded commitments, the Company was contractually obligated to fund $ 0.1 million based on its ownership percentage in the CIPs, at December 31, 2022 and September 30, 2022.

Changes in Level 3 assets were as follows:

1 unchanged sentence

Securities Real Estate Loans Total

for the three months ended June 30, 2022

Balance at April 1, 2022 $ 595.4 $ 175.4 $ 33.6 $ 804.4

Realized and unrealized 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 )

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 )

(in millions) Equity and Debt

Securities Real Estate Loans Total

for the nine months ended June 30, 2022

for the three months ended December 31, 2022

Balance at October 1, 2022 $ 555.8 $ 268.6 $ 239.4 $ 1,063.8

3 unchanged sentences

Deconsolidations 2.9 — ( 202.1 ) ( 199.2 )

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

for the three months ended June 30, 2021

Balance at April 1, 2021 $ 271.2 $ 423.5 $ 22.4 $ 717.1

Realized and unrealized gains included in investment and other income (losses) of consolidated investment products, net 6.2 2.4 0.2 8.8

Purchases 14.0 44.2 — 58.2

Sales and settlements ( 2.4 ) — ( 1.2 ) ( 3.6 )

Deconsolidations — ( 448.8 ) — ( 448.8 )

Transfers into Level 3 0.9 — — 0.9

Transfers out of Level 3 ( 1.0 ) — — ( 1.0 )

Foreign exchange revaluation — 1.2 — 1.2

Balance at June 30, 2021 $ 288.9 $ 22.5 $ 21.4 $ 332.8

Change in unrealized gains (losses) included in net income relating to assets held at June 30, 2021 $ 6.2 $ ( 0.5 ) $ 0.2 $ 5.9

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

(in millions) Equity and Debt

Securities Real Estate Loans Total

for the nine months ended June 30, 2021

for the three months ended December 31, 2021

Balance at October 1, 2021 $ 453.3 $ 89.4 $ 20.5 $ 563.2

2 unchanged sentences

Sales and settlements ( 23.9 ) — ( 0.6 ) ( 24.5 )

Deconsolidations ( 36.2 ) ( 448.8 ) — ( 485.0 )

Transfers into Level 3 0.1 — — 0.1

Transfers out of Level 3 ( 1.0 ) — — ( 1.0 )

Foreign exchange revaluation 0.7 10.5 — 11.2

Balance at June 30, 2021 $ 288.9 $ 22.5 $ 21.4 $ 332.8

Change in unrealized gains included in net income relating to assets held at June 30, 2021 $ 25.9 $ 2.2 $ 0.3 $ 28.4

Balance at December 31, 2021 $ 539.0 $ 98.9 $ 34.2 $ 672.1

Change in unrealized gains included in net income relating to assets held at December 31, 2021 $ 92.5 $ 8.6 $ 0.3 $ 101.4

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

(in millions)

as of June 30, 2022 Fair Value Valuation Technique Significant Unobservable Inputs Range (Weighted Average 1 )

as of December 31, 2022 Fair Value Valuation Technique Significant Unobservable Inputs Range (Weighted Average 1 )

Equity and debt securities $ 555.8 Market pricing Private sale pricing $ 0.01 –$ 1,000.00 ($ 39.93 ) per share

64.3 Market comparable companies Enterprise value/

EBITDA multiple 14.7

Discount for lack of marketability 14.6 %– 25.0 % ( 19.4 %)

Price-to-book value ratio 1.2

Discount for lack of liquidity 23.5 %– 25.1 % ( 24.9 %)

Real estate 358.0 Discounted cash flow Discount rate 5.5 %– 6.8 % ( 6.2 %)

Exit capitalization rate 4.5 %– 6.3 % ( 5.2 %)

Loans 64.7 Yield capitalization Credit Spread 6.0 %– 7.3 % ( 6.5 %)

Loan to value ratio 64.6 %– 77.2 % ( 70.2 %)

(in millions)

1 unchanged sentence

Equity and debt securities $ 555.8 Market pricing Private sale pricing $ 0.01 -$ 558.45 ($ 33.31 ) per share

102.3 Market comparable companies Enterprise value/

EBITDA multiple 6.0 – 20.6 ( 13.7 )

Discount for lack of marketability 6.0 %– 25.5 % ( 17.6 %)

Enterprise value/

Revenue multiple 0.6 – 7.2 ( 5.1 )

Price-to-book value ratio 0.7 – 1.8 ( 1.4 )

Control premium 20 %

Price-to-earnings ratio 28.8

49.9 Discounted cash flow Discount rate 3.3 %– 6.3 % ( 4.3 %)

Discount for lack of liquidity 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 %)

__________________

1 Based on the relative fair value of the instruments.

If the relevant significant inputs used in the market-based valuations, other than discount for lack of marketability, were independently higher (lower) as of June 30, 2022, 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 marketability used in the market-based valuations, were independently higher (lower) as of June 30, 2022, the resulting fair value of the assets would be lower (higher).

If the relevant significant inputs used in the market-based valuations, other than discount for lack of marketability, were independently higher (lower) as of December 31, 2022, 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 marketability used in the market-based valuations, were independently higher (lower) as of December 31, 2022, the resulting fair value of the assets would be lower (higher).

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

(in millions) Fair Value

Level June 30, 2022 September 30, 2021

Level December 31, 2022 September 30, 2022

Value Estimated

3 unchanged sentences

Cash and cash equivalents 1 $ 460.1 $ 460.1 $ 378.5 $ 378.5

Receivables of CLOs 2 16.7 16.7 — —

Financial Liabilities

5 unchanged sentences

Debt of CIPs consisted of the following:

June 30, 2022 September 30, 2021

December 31, 2022 September 30, 2022

(in millions) Amount Weighted-

4 unchanged sentences

$ 6,164.5 $ 5,457.7

The debt of CLOs had fixed and floating interest rates ranging from 1.00 % to 8.27 % at June 30, 2022, and from 1.00 % to 8.22 % at September 30, 2021.

The other debt had fixed and floating interest rates ranging from 3.31 % to 6.00 % at June 30, 2022, and from 1.63 % to 2.42 % at September 30, 2021.

The floating rates were primarily based on LIBOR.

The contractual maturities for the debt of CIPs at June 30, 2022 were as follows:

The debt of CIPs had fixed and floating interest rates ranging from 2.17 % to 13.73 % at December 31, 2022, and from 1.42 % to 8.51 % at September 30, 2022.

The floating rates were based on Bloomberg Short-Term Bank Yield Index.

The contractual maturities for the debt of CIPs at December 31, 2022 were as follows:

(in millions)

5 unchanged sentences

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

(in millions) June 30,

(in millions) December 31,

2022 September 30,

2 unchanged sentences

Fair Value $ 6,259.3 $ 5,762.3

There were no investments 90 days or more past due at June 30, 2022 and September 30, 2021.

The Company recognized $ 4.9 million and $ 17.8 million of net gains during the three and nine months ended June 30, 2022 and $ 1.1 million and $ 8.5 million of net gains during the three and nine months ended June 30, 2021, related to its own economic interests in the CLOs.

The aggregate principal amount due of the debt of CLOs was $ 5,463.1 million and $ 3,629.9 million at June 30, 2022 and September 30, 2021.

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

The Company recognized $ 2.3 million of net losses and $ 5.3 million of net gains during the three months ended December 31, 2022 and 2021, related to its own economic interests in the CLOs.

The aggregate principal amount due of the debt of CLOs was $ 6,466.2 million and $ 5,781.3 million at December 31, 2022 and September 30, 2022.

Note 8 – Redeemable Noncontrolling Interests

2 unchanged sentences

CIPs Minority Interests Total CIPs Minority Interests Total

for the three months ended June 30,

Balance at beginning of period $ 625.3 $ 512.8 $ 1,138.1 $ 609.9 $ 205.8 $ 815.7

Net income (loss) ( 16.5 ) 16.0 ( 0.5 ) 23.5 10.2 33.7

Net subscriptions (distributions) and other 5.4 ( 29.6 ) ( 24.2 ) 190.1 ( 18.1 ) 172.0

Net consolidations 380.3 — 380.3 31.3 — 31.3

Balance at End of Period $ 994.5 $ 499.2 $ 1,493.7 $ 854.8 $ 197.9 $ 1,052.7

(in millions) 2022 2021

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 $ 942.2 $ 583.6 $ 1,525.8 $ 622.5 $ 310.5 $ 933.0

1 unchanged sentence

Net subscriptions (distributions) and other 178.4 5.2 183.6 166.3 ( 1.9 ) 164.4

Net consolidations 142.9 — 142.9 144.6 — 144.6

Adjustment to fair value — 188.5 188.5 — 52.3 52.3

Net consolidations (deconsolidations) 271.3 — 271.3 ( 121.5 ) — ( 121.5 )

Balance at End of Period $ 1,379.7 $ 599.5 $ 1,979.2 $ 662.5 $ 320.9 $ 983.4

2 unchanged sentences

The Company’s maximum exposure to loss from these VIEs consists of equity investments, investment management and other fee receivables as follows:

(in millions) June 30,

(in millions) December 31,

2022 September 30,

4 unchanged sentences

As it has done in the past, the Company also may voluntarily elect to provide its sponsored funds with additional direct or indirect financial support based on its business objectives.

The Company did not provide financial or other support to its sponsored funds assessed as VIEs during the nine months ended June 30, 2022.

During the fiscal year ended September 30, 2020, the Company authorized loans to certain sponsored funds in India that experienced increased liquidity risks and redemptions.

The loans were fully repaid by March 31, 2021.

See Note 16 – Commitments and Contingencies in the notes to consolidated financial statements in Item 8 of Part II of our Annual Report on Form 10-K for fiscal year 2021 for further information.

The Company did not provide financial or other support to its sponsored funds assessed as VIEs during the three months ended December 31, 2022 or fiscal year 2022.

Note 10 – Commitments and Contingencies

1 unchanged sentence

India Credit Fund Closure Matters .

During the nine months ended June 30, 2022, there were no significant changes from the disclosure in the Form 10‑K for the fiscal year ended September 30, 2021.

As of June 30, 2022, the amount reported as distributed to Fund unitholders is approximately $ 3.5 billion.

During the three months ended December 31, 2022, there were no significant changes from the disclosure in the Form 10‑K for the fiscal year ended September 30, 2022.

As of December 31, 2022, the amount reported as distributed to fund unitholders in the aggregate is INR 26,843.0 crore (approximately $ 3.2 billion).

Other Litigation Matters.

1 unchanged sentence

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, 2022 to provide for any probable losses that may arise from such matters for which the Company could reasonably estimate an amount.

In management’s opinion, an adequate accrual has been made as of December 31, 2022 to provide for any probable losses that may arise from such matters for which the Company could reasonably estimate an amount.

Indemnifications and Guarantees

1 unchanged sentence

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 in those positions.

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, 2022.

In management’s opinion, no material loss was deemed probable or reasonably possible pursuant to such indemnification agreements and/or guarantees as of December 31, 2022.

Other Commitments and Contingencies

At June 30, 2022, there were no material changes in the other commitments and contingencies as reported in the Company’s Annual Report on Form 10-K for fiscal year 2021.

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

Note 11 – Stock-Based Compensation

4 unchanged sentences

Shares Weighted-

for the nine months ended June 30, 2022

for the three months ended December 31, 2022

Nonvested balance at October 1, 2022 13,492 3,401 16,893 $ 24.04

2 unchanged sentences

Forfeited/canceled ( 219 ) ( 30 ) ( 249 ) 26.79

Nonvested Balance at June 30, 2022 16,563 3,599 20,162 $ 24.48

Total unrecognized compensation expense related to nonvested stock and stock unit awards was $ 286.4 million at June 30, 2022.

Nonvested Balance at December 31, 2022 18,844 3,424 22,268 $ 23.54

Total unrecognized compensation expense related to nonvested stock and stock unit awards was $ 330.8 million at December 31, 2022.

This expense is expected to be recognized over a remaining weighted-average vesting period of 2.0 years.

2 unchanged sentences

Three Months Ended

June 30, Nine Months Ended

(in millions) 2022 2021

Dividend and interest income $ 36.5 $ 6.1

Gains (losses) on investments, net ( 35.6 ) 17.3 ( 32.9 ) 76.2

Income (losses) from investments in equity method investees ( 0.1 ) 39.4 51.6 123.8

Gains (losses) on derivatives, net 17.5 ( 9.1 ) 15.2 ( 25.2 )

Gains on investments, net 45.5 25.8

Income from investments in equity method investees 33.2 24.7

Rental income 10.6 9.7

Foreign currency exchange gains (losses), net 14.5 ( 7.2 ) 24.2 ( 17.2 )

Foreign currency exchange (losses) gains, net ( 27.1 ) 3.9

Other, net ( 7.6 ) ( 13.2 )

Investment and other income, net $ 91.1 $ 57.0

Net gains (losses) recognized on equity securities measured at fair value and trading debt securities that were held by the Company at June 30, 2022 and 2021 were $( 50.3 ) million and $( 79.1 ) million for the three and nine months ended June 30, 2022, and $( 0.2 ) million and $ 27.2 million for the three and nine months ended June 30, 2021.

Note 14 – Accumulated Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income (loss) by component were as follows:

(in millions) Currency

Adjustments Unrealized

Defined Benefit

for the three months ended June 30, 2022

Balance at April 1, 2022 $ ( 393.7 ) $ ( 6.9 ) $ ( 400.6 )

Other comprehensive loss

Other comprehensive loss before reclassifications, net of tax ( 101.5 ) ( 2.4 ) ( 103.9 )

Reclassifications to net investment and other income, net of tax 0.9 — 0.9

Total other comprehensive loss ( 100.6 ) ( 2.4 ) ( 103.0 )

Balance at June 30, 2022 $ ( 494.3 ) $ ( 9.3 ) $ ( 503.6 )

(in millions) Currency

Adjustments Unrealized

Defined Benefit

for the nine months ended June 30, 2022

Balance at October 1, 2021 $ ( 370.5 ) $ ( 7.1 ) $ ( 377.6 )

Other comprehensive loss

Other comprehensive loss before reclassifications, net of tax ( 125.8 ) ( 1.6 ) ( 127.4 )

Reclassifications to compensation and benefits expense, net of tax — ( 0.6 ) ( 0.6 )

Reclassifications to net investment and other income, net of tax 2.0 — 2.0

Total other comprehensive loss ( 123.8 ) ( 2.2 ) ( 126.0 )

Balance at June 30, 2022 $ ( 494.3 ) $ ( 9.3 ) $ ( 503.6 )

(in millions) Currency

Adjustments Unrealized

Defined Benefit

for the three months ended June 30, 2021

Balance at April 1, 2021 $ ( 340.9 ) $ ( 7.6 ) $ ( 348.5 )

Other comprehensive income (loss)

Other comprehensive income (loss) before reclassifications, net of tax 21.5 ( 0.2 ) 21.3

Reclassifications to net investment and other income, net of tax 1.1 — 1.1

Total other comprehensive income (loss) 22.6 ( 0.2 ) 22.4

Balance at June 30, 2021 $ ( 318.3 ) $ ( 7.8 ) $ ( 326.1 )

(in millions) Currency

Adjustments Unrealized

Defined Benefit

for the nine months ended June 30, 2021

Balance at October 1, 2020 $ ( 399.6 ) $ ( 8.0 ) $ ( 407.6 )

Other comprehensive income

Other comprehensive income before reclassifications, net of tax 79.3 0.2 79.5

Reclassifications to net investment and other income, net of tax 2.0 — 2.0

Total other comprehensive income 81.3 0.2 81.5

Balance at June 30, 2021 $ ( 318.3 ) $ ( 7.8 ) $ ( 326.1 )

Net losses recognized on equity securities measured at fair value and trading debt securities that were held by the Company were $ 68.3 million for the three months ended December 31, 2022, and $ 4.4 million for the three months ended December 31, 2021.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements