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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, 2023
or
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☐ | 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.
INDEX TO FORM 10-Q
| | | | | | | | | | | |
| | Page |
| Financial Information | |
| Item 1. | Financial Statements (unaudited) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
| | | |
| Other Information | |
| Item 1. | | |
| Item 1A. | | |
| Item 2. | | |
| Item 5. | | |
| Item 6. | | |
| | | |
| |
| |
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, |
(in millions, except per share data) | | 2023 | | 2022 | | 2023 | | 2022 |
Operating Revenues | | | | | | | | |
Investment management fees | | $ | 1,613.4 | | | $ | 1,636.1 | | | $ | 4,818.5 | | | $ | 5,045.8 | |
Sales and distribution fees | | 304.0 | | | 335.6 | | | 897.3 | | | 1,104.0 | |
Shareholder servicing fees | | 38.8 | | | 46.9 | | | 115.5 | | | 146.8 | |
Other | | 12.8 | | | 12.7 | | | 32.0 | | | 39.7 | |
Total operating revenues | | 1,969.0 | | | 2,031.3 | | | 5,863.3 | | | 6,336.3 | |
Operating Expenses | | | | | | | | |
Compensation and benefits | | 841.2 | | | 766.7 | | | 2,667.7 | | | 2,321.8 | |
Sales, distribution and marketing | | 406.8 | | | 440.3 | | | 1,202.0 | | | 1,432.8 | |
Information systems and technology | | 127.3 | | | 125.9 | | | 376.7 | | | 376.6 | |
Occupancy | | 56.9 | | | 53.8 | | | 171.1 | | | 163.1 | |
Amortization of intangible assets | | 85.4 | | | 81.8 | | | 254.6 | | | 200.5 | |
General, administrative and other | | 136.5 | | | 158.1 | | | 427.2 | | | 416.1 | |
Total operating expenses | | 1,654.1 | | | 1,626.6 | | | 5,099.3 | | | 4,910.9 | |
Operating Income | | 314.9 | | | 404.7 | | | 764.0 | | | 1,425.4 | |
Other Income (Expenses) | | | | | | | | |
Investment and other income, net | | 51.2 | | | 13.0 | | | 267.9 | | | 97.7 | |
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 | |
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 | |
Income before taxes | | 332.1 | | | 313.1 | | | 992.2 | | | 1,475.2 | |
Taxes on income | | 84.1 | | | 89.5 | | | 237.3 | | | 347.7 | |
Net income | | 248.0 | | | 223.6 | | | 754.9 | | | 1,127.5 | |
Less: net income (loss) attributable to | | | | | | | | |
Redeemable noncontrolling interests | | 26.8 | | | (0.5) | | | 108.5 | | | (50.2) | |
Nonredeemable noncontrolling interests | | (6.3) | | | (32.3) | | | 59.1 | | | 118.5 | |
Net Income Attributable to Franklin Resources, Inc. | | $ | 227.5 | | | $ | 256.4 | | | $ | 587.3 | | | $ | 1,059.2 | |
| | | | | | | | |
Earnings per Share | | | | | | | | |
Basic | | $ | 0.44 | | | $ | 0.50 | | | $ | 1.14 | | | $ | 2.07 | |
Diluted | | 0.44 | | | 0.50 | | | 1.14 | | | 2.07 | |
See Notes to Consolidated Financial Statements.
3
FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Unaudited
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | | Three Months Ended June 30, | | Nine Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Net Income | | $ | 248.0 | | | $ | 223.6 | | | $ | 754.9 | | | $ | 1,127.5 | |
Other Comprehensive Income (Loss) | | | | | | | | |
Currency translation adjustments, net of tax | | 16.5 | | | (100.6) | | | 159.7 | | | (123.8) | |
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 comprehensive income | | 263.9 | | | 120.6 | | | 913.4 | | | 1,001.5 | |
Less: comprehensive income (loss) attributable to | | | | | | | | |
Redeemable noncontrolling interests | | 26.8 | | | (0.5) | | | 108.5 | | | (50.2) | |
Nonredeemable noncontrolling interests | | (6.3) | | | (32.3) | | | 59.1 | | | 118.5 | |
Comprehensive Income Attributable to Franklin Resources, Inc. | | $ | 243.4 | | | $ | 153.4 | | | $ | 745.8 | | | $ | 933.2 | |
See Notes to Consolidated Financial Statements.
4
FRANKLIN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
Unaudited
| | | | | | | | | | | | | | |
(in millions, except share and per share data) | | June 30, 2023 | | September 30, 2022 |
Assets | | | | |
Cash and cash equivalents | | $ | 3,728.6 | | | $ | 4,134.9 | |
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 | |
Assets of consolidated investment products | | | | |
Cash and cash equivalents | | 659.0 | | | 647.6 | |
Investments, at fair value | | 9,639.0 | | | 7,898.1 | |
Property and equipment, net | | 806.1 | | | 743.3 | |
Goodwill | | 6,012.3 | | | 5,778.6 | |
Intangible assets, net | | 4,994.9 | | | 5,082.1 | |
Operating lease right-of-use assets | | 431.0 | | | 464.5 | |
Other | | 372.7 | | | 395.4 | |
Total Assets | | $ | 30,234.6 | | | $ | 28,060.6 | |
| | | | |
Liabilities | | | | |
Compensation and benefits | | $ | 1,461.2 | | | $ | 1,464.4 | |
Accounts payable and accrued expenses | | 563.5 | | | 466.2 | |
| | | | |
Income taxes | | 448.6 | | | 523.1 | |
Debt | | 3,358.7 | | | 3,376.4 | |
Liabilities of consolidated investment products | | | | |
Accounts payable and accrued expenses | | 565.4 | | | 646.9 | |
Debt | | 7,988.7 | | | 5,457.7 | |
Deferred tax liabilities | | 450.7 | | | 347.8 | |
Operating lease liabilities | | 494.8 | | | 528.4 | |
Other | | 1,313.7 | | | 1,425.0 | |
Total liabilities | | 16,645.3 | | | 14,235.9 | |
Commitments and Contingencies (Note 10) | | | | |
Redeemable Noncontrolling Interests | | 1,050.1 | | | 1,525.8 | |
Stockholders’ Equity | | | | |
Preferred stock, $1.00 par value, 1,000,000 shares authorized; none issued | | — | | | — | |
Common stock, $0.10 par value, 1,000,000,000 shares authorized; 499,012,841 and 499,575,175 shares issued and outstanding at June 30, 2023 and September 30, 2022 | | 49.9 | | | 50.0 | |
Retained earnings | | 12,360.7 | | | 12,045.6 | |
Accumulated other comprehensive loss | | (462.5) | | | (621.0) | |
Total Franklin Resources, Inc. stockholders’ equity | | 11,948.1 | | | 11,474.6 | |
Nonredeemable noncontrolling interests | | 591.1 | | | 824.3 | |
Total stockholders’ equity | | 12,539.2 | | | 12,298.9 | |
Total Liabilities, Redeemable Noncontrolling Interests and Stockholders’ Equity | | $ | 30,234.6 | | | $ | 28,060.6 | |
See Notes to Consolidated Financial Statements.
5
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 nine months ended June 30, 2023 | Shares | | Amount |
Balance at October 1, 2022 | | 499.6 | | | $ | 50.0 | | | $ | — | | | $ | 12,045.6 | | | $ | (621.0) | | | $ | 11,474.6 | | | $ | 824.3 | | | $ | 12,298.9 | |
Net income | | | | | | | | 165.6 | | | | | 165.6 | | | 4.7 | | | 170.3 | |
Other comprehensive income | | | | | | | | | | 124.7 | | | 124.7 | | | | | 124.7 | |
Dividends declared on common stock ($0.30 per share) | | | | | | | | (153.6) | | | | | (153.6) | | | | | (153.6) | |
Repurchase of common stock | | (0.5) | | | (0.1) | | | (69.1) | | | 55.0 | | | | | (14.2) | | | | | (14.2) | |
Issuance of common stock | | 1.2 | | | 0.1 | | | 33.5 | | | | | | | 33.6 | | | | | 33.6 | |
Stock-based compensation | | | | | | 35.6 | | | | | | | 35.6 | | | | | 35.6 | |
Net subscriptions and other | | | | | | | | | | | | | | 95.9 | | | 95.9 | |
Net deconsolidation of investment products | | | | | | | | | | | | | | (35.7) | | | (35.7) | |
Balance at December 31, 2022 | | 500.3 | | | $ | 50.0 | | | $ | — | | | $ | 12,112.6 | | | $ | (496.3) | | | $ | 11,666.3 | | | $ | 889.2 | | | $ | 12,555.5 | |
Net income | | | | | | | | 194.2 | | | | | 194.2 | | | 60.7 | | | 254.9 | |
Other comprehensive income | | | | | | | | | | 17.9 | | | 17.9 | | | | | 17.9 | |
Dividends declared on common stock ($0.30 per share) | | | | | | | | (153.8) | | | | | (153.8) | | | | | (153.8) | |
Repurchase of common stock | | (0.1) | | | — | | | (66.0) | | | 62.4 | | | | | (3.6) | | | | | (3.6) | |
Issuance of common stock | | 0.7 | | | 0.1 | | | 25.2 | | | | | | | 25.3 | | | | | 25.3 | |
Stock-based compensation | | | | | | 40.8 | | | | | | | 40.8 | | | | | 40.8 | |
Net distributions and other | | | | | | | | | | | | | | (14.9) | | | (14.9) | |
Net deconsolidation of investment products | | | | | | | | | | | | | | (324.2) | | | (324.2) | |
Adjustment to fair value of redeemable noncontrolling interests | | | | | | | | 44.7 | | | | | 44.7 | | | | | 44.7 | |
Balance at March 31, 2023 | | 500.9 | | | $ | 50.1 | | | $ | — | | | $ | 12,260.1 | | | $ | (478.4) | | | $ | 11,831.8 | | | $ | 610.8 | | | $ | 12,442.6 | |
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) | |
| | | | | | | | | | | | | | | | |
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 | |
See Notes to Consolidated Financial Statements.
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 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.
7
FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
| | | | | | | | | | | | | | |
| | Nine Months Ended June 30, |
(in millions) | | 2023 | | 2022 |
| | | | |
Net Income | | $ | 754.9 | | | $ | 1,127.5 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
Stock-based compensation | | 137.9 | | | 160.9 | |
Amortization of deferred sales commissions | | 37.2 | | | 49.6 | |
Depreciation and other amortization | | 78.3 | | | 68.8 | |
Amortization of intangible assets | | 254.6 | | | 200.5 | |
Net (gains) losses on investments | | (62.3) | | | 32.9 | |
Income from investments in equity method investees | | (111.1) | | | (51.6) | |
Net losses on investments of consolidated investment products | | 116.0 | | | 22.0 | |
Net purchase of investments by consolidated investment products | | (833.2) | | | (312.2) | |
Deferred income taxes | | 50.8 | | | 55.9 | |
Other | | 99.2 | | | 33.0 | |
Changes in operating assets and liabilities: | | | | |
Increase in receivables and other assets | | (69.8) | | | (97.3) | |
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) | |
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 | |
Purchase of investments | | (665.1) | | | (676.5) | |
Liquidation of investments | | 551.3 | | | 872.0 | |
Purchase of investments by consolidated collateralized loan obligations | | (3,465.6) | | | (3,198.4) | |
Liquidation of investments by consolidated collateralized loan obligations | | 1,230.3 | | | 1,501.4 | |
Additions of property and equipment, net | | (121.5) | | | (55.6) | |
Acquisitions, net of cash acquired | | (500.5) | | | (1,354.7) | |
Payments of contingent consideration asset | | 5.5 | | | 20.9 | |
Payments of deferred consideration liability | | (241.8) | | | — | |
Net (deconsolidation) consolidation of investment products | | (43.8) | | | 211.0 | |
Net cash used in investing activities | | (3,251.2) | | | (2,679.9) | |
| | | | |
[Table continued on next page]
See Notes to Consolidated Financial Statements.
8
FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
[Table continued from previous page]
| | | | | | | | | | | | | | |
| | Nine Months Ended June 30, |
(in millions) | | 2023 | | 2022 |
| | | | |
Issuance of common stock | | $ | 13.4 | | | $ | 13.6 | |
Dividends paid on common stock | | (454.8) | | | (437.1) | |
Repurchase of common stock | | (70.0) | | | (154.0) | |
| | | | |
| | | | |
| | | | |
Proceeds from repurchase agreement | | 174.8 | | | — | |
Proceeds from debt of consolidated investment products | | 3,213.6 | | | 4,345.2 | |
Payments on debt of consolidated investment products | | (926.9) | | | (2,469.3) | |
Payments on contingent consideration liabilities | | (7.6) | | | (4.1) | |
Noncontrolling interests | | 482.5 | | | 194.9 | |
Net cash provided by financing activities | | 2,425.0 | | | 1,489.2 | |
Effect of exchange rate changes on cash and cash equivalents | | 66.0 | | | (68.1) | |
Decrease in cash and cash equivalents | | (394.9) | | | (168.5) | |
Cash and cash equivalents, beginning of period | | 4,782.5 | | | 4,647.2 | |
Cash and Cash Equivalents, End of Period | | $ | 4,387.6 | | | $ | 4,478.7 | |
| | | | |
Supplemental Disclosure of Cash Flow Information | | | | |
Cash paid for income taxes | | $ | 225.4 | | | $ | 456.7 | |
Cash paid for interest | | 55.5 | | | 61.8 | |
Cash paid for interest by consolidated investment products | | 232.2 | | | 107.0 | |
See Notes to Consolidated Financial Statements.
9
FRANKLIN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
Note 1 – Basis of Presentation
The unaudited interim financial statements of Franklin Resources, Inc. (“Franklin”) and its consolidated subsidiaries (collectively, the “Company”) included herein have been prepared in accordance with the instructions to Form 10-Q and the rules and regulations of the U.S. Securities and Exchange Commission. Under these rules and regulations, some information and footnote disclosures normally included in financial statements prepared under accounting principles generally accepted in the United States of America have been shortened or omitted. Management believes that all adjustments necessary for a fair statement of the financial position and the results of operations for the periods shown have been made. All adjustments are normal and recurring. Management also believes that the accounting estimates are appropriate, and the resulting balances are reasonable; however, due to the inherent uncertainties in making estimates, actual amounts may differ from these estimates. These financial statements should be read together with the Company’s audited financial statements included in its Annual Report on Form 10-K for the fiscal year ended September 30, 2022 (“fiscal year 2022”).
Note 2 – Acquisition
BNY Alcentra Group Holdings, Inc.
On November 1, 2022, the Company acquired all of the outstanding ownership interests in BNY Alcentra Group Holdings, Inc. (together with its subsidiaries “Alcentra”) from The Bank of New York Mellon Corporation. Total purchase price consisted of cash consideration of $594.1 million, which includes $188.3 million for certain securities held in Alcentra’s collateralized loan obligations (“CLOs”); deferred consideration of $62.0 million due November 1, 2023; and contingent consideration to be paid upon the achievement of certain performance thresholds over the next four years of up to $350.0 million that has an acquisition-date fair value of $24.6 million. The consideration paid was funded from existing cash. During the quarter ended March 31, 2023, cash consideration increased by $6.8 million due to a net working capital adjustment and deferred consideration increased by $1.6 million.
The following table summarizes the initial and revised estimated fair value amounts recognized for the assets acquired and liabilities assumed and resulting goodwill as of the acquisition date:
| | | | | | | | | | | | | | | | | | | | |
(in millions) | | Initial Estimated Fair Value | | Adjustments | | Revised Estimated Fair Value |
as of November 1, 2022 | | |
Cash and cash equivalents | | $ | 93.6 | | | $ | — | | | $ | 93.6 | |
Receivables | | 57.2 | | | (8.8) | | | 48.4 | |
Investments | | 285.3 | | | 1.6 | | | 286.9 | |
Goodwill | | 152.6 | | | 52.7 | | | 205.3 | |
Indefinite-lived intangible assets | | 89.9 | | | — | | | 89.9 | |
Definite-lived intangible assets | | 55.7 | | | — | | | 55.7 | |
Other assets | | 9.0 | | | 3.1 | | | 12.1 | |
Deferred tax liabilities | | — | | | (36.7) | | | (36.7) | |
Compensation and benefits and other liabilities | | (71.0) | | | (3.5) | | | (74.5) | |
Total Identifiable Net Assets | | $ | 672.3 | | | $ | 8.4 | | | $ | 680.7 | |
The adjustments to the initial estimated fair values are a result of new information obtained about the facts that existed as of the acquisition date. The purchase price allocation is preliminary and subject to change during the measurement period, which is not to exceed one year from the acquisition date. At this time, the Company does not expect material changes to the assets acquired or liabilities assumed.
The goodwill is primarily attributable to expected growth opportunities from the combined operations and is not deductible for tax purposes. The definite-lived intangible assets relate to acquired investment management contracts and trade names, which are amortized over their estimated useful lives ranging from 3.0 years to 10.0 years. Amortization expense related to the definite-lived intangible assets was $3.5 million and $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 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 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. The Company 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.
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 June 30, | | Nine Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
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 | | 10.2 | | | 11.2 | | | 26.7 | | | 45.6 | |
Net Income Available to Common Stockholders | | $ | 217.3 | | | $ | 245.2 | | | $ | 560.6 | | | $ | 1,013.6 | |
| | | | | | | | |
Weighted-average shares outstanding – basic | | 490.7 | | | 487.5 | | | 490.3 | | | 489.1 | |
Dilutive effect of nonparticipating nonvested stock unit awards | | 0.7 | | | 0.4 | | | 0.7 | | | 0.6 | |
Weighted-Average Shares Outstanding – Diluted | | 491.4 | | | 487.9 | | | 491.0 | | | 489.7 | |
| | | | | | | | |
Earnings per Share | | | | | | | | |
Basic | | $ | 0.44 | | | $ | 0.50 | | | $ | 1.14 | | | $ | 2.07 | |
Diluted | | 0.44 | | | 0.50 | | | 1.14 | | | 2.07 | |
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, 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 June 30, 2023 | |
Investment management fees | | $ | 1,232.3 | | | $ | 192.3 | | | $ | 64.3 | | | $ | 53.9 | | | $ | 70.6 | | | $ | 1,613.4 | |
Sales and distribution fees | | 213.5 | | | 75.4 | | | 5.1 | | | 10.0 | | | — | | | 304.0 | |
Shareholder servicing fees | | 30.3 | | | 8.0 | | | 0.5 | | | — | | | — | | | 38.8 | |
Other | | 11.9 | | | 0.5 | | | 0.4 | | | — | | | — | | | 12.8 | |
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) | | 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 | |
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 | |
Other | | 38.2 | | | 0.8 | | | 0.5 | | | — | | | 0.2 | | | 39.7 | |
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, 2023 and 83% and 81% for the three and nine months ended June 30, 2022.
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) | | June 30, 2023 | | September 30, 2022 |
Investments, at fair value | | | | |
Sponsored funds and separate accounts | | $ | 616.6 | | | $ | 413.0 | |
Investments related to long-term incentive plans | | 202.3 | | | 143.3 | |
Other equity and debt investments | | 48.4 | | | 57.2 | |
Total investments, at fair value | | 867.3 | | | 613.5 | |
Investments in equity method investees | | 1,118.5 | | | 771.5 | |
Other investments | | 263.3 | | | 266.3 | |
Total | | $ | 2,249.1 | | | $ | 1,651.3 | |
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 June 30, 2023 | | | | | |
Assets | | | | | | | | | | |
Investments, at fair value | | | | | | | | | | |
Sponsored funds and separate accounts | | $ | 333.3 | | | $ | 220.7 | | | $ | 17.9 | | | $ | 44.7 | | | $ | 616.6 | |
Investments related to long-term incentive plans | | 179.9 | | | — | | | — | | | 22.4 | | | 202.3 | |
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 | | $ | 516.6 | | | $ | |