FRANKLIN RESOURCES, INC.
FORWARD-LOOKING STATEMENTS
This Form 10-Q and the documents incorporated by reference herein may include
forward-looking statements that reflect our current views with respect to future
events and financial performance. Such statements are provided under the "safe
harbor" protection of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include all statements that do not relate solely to
historical or current facts and generally can be identified by words or phrases
written in the future tense and/or preceded by words such as "anticipate,"
"believe," "could," "depends," "estimate," "expect," "intend," "likely," "may,"
"plan," "potential," "seek," "should," "will," "would," or other similar words
or variations thereof, or the negative thereof, but these terms are not the
exclusive means of identifying such statements.
Forward-looking statements involve a number of known and unknown risks,
uncertainties and other important factors that may cause actual results and
outcomes to differ materially from any future results or outcomes expressed or
implied by such forward-looking statements. The forward-looking statements
contained in this Form 10-Q or that are incorporated by reference herein are
qualified in their entirety by reference to the risks and uncertainties
disclosed in this Form 10-Q, including those discussed under the headings "Risk
Factors" and "Quantitative and Qualitative Disclosures About Market Risk" below.
While forward-looking statements are our best prediction at the time that they
are made, you should not rely on them and are cautioned against doing so.
Forward-looking statements are based on our current expectations and assumptions
regarding
27
--------------------------------------------------------------------------------
Table of Contents
our business, the economy and other possible future conditions. Because
forward-looking statements relate to the future, they are subject to inherent
uncertainties, risks and changes in circumstances that are difficult to predict.
They are neither statements of historical fact nor guarantees or assurances of
future performance. Factors or events that could cause our actual results to
differ may emerge from time to time, and it is not possible for us to predict
all of them.
If a circumstance occurs after the date of this Form 10-Q that causes any of our
forward-looking statements to be inaccurate, whether as a result of new
information, future developments or otherwise, we undertake no obligation to
announce publicly the change to our expectations, or to make any revision to our
forward-looking statements, to reflect any change in assumptions, beliefs or
expectations, or any change in events, conditions or circumstances upon which
any forward-looking statement is based, unless required by law.
In this section, we discuss and analyze the results of operations and financial
condition of Franklin Resources, Inc. ("Franklin") and its subsidiaries
(collectively, the "Company"). The following discussion should be read in
conjunction with our Form 10-K for the fiscal year ended September 30, 2020
("fiscal year 2020") filed with the U.S. Securities and Exchange Commission , and
the consolidated financial statements and notes thereto included elsewhere in
this Form 10-Q.
OVERVIEW
Franklin is a holding company with subsidiaries operating under our Franklin
Templeton® and/or subsidiary brand names. We are a global investment management
organization that derives operating revenues and net income from providing
investment management and related services to investors in jurisdictions
worldwide. We deliver our investment capabilities through a variety of
investment products, which include our sponsored funds, as well as institutional
and high-net-worth separate accounts, retail separately managed account
programs, sub-advised products, and other investment vehicles. In addition to
investment management, our services include fund administration, sales and
distribution, and shareholder servicing. We may perform services directly or
through third parties. We offer our services and products under our various
distinct brand names, including, but not limited to, Franklin®, Templeton®, Legg
Mason®, Balanced Equity Management®, Benefit Street Partners®, Brandywine Global
Investment Management®, Clarion Partners®, ClearBridge Investments®, Darby®,
Edinburgh Partners™, Fiduciary Trust International™, Franklin Bissett®, Franklin
Mutual Series®, K2®, LibertyShares®, Martin Currie®, Royce® Investment Partners
and Western Asset Management Company®. We offer a broad product mix of fixed
income, equity, multi-asset, alternative and cash management asset classes and
solutions that meet a wide variety of specific investment goals and needs for
individual and institutional investors. We also provide sub-advisory services to
certain investment products sponsored by other companies which may be sold to
investors under the brand names of those other companies or on a co-branded
basis.
The level of our revenues depends largely on the level and relative mix of
assets under management ("AUM"). As noted in the "Risk Factors" section set
forth below, the amount and mix of our AUM are subject to significant
fluctuations that can negatively impact our revenues and income. The level of
our revenues also depends on mutual fund sales, the number of shareholder
transactions and accounts, and the fees charged for our services, which are
based on contracts with our funds and our clients. These arrangements could
change in the future.
As further noted in the "Risk Factors" section, the outbreak and spread of
contagious diseases such as the coronavirus disease 2019 ("COVID-19"), a highly
transmissible and pathogenic disease, has adversely affected, and may continue
to adversely affect, our business, financial condition and results of
operations. Ongoing global health concerns and uncertainty regarding the impact
of COVID-19 could lead to further and/or increased volatility in global capital
and credit markets, adversely affect our key executives and other personnel,
clients, investors, providers, suppliers, lessees, and other third parties, and
negatively impact our AUM, revenues, income, business and operations. As of the
time of this filing, as the COVID-19 pandemic continues to evolve, it is not
possible to predict the full extent to which the pandemic may adversely impact
our business, liquidity, capital resources, financial results and operations,
which impacts will depend on numerous developing factors that remain uncertain
and subject to change.
During our third fiscal quarter, the global equity markets continued to provide
strong positive returns, reflecting among other things, accelerated rollout of
COVID-19 vaccines in most developed economies and a decline in U.S. 10-year
treasury yields. The S&P 500 Index and MSCI World Index increased 8.6% and 7.9%
for the quarter and 29.3% each for the fiscal year to date. The global bond
markets turned positive as the Bloomberg Barclays Global Aggregate Index
increased 1.3% during the quarter, and remained essentially flat for the fiscal
year to date.
Our total AUM at June 30, 2021 was $1,552.1 billion , 9% higher than at
September 30, 2020 and 149% higher than at June 30, 2020 . Simple monthly average
AUM ("average AUM") for the three and nine months ended June 30, 2021 increased
153% and 128% from the same periods in the prior fiscal year. The increases in
total AUM and average AUM from the same periods in the prior fiscal year is
primarily due to the Legg Mason, Inc. ("Legg Mason") acquisition.
28
--------------------------------------------------------------------------------
Table of Contents
The business and regulatory environments in which we operate globally remain
complex, uncertain and subject to change. We are subject to various laws, rules
and regulations globally that impose restrictions, limitations, registration,
reporting and disclosure requirements on our business, and add complexity to our
global compliance operations.
Uncertainties regarding the global economy remain for the foreseeable future. As
we continue to confront the challenges of the current economic and regulatory
environments, we remain focused on the investment performance of our products
and on providing high quality service to our clients. We continuously perform
reviews of our business model. While we remain focused on expense management, we
will also seek to attract, retain and develop personnel and invest strategically
in systems and technology that will provide a secure and stable environment. We
will continue to seek to protect and further our brand recognition while
developing and maintaining broker-dealer and client relationships. The success
of these and other strategies may be influenced by the factors discussed in the
"Risk Factors" section set forth below.
RESULTS OF OPERATIONS
Three Months Ended Nine Months Ended
June 30, Percent June 30, Percent
(in millions, except per share data) 2021 2020 Change 2021 2020 Change
Operating revenues1 $ 2,172.9 $ 1,161.1 87 % $ 6,244.5 $ 3,861.5 62 %
Operating income1 478.1 232.5 106 % 1,343.5 945.3 42 %
Net income attributable to
Franklin Resources, Inc. 438.4 290.4 51 % 1,165.5 720.0 62 %
Diluted earnings per share $ 0.86 $ 0.58 48 % $ 2.27 $ 1.44 58 %
Operating margin2 22.0 % 20.0 % 21.5 % 24.5 %
As adjusted (non-GAAP):3
Adjusted operating income $ 601.2 $ 270.8 122 % $ 1,732.2 $ 1,062.2 63 %
Adjusted operating margin 36.5 % 34.0 % 37.2 % 40.2 %
Adjusted net income $ 493.7 $ 348.9 42 % $ 1,270.6 $ 1,020.0 25 %
Adjusted diluted earnings per share $ 0.96 $ 0.70 37 % $ 2.48 $ 2.04 22 %
__________________
1Effective with the quarter ended September 30, 2020 , the Company changed the
presentation of its consolidated statements of income to include dividend and
interest income and other expenses from consolidated investment products in
non-operating income (expense). Amounts for the comparative prior fiscal periods
were reclassified to conform to the current presentation. These
reclassifications had no impact on previously reported net income attributable
to Franklin Resources, Inc.
2Defined as operating income divided by total operating revenues.
3"Adjusted operating income," "adjusted operating margin," "adjusted net income"
and "adjusted diluted earnings per share" are based on methodologies other than
generally accepted accounting principles. See "Supplemental Non-GAAP Financial
Measures" for definitions and reconciliations of these measures.
Operating income increased $245.6 million and $398.2 million for the three and
nine months ended June 30, 2021 , as compared to the same periods in the prior
fiscal year, as 87% and 62% increases in operating revenues were partially
offset by 83% and 68% increases in operating expenses. The increases in
operating revenues and operating expenses for the three- and nine-month periods
were primarily due to the acquisition of Legg Mason. Net income attributable to
Franklin Resources, Inc. increased $148.0 million for the three months ended
June 30, 2021 due to the increase in operating income, partially offset by
higher taxes on income and lower other income, net, less the portion
attributable to noncontrolling interests. Net income attributable to Franklin
Resources, Inc. increased $445.5 million for the nine months ended June 30, 2021
due to the increase in operating income and higher other income, net, less the
portion attributable to noncontrolling interests, partially offset by higher
taxes on income.
Diluted earnings per share increased for the three and nine months ended
June 30, 2021 consistent with the increases in net income available to common
stockholders and the impacts of decreases in diluted average common shares
outstanding in both periods, primarily resulting from repurchases of shares of
our common stock during the twelve-month period ended June 30, 2021 .
29
--------------------------------------------------------------------------------
Table of Contents
Adjusted operating income increased $330.4 million and $670.0 million for the
three and nine months ended June 30, 2021 primarily due to 112% and 81%
increases in investment management fees, partially offset by 98% and 90%
increases in compensation and benefits expenses. The increases in investment
management fees and compensation and benefits expenses for the three- and
nine-month periods were primarily due to the acquisition of Legg Mason. Adjusted
net income increased $144.8 million and $250.6 million for the three and nine
months ended June 30, 2021 due to the increases in adjusted operating income,
partially offset by lower other income, net, less the portion attributable to
noncontrolling interests and higher taxes on income.
Adjusted diluted earnings per share increased for the three and nine months
ended June 30, 2021 , consistent with the increases in adjusted net income and
the impacts of the decreases in diluted average common shares outstanding.
ASSETS UNDER MANAGEMENT
AUM by asset class was as follows:
June 30, June 30, Percent
(in billions) 2021 2020 Change
Fixed Income $ 658.1 $ 211.3 211 %
Equity 536.9 235.8 128 %
Multi-Asset 153.0 118.5 29 %
Alternative 140.8 46.8 201 %
Cash Management 63.3 10.4 509 %
Total $ 1,552.1 $ 622.8 149 %
In the first quarter of the fiscal year ending September 30, 2021 ("fiscal year
2021"), we revised our presentation of AUM to reflect changes in asset class of
certain legacy Legg Mason AUM as part of our post-acquisition onboarding
process.
AUM at June 30, 2021 increased 149% from June 30, 2020 driven by $797.4 billion
from the acquisition of Legg Mason as well as $182.1 billion from net market
change, distributions and other, partially offset by $27.9 billion of long-term
net outflows and $22.3 billion of cash management net outflows.
Average AUM and the mix of average AUM by asset class are shown below.
(in billions) Average AUM Mix of Average AUM
for the three months ended June Percent
30, 2021 2020 Change 2021 2020
Fixed Income $ 651.5 $ 212.3 207 % 42 % 35 %
Equity 529.0 221.7 139 % 35 % 36 %
Multi-Asset 152.0 114.2 33 % 10 % 19 %
Alternative 135.3 46.5 191 % 9 % 8 %
Cash Management 63.2 10.3 514 % 4 % 2 %
Total $ 1,531.0 $ 605.0 153 % 100 % 100 %
(in billions) Average AUM Percent Mix of Average AUM
for the nine months ended June 30, 2021 2020 Change 2021 2020
Fixed Income $ 657.5 $ 231.7 184 % 44 % 35 %
Equity 492.9 246.6 100 % 33 % 38 %
Multi-Asset 144.1 119.4 21 % 10 % 18 %
Alternative 129.1 46.0 181 % 9 % 7 %
Cash Management 65.8 10.3 539 % 4 % 2 %
Total $ 1,489.4 $ 654.0 128 % 100 % 100 %
30
--------------------------------------------------------------------------------
Table of Contents
Components of the change in AUM are shown below. Net market change,
distributions and other includes appreciation (depreciation), distributions to
investors that represent return on investments and return of capital, and
foreign exchange revaluation.
Three Months Ended Nine Months Ended
June 30, Percent June 30, Percent
(in billions) 2021 2020 Change 2021 2020 Change
Beginning AUM $ 1,498.9 $ 580.3 158 % $ 1,418.9 $ 692.6 105 %
Long-term inflows 83.7 35.1 138 % 281.5 117.0 141 %
Long-term outflows (90.3) (46.4) 95 % (296.8) (166.0) 79 %
Long-term net flows (6.6) (11.3) (42 %) (15.3) (49.0) (69 %)
Cash management net flows (2.2) (0.3) 633 % (11.2) 1.2 NM
Total net flows (8.8) (11.6) (24 %) (26.5) (47.8) (45 %)
Acquisitions - 3.5 (100 %) - 9.1 (100 %)
Net market change,
distributions and other 62.0 50.6 23 % 159.7 (31.1) NM
Ending AUM $ 1,552.1 $ 622.8 149 % $ 1,552.1 $ 622.8 149 %
Components of the change in AUM by asset class were as follows: (in billions) for the three months ended
Cash
June 30, 2021 Fixed Income Equity Multi-Asset Alternative Management Total
AUM at April 1, 2021 $ 642.3 $ 511.9 $ 148.2 $ 131.1 $ 65.4 $ 1,498.9
Long-term inflows 40.2 29.1 8.6 5.8 - 83.7
Long-term outflows (38.1) (40.6) (8.9) (2.7) - (90.3)
Long-term net flows 2.1 (11.5) (0.3) 3.1 - (6.6)
Cash management net flows - - - - (2.2) (2.2)
Total net flows 2.1 (11.5) (0.3) 3.1 (2.2) (8.8)
Net market change, distributions
and other 13.7 36.5 5.1 6.6 0.1 62.0
AUM at June 30, 2021 $ 658.1 $ 536.9 $ 153.0 $ 140.8 $ 63.3 $ 1,552.1
(in billions)
for the three months ended Cash
June 30, 2020 Fixed Income Equity Multi-Asset Alternative Management Total
AUM at April 1, 2020 $ 214.9 $ 200.9 $ 107.4 $ 46.4 $ 10.7 $ 580.3
Long-term inflows 13.0 14.0 6.3 1.8 - 35.1
Long-term outflows (21.4) (17.1) (6.9) (1.0) - (46.4)
Long-term net flows (8.4) (3.1) (0.6) 0.8 - (11.3)
Cash management net flows - - - - (0.3) (0.3)
Total net flows (8.4) (3.1) (0.6) 0.8 (0.3) (11.6)
Acquisition - - 3.5 - - 3.5
Net market change, distributions
and other 4.8 38.0 8.2 (0.4) - 50.6
AUM at June 30, 2020 $ 211.3 $ 235.8 $ 118.5 $ 46.8 $ 10.4 $ 622.8
AUM increased $53.2 billion or 4% during the three months ended June 30, 2021
due to $62.0 billion of net market change, distributions and other, partially
offset by $6.6 billion of long-term net outflows and $2.2 billion of cash
management net outflows. Net market change, distributions and other consists of
$66.1 billion of market appreciation and a $1.5 billion increase from foreign
exchange revaluation, partially offset by $5.6 billion of long-term
distributions. The market appreciation occurred in all long-term asset classes,
most significantly in the equity and fixed income asset classes, and reflected
positive returns in global equity and fixed income markets. The foreign exchange
revaluation resulted from AUM in products that are not U.S. dollar denominated,
which represented 11% of total AUM as of June 30, 2021 , and was primarily due to
the weakening of the U.S. dollar against the Brazilian Real, Canadian dollar and
Euro, partially offset by strengthening of the U.S. dollar against the
Australian dollar.
31
--------------------------------------------------------------------------------
Table of Contents
Long-term inflows increased 138% to $83.7 billion , as compared to the prior-year
period, and long-term outflows increased 95% to $90.3 billion due to higher
inflows and outflows in all long-term asset classes. Long-term outflows included
outflows of $7.0 billion from three institutional products, including two equity
redemptions of $3.7 billion and $2.2 billion , and $2.5 billion from six fixed
income funds, including $1.2 billion from five India credit funds that were
non-management fee earning which are in the process of winding up. Long-term
outflows were partially offset by inflows of $3.8 billion in two fixed income
funds, including the $1.0 billion launch of a closed-end fund.
AUM increased $42.5 billion during the three months ended June 30, 2020
primarily due to $50.6 billion of net market change, distributions and other and
$3.5 billion from an acquisition, partially offset by $11.3 billion of long-term
net outflows. Net market change, distributions and other consists of $52.8
billion of market appreciation and a $1.9 billion increase from foreign exchange
revaluation, partially offset by $4.1 billion of long-term distributions. The
market appreciation occurred in all long-term asset classes except the
alternative asset class, and reflected positive returns in global equity
markets. The foreign exchange revaluation was primarily due to the weakening of
the U.S. dollar against the Australian dollar, Canadian dollar, and Euro.
Long-term net outflows included outflows of $5.8 billion from six fixed income
funds, $0.9 billion from an equity fund and $0.6 billion from a multi-asset
fund, partially offset by inflows of $2.5 billion in two equity funds.
(in billions)
for the nine months ended Cash
June 30, 2021 Fixed Income Equity Multi-Asset Alternative Management Total
AUM at October 1, 2020 $ 656.9 $ 438.1 $ 129.4 $ 122.1 $ 72.4 $ 1,418.9
Long-term inflows 135.7 103.0 27.5 15.3 - 281.5
Long-term outflows (142.1) (118.8) (27.0) (8.9) - (296.8)
Long-term net flows (6.4) (15.8) 0.5 6.4 - (15.3)
Cash management net flows - - - - (11.2) (11.2)
Total net flows (6.4) (15.8) 0.5 6.4 (11.2) (26.5)
Net market change, distributions
and other 7.6 114.6 23.1 12.3 2.1 159.7
AUM at June 30, 2021 $ 658.1 $ 536.9 $ 153.0 $ 140.8 $ 63.3 $ 1,552.1
(in billions)
for the nine months ended Cash
June 30, 2020 Fixed Income Equity Multi-Asset Alternative Management Total
AUM at October 1, 2019 $ 250.6 $ 263.9 $ 123.6 $ 45.0 $ 9.5 $ 692.6
Long-term inflows 45.3 44.8 19.9 7.0 - 117.0
Long-term outflows (76.1) (61.2) (24.0) (4.7) - (166.0)
Long-term net flows (30.8) (16.4) (4.1) 2.3 - (49.0)
Cash management net flows - - - - 1.2 1.2
Total net flows (30.8) (16.4) (4.1) 2.3 1.2 (47.8)
Acquisitions - - 9.1 - - 9.1
Net market change, distributions
and other (8.5) (11.7) (10.1) (0.5) (0.3) (31.1)
AUM at June 30, 2020 $ 211.3 $ 235.8 $ 118.5 $ 46.8 $ 10.4 $ 622.8
AUM increased $133.2 billion or 9% during the nine months ended June 30, 2021
due to $159.7 billion of net market change, distributions and other, partially
offset by $15.3 billion of long-term net outflows and $11.2 billion of cash
management net outflows. Net market change, distributions and other consists of
$179.9 billion of market appreciation and a $4.9 billion increase from foreign
exchange revaluation, partially offset by $25.1 billion of long-term
distributions. The market appreciation occurred in all asset classes, most
significantly in the equity and multi-asset asset classes, and reflected
positive returns in global equity markets. The foreign exchange revaluation
resulted from AUM in products that are not U.S. dollar denominated and was
primarily due to weakening of the U.S. dollar against the Canadian dollar,
Australian dollar, Pound Sterling and Brazilian Real, partially offset by
strengthening of the U.S. dollar against the Japanese Yen.
32
--------------------------------------------------------------------------------
Table of Contents
Long-term inflows increased 141% to $281.5 billion , as compared to the
prior-year period, and long-term outflows increased 79% to $296.8 billion due to
higher inflows and outflows in all long-term asset classes partially reflecting
the increased AUM. Long-term outflows included outflows of $26.9 billion from
eleven institutional products, including a single fixed income redemption of
$5.9 billion , and two equity redemptions of $3.7 billion and $2.2 billion ,
$10.2 billion from seven fixed income funds, including $2.5 billion from five
India credit funds that were non-management fee earning which are in the process
of winding up, $3.6 billion from two equity funds and $3.1 billion from a
multi-asset fund. Long-term outflows were partially offset by inflows of
$10.6 billion in three fixed income funds, including the $1.0 billion launch of
a closed-end fund, $5.3 billion in two institutional separate accounts,
$3.1 billion in a multi-asset fund and $3.0 billion in an equity fund.
Additionally, long-term outflows in the equity asset class included $2.1 billion
of exchanges that are included as long-term inflows in the multi-asset asset
class.
AUM decreased $69.8 billion during the nine months ended June 30, 2020 primarily
due to $49.0 billion of long-term net outflows and $31.1 billion of net market
change, distributions and other, slightly offset by $9.1 billion from
acquisitions. Long-term net outflows included outflows of $22.7 billion from six
fixed income funds, $3.6 billion from two equity funds, $2.3 billion from a
multi-asset fund and $1.7 billion from two institutional products, which were
partially offset by inflows of $3.8 billion from two equity funds and
$1.2 billion in a private open-end product. Net market change, distributions and
other consists of $20.5 billion of long-term distributions, $9.1 billion of
market depreciation among all asset classes and a $1.5 billion decrease from
foreign exchange revaluation. The foreign exchange revaluation was primarily due
to strengthening of the U.S. dollar against the Indian Rupee and Canadian
dollar, partially offset by weakening of the U.S. dollar against the Euro.
AUM by sales region was as follows:
June 30, June 30, Percent
(in billions) 2021 2020 Change
United States $ 1,151.2 $ 439.7 162 %
International
Asia-Pacific 161.1 74.1 117 %
Europe, Middle East and Africa 156.2 78.2 100 %
Latin America 56.3 11.1 407 %
Canada 27.3 19.7 39 %
Total international 400.9 183.1 119 %
Total $ 1,552.1 $ 622.8 149 %
Average AUM by sales region was as follows:
Three Months Ended Nine Months Ended
June 30, Percent June 30, Percent
(in billions) 2021 2020 Change 2021 2020 Change
United States $ 1,130.1 $ 426.9 165 % $ 1,087.8 $ 455.0 139 %
International
Asia-Pacific 163.9 73.1 124 % 168.3 82.1 105 %
Europe, Middle East and Africa 153.8 75.1 105 % 150.2 83.0 81 %
Latin America 56.1 10.7 424 % 57.0 12.3 363 %
Canada 27.1 19.2 41 % 26.1 21.6 21 %
Total international 400.9 178.1 125 % 401.6 199.0 102 %
Total $ 1,531.0 $ 605.0 153 % $ 1,489.4 $ 654.0 128 %
The region in which investment products are sold may differ from the geographic area in which we provide investment management and related services to the products.
33
--------------------------------------------------------------------------------
Table of Contents
Investment Performance Overview
A key driver of our overall success is the long-term investment performance of
our investment products. A measure of the performance of these products is the
percentage of AUM exceeding peer group medians and benchmarks. We compare the
relative performance of our mutual funds against peers, and of our strategy
composites against benchmarks. Higher long-term relative performance of our
mutual fund AUM during the nine months ended June 30, 2021 resulted in a
significant increase from September 30, 2020 to the peer group comparison for
the one-, five-, and ten-year periods. Approximately half of our mutual fund AUM
exceeded the peer group median comparisons for all periods presented. Our
composites generated strong long-term results with at least 68% of AUM exceeding
the benchmark comparisons for all periods presented, primarily driven by the
performance of our fixed income products which had at least 88% of AUM exceeding
the benchmark comparisons.
The performance of our mutual fund products against peer group medians and of
our composites against benchmarks is presented in the table below.
Peer Group Comparison1 Benchmark Comparison2
% of Mutual Fund AUM % of Composite AUM
in Top Two Peer Group Quartiles Exceeding Benchmark
as of June 30, 2021 1-Year 3-Year 5-Year 10-Year 1-Year 3-Year 5-Year 10-Year
Fixed Income 57 % 61 % 62 % 62 % 89 % 88 % 95 % 95 %
Equity 41 % 45 % 41 % 53 % 41 % 44 % 43 % 50 %
Total AUM3 54 % 46 % 56 % 63 % 68 % 70 % 73 % 75 %
__________________
1Mutual fund performance is sourced from Morningstar and measures the percent of
ranked AUM in the top two quartiles versus peers. Total mutual fund AUM measured
for the 1-, 3-, 5- and 10-year periods represents 42%, 42%, 41% and 39% of our
total AUM as of June 30, 2021 .
2Composite performance measures the percent of composite AUM beating its
benchmark. The benchmark comparisons are based on each account's/composite's
(composites may include retail separately managed accounts and mutual fund
assets managed as part of the same strategy) return as compared to a market
index that has been selected to be generally consistent with the asset class of
the account/composite. Total composite AUM measured for the 1-, 3-, 5- and
10-year periods represents 69%, 68%, 68% and 63% of our total AUM as of June 30,
2021 .
3Total mutual fund AUM includes performance of our multi-asset and alternative
AUM, and total composite AUM includes performance of our alternative AUM.
Multi-asset and alternative AUM represent 10% and 9% of our total AUM at
June 30, 2021 .
Mutual fund performance data includes U.S. and cross-border domiciled mutual
funds and exchange-traded funds, and excludes cash management and fund of funds.
These results assume the reinvestment of dividends, are based on data available
as of July 9, 2021 , and are subject to revision. While we remain focused on
achieving strong long-term performance, our future peer group and benchmarking
rankings may vary from our past performance.
Past performance is not indicative of future results. For AUM included in
institutional and retail separate accounts and investment funds managed in the
same strategy as separate accounts, performance comparisons are based on
gross-of-fee performance. For investment funds which are not managed in a
separate account format, performance comparisons are based on net-of-fee
performance. These performance comparisons do not reflect the actual performance
of any specific separate account or investment fund; individual separate account
and investment fund performance may differ. The information in this presentation
is provided solely for use in connection with this presentation, and is not
directed toward existing or potential clients of Franklin.
OPERATING REVENUES
The table below presents the percentage change in each operating revenue
category.
Three Months Ended Nine Months Ended
June 30, Percent June 30, Percent
(in millions) 2021 2020 Change 2021 2020 Change
Investment management fees $ 1,697.3 $ 809.2 110 % $ 4,836.1 $ 2,697.1 79 %
Sales and distribution fees 416.9 302.1 38 % 1,227.4 995.3 23 %
Shareholder servicing fees 50.5 44.6 13 % 155.6 149.4 4 %
Other 8.2 5.2 58 % 25.4 19.7 29 %
Total Operating Revenues $ 2,172.9 $ 1,161.1 87 % $ 6,244.5 $ 3,861.5 62 %
34-------------------------------------------------------------------------------- Table of Contents For the three and nine months endedJune 30, 2021 , the Legg Mason acquisition had a significant impact on operating revenues; however, due to the continued integration of the combined businesses, it is no longer practicable to separately quantify the impact of the legacy Legg Mason business. Investment Management Fees Investment management fees are generally calculated under contractual arrangements with our investment products and the products for which we provide sub-advisory services as a percentage of AUM. Annual fee rates vary by asset class and type of services provided. Fee rates for products sold outside of theU.S. are generally higher than forU.S. products. Investment management fees increased$888.1 million and$2,139.0 million for the three and nine months endedJune 30, 2021 primarily due to the acquisition of Legg Mason, a 13% and 1% increase in average AUM and higher performance fees. The increase in average AUM occurred primarily in the equity and multi-asset asset classes, partially offset by fixed income asset class. The increase occurred primarily inU.S. andEurope ,Middle East andAfrica sales regions, partially offset by declines inAsia-Pacific andLatin America sales regions. Our effective investment management fee rate excluding performance fees (annualized investment management fees excluding performance fees divided by average AUM) decreased to 41.8 and 41.7 basis points for the three and nine months endedJune 30, 2021 , from 53.8 and 54.6 basis points for the same periods in the prior fiscal year. The rate decreases were primarily due to the Legg Mason acquisition, as the acquired products have a lower effective fee rate due to a higher mix of institutional and fixed income AUM. The fee rate decrease for the nine-month period was also due to a higher weighting of AUM in lower-fee products. Performance-based investment management fees were$102.6 million and$189.7 million for the three and nine months endedJune 30, 2021 , and$0.2 million and$24.7 million for the same periods in the prior fiscal year. The increases were primarily due to the Legg Mason acquisition, as well as improved performance. Our product offerings and global operations are diverse. As such, the impact of future changes in AUM on investment management fees will be affected by the relative mix of asset class, geographic region, distribution channel and investment vehicle of the assets. Sales and Distribution Fees Sales and distribution fees primarily consist of upfront sales commissions and ongoing distribution fees. Sales commissions are earned from the sale of certain classes of sponsored funds at the time of purchase ("commissionable sales") and may be reduced or eliminated depending on the amount invested and the type of investor. Therefore, sales fees generally will change with the overall level of gross sales, the size of individual transactions, and the relative mix of sales between different share classes and types of investors. Our sponsored mutual funds generally pay us distribution fees in return for sales, marketing and distribution efforts on their behalf. The majority of ourU.S. mutual funds, with the exception of certain money market funds and certain other funds specifically designed for purchase through separately managed account programs, have adopted distribution plans under Rule 12b-1 (the "Rule 12b-1 Plans") promulgated under the Investment Company Act of 1940. The Rule 12b-1 Plans permit the funds to pay us for marketing, marketing support, advertising, printing and sales promotion services relating to the distribution of their shares, subject to the Rule 12b-1 Plans' limitations on amounts based on daily average AUM. We earn distribution fees from our non-U.S. funds based on daily average AUM. Contingent sales charges are earned from investor redemptions within a contracted period of time. Substantially all of these charges are levied on certain shares sold without a front-end sales charge, and vary with the mix of redemptions of these shares. We pay substantially all of our sales and distribution fees to the financial advisers, broker-dealers and other intermediaries that sell our funds on our behalf. See the description of sales, distribution and marketing expenses below. 35 -------------------------------------------------------------------------------- Table of Contents Sales and distribution fees by revenue driver are presented below. Three Months Ended
Nine Months Ended
June 30, Percent June 30, Percent
(in millions) 2021 2020 Change 2021 2020 Change
Asset-based fees $ 332.0 $ 243.5 36 % $ 971.2 $ 802.9 21 %
Sales-based fees 80.9 52.5 54 % 240.9 177.4 36 %
Contingent sales charges 4.0 6.1 (34 %) 15.3 15.0 2 %
Sales and Distribution Fees
Asset-based distribution fees increased$88.5 million and$168.3 million for the three and nine months endedJune 30, 2021 primarily due to the acquisition of Legg Mason and$35.6 million and$41.8 million from 15% and 5% increases in the related average AUM. The increase for the nine-month period was partially offset by a decrease of$36.5 million from a higher mix of lower-feeU.S. assets. Sales-based fees increased$28.4 million and$63.5 million for the three and nine months endedJune 30, 2021 primarily due to the acquisition of Legg Mason and$12.5 million and$11.8 million from higher commissionable sales. Shareholder Servicing Fees Substantially all shareholder servicing fees are earned from our sponsored funds for providing transfer agency services, which include providing shareholder statements, transaction processing, customer service and tax reporting. These fees are primarily determined based on a percentage of AUM and either the number of transactions in shareholder accounts or the number of shareholder accounts, while fees from certain funds are based only on AUM. Shareholder servicing fees also include fund reimbursements of expenses incurred while providing transfer agency services. Shareholder servicing fees increased$5.9 million and$6.2 million for the three and nine months endedJune 30, 2021 primarily due to the acquisition of Legg Mason, which was substantially offset by lower levels of transactions for the nine-month period. Other Other revenue increased$3.0 million and$5.7 million for the three and nine months endedJune 30, 2021 primarily due to higher miscellaneous fee revenues. OPERATING EXPENSES The table below presents the percentage change in each operating expense category. Three Months Ended Nine Months Ended June 30, Percent June 30, Percent (in millions) 2021 2020 Change 2021 2020 Change Compensation and benefits$ 771.4 $ 386.5 100 %$ 2,229.2 $ 1,141.6 95 % Sales, distribution and marketing 531.0 368.6 44 % 1,579.3 1,236.4 28 % Information systems and technology 121.8 62.1 96 % 355.8 186.4 91 % Occupancy 54.6 31.5 73 % 164.1 100.4 63 % Amortization of intangible assets 58.0 4.7 NM 174.1 13.9
NM
General, administrative and other 158.0 75.2 110 % 398.5 237.5 68 % Total Operating Expenses$ 1,694.8 $ 928.6 83 %$ 4,901.0 $ 2,916.2 68 % For the three and nine months endedJune 30, 2021 , the Legg Mason acquisition had a significant impact on operating expenses; however, due to the continued integration of the combined businesses, it is no longer practicable to separately quantify the impact of the legacy Legg Mason business. 36 -------------------------------------------------------------------------------- Table of Contents Compensation and Benefits The components of compensation and benefits expenses are presented below. Three Months Ended Nine Months Ended June 30, Percent June 30, Percent (in millions) 2021 2020 Change 2021 2020
Change
Salaries, wages and benefits$ 363.1 $ 235.8 54 %$ 1,082.1 $ 727.5 49 % Variable compensation 365.3 126.5 189 % 996.1 341.4 192 % Acquisition-related retention 39.1 15.5 152 % 129.2 64.0 102 % Special termination benefits 3.9 8.7 (55 %) 21.8 8.7 151 % Compensation and Benefits Expenses$ 771.4 $ 386.5 100 %$ 2,229.2 $ 1,141.6
95 %
Salaries, wages and benefits increased$127.3 million and$354.6 million for the three and nine months endedJune 30, 2021 primarily due to the increase in headcount as a result of the acquisition of Legg Mason. Variable compensation increased$238.8 million and$654.7 million for the three and nine months endedJune 30, 2021 primarily due to variable compensation of Legg Mason. The increase for the nine-month period also included$25.3 million from acquisition-related pass through performance fees. Acquisition-related retention expenses increased$23.6 million and$65.2 million for the three and nine months endedJune 30, 2021 primarily related to the acquisition of Legg Mason. Special termination benefits relate to workforce optimization initiatives related to the acquisition of Legg Mason. We expect to incur additional acquisition-related retention expenses of approximately$30 million during the remainder of the current fiscal year, and annual amounts beginning at approximately$130 million in the fiscal year endingSeptember 30, 2022 and decreasing over the following two fiscal years by approximately$15 million and$25 million . AtJune 30, 2021 , our global workforce had increased to approximately 10,600 employees from approximately 9,500 atJune 30, 2020 . We continue to place a high emphasis on our pay for performance philosophy. As such, any changes in the underlying performance of our investment products or changes in the composition of our incentive compensation offerings could have an impact on compensation and benefit expenses going forward. However, in order to attract and retain talented individuals, our level of compensation and benefit expenses may increase more quickly or decrease more slowly than our revenue. Sales,Distribution and Marketing Sales, distribution and marketing expenses primarily relate to services provided by financial advisers, broker-dealers and other intermediaries to our sponsored funds, including marketing support services. Substantially all sales expenses are incurred from the same commissionable sales transactions that generate sales fee revenues and are determined as a percentage of sales. Substantially all distribution expenses are incurred from assets that generate distribution fees and are determined as a percentage of AUM. Marketing support expenses are based on AUM, sales or a combination thereof. Also included is the amortization of deferred sales commissions related to upfront commissions on shares sold without a front-end sales charge. The deferred sales commissions are amortized over the periods in which commissions are generally recovered from related revenues. Sales, distribution and marketing expenses by cost driver are presented below. Three Months Ended Nine Months Ended June 30, Percent June 30, Percent (in millions) 2021 2020 Change 2021 2020 Change Asset-based expenses$ 430.7 $ 296.1 45 %$ 1,282.3 $ 991.1 29 % Sales-based expenses 79.9 53.9 48 % 238.2 185.2 29 % Amortization of deferred sales commissions 20.4 18.6 10 % 58.8 60.1 (2 %) Sales, Distribution and Marketing$ 531.0 $ 368.6 44 %$ 1,579.3 $ 1,236.4 28 % 37
-------------------------------------------------------------------------------- Table of Contents Asset-based expenses increased$134.6 million and$291.2 million for the three and nine months endedJune 30, 2021 primarily due to the acquisition of Legg Mason and$38.8 million and$32.2 million from 14% and 4% increases in the related average AUM. Distribution expenses are generally not directly correlated with distribution fee revenues due to certain fee structures that do not provide full recovery of distribution costs. Sales-based expenses increased$26.0 million and$53.0 million for the three and nine months endedJune 30, 2021 primarily due to the acquisition of Legg Mason and$11.5 million and$10.9 million from higher commissionable sales. InformationSystems and Technology Information systems and technology expenses increased$59.7 million and$169.4 million for the three and nine months endedJune 30, 2021 primarily due to the acquisition of Legg Mason. Occupancy Occupancy expenses increased$23.1 million and$63.7 million for the three and nine months endedJune 30, 2021 primarily due to an increase in leased office space as a result of the Legg Mason acquisition. Amortization of intangible assets Amortization of intangible assets increased$53.3 million and$160.2 million for the three and nine months endedJune 30, 2021 , primarily related to the intangible assets recognized as part of the acquisition of Legg Mason. General, Administrative and Other General, administrative and other operating expenses primarily consist of professional fees, fund-related service fees payable to external parties, advertising and promotion, travel and entertainment, and other miscellaneous expenses. General, administrative and other operating expenses increased$82.8 million and$161.0 million for the three and nine months endedJune 30, 2021 , primarily due to the acquisition of Legg Mason and$43.0 million of closed-end fund product launch costs. The increase for the nine-month period was also due to increases of$11.3 million in professional fees and$11.2 million in third-party fees primarily for sub-advisory and fund administration services, partially offset by decreases of$20.0 million in advertising and promotion expenses and$15.0 million in travel and entertainment expenses, both primarily due to lower activity levels. The increase for the three-month period was also partially offset by decrease of$9.1 million in advertising and promotion expenses due to lower activity levels. OTHER INCOME (EXPENSES) Other income (expenses) consisted of the following: Three Months Ended Nine Months Ended June 30, Percent June 30, Percent (in millions) 2021 2020 Change 2021 2020 Change Investment and other income (losses), net$ 52.9 $ 49.6 7 %$ 197.2 $ (63.5) NM Interest expense (25.7) (5.2) 394 % (71.3) (15.0) 375 % Investment and other income (losses) of consolidated investment products, net 61.0 0.3 NM 263.3 (25.4)
NM
Expenses of consolidated investment products (10.9) (7.4) 47 % (26.5) (23.1) 15 % Other Income (Expenses), Net$ 77.3 $ 37.3 107 %$ 362.7 $ (127.0)
NM
In the quarter endedSeptember 30, 2020 , the Company changed the presentation of its consolidated statements of income to include dividend and interest income and other expenses from consolidated investment products ("CIPs") in other income, net. Amounts for the comparative prior fiscal year period have been reclassified to conform to the current presentation. See Note 1 - Basis of Presentation in the notes to consolidated financial statements in Item 1 of Part I of this Form 10Q. Investment and other income (losses), net consists primarily of income (losses) from equity method investees, gains (losses) on investments held by the Company, gains (losses) on derivatives, foreign currency exchange gains (losses) and rental income from excess owned space in ourSan Mateo, California corporate headquarters and other office buildings which we lease to third parties. 38 -------------------------------------------------------------------------------- Table of Contents Investment and other income (losses), net increased$3.3 million and$260.7 million for the three and nine months endedJune 30, 2021 , primarily due to income from equity method investees and gains on investments held by the Company, partially offset by losses on derivatives and a decrease in dividend income. Equity method investees generated income of$39.4 million and$123.8 million for the three and nine months endedJune 30, 2021 , as compared to income of$10.0 million and losses of$110.3 million in the prior year three- and nine-month periods. The current year periods reflect continued recovery in market valuations of investments held by various global equity funds. In the prior year, the nine-month period reflected steep declines in market valuations of investments held primarily by two global equity funds amid global concerns about the COVID-19 pandemic, while the three-month period reflected partial recovery in the market valuations of those investments. Investments held by the Company generated net gains of$17.3 million and$76.2 million for the three and nine months endedJune 30, 2021 , as compared to net gains of$42.3 million and net losses of$29.3 million in the prior year three- and nine-month periods, primarily from various separate accounts and nonconsolidated funds, and in the current year periods, assets invested for Legg Mason deferred compensation plans. Dividend income decreased$3.6 million and$38.4 million for the three- and nine-month periods primarily due to lower yields on money market funds and for the three-month period lower investments in money market funds. Derivatives generated$9.1 million and$25.2 million of losses for the three- and nine-month periods as compared to a loss of$20.2 million in the prior year three-month period and a gain of$8.9 million in the prior year nine-month period. Interest expense increased$20.5 million and$56.3 million for the three- and nine-month periods, primarily due to interest expense recognized on debt of Legg Mason and the 1.600% senior unsecured unsubordinated notes issued inOctober 2020 . Investment and other income (losses) of consolidated investment products, net consists of dividend and interest income and investment gains (losses) on investments held by CIPs. Expenses of consolidated investment products primarily consists of fund-related expenses, including professional fees and other administrative expenses, and interest expense. Significant portions of the investment and other income (losses) of consolidated investment products, net and expenses of consolidated investment products are offset in noncontrolling interests in our consolidated statements of income. Investment and other income (losses) of consolidated investment products, net, increased$60.7 million and$288.7 million for the three- and nine-month periods, primarily due to a$59.9 million and$285.8 million increase in net gains on investments held by CIPs, largely related to holdings of various alternative, fixed income and equity funds. Expenses of consolidated investments products increased$3.5 million and$3.4 million for the three- and nine-month periods. The increases in the three- and nine-month periods were primarily due to higher expenses incurred by an alternative fund. Our investments in sponsored funds include initial cash investments made in the course of launching mutual fund and other investment product offerings, as well as investments for other business reasons. The market conditions that impact our AUM similarly affect the investment income earned or losses incurred on our investments in sponsored funds. 39
--------------------------------------------------------------------------------
Table of Contents Our cash, cash equivalents and investments portfolio by asset class and accounting classification atJune 30, 2021 , excluding third-party assets of CIPs, was as follows: Accounting Classification1 Cash and Investments Equity Direct Cash at Method Investments Total Direct (in millions) Equivalents Fair Value Investments Other Investments in CIPs Portfolio Cash and Cash Equivalents$ 3,856.2 $ - $ - $ - $ -$ 3,856.2 Investments Fixed Income - 245.3 36.9 36.7 286.1 605.0 Equity - 245.7 476.7 36.4 172.5 931.3 Multi-Asset - 38.3 5.5 - 76.7 120.5 Alternative - 105.8 388.1 - 422.4 916.3 Total investments - 635.1 907.2 73.1 957.7 2,573.1 Total Cash and Cash Equivalents and Investments$ 3,856.2 $ 635.1 $ 907.2 $ 73.1$ 957.7 $ 6,429.3 ______________ 1See Note 1 - Significant Accounting Policies and Note 6 - Investments in the notes to consolidated financial statements in Item 8 of Part II of our Form 10-K for fiscal year 2020 for information on investment accounting classifications. TAXES ON INCOME Our effective income tax rate was 15.1% and 20.8% for the three and nine months endedJune 30, 2021 , as compared to 6.0% and 19.3% for the three and nine months endedJune 30, 2020 . The rate increases were primarily due to prior year tax benefits from capital losses subsequent to the change in corporate tax structure of a foreign holding company to aU.S. branch, partially offset by net income attributable to noncontrolling interests as compared to net losses in the prior fiscal year. The rate increase for the three-month period was partially offset by the benefits from the release of the valuation allowance for interest expense carryforward. During the nine months endedJune 30, 2021 , we reversed gross unrecognized tax benefits of$29.3 million related to the completion of the tax authorities' examination of Legg Mason's fiscal years 2018 and 2019. The reversal of the tax benefits did not significantly impact the effective income tax rate as the benefits were offset by a valuation allowance related to tax attribute carryforwards. Our effective income tax rate reflects the relative contributions of earnings in the jurisdictions in which we operate, which have varying tax rates. Changes in our pre-tax income mix, tax rates or tax legislation in such jurisdictions may affect our effective income tax rate and net income. SUPPLEMENTAL NON-GAAP FINANCIAL MEASURES As supplemental information, we are providing performance measures for "adjusted operating income," "adjusted operating margin," "adjusted net income" and "adjusted diluted earnings per share," each of which is based on methodologies other than generally accepted accounting principles ("non-GAAP measures"). Management believes these non-GAAP measures are useful indicators of our financial performance and may be helpful to investors in evaluating our relative performance against industry peers as these measures exclude the impact of CIPs and mitigate the margin variability related to sales and distribution revenues and expenses across multiple distribution channels globally. These measures also exclude performance-based investment management fees which are fully passed through as compensation and benefits expense per the terms of a previous acquisition by Legg Mason and have no impact on net income. These non-GAAP measures also exclude acquisition-related expenses, certain items which management considers to be nonrecurring, unrealized investment gains and losses included in investment and other income (losses), net, and the related income tax effect of these adjustments, as applicable. These non-GAAP measures also exclude the impact on compensation and benefits expense from gains and losses on investments made to fund deferred compensation plans and on seed investments under certain historical revenue sharing arrangements, which is offset in investment and other income (losses), net. 40 -------------------------------------------------------------------------------- Table of Contents "Adjusted operating income," "adjusted operating margin," "adjusted net income" and "adjusted diluted earnings per share" are defined below, followed by reconciliations of operating income, operating margin, net income attributable toFranklin Resources, Inc. and diluted earnings per share on aU.S. GAAP basis to these non-GAAP measures. Non-GAAP measures should not be considered in isolation from, or as substitutes for, any financial information prepared in accordance withU.S. GAAP, and may not be comparable to other similarly titled measures of other companies. Additional reconciling items may be added in the future to these non-GAAP measures if deemed appropriate. Adjusted Operating Income We define adjusted operating income as operating income adjusted to exclude the following: •Elimination of operating revenues upon consolidation of investment products. •Acquisition-related retention compensation. •Impact on compensation and benefits expense from gains and losses on investments related to Legg Mason deferred compensation plans and seed investments, which is offset in investment and other income (expense), net. •Other acquisition-related expenses including professional fees and technology costs. •Amortization and impairment of intangible assets. •Special termination benefits related to workforce optimization initiatives related to the acquisition of Legg Mason onJuly 31, 2020 . Adjusted Operating Margin We calculate adjusted operating margin as adjusted operating income divided by adjusted operating revenues. We define adjusted operating revenues as operating revenues adjusted to exclude the following: •Acquisition-related performance-based investment management fees which are passed through as compensation and benefits expense. •Sales and distribution fees and a portion of investment management fees allocated to cover sales, distribution and marketing expenses paid to the financial advisers and other intermediaries who sell our funds on our behalf. •Elimination of operating revenues upon consolidation of investment products. Adjusted Net Income We define adjusted net income as net income attributable toFranklin Resources, Inc. adjusted to exclude the following: •Activities of CIPs, including investment and other income (losses), net, and income (loss) attributable to noncontrolling interests, net of revenues eliminated upon consolidation of investment products. •Acquisition-related retention compensation. •Other acquisition-related expenses including professional fees and technology costs. •Amortization and impairment of intangible assets. •Special termination benefits related to workforce optimization initiatives related to the acquisition of Legg Mason onJuly 31, 2020 . •Net gains or losses on investments related to Legg Mason deferred compensation plans which are not offset by compensation and benefits expense. •Unrealized investment gains and losses other than those that are offset by compensation and benefits expense. •Interest expense for amortization of Legg Mason debt premium from acquisition-date fair value adjustment. •Net income tax expense of the above adjustments based on the respective blended rates applicable to the adjustments. 41 -------------------------------------------------------------------------------- Table of Contents Adjusted Diluted Earnings Per Share We define adjusted diluted earnings per share as diluted earnings per share adjusted to exclude the per share impacts of the adjustments applied to net income in calculating adjusted net income. In calculating adjusted operating income, adjusted operating margin, adjusted net income and adjusted diluted earnings per share, we adjust for activities of CIPs because the impact of consolidated products is not considered reflective of the underlying results of our operations. We adjust for acquisition-related retention compensation, other acquisition-related expenses, amortization and impairment of intangible assets and interest expense for amortization of the Legg Mason debt premium to facilitate comparability of our operating results with the results of other asset management firms. We adjust for special termination benefits related to workforce optimization initiatives related to the acquisition of Legg Mason because these items are deemed nonrecurring. In calculating adjusted net income and adjusted diluted earnings per share, we adjust for unrealized investment gains and losses included in investment and other income (losses), net and net gains or losses on investments related to Legg Mason deferred compensation plans which are not offset by compensation and benefits expense because these items primarily relate to seed and strategic investments which have been and are generally expected to be held long term. The calculations of adjusted operating income, adjusted operating margin, adjusted net income and adjusted diluted earnings per share are as follows: Three Months Ended Nine Months Ended June 30, June 30, (in millions) 2021 2020 2021 2020 Operating income$ 478.1 $ 232.5$ 1,343.5 $ 945.3 Add (subtract): Elimination of operating revenues upon consolidation of investment products1 5.2 5.0 16.7 17.9 Acquisition-related retention 39.1 15.5 129.2 64.0 Compensation and benefits expense from gains on deferred compensation and seed investments, net 9.6 - 23.9 - Other acquisition-related expenses 7.3 4.4 23.0 9.6 Amortization of intangible assets 58.0 4.7 174.1 13.9 Impairment of intangible assets - - - 2.8 Special termination benefits 3.9 8.7 21.8 8.7 Adjusted operating income$ 601.2 $ 270.8$ 1,732.2 $ 1,062.2 Total operating revenues$ 2,172.9 $ 1,161.1 $ 6,244.5 $ 3,861.5 Add (subtract): Acquisition-related pass through performance fees - - (25.3) - Sales and distribution fees (416.9) (302.1) (1,227.4) (995.3) Allocation of investment management fees for sales, distribution and marketing expenses (114.1) (66.5) (351.9) (241.1) Elimination of operating revenues upon consolidated of investment products1 5.2 5.0 16.7 17.9 Adjusted operating revenues$ 1,647.1 $ 797.5$ 4,656.6 $ 2,643.0 Operating margin 22.0% 20.0% 21.5% 24.5% Adjusted operating margin 36.5% 34.0% 37.2% 40.2% 42
--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source
