FRANKLIN TEMPLETON INC 10-Q

Item 1. Financial Statements. FRANKLIN RESOURCES, INC. CONSOLIDATED STATEMENTS OF INCOME Unaudited Three Months Ended December 31, (in millions, except per share data) 2023 2022 Operating Revenues Investment management fees $ 1,652.2 $ 1,631.8 Sales and distribution fees 296.4 291.9 Shareholder servicing fees 32.5 33.4 Other 10.0 10.0 Total operating revenues 1,991.1 1,967.1 Operating Expenses Compensation and benefits 968.3 979.2 Sales, distribution and marketing 400.8 388.6 Information systems and technology 131.0 121.4 Occupancy 66.7 54.5 Amortization of intangible assets 85.8 83.2 General, administrative and other 132.0 146.2 Total operating expenses 1,784.6 1,773.1 Operating Income 206.5 194.0 Other Income (Expenses) Investment and other income, net 173.2 91.1 Interest expense ( 18.8 ) ( 30.9 ) Investment and other losses of consolidated investment products, net ( 23.8 ) ( 13.6 ) Expenses of consolidated investment products ( 5.9 ) ( 11.5 ) Other income, net 124.7 35.1 Income before taxes 331.2 229.1 Taxes on income 74.9 60.3 Net income 256.3 168.8 Less: net income (loss) attributable to Redeemable noncontrolling interests 9.5 ( 1.5 ) Nonredeemable noncontrolling interests ( 4.5 ) 4.7 Net Income Attributable to Franklin Resources, Inc. $ 251.3 $ 165.6 Earnings per Share Basic $ 0.50 $ 0.32 Diluted 0.50 0.32 See Notes to Consolidated Financial Statements. 3 Table of Contents FRANKLIN RESOURCES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Unaudited (in millions) Three Months Ended December 31, 2023 2022 Net Income $ 256.3 $ 168.8 Other Comprehensive Income Currency translation adjustments, net of tax 59.1 127.3 Net unrealized losses on defined benefit plans, net of tax ( 0.1 ) ( 2.6 ) Total other comprehensive income 59.0 124.7 Total comprehensive income 315.3 293.5 Less: comprehensive income (loss) attributable to Redeemable noncontrolling interests 9.5 ( 1.5 ) Nonredeemable noncontrolling interests ( 4.5 ) 4.7 Comprehensive Income Attributable to Franklin Resources, Inc. $ 310.3 $ 290.3 See Notes to Consolidated Financial Statements. 4 Table of Contents FRANKLIN RESOURCES, INC. CONSOLIDATED BALANCE SHEETS Unaudited (in millions, except share and per share data) December 31, 2023 September 30, 2023 Assets Cash and cash equivalents $ 3,327.4 $ 3,686.4 Receivables 1,469.6 1,348.4 Investments (including $ 894.2 and $ 872.8 at fair value at December 31, 2023 and September 30, 2023) 2,317.3 2,222.0 Assets of consolidated investment products Cash and cash equivalents 552.2 716.0 Investments, at fair value 9,363.1 9,637.2 Property and equipment, net 807.0 800.1 Goodwill 6,012.9 6,003.8 Intangible assets, net 4,823.4 4,902.2 Operating lease right-of-use assets 793.7 406.3 Other 399.2 398.8 Total Assets $ 29,865.8 $ 30,121.2 Liabilities Compensation and benefits $ 1,163.9 $ 1,665.1 Accounts payable and accrued expenses 533.9 530.0 Income taxes 620.0 513.5 Debt 3,046.9 3,052.8 Liabilities of consolidated investment products Accounts payable and accrued expenses 467.2 349.7 Debt 7,839.6 8,231.8 Deferred tax liabilities 393.1 450.4 Operating lease liabilities 865.4 467.8 Other 1,219.7 1,286.2 Total liabilities 16,149.7 16,547.3 Commitments and Contingencies (Note 10) Redeemable Noncontrolling Interests 1,078.5 1,026.1 Stockholders’ Equity Preferred stock, $ 1.00 par value, 1,000,000 shares authorized; none issued — — Common stock, $ 0.10 par value, 1,000,000,000 shares authorized; 494,734,214 and 495,937,891 shares issued and outstanding at December 31, 2023 and September 30, 2023 49.5 49.6 Retained earnings 12,402.4 12,376.6 Accumulated other comprehensive loss ( 450.3 ) ( 509.3 ) Total Franklin Resources, Inc. stockholders’ equity 12,001.6 11,916.9 Nonredeemable noncontrolling interests 636.0 630.9 Total stockholders’ equity 12,637.6 12,547.8 Total Liabilities, Redeemable Noncontrolling Interests and Stockholders’ Equity $ 29,865.8 $ 30,121.2 See Notes to Consolidated Financial Statements. 5 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 (in millions) for the three months ended December 31, 2023 Shares Amount Balance at October 1, 2023 495.9 $ 49.6 $ — $ 12,376.6 $ ( 509.3 ) $ 11,916.9 $ 630.9 $ 12,547.8 Net income (loss) 251.3 251.3 ( 4.5 ) 246.8 Other comprehensive income 59.0 59.0 59.0 Dividends declared on common stock ($ 0.31 per share) ( 167.6 ) ( 167.6 ) ( 167.6 ) Repurchase of common stock ( 2.4 ) ( 0.2 ) ( 66.6 ) 8.0 ( 58.8 ) ( 58.8 ) Issuance of common stock 1.2 0.1 26.7 26.8 26.8 Stock-based compensation 39.9 39.9 39.9 Net subscriptions and other 9.6 9.6 Adjustment to fair value of redeemable noncontrolling interests ( 65.9 ) ( 65.9 ) ( 65.9 ) Balance at December 31, 2023 494.7 $ 49.5 $ — $ 12,402.4 $ ( 450.3 ) $ 12,001.6 $ 636.0 $ 12,637.6 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. 6 Table of Contents FRANKLIN RESOURCES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Unaudited Three Months Ended December 31, (in millions) 2023 2022 Net Income $ 256.3 $ 168.8 Adjustments to reconcile net income to net cash used in operating activities: Stock-based compensation 66.8 69.5 Amortization of deferred sales commissions 13.4 12.4 Depreciation and other amortization 25.7 25.1 Amortization of intangible assets 85.8 83.2 Net gains on investments ( 60.1 ) ( 45.5 ) Income from investments in equity method investees ( 56.9 ) ( 33.2 ) Net losses on investments of consolidated investment products 66.0 72.3 Net purchase of investments by consolidated investment products ( 147.5 ) ( 259.2 ) Deferred income taxes ( 57.7 ) ( 122.5 ) Other 31.6 17.8 Changes in operating assets and liabilities: Decrease (increase) in receivables and other assets ( 36.7 ) 14.6 Decrease (increase) in investments, net 0.2 ( 13.6 ) Decrease in accrued compensation and benefits ( 508.0 ) ( 481.6 ) Increase in income taxes payable 107.9 158.8 Increase (decrease) in accounts payable, accrued expenses and other liabilities ( 39.7 ) 59.8 Increase in accounts payable and accrued expenses of consolidated investment products 1.0 17.0 Net cash used in operating activities ( 251.9 ) ( 256.3 ) Purchase of investments ( 267.4 ) ( 234.4 ) Liquidation of investments 317.6 217.6 Purchase of investments by consolidated collateralized loan obligations ( 794.0 ) ( 822.5 ) Liquidation of investments by consolidated collateralized loan obligations 697.0 328.7 Additions of property and equipment, net ( 19.5 ) ( 27.4 ) Acquisitions, net of cash acquired — ( 493.7 ) Payments of contingent consideration asset — 2.9 Payments of deferred consideration liability ( 60.8 ) — Net deconsolidation of investment products ( 10.5 ) ( 13.8 ) Net cash used in investing activities ( 137.6 ) ( 1,042.6 ) [Table continued on next page] See Notes to Consolidated Financial Statements. 7 Table of Contents FRANKLIN RESOURCES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Unaudited [Table continued from previous page] Three Months Ended December 31, (in millions) 2023 2022 Dividends paid on common stock $ ( 155.7 ) $ ( 148.4 ) Repurchase of common stock ( 58.8 ) ( 14.2 ) Proceeds from repurchase agreement — 174.8 Proceeds from debt of consolidated investment products 39.8 955.3 Payments on debt of consolidated investment products ( 22.0 ) ( 277.9 ) Payments on contingent consideration liabilities — ( 2.0 ) Noncontrolling interests 37.7 271.3 Net cash (used in) provided by financing activities ( 159.0 ) 958.9 Effect of exchange rate changes on cash and cash equivalents 25.7 59.7 Decrease in cash and cash equivalents ( 522.8 ) ( 280.3 ) Cash and cash equivalents, beginning of period 4,402.4 4,782.5 Cash and Cash Equivalents, End of Period $ 3,879.6 $ 4,502.2 Supplemental Disclosure of Cash Flow Information Cash paid for income taxes 26.8 $ 13.2 Cash paid for interest 10.6 4.3 Cash paid for interest by consolidated investment products 161.6 50.5 See Notes to Consolidated Financial Statements. 8 Table of Contents FRANKLIN RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 2023 (“fiscal year 2023”). Note 2 – New Accounting Guidance Accounting Guidance Not Yet Adopted In November 2023, the Financial Accounting Standards Board (“FASB”) issued an amendment to the existing segment reporting guidance. The amendment requires annual and interim disclosures of significant segment expenses that are regularly provided to the 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 amendment is effective for 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 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 prospective or retrospective approach on adoption and is effective for the Company on October 1, 2025. The Company is currently evaluating the impact that the adoption will have on its consolidated financial statements and has 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) Three Months Ended December 31, 2023 2022 Net income attributable to Franklin Resources, Inc. $ 251.3 $ 165.6 Less: allocation of earnings to participating nonvested stock and stock unit awards 9.7 7.7 Net Income Available to Common Stockholders $ 241.6 $ 157.9 Weighted-average shares outstanding – basic 487.0 489.6 Dilutive effect of nonparticipating nonvested stock unit awards 0.9 0.6 Weighted-Average Shares Outstanding – Diluted 487.9 490.2 Earnings per Share Basic $ 0.50 $ 0.32 Diluted 0.50 0.32 9 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 months ended December 31, 2023 and 2022. Note 4 – Revenues Operating revenues by geographic area were as follows: (in millions) United States Luxembourg Asia-Pacific Americas Excluding United States Europe, Middle East and Africa, Excluding Luxembourg Total for the three months ended December 31, 2023 Investment management fees $ 1,260.6 $ 191.7 $ 68.5 $ 51.5 $ 79.9 $ 1,652.2 Sales and distribution fees 205.7 76.5 4.6 9.6 — 296.4 Shareholder servicing fees 24.2 7.6 0.6 0.1 — 32.5 Other 9.0 0.5 0.2 — 0.3 10.0 Total $ 1,499.5 $ 276.3 $ 73.9 $ 61.2 $ 80.2 $ 1,991.1 (in millions) United States Luxembourg Asia-Pacific Americas Excluding United States Europe, Middle East and Africa, Excluding Luxembourg Total for the three months ended December 31, 2022 Investment management fees $ 1,274.8 $ 181.8 $ 67.6 $ 51.8 $ 55.8 $ 1,631.8 Sales and distribution fees 208.2 68.4 5.0 10.3 — 291.9 Shareholder servicing fees 25.3 7.7 0.4 — — 33.4 Other 9.7 — 0.3 — — 10.0 Total $ 1,518.0 $ 257.9 $ 73.3 $ 62.1 $ 55.8 $ 1,967.1 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 months ended December 31, 2023 and 2022. 10 Table of Contents Note 5 – Investments The disclosures below include details of the Company’s investments, excluding those of consolidated investment products (“CIPs”). See Note 7 – Consolidated Investment Products for information related to the investments held by these entities. Investments consisted of the following: (in millions) December 31, 2023 September 30, 2023 Investments, at fair value Sponsored funds and separate accounts $ 621.1 $ 630.5 Investments related to long-term incentive plans 223.2 191.6 Other equity and debt investments 49.9 50.7 Total investments, at fair value 894.2 872.8 Investments in equity method investees 1,156.2 1,089.2 Other investments 266.9 260.0 Total $ 2,317.3 $ 2,222.0 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) Level 1 Level 2 Level 3 NAV as a Practical Expedient Total as of December 31, 2023 Assets Investments, at fair value Sponsored funds and separate accounts $ 353.6 $ 208.2 $ 14.9 $ 44.4 $ 621.1 Investments related to long-term incentive plans 198.1 — — 25.1 223.2 Other equity and debt investments 3.4 12.0 1.0 33.5 49.9 Total Assets Measured at Fair Value $ 555.1 $ 220.2 $ 15.9 $ 103.0 $ 894.2 Liabilities Securities sold short $ 155.2 $ — $ — $ — $ 155.2 Contingent consideration liabilities — — 53.5 — 53.5 Total Liabilities Measured at Fair Value $ 155.2 $ — $ 53.5 $ — $ 208.7 11 Table of Contents (in millions) Level 1 Level 2 Level 3 NAV as a Practical Expedient Total as of September 30, 2023 Assets Investments, at fair value Sponsored funds and separate accounts $ 356.5 $ 211.9 $ 18.5 $ 43.6 $ 630.5 Investments related to long-term incentive plans 168.2 — — 23.4 191.6 Other equity and debt investments 3.4 11.3 3.3 32.7 50.7 Total Assets Measured at Fair Value $ 528.1 $ 223.2 $ 21.8 $ 99.7 $ 872.8 Liabilities Securities sold short $ 158.3 $ — $ — $ — $ 158.3 Contingent consideration liabilities — — 55.0 — 55.0 Total Liabilities Measured at Fair Value $ 158.3 $ — $ 55.0 $ — $ 213.3 Investments for which fair value was estimated using reported NAV as a practical expedient primarily consist of nonredeemable private equity, debt and infrastructure funds, and redeemable alternative credit, global equity and private real estate funds. These investments were as follows: (in millions) December 31, 2023 September 30, 2023 Nonredeemable investments 1 Investments with known liquidation periods $ 32.4 $ 32.1 Investments with unknown liquidation periods 17.3 17.4 Redeemable investments 2 53.3 50.2 Unfunded commitments 43.1 43.1 _______________ 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 3.1 years and 2.9 years at December 31, 2023 and September 30, 2023. 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 December 31, 2023 September 30, 2023 Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value Financial Assets Cash and cash equivalents 1 $ 3,327.4 $ 3,327.4 $ 3,686.4 $ 3,686.4 Other investments Time deposits 2 10.5 10.5 9.9 9.9 Equity securities 3 256.4 256.4 250.1 250.1 Financial Liability Debt 2 $ 3,046.9 $ 2,566.4 $ 3,052.8 $ 2,419.4 12 Table of Contents 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 December 31, 2023 and 70 CIPs, including 20 CLOs, as of September 30, 2023. The balances related to CIPs included in the Company’s consolidated balance sheets were as follows: (in millions) December 31, 2023 September 30, 2023 Assets Cash and cash equivalents $ 552.2 $ 716.0 Receivables 294.0 166.7 Investments, at fair value 9,363.1 9,637.2 Total Assets $ 10,209.3 $ 10,519.9 Liabilities Accounts payable and accrued expenses $ 467.2 $ 349.7 Debt 7,839.6 8,231.8 Other liabilities 24.3 25.1 Total liabilities 8,331.1 8,606.6 Redeemable Noncontrolling Interests 555.3 580.1 Stockholders ’ Equity Franklin Resources, Inc.’s interests 1,038.7 1,033.9 Nonredeemable noncontrolling interests 284.2 299.3 Total stockholders’ equity 1,322.9 1,333.2 Total Liabilities, Redeemable Noncontrolling Interests and Stockholders ’ Equity $ 10,209.3 $ 10,519.9 The CIPs did not have a significant impact on net income attributable to the Company during the three months ended 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) Level 1 Level 2 Level 3 NAV as a Practical Expedient Total as of December 31, 2023 Assets Cash and cash equivalents of CLOs $ 296.2 $ — $ — $ — $ 296.2 Receivables of CLOs — 207.2 — — 207.2 Investments Equity and debt securities 146.7 765.1 551.5 139.0 1,602.3 Loans — 7,760.2 0.6 — 7,760.8 Total Assets Measured at Fair Value $ 442.9 $ 8,732.5 $ 552.1 $ 139.0 $ 9,866.5 13 Table of Contents (in millions) Level 1 Level 2 Level 3 NAV as a Practical Expedient Total as of September 30, 2023 Assets Cash and cash equivalents of CLOs $ 352.3 $ — $ — $ — $ 352.3 Receivables of CLOs — 116.7 — — 116.7 Investments Equity and debt securities 210.9 642.6 584.9 154.0 1,592.4 Loans — 8,044.8 — — 8,044.8 Total Assets Measured at Fair Value $ 563.2 $ 8,804.1 $ 584.9 $ 154.0 $ 10,106.2 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) December 31, 2023 September 30, 2023 Nonredeemable investments 1 Investments with unknown liquidation periods $ 21.9 $ 21.8 Redeemable investments 2 117.1 132.2 _______________ 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. 2 Investments are redeemable on a monthly basis and liquidation periods are unknown. Changes in Level 3 assets were as follows: (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 ) 14 Table of Contents (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 December 31, 2023 Fair Value Valuation Technique Significant Unobservable Inputs Range (Weighted Average 1 ) Equity and debt securities $ 290.4 Market pricing Private sale pricing $ 0.37 –$ 1,000.00 ($ 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 % ( 9.9 %) (in millions) as of September 30, 2023 Fair Value Valuation Technique Significant Unobservable Inputs Range (Weighted Average 1 ) 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 %) __________________ 1 Based on the relative fair value of the instruments. If the relevant significant inputs used in the valuations, other than discount for lack of marketability, were independently higher (lower) as of December 31, 2023, the resulting fair value of the assets would be higher (lower). If the relevant significant inputs used in the discount for lack of marketability were independently higher (lower) as of December 31, 2023, the resulting fair value of the assets would be lower (higher). 15 Table of Contents Financial instruments of CIPs that were not measured at fair value were as follows: (in millions) Fair Value Level December 31, 2023 September 30, 2023 Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value Financial Asset Cash and cash equivalents 1 $ 256.0 $ 256.0 $ 363.7 $ 363.7 Financial Liabilities Debt of CLOs 1 2 or 3 $ 7,839.6 $ 7,618.9 $ 8,210.0 $ 8,013.2 Other debt 3 — — 21.8 8.6 __________________ 1 Substantially all was Level 2. Debt Debt of CIPs consisted of the following: December 31, 2023 September 30, 2023 (in millions) Amount Weighted- Average Effective Interest Rate Amount Weighted- Average Effective Interest Rate Debt of CLOs $ 7,839.6 7.41 % $ 8,210.0 7.12 % Other debt — N/A 21.8 6.00 % Total $ 7,839.6 $ 8,231.8 The debt of CIPs had fixed and floating interest rates ranging from 2.39 % to 15.77 % at December 31, 2023, and from 2.39 % to 15.49 % at September 30, 2023. The floating rates were based on the Secured Overnight Financing Rate. The contractual maturities for the debt of CIPs at December 31, 2023 were as follows: (in millions) for the fiscal years ending September 30, Amount 2024 (remainder of year) $ 59.8 2025 — 2026 — 2027 — 2028 — Thereafter 7,779.8 Total $ 7,839.6 Collateralized Loan Obligations The unpaid principal balance and fair value of the investments of CLOs were as follows: (in millions) December 31, 2023 September 30, 2023 Unpaid principal balance $ 7,937.2 $ 8,317.5 Difference between unpaid principal balance and fair value ( 35.7 ) ( 120.7 ) Fair Value $ 7,901.5 $ 8,196.8 Investments 90 days or more past due were immaterial at December 31, 2023 and September 30, 2023. The Company recognized $ 20.8 million of net gains and $ 2.3 million of net losses during the three months ended December 31, 2023 and 2022, related to its own economic interests in the CLOs. The aggregate principal amount due of the debt of CLOs was $ 7,811.1 million and $ 8,281.5 million at December 31, 2023 and September 30, 2023. 16 Table of Contents 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 December 31, Balance at beginning of period $ 580.1 $ 446.0 $ 1,026.1 $ 942.2 $ 583.6 $ 1,525.8 Net income (loss) ( 2.9 ) 12.4 9.5 ( 12.2 ) 10.7 ( 1.5 ) Net subscriptions (distributions) and other 38.1 ( 1.1 ) 37.0 178.4 5.2 183.6 Net consolidations (deconsolidations) ( 60.0 ) — ( 60.0 ) 271.3 — 271.3 Adjustment to fair value — 65.9 65.9 — — — Balance at End of Period $ 555.3 $ 523.2 $ 1,078.5 $ 1,379.7 $ 599.5 $ 1,979.2 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) December 31, 2023 September 30, 2023 Investments $ 997.2 $ 925.9 Receivables 222.8 206.1 Total $ 1,220.0 $ 1,132.0 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 three months ended December 31, 2023 or fiscal year 2023. Note 10 – Commitments and Contingencies Legal Proceedings India Credit Fund Closure Matters . During the three months ended December 31, 2023, there were no significant changes from the disclosure in the Form 10‑K for the fiscal year ended September 30, 2023. 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 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 December 31, 2023. 17 Table of Contents 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 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 2023. Note 11 – Stock-Based Compensation Stock and stock unit award activity was as follows: (shares in thousands) Time-Based Shares Performance- Based Shares Total Shares Weighted- Average Grant-Date Fair Value for the three months ended December 31, 2023 Nonvested balance at October 1, 2023 12,782 3,099 15,881 $ 23.09 Granted 7,038 442 7,480 23.60 Vested ( 965 ) ( 162 ) ( 1,127 ) 23.06 Forfeited/canceled ( 192 ) ( 148 ) ( 340 ) 21.25 Nonvested Balance at December 31, 2023 18,663 3,231 21,894 $ 23.29 Total unrecognized compensation expense related to nonvested stock and stock unit awards was $ 280.0 million at December 31, 2023. This expense is expected to be recognized over a remaining weighted-average vesting period of 2.0 years. 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 December 31, (in millions) 2023 2022 Dividend and interest income $ 54.8 $ 36.5 Gains on investments, net 60.1 45.5 Income from investments in equity method investees 56.9 33.2 Rental income 10.8 10.6 Foreign currency exchange losses, net ( 7.4 ) ( 27.1 ) Other, net ( 2.0 ) ( 7.6 ) Investment and other income, net $ 173.2 $ 91.1 Net gains recognized on equity securities measured at fair value and trading debt securities that were held by the Company were $ 68.5 million for the three months ended December 31, 2023 and $ 68.3 million for the three months ended December 31, 2022. 18 Table of Contents