Franklin Resources (BEN) 10-Q 6 May 10 2010 Q2 Quarterly report Financial data

Document and Entity Information

Document and Entity Information
	6 Months Ended Mar. 31, 2010	Apr. 30, 2010
Document Type	10-Q
Amendment Flag	false
Document Period End Date	2010-03-31
Document Fiscal Year Focus	2,010
Document Fiscal Period Focus	Q2
Trading Symbol	BEN
Entity Registrant Name	FRANKLIN RESOURCES INC
Entity Central Index Key	0000038777
Current Fiscal Year End Date	--09-30
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		227,338,845

Condensed Consolidated Statemen

Condensed Consolidated Statements of Income (USD $)
In Thousands, except Per Share data	3 Months Ended Mar. 31, 2010	3 Months Ended Mar. 31, 2009	6 Months Ended Mar. 31, 2010	6 Months Ended Mar. 31, 2009
Operating Revenues
Investment management fees	$836,077	$552,936	$1,642,741	$1,153,210
Underwriting and distribution fees	496,781	304,655	984,834	609,584
Shareholder servicing fees	71,376	66,514	140,919	132,856
Consolidated sponsored investment products income, net	540	1,761	988	3,647
Other, net	8,339	(13,594)	21,042	(17,695)
Total operating revenues	1,413,113	912,272	2,790,524	1,881,602
Operating Expenses
Underwriting and distribution	487,023	293,534	954,050	583,063
Compensation and benefits	271,041	236,732	525,353	480,795
Information systems, technology and occupancy	69,608	65,398	138,218	133,996
Advertising and promotion	38,121	26,700	72,969	50,927
Amortization of deferred sales commissions	46,282	33,754	92,828	70,366
Other	39,903	32,832	78,994	70,769
Total operating expenses	951,978	688,950	1,862,412	1,389,916
Operating Income	461,135	223,322	928,112	491,686
Other Income (Expenses)
Consolidated sponsored investment products gains (losses), net	5,669	(11,106)	20,741	(58,548)
Investment and other income (losses), net	42,488	(33,893)	75,466	(78,915)
Interest expense	(936)	(2,092)	(1,678)	(3,292)
Other income (expenses), net	47,221	(47,091)	94,529	(140,755)
Income before taxes	508,356	176,231	1,022,641	350,931
Taxes on income	149,946	67,159	306,682	131,930
Net Income	358,410	109,072	715,959	219,001
Less: Net income (loss) attributable to noncontrolling interests	1,725	(1,734)	3,671	(12,705)
Net Income attributable to Franklin Resources, Inc.	$356,685	$110,806	$712,288	$231,706
Earnings per Share
Basic	1.56	0.48	3.11	0.99
Diluted	1.55	0.47	3.1	0.99
Dividends per Share	0.22	0.21	3.44	0.42

Condensed Consolidated Balance

Condensed Consolidated Balance Sheets (USD $)
In Thousands	6 Months Ended Mar. 31, 2010	12 Months Ended Sep. 30, 2009
Current Assets
Cash and cash equivalents	$2,860,991	$2,982,539
Receivables	625,866	581,810
Investment securities, trading	460,385	502,609
Investment securities, available-for-sale	1,053,009	1,027,287
Other investments	15,907	51,950
Deferred taxes	75,307	67,773
Prepaid expenses and other	31,538	30,452
Total current assets	5,123,003	5,244,420
Banking/Finance Assets
Cash and cash equivalents	162,629	121,912
Investment securities, trading	72,919	110,600
Investment securities, available-for-sale	440,998	472,055
Loans held for sale	10,757	15,711
Loans receivable, net	368,154	310,504
Other	8,438	8,383
Total banking/finance assets	1,063,895	1,039,165
Non-Current Assets
Investment securities, available-for-sale	102,517	108,838
Investments in equity method investees and other	547,893	398,995
Deferred sales commissions	101,052	103,993
Property and equipment, net	534,785	535,459
Goodwill	1,445,139	1,436,626
Other intangible assets, net	567,562	567,974
Other	34,736	32,993
Total non-current assets	3,333,684	3,184,878
Total Assets	9,520,582	9,468,463
Current Liabilities
Compensation and benefits	201,448	210,789
Commercial paper	285,970	64,156
Accounts payable and accrued expenses	173,036	174,525
Commissions	260,266	219,356
Income taxes	41,634	28,363
Other	27,284	28,351
Total current liabilities	989,638	725,540
Banking/Finance Liabilities
Deposits	709,136	664,580
Federal Home Loan Bank advances	66,000	57,000
Other	23,916	24,653
Total banking/finance liabilities	799,052	746,233
Non-Current Liabilities
Deferred taxes	228,770	218,845
Other	86,556	78,284
Total non-current liabilities	315,326	297,129
Total liabilities	2,104,016	1,768,902
Commitments and Contingencies (Note 11)
Redeemable Noncontrolling Interests	29,074	65,126
Stockholders' Equity
Preferred stock, $1.00 par value, 1,000,000 shares authorized; none issued	0	0
Common stock, $0.10 par value, 1,000,000,000 shares authorized; 227,391,266 and 229,324,345 shares issued and outstanding, at March 31, 2010 and September 30, 2009	22,739	22,932
Retained earnings	7,217,850	7,505,890
Accumulated other comprehensive income	143,687	103,351
Total Franklin Resources, Inc. stockholders' equity	7,384,276	7,632,173
Nonredeemable noncontrolling interests	3,216	2,262
Total stockholders' equity	7,387,492	7,634,435
Total Liabilities and Stockholders' Equity	$9,520,582	$9,468,463

1_Condensed Consolidated Balanc

Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
	Mar. 31, 2010	Sep. 30, 2009
Preferred stock, par value	$1	$1
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, issued	0	0
Common stock, par value	0.1	0.1
Common stock, shares authorized	1,000,000,000	1,000,000,000
Common stock, shares issued	227,391,266	229,324,345
Common stock, shares outstanding	227,391,266	229,324,345

2_Condensed Consolidated Statem

Condensed Consolidated Statements of Cash Flows (USD $)
In Thousands	6 Months Ended Mar. 31, 2010	6 Months Ended Mar. 31, 2009
Net Income	$715,959	$219,001
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	131,194	89,143
Stock-based compensation	40,368	39,772
Excess tax benefits from stock-based compensation arrangements	(10,415)	(3,157)
Net (gains) losses on sale of assets	(2,122)	12,344
Equity in net (income) losses of affiliated companies	(17,290)	36,475
Provision for loan losses	2,460	5,197
Other-than-temporary impairment of investments	1,463	57,652
Deferred income taxes	(2,092)	(15,499)
Changes in operating assets and liabilities:
(Increase) decrease in receivables, prepaid expenses and other	(56,845)	76,172
Principal collected on loans held for sale, net	2,976	11,354
Increase in trading securities, net	(100,580)	(3,814)
Advances of deferred sales commissions	(89,184)	(33,086)
Increase (decrease) in income taxes payable	31,177	(49,816)
Increase (decrease) in commissions payable	40,911	(69,024)
Increase in other liabilities	2,047	19,322
Increase (decrease) in accrued compensation and benefits	6,370	(145,427)
Net cash provided by operating activities	696,397	246,609
Purchase of investments	(420,686)	(1,320,217)
Liquidation of investments	388,308	1,243,277
Purchase of banking/finance investments	0	(118,618)
Liquidation of banking/finance investments	87,400	23,725
(Increase) decrease in loans receivable	(58,133)	16,906
Additions of property and equipment, net	(27,862)	(27,631)
Acquisitions of subsidiaries, net of cash acquired	0	533
Net cash used in investing activities	(30,973)	(182,025)
Increase in bank deposits, net	44,556	75,720
Exercise of common stock options	12,936	9,928
Dividends paid on common stock	(783,832)	(95,475)
Purchase of common stock	(291,491)	(108,971)
Excess tax benefits from stock-based compensation arrangements	10,415	3,157
Proceeds from issuance of commercial paper, net	221,612	11,601
Proceeds from issuance of debt	9,000	77,750
Payments on debt	0	(104,551)
Noncontrolling interests, net	42,844	38,798
Net cash used in financing activities	(733,960)	(92,043)
Effect of exchange rate changes on cash and cash equivalents	(12,295)	(55,757)
Decrease in cash and cash equivalents	(80,831)	(83,216)
Cash and cash equivalents, beginning of period	3,104,451	2,527,552
Cash and Cash Equivalents, End of Period	3,023,620	2,444,336
Cash and cash equivalents, beginning of period:
Current assets	2,982,539	2,314,818
Banking/finance assets	121,912	212,734
Cash and cash equivalents, beginning of period	3,104,451	2,527,552
Cash and cash equivalents, end of period:
Current assets	2,860,991	2,282,021
Banking/finance assets	162,629	162,315
Cash and Cash Equivalents, End of Period	3,023,620	2,444,336
Supplemental Disclosure of Non-Cash Information
Change in assets related to the net deconsolidation of certain sponsored investment products	(90,710)	(95,084)
Change in liabilities related to the net deconsolidation of certain sponsored investment products	(7,999)	(53,822)
Supplemental Disclosure of Cash Flow Information
Cash paid for income taxes	273,548	243,558
Cash paid for interest	$3,589	$5,240

Basis of Presentation

Basis of Presentation
	6 Months Ended Mar. 31, 2010
Basis of Presentation	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 by the Company in accordance with the instructions to Form 10-Q and the rules and regulations of the U.S. Securities and Exchange Commission (the SEC). 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. These financial statements should be read together with the Companys audited financial statements included in its Form 10-K for the fiscal year ended September30, 2009 (fiscal year 2009). Certain amounts for the comparative prior fiscal year periods have been reclassified to conform to the financial statement presentation as of and for the period ended March31, 2010, including those required by the retrospective adoption of new accounting guidance relating to noncontrolling interests and the computation of earnings per share (see Note 2 New Accounting Standards).

New Accounting Standards

New Accounting Standards
	6 Months Ended Mar. 31, 2010
New Accounting Standards	Note 2 - New Accounting Standards Recently Adopted Accounting Standards In the first quarter, the Company adopted a new Financial Accounting Standards Board (FASB) standard that permits a reporting entity to measure the fair value of certain alternative investments that do not have a readily determinable fair value on the basis of the investments net asset value per share or its equivalent. The adoption of the standard had no impact on the Companys consolidated financial statements. In the first quarter, the Company adopted a new FASB standard that establishes accounting and reporting standards for noncontrolling interests in a subsidiary (previously referred to as minority interests) and for the deconsolidation of a subsidiary. The standard clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as a component of equity, separate from the parents equity, in the consolidated financial statements. In addition, it modifies the presentation of consolidated net income to include the amount attributable to noncontrolling interests. The standard requires retrospective adoption of the presentation and disclosure requirements for existing noncontrolling interests. All other requirements of the standard are applied prospectively. The adoption of the standard did not have a material effect on the Companys consolidated financial position or results of operations, but resulted in changes in financial statement presentation and disclosure for all periods presented. Minority interests have been recharacterized as redeemable noncontrolling interests and classified as temporary equity, if currently redeemable or convertible for cash or other assets at the option of the holder, or otherwise as nonredeemable noncontrolling interests and classified as a component of equity. Additionally, the presentation of consolidated net income was modified to include the amount attributable to noncontrolling interests. In the first quarter, the Company adopted a new FASB standard that specifies that nonvested share-based payment awards containing nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. All prior period earnings per share data presented must be adjusted retrospectively. The adoption of the standard did not have a material impact on basic or diluted earnings per share. New Accounting Standards Not Yet Adopted In February 2010, the FASB issued an amendment to a standard relating to the consolidation of variable interest entities. For certain investments held by a reporting entity, the amendment indefinitely defers a requirement to perform a qualitative analysis to determine whether its variable interests give it a controlling financial interest in a variable interest entity (VIE). The deferral generally applies to the reporting entitys interests in entities that have the attributes of an investment company or that apply the specialized industry accounting guidance for investment companies. The amendment is effective for

Stockholders' Equity and Compre

Stockholders' Equity and Comprehensive Income
	6 Months Ended Mar. 31, 2010
Stockholders' Equity and Comprehensive Income	Note 3 - Stockholders Equity and Comprehensive Income The changes in stockholders equity and redeemable noncontrolling interests for the six months ended March31, 2010 and 2009 were as follows: (in thousands) Franklin Resources,Inc. Stockholders Equity Nonredeemable Noncontrolling Interests Total Stockholders Equity Redeemable Noncontrolling Interests Balance at October1, 2009 $ 7,632,173 $ 2,262 $ 7,634,435 $ 65,126 Net income 712,288 420 712,708 3,251 Other comprehensive income Net unrealized gains on investments, net of tax 35,154 0 35,154 0 Currency translation adjustments 4,937 0 4,937 0 Net unrealized gains on defined benefit plans, net of tax 245 0 245 0 Cash dividends on common stock (787,048 ) 0 (787,048 ) 0 Repurchase of common stock (291,491 ) 0 (291,491 ) 0 Other 78,018 534 78,552 (39,303 ) Balance at March31, 2010 $ 7,384,276 $ 3,216 $ 7,387,492 $ 29,074 (in thousands) Franklin Resources,Inc. Stockholders Equity Nonredeemable Noncontrolling Interests Total Stockholders Equity Redeemable Noncontrolling Interests Balance at October1, 2008 $ 7,074,364 $ 29,608 $ 7,103,972 $ 47,554 Net income (loss) 231,706 (3,886 ) 227,820 (8,819 ) Other comprehensive income Net unrealized gains on investments, net of tax 4,777 0 4,777 0 Currency translation adjustments (119,876 ) 0 (119,876 ) 0 Net unrealized losses on defined benefit plans, net of tax (84 ) 0 (84 ) 0 Cash dividends on common stock (97,691 ) 0 (97,691 ) 0 Repurchase of common stock (108,971 ) 0 (108,971 ) 0 Other 64,600 (23,220 ) 41,380 (1,317 ) Balance at March31, 2009 $ 7,048,825 $ 2,502 $ 7,051,327 $ 37,418 The components of comprehensive income, including amounts attributable to redeemable noncontrolling interests, were as follows: Three Months Ended March31, Six Months Ended March31, (in thousands) 2010 2009 2010 2009 Net income $ 358,410 $ 109,072 $ 715,959 $ 219,001 Net unrealized gains on investments, net of tax 22,716 12,609 35,154 4,777 Currency translation adjustments (4,510 ) (37,877 ) 4,937 (119,876 ) Net unrealized gains (losses) on defined benefit plans, net of tax 82 (84 ) 245 (84 ) Total Comprehensive Income 376,698 83,720 756,295 103,818 Less: Comprehensive income (loss) attributable to noncontrolling interests 1,725 (1,734 ) 3,671 (12,705 ) Tota

Earnings per Share

Earnings per Share
	6 Months Ended Mar. 31, 2010
Earnings per Share	Note 4 - Earnings per Share Basic earnings per share is computed by dividing net income available to the Companys common shareholders, which exclude participating securities,by the weighted average number of shares of common stock outstanding during the period. The Companys participating securities consist of its nonvested stock and stock unit awards that contain nonforfeitable rights to dividends or dividend equivalents. Diluted earnings per share is computed on the basis of the weighted-average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the two-class method. The components of basic and diluted earnings per share were as follows: Three Months Ended March31, Six Months Ended March31, (in thousands, except per share data) 2010 2009 2010 2009 Net Income attributable to Franklin Resources, Inc. $ 356,685 $ 110,806 $ 712,288 $ 231,706 Less: Allocation of earnings to participating nonvested stock and stock unit awards 1,976 922 4,061 1,772 Net Income Available to Common Stockholders $ 354,709 $ 109,884 $ 708,227 $ 229,934 Weighted-average shares outstanding basic 227,046 231,178 227,474 231,405 Effect of dilutive common stock options and non-participating nonvested stock unit awards 1,254 712 1,312 912 Weighted-Average Shares Outstanding Diluted 228,300 231,890 228,786 232,317 Earnings per Share Basic $ 1.56 $ 0.48 $ 3.11 $ 0.99 Diluted 1.55 0.47 3.10 0.99 For the three and six months ended March31, 2010, the Company excluded approximately 0.4million shares of non-participating nonvested stock unit awards from the calculation of diluted earnings per share because their effect would have been anti-dilutive. There were no anti-dilutive potential common shares outstanding during the three and six months ended March31, 2009.

Cash and Cash Equivalents

Cash and Cash Equivalents
	6 Months Ended Mar. 31, 2010
Cash and Cash Equivalents	Note 5 - Cash and Cash Equivalents The Company discloses cash and cash equivalents as separate components of current assets and banking/finance assets in its condensed consolidated balance sheets. Cash and cash equivalents consisted of the following: (in thousands) March31, 2010 September30, 2009 Cash on hand and non-interest-bearing deposits with financial institutions $ 24,649 $ 134,508 Interest-bearing deposits with financial institutions 497,248 350,483 Federal funds sold 1,191 5,242 Sponsored money market funds 1,054,456 1,407,801 Time deposits, U.S. government-sponsored enterprise obligations, securities of the U.S. Treasury and federal agencies and other 1,446,076 1,206,417 Total $ 3,023,620 $ 3,104,451 Federal Reserve Board regulations require certain of the Companys banking subsidiaries to maintain reserve and clearing balances on deposits with the Federal Reserve Banks. The required reserve balances were $7.8 million at March31, 2010 and $7.0 million at September30, 2009. The required clearing balance was $1.2 million at March31, 2010 and September30, 2009. The Company maintains cash and cash equivalents with financial institutions in various countries, limits the amount of credit exposure with any given financial institution and conducts ongoing evaluations of the creditworthiness of the financial institutions with which it does business.

Investments

Investments
	6 Months Ended Mar. 31, 2010
Investments	Note 6 - Investments Investments consisted of the following: (in thousands) March31, 2010 September30, 2009 Current Investment securities, trading $ 460,385 $ 502,609 Investment securities, available-for-sale Sponsored investment products 954,428 943,824 U.S. government-sponsored enterprise obligations1 0 5,200 Securities of U.S. states and political subdivisions 14,034 15,118 Securities of the U.S. Treasury and federal agencies 75,590 50,616 Other equity securities 8,957 12,529 Total investment securities, available-for-sale 1,053,009 1,027,287 Other investments2 15,907 51,950 Total Current $ 1,529,301 $ 1,581,846 Banking/Finance Investment securities, trading $ 72,919 $ 110,600 Investment securities, available-for-sale U.S. government-sponsored enterprise obligations1 334,685 365,655 Securities of U.S. states and political subdivisions 842 852 Securities of the U.S. Treasury and federal agencies 3,378 3,566 Corporate debt securities3 101,913 101,774 Other equity securities 180 208 Total investment securities, available-for-sale 440,998 472,055 Total Banking/Finance $ 513,917 $ 582,655 Non-Current Investment securities, available-for-sale Sponsored investment products $ 29,316 $ 23,947 Securities of U.S. states and political subdivisions 72,376 83,838 Other equity securities 825 1,053 Total investment securities, available-for-sale 102,517 108,838 Investments in equity method investees and other 547,893 398,995 Total Non-Current $ 650,410 $ 507,833 1 At March31, 2010 and September30, 2009, U.S. government-sponsored enterprise obligations consisted of $283.0 million and $313.0 million of residential mortgage-backed securities and $51.7 million and $57.9 million of debentures. 2 Other investments consist of time deposits with financial institutions having original maturities greater than three months but not exceeding one year from the date of purchase. 3 Corporate debt securities are insured by the Federal Deposit Insurance Corporation or non-U.S. government agencies. At March31, 2010 and September30, 2009, current investment securities, trading included $224.4 million and $277.6 million of securities held by sponsored investment products that were consolidated in the Companys condensed consolidated financial statements. At March31, 2010 and September30, 2009, banking/finance segment investment securities with aggregate carrying values of $232.8 million and $245.9 million were pledged as collateral for the ability to borrow from the Federal Reserve Bank, $94.4 million and $99.6 million were pledged as collateral for outstanding Federal Home Loan Bank (FHLB) borrowings and amounts available in secured FHLB short-term

Fair Value Measurements

Fair Value Measurements
	6 Months Ended Mar. 31, 2010
Fair Value Measurements	Note 7 - Fair Value Measurements The Company uses a three-level fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based on whether the inputs to those valuation techniques are observable or unobservable. The three levels of fair value hierarchy are set forth below. The Companys assessment of the hierarchy level of the assets or liabilities measured at fair value is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Level1 Unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 Observable inputs other than Level 1 quoted prices, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs other than quoted prices that are observable or corroborated by observable market data. Level 2 quoted prices are obtained from independent third-party brokers or dealers, including prices derived from model-based valuation techniques for which the significant assumptions are observable in the market or corroborated by observable market data. Level 3 Unobservable inputs that are supported by little or no market activity. These inputs require significant management judgment and reflect the Companys estimation of assumptions that market participants would use in pricing the asset or liability. Level 3 valuations are derived primarily from model-based valuation techniques in which one or more significant inputs are unobservable in the market. The Company records substantially all of its investments at fair value or amounts that approximate fair value. Trading securities and securities available-for-sale are financial instruments recorded at fair value on a recurring basis. The Company recognizes transfers between levels at the end of each quarter. There were no material transfers between Level 1 and Level 2 during the six months ended March31, 2010. The table below presents the balances of assets measured at fair value on a recurring basis. (in thousands) as of March31, 2010 Level 1 Level 2 Level 3 Total Current Assets Investment securities, trading $ 339,026 $ 118,589 $ 2,770 $ 460,385 Investment securities, available-for-sale Sponsored investment products 954,423 5 0 954,428 Securities of U.S. states and political subdivisions 0 14,034 0 14,034 Securities of the U.S. Treasury and federal agencies 24,994 50,596 0 75,590 Other equity securities 4,861 0 4,096 8,957 Banking/Finance Assets Investment securities, trading 0 41,415 31,504 72,919 Investment securities, available-for-sale U.S. government-sponsored enterprise obligations 0 334,685 0 334,685 Securities of U.S. states and political subdivisions 0 842 0 842 Securities of the U.S. Treasury and federal agencies 0 3,378

Securitization of Loans Held fo

Securitization of Loans Held for Sale
	6 Months Ended Mar. 31, 2010
Securitization of Loans Held for Sale	Note 8 - Securitization of Loans Held for Sale From time to time, the Company enters into automobile loan securitization transactions with securitization trusts structured as qualified special purpose entities (the securitization trusts), which then issue asset-backed securities to private investors. The Company records these transactions as sales. The securitization transactions are comprised of prime, non-prime and sub-prime contracts for retail installment sales that are secured by new and used automobiles purchased from motor vehicle dealers. The Company purchases the sale contracts in the ordinary course of business. When the Company sells automobile loans in a securitization transaction, it retains certain interests. Residual interests, which include interest-only strips receivable and cash on deposit, represent the Companys contractual right to receive excess interest and cash from the pool of securitized loans after the payment of required amounts to holders of the asset-backed securities and certain other costs associated with the securitization. The residual interests are generally fully realizable and subject to limited recourse provisions. Credit enhancements for the securitization trusts require the Company to maintain a certain amount of cash on deposit, which provides protection for the holders of the asset-backed securities against delays in payment and certain losses on the securitized loans. At March31, 2010 and September30, 2009, the amounts of cash on deposit were $42.8 million and $46.9 million. Discounted values of the cash on deposit were recognized as part of the residual interests. The Company may also retain subordinated securities from securitization transactions, which are senior to the residual interests. The retained interests in securitized assets, including the residual interests and the retained subordinated securities, are recognized as banking/finance trading securities in the condensed consolidated balance sheets. Changes in the fair value of the retained interests are recognized in earnings. The Company did not enter into any automobile loan securitization transactions during the six months ended March31, 2010 or fiscal year 2009. The securitization transactions in which the Company entered into through September30, 2008 were similar in all material respects. As a result of a securitization transaction that the Company entered into in June 2008, it retained the subordinated securities in addition to the residual interests. The remaining retained subordinated securities held by the Company at March31, 2010 had a BBB- credit rating from Standard Poors. The Company determines the fair value of the retained interests in securitized assets at the date of securitization and at the end of each period (see Note 7 Fair Value Measurements for a description of fair value methodologies used). The following table shows the sensitivity of the retained interests to hypothetical adverse changes in the key economic assumptions used to measure fair value: (dollar amounts in thousands) March31, 2010 September30, 2009 Fair value of retained interests Retained subordina

Goodwill and Other Intangible A

Goodwill and Other Intangible Assets
	6 Months Ended Mar. 31, 2010
Goodwill and Other Intangible Assets	Note 9 - Goodwill and Other Intangible Assets Goodwill and other intangible assets have been assigned to one reporting unit, the investment management and related services segment. The changes in the carrying values of goodwill and gross intangible assets were as follows: (in thousands) Goodwill Amortized Intangible Assets Non-amortized Intangible Assets Balance at October1, 2009 $ 1,436,626 $ 200,952 $ 507,737 Foreign currency movements 8,513 395 4,677 Balance at March31, 2010 $ 1,445,139 $ 201,347 $ 512,414 Certain of the goodwill and intangible assets are denominated in currencies other than the U.S. dollar; therefore, their gross and net carrying values are subject to foreign currency movements. Intangible assets were as follows: (in thousands) as of March31, 2010 GrossCarrying Value Accumulated Amortization NetCarrying Value Amortized intangible assets Customer base $ 166,310 $ (113,729 ) $ 52,581 Other 35,037 (32,470 ) 2,567 201,347 (146,199 ) 55,148 Non-amortized intangible assets Management contracts 512,414 0 512,414 Total $ 713,761 $ (146,199 ) $ 567,562 (in thousands) as of September30, 2009 Gross Carrying Value Accumulated Amortization Net Carrying Value Amortized intangible assets Customer base $ 165,915 $ (109,059 ) $ 56,856 Other 35,037 (31,656 ) 3,381 200,952 (140,715 ) 60,237 Non-amortized intangible assets Management contracts 507,737 0 507,737 Total $ 708,689 $ (140,715 ) $ 567,974 The Company completed its most recent annual impairment tests of goodwill and indefinite-lived intangible assets during the quarter ended September30, 2009, and determined that there was no impairment in the value of these assets as of August1, 2009. Additionally, no impairment loss in the value of goodwill and indefinite-lived intangible assets was recognized during the six months ended March31, 2010 and 2009. No impairment loss in the value of intangible assets subject to amortization was recognized during the six months ended March31, 2010 and 2009 as the estimates of the undiscounted expected cash flows from these assets or their fair values exceeded the asset carrying values. Amortization expense related to definite-lived intangible assets was $2.6 million for the three months ended March31, 2010 and 2009, and $5.2 million for the six months ended March31, 2010 and 2009. The estimated remaining amortization expense related to definite-lived intangible assets as of March31, 2010 was as follows: (in thousands) For the fiscal years ending September30, Amount 2010 (remaining six months) $ 5,219 2011 10,412 2012 8,930 2013 8,807 2014 8,807 Thereafter 12,

Debt

Debt
	6 Months Ended Mar. 31, 2010
Debt	Note 10 - Debt Outstanding debt consisted of the following: (in thousands) March31, 2010 September30, 2009 Current Commercial paper $ 285,970 $ 64,156 Banking/Finance Federal Home Loan Bank advances 66,000 57,000 Total Debt $ 351,970 $ 121,156 At March31, 2010, current debt consisted of commercial paper with a total face value of $286.0 million that was issued at a weighted-average annualized interest rate of 0.23% and matures during the quarter ending June30, 2010. The banking/finance segment secures advances from the FHLB to fund its retail banking and consumer lending services. At March31, 2010, the Company had $66.0 million of FHLB advances outstanding, of which approximately $15.0 million matured in April 2010 and the remaining $51.0 million will mature between June 2011 and January 2039. These advances had a weighted-average interest rate of 2.93% at March31, 2010 and are subject to collateralization requirements. At March31, 2010, the Company had $420.0 million in short-term revolving credit available under a five-year credit facility with certain banks and financial institutions expiring on June9, 2010, $214.0 million of short-term commercial paper available for issuance under an uncommitted $500.0 million private placement program, and $14.8 million available in uncommitted short-term bank lines of credit. The revolving credit facility is available for general corporate purposes, including the support of the Companys commercial paper program. It is subject to various financial covenants, including, but not limited to, minimum requirements related to the Companys interest coverage ratio and maintenance of working capital, as well as limitations on its capitalization ratio, indebtedness, investments and liens. Interest rates on loans under the revolving credit facility are determined at the time of issuance, and depend on the type of loan issued and the Companys ratings at the time. As of March31, 2010, there were no amounts outstanding under the revolving credit facility and the Company was in compliance with the financial covenants related to this facility. The Company currently intends to replace the revolving credit facility in the third quarter. In addition, at March31, 2010, the banking/finance segment had $295.0 million available in uncommitted short-term bank lines of credit under the Federal Reserve system, $227.9 million available in secured Federal Reserve Bank short-term discount window and $52.6 million available in secured FHLB short-term borrowing capacity (see Note 6 Investments). At March31, 2010 and September30, 2009, loans receivable with aggregate carrying values of $42.5 million and $30.6 million were pledged as collateral for the ability to obtain FHLB advances.

Commitments and Contingencies

Commitments and Contingencies
	6 Months Ended Mar. 31, 2010
Commitments and Contingencies	Note 11 - Commitments and Contingencies Guarantees The Company is obligated to cover shortfalls for the automobile loan securitization trusts in amounts due to the holders of the asset-backed securities up to certain levels (see Note 8 Securitization of Loans Held for Sale). At March31, 2010, the banking/finance segment had issued financial standby letters of credit totaling $6.3 million which beneficiaries would be able to draw upon in the event of non-performance by its customers, primarily in relation to lease and lien obligations of these banking customers. These standby letters of credit were secured by marketable securities with a fair value of $10.0 million as of March31, 2010. Legal Proceedings As previously reported, between 2003 and 2006, following industry-wide market timing and late trading investigations by U.S. and Canadian regulators, and U.S. state government offices, Franklin and certain related parties were named in civil lawsuits in the U.S. and one of Franklins adviser subsidiaries was named in civil lawsuits in Canada. In the U.S., the lawsuits were filed against Franklin and certain of its adviser and distributor affiliates, individual Franklin officers and directors, a former Franklin employee, and trustees of certain Franklin Templeton Investments mutual funds (the Funds). In 2004, the lawsuits were consolidated for coordinated proceedings with similar lawsuits against numerous other mutual fund complexes in a multi-district litigation titled In re Mutual Funds Investment Litigation, pending in the U.S. District Court for the District of Maryland, Case No.04-md-15862 (the MDL). Plaintiffs filed consolidated amended complaints in the MDL on September29, 2004. The three consolidated lawsuits involving the Company include a class action (Sharkey IRO/IRA v. Franklin Resources, Inc., et al., Case No.04-cv-01310), a derivative action on behalf of the Funds (McAlvey v. Franklin Resources, Inc., et al., Case No.04-cv-01274), and a derivative action on behalf of Franklin (Hertz v. Burns, et al., Case No.04-cv-01624) and seek, among other forms of relief, one or more of the following: unspecified monetary damages; punitive damages; removal of Fund trustees, directors, advisers, administrators, and distributors; rescission of management contracts and distribution plans under Rule 12b-1 promulgated under the Investment Company Act of 1940; and attorneys fees and costs. On February25, 2005, the Company-related parties filed motions to dismiss the consolidated amended class action and Fund derivative action complaints. On June26, 2008, the court issued its order granting in part and denying in part the Companys motion to dismiss the consolidated amended class action complaint. In its order, the court dismissed certain claims, while allowing others under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and under Sections 36(b) and 48(a) of the Investment Company Act of 1940 to remain, and dismissed all class action claims against the named Funds. Pursuant to stipulation, the court also dismissed all claims against certain individual defendants, including the independent trustees to the named Funds, and

Stock-Based Compensation

Stock-Based Compensation
	6 Months Ended Mar. 31, 2010
Stock-Based Compensation	Note 12 - Stock-Based Compensation The Companys stock-based compensation plans include the Amended and Restated Annual Incentive Plan (the AIP) and the 2002 Universal Stock Incentive Plan, as amended and restated (the USIP). Under the terms of the AIP, eligible employees may receive cash, equity awards, and/or cash-settled equity awards generally based on the performance of the Company, its funds and the individual employee. The USIP provides for the issuance of up to 30.0million shares of the Companys common stock for various stock-related awards to officers, directors and employees. At March31, 2010, approximately 3.5million shares were available for grant under the USIP. In addition to stock and stock unit awards, the Company may award options and other forms of stock-based compensation to officers, directors and employees under the USIP. The Compensation Committee of the Board of Directors determines the terms and conditions of awards under the AIP and USIP. Stock Options The following table summarizes stock option activity: (in thousands, except weighted-average exercise price) Shares Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term(in Years) Aggregate Intrinsic Value Outstanding at September30, 2009 2,737 $ 37.86 Exercised (339 ) 37.91 Outstanding and Exercisable at March31, 2010 2,398 $ 37.85 2.3 $ 175,142 Stock option awards outstanding under the USIP generally have been granted at prices that are either equal to or above the market value of the underlying shares of the Companys common stock on the date of grant, generally vest over three years and expire no later than ten years after the grant date. No stock option awards have been granted under the USIP since November 2004. All stock options were fully vested and all related compensation cost was recognized prior to fiscal year 2008. Cash received from stock option exercises for the three and six months ended March31, 2010 was $4.6 million and $12.9 million, and $6.8 million and $9.9 million for the three and six months ended March31, 2009. Income tax benefits from stock option exercises were $0.4 million and $9.1 million for the three and six months ended March31, 2010, and $0.3 million and $3.7 million for the three and six months ended March31, 2009. Stock and Stock Unit Awards The fair value of stock and stock unit awards granted under the USIP is estimated on the date of grant based on the market price of the underlying shares of the Companys common stock and is amortized to compensation expense on a straight-line basis over the related vesting period, which is generally three to four years. The total number of stock and stock unit awards expected to vest is adjusted for estimated forfeitures. Total unrecognized compensation cost related to nonvested stock and stock unit awards, net of estimated forfeitures, was $108.9 million at March31, 2010. This cost is expected to be recognized over a remaining weighted-average vesting period of 1.7 years. The following table summarizes nonvested stock and stock unit a

Common Stock Repurchases

Common Stock Repurchases
	6 Months Ended Mar. 31, 2010
Common Stock Repurchases	Note 13 - Common Stock Repurchases During the three and six months ended March31, 2010, the Company repurchased 1.1million and 2.7million shares of its common stock at a cost of $117.5 million and $291.5 million. The common stock repurchases made as of March31, 2010 reduced capital in excess of par value to nil and the excess amount was recognized as a reduction to retained earnings. At March31, 2010, approximately 6.9million shares of common stock remained available for repurchase under the stock repurchase program. During the three and six months ended March31, 2009, the Company repurchased 1.4million and 2.1million shares of its common stock at a cost of $68.3 million and $109.0 million. The stock repurchase program is not subject to an expiration date.

Segment Information

Segment Information
	6 Months Ended Mar. 31, 2010
Segment Information	Note 14 - Segment Information The Company bases its operating segment selection process primarily on services offered. The Company derives substantially all of its operating revenues and net income from providing investment management and related services to its sponsored investment products. This is the Companys primary business activity and operating segment. The Companys investment management and related services are marketed to the public globally under six distinct brand names: Franklin, Templeton, Mutual Series, Bissett, Fiduciary Trust and Darby. The Companys secondary business activity and operating segment is banking/finance. The banking/finance segment offers selected retail banking and consumer lending services and private banking services to high net-worth clients. Consumer lending and retail banking activities include automobile lending services related to the purchase, securitization, and servicing of retail installment sales contracts originated by independent automobile dealerships, consumer credit and debit cards, real estate equity lines, home equity/mortgage lending, and other consumer lending. Financial information for the Companys two operating segments is presented in the table below. Inter-segment transactions are immaterial and excluded from segment income (loss) and assets. Operating revenues of the banking/finance segment are reported net of interest expense, the provision for loan losses and changes in fair value of residual interests from securitization transactions. (in thousands) Three Months Ended March31, Six Months Ended March31, 2010 2009 2010 2009 Operating Revenues Investment management and related services $ 1,406,851 $ 927,920 $ 2,773,615 $ 1,903,879 Banking/finance 6,262 (15,648 ) 16,909 (22,277 ) Total $ 1,413,113 $ 912,272 $ 2,790,524 $ 1,881,602 Income (Loss) Before Taxes Investment management and related services $ 501,205 $ 223,435 $ 1,009,605 $ 432,295 Banking/finance 7,151 (47,204 ) 13,036 (81,364 ) Total $ 508,356 $ 176,231 $ 1,022,641 $ 350,931 Operating revenues of the banking/finance operating segment included above were as follows: (in thousands) Three Months Ended March31, Six Months Ended March31, 2010 2009 2010 2009 Interest and fees on loans $ 4,689 $ 4,345 $ 9,270 $ 10,398 Interest and dividends on investment securities 3,644 3,469 7,285 10,445 Total interest income 8,333 7,814 16,555 20,843 Interest on deposits (1,281 ) (1,567 ) (2,581 ) (3,325 ) Interest on short-term debt (5 ) (100 ) (11 ) (871 ) Interest on long-term debt (477 ) (419 ) (929 ) (829 ) Total interest

Other Income

Other Income (Expenses)
	6 Months Ended Mar. 31, 2010
Other Income (Expenses)	Note 15 - Other Income (Expenses) Other income (expenses) consisted of the following: (in thousands) Three Months Ended March31, Six Months Ended March31, 2010 2009 2010 2009 Consolidated Sponsored Investment Products Gains (Losses), Net Realized gains (losses), net $ 7,133 $ (9,139 ) $ 12,188 $ (36,062 ) Unrealized (losses) gains, net (1,464 ) (1,967 ) 8,553 (22,486 ) Total 5,669 (11,106 ) 20,741 (58,548 ) Investment and Other Income (Losses), Net Dividend income 9,510 8,504 20,058 20,942 Interest income 3,446 8,468 7,027 20,071 Capital gain distributions 26 51 888 14,273 Other-than-temporary impairment of investment securities, available-for-sale (2 ) (23,803 ) (1,463 ) (57,652 ) Realized gains on sale of investment securities, available-for-sale 103 118 2,225 1,950 Realized losses on sale of investment securities, available-for-sale (1 ) (359 ) (479 ) (14,473 ) Gains (losses) on trading investment securities, net 10,008 (21,235 ) 22,397 (47,791 ) Income (losses) from investments in equity method investees 13,140 (11,015 ) 17,290 (36,475 ) Foreign currency exchange gains, net 5,991 3,751 4,569 16,296 Other, net 267 1,627 2,954 3,944 Total 42,488 (33,893 ) 75,466 (78,915 ) Interest Expense (936 ) (2,092 ) (1,678 ) (3,292 ) Other Income (Expenses), Net $ 47,221 $ (47,091 ) $ 94,529 $ (140,755 ) Substantially all of the Companys dividend income, capital gain distributions, and realized gains and losses on sale of investment securities, available-for-sale were generated by investments in its sponsored investment products. Interest income was primarily generated by investments in debt securities of the U.S. Treasury and federal agencies and cash equivalents. Proceeds from the sale of investment securities, available-for-sale were $29.2 million and $134.8 million for the three and six months ended March31, 2010, and $257.7 million and $338.0 million for the three and six months ended March31, 2009. The Company recognized net gains (losses) on trading investment securities, including securities held by consolidated sponsored investment products, that were still held at March31, 2010 and 2009 in the amounts of $6.7 million and $15.7 million during the three and six months ended March31, 2010, and $(23.6) million and $(63.2) million during the three and six months ended March31, 2009.

Banking Regulatory Ratios

Banking Regulatory Ratios
	6 Months Ended Mar. 31, 2010
Banking Regulatory Ratios	Note 16 - Banking Regulatory Ratios Franklin is a bank holding company and a financial holding company subject to various regulatory capital requirements administered by federal banking agencies, including the Federal Reserve Board. Failure to meet minimum capital requirements can result in certain mandatory, and possibly additional, discretionary actions by regulators that, if undertaken, could have a direct material effect on the Companys consolidated financial statements. The Company must meet specific capital adequacy guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain a minimum Tier 1 capital and Tier 1 leverage ratio (as defined in the regulations), as well as minimum Tier 1 and Total risk-based capital ratios (as defined in the regulations). Based on the Companys calculations as of March31, 2010 and September30, 2009, it exceeded the applicable capital adequacy requirements as listed below. (dollar amounts in thousands) March31, 2010 September30, 2009 CapitalAdequacy Minimum Tier 1 capital $ 5,165,812 $ 5,495,995 N/A Total risk-based capital 5,172,512 5,503,022 N/A Tier 1 leverage ratio 71% 75% 4% Tier 1 risk-based capital ratio 98% 97% 4% Total risk-based capital ratio 98% 97% 8%