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Item 1. Financial Statements

2022-05-03 compared with 2022-02-01 · 228 added, 126 removed, 504 unchanged (41% of the section changed)

3 unchanged sentences

Three Months Ended

March 31, Six Months Ended

(in millions, except per share data) 2022 2021 2022 2021

23 unchanged sentences

Net income 359.1 485.4 903.9 880.2

net income attributable to

net income (loss) attributable to

Redeemable noncontrolling interests ( 57.2 ) 12.0 ( 49.7 ) 30.7

9 unchanged sentences

(in millions) Three Months Ended

March 31, Six Months Ended

2022 2021 2022 2021

Net Income $ 359.1 $ 485.4 $ 903.9 $ 880.2

1 unchanged sentence

Currency translation adjustments, net of tax ( 16.3 ) ( 34.8 ) ( 23.2 ) 58.7

Net unrealized losses on defined benefit plans, net of tax ( 5.1 ) ( 0.6 )

Net unrealized gains on defined benefit plans, net of tax 5.3 1.0 0.2 0.4

Total other comprehensive income (loss) ( 11.0 ) ( 33.8 ) ( 23.0 ) 59.1

Total comprehensive income 348.1 451.6 880.9 939.3

comprehensive income attributable to

comprehensive income (loss) attributable to

Redeemable noncontrolling interests ( 57.2 ) 12.0 ( 49.7 ) 30.7

5 unchanged sentences

CONSOLIDATED BALANCE SHEETS

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

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

2022 September 30,

1 unchanged sentence

Receivables 1,370.7 1,428.2

Investments (including $ 731.9 and $ 588.3 at fair value at December 31, 2021 and September 30, 2021)

Investments (including $ 589.3 and $ 588.3 at fair value at March 31, 2022 and September 30, 2021)

1,398.4 1,510.3

25 unchanged sentences

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

502,519,277 and 501,807,677 shares issued and outstanding at December 31, 2021 and September 30, 2021

500,374,393 and 501,807,677 shares issued and outstanding at March 31, 2022 and September 30, 2021

Retained earnings 11,891.3 11,550.8

16 unchanged sentences

(in millions)

for the three months ended

December 31, 2021 Shares Amount

for the six months ended

March 31, 2022 Shares Amount

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

11 unchanged sentences

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

Net income 349.6 349.6 66.7 416.3

Other comprehensive loss ( 11.0 ) ( 11.0 ) ( 11.0 )

Dividends declared on common stock ($ 0.29 per share)

( 148.3 ) ( 148.3 ) ( 148.3 )

Repurchase of common stock ( 2.7 ) ( 0.4 ) ( 66.7 ) ( 13.7 ) ( 80.8 ) ( 80.8 )

Issuance of common stock 0.6 0.1 18.5 18.6 18.6

Stock-based compensation 48.2 48.2 48.2

Net distributions and other ( 21.7 ) ( 21.7 )

Net deconsolidation of investment products ( 39.6 ) ( 39.6 )

Adjustment to fair value of redeemable noncontrolling interests ( 188.5 ) ( 188.5 ) ( 188.5 )

Balance at March 31, 2022 500.4 $ 50.0 $ — $ 11,891.3 $ ( 400.6 ) $ 11,540.7 $ 648.9 $ 12,189.6

See Notes to Consolidated Financial Statements.

FRANKLIN RESOURCES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS ’ EQUITY

Franklin Resources, Inc.

Interests Total

5 unchanged sentences

(in millions)

for the three months ended

December 31, 2020 Shares Amount

for the six months ended

March 31, 2021 Shares Amount

Balance at October 1, 2020 495.1 $ 49.5 $ — $ 10,472.6 $ ( 407.6 ) $ 10,114.5 $ 754.6 $ 10,869.1

10 unchanged sentences

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

Net income 381.8 381.8 91.6 473.4

Other comprehensive loss ( 33.8 ) ( 33.8 ) ( 33.8 )

Dividends declared on common stock ($ 0.28 per share)

( 143.7 ) ( 143.7 ) ( 143.7 )

Repurchase of common stock ( 1.7 ) ( 0.2 ) ( 56.2 ) 10.6 ( 45.8 ) ( 45.8 )

Issuance of common stock 0.5 0.1 14.1 14.2 14.2

Stock-based compensation 42.1 42.1 42.1

Net subscriptions and other 16.5 16.5

Net deconsolidation of investment products ( 31.6 ) ( 31.6 )

Adjustment to fair value of redeemable noncontrolling interests

( 52.3 ) ( 52.3 ) ( 52.3 )

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

See Notes to Consolidated Financial Statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended

Six Months Ended

(in millions) 2022 2021

13 unchanged sentences

Increase in receivables and other assets ( 121.6 ) ( 112.7 )

Increase in investments, net ( 44.6 ) —

Decrease (increase) in investments, net ( 21.3 ) 8.5

Decrease in accrued compensation and benefits ( 162.2 ) ( 12.5 )

Increase (decrease) in commissions payable ( 30.1 ) 11.3

Increase in income taxes payable 174.5 135.3

Increase in accounts payable, accrued expenses and other liabilities 16.4 12.3

Decrease in accounts payable and accrued expenses of consolidated investment products ( 13.9 ) ( 13.2 )

Decrease in income taxes payable ( 104.9 ) ( 38.9 )

Increase (decrease) in accounts payable, accrued expenses and other liabilities ( 59.9 ) 45.6

Increase (decrease) in accounts payable and accrued expenses of consolidated investment products ( 16.8 ) 22.8

Net cash provided by operating activities 270.5 546.3

7 unchanged sentences

Payments of contingent consideration asset 12.6 10.6

Net (deconsolidation) consolidation of investment products ( 6.6 ) 9.5

Net consolidation (deconsolidation) of investment products 12.2 ( 18.4 )

Net cash used in investing activities ( 1,151.3 ) ( 1,277.9 )

4 unchanged sentences

[Table continued from previous page]

Three Months Ended

Six Months Ended

(in millions) 2022 2021

Issuance of common stock $ 13.6 $ 11.0

Dividends paid on common stock ( 290.5 ) ( 276.8 )

2 unchanged sentences

Payment of debt issuance costs — ( 6.7 )

Payment on debt — ( 250.0 )

Proceeds from debt of consolidated investment products 3,016.9 1,496.8

4 unchanged sentences

Effect of exchange rate changes on cash and cash equivalents ( 27.6 ) 14.9

Increase (decrease) in cash and cash equivalents ( 102.9 ) 468.1

Increase in cash and cash equivalents 367.5 614.1

Cash and cash equivalents, beginning of period 4,647.2 3,989.8

7 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2021

March 31, 2022

Note 1 – Basis of Presentation

9 unchanged sentences

These financial statements should be read together with the Company’s audited financial statements included in its Annual Report on Form 10-K for the fiscal year ended September 30, 2021 (“fiscal year 2021”).

Certain comparative amounts for the prior fiscal year period have been reclassified to conform to the financial statement presentation as of and for the period ended December 31, 2021.

Certain comparative amounts for the prior fiscal year period have been reclassified to conform to the financial statement presentation as of and for the period ended March 31, 2022.

During the quarter ended June 30, 2021, the Company identified an error related to the accounting of its indirect interests in certain collateralized loan obligations (“CLOs”) held through a limited partnership and the Company’s conclusion to consolidate that limited partnership.

5 unchanged sentences

Nonetheless, for comparability, the Company has revised the comparative prior period amounts included in the consolidated statements of cash flows and related footnote disclosures.

The impact of the error on the consolidated statement of cash flows for the three months ended December 31, 2020 is as follows:

The impact of the error on the consolidated statement of cash flows for the six months ended March 31, 2021 is as follows:

(in millions) As Reported Adjustments As Revised

5 unchanged sentences

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

March 31, Six Months Ended

2022 2021 2022 2021

Net income attributable to Franklin Resources, Inc.

1 unchanged sentence

allocation of earnings to participating nonvested stock and stock unit awards

15.1 16.9 34.3 31.3

Net Income Available to Common Stockholders $ 334.5 $ 364.9 $ 768.5 $ 695.8

1 unchanged sentence

Dilutive effect of nonparticipating nonvested stock unit awards

0.5 0.4 0.6 0.5

Weighted-Average Shares Outstanding – Diluted 490.5 490.9 490.5 491.3

2 unchanged sentences

Diluted 0.68 0.74 1.57 1.42

Nonparticipating nonvested stock unit awards excluded from the calculation of diluted earnings per share because their effect would have been antidilutive were insignificant and 0.4 million for the three months ended December 31, 2021 and 2020.

Nonparticipating nonvested stock unit awards excluded from the calculation of diluted earnings per share because their effect would have been antidilutive were insignificant for the three and six months ended March 31, 2022 and 2021.

Note 3 – Revenues

Operating revenues by geographic area were as follows:

(in millions) United States Luxembourg Americas

States Asia-Pacific Europe,

(in millions) United States Luxembourg Asia-Pacific Americas

States Europe,

Luxembourg Total

for the three months ended December 31, 2021

for the three months ended March 31, 2022

Investment management fees

6 unchanged sentences

$ 1,514.9 $ 336.0 $ 96.5 $ 77.3 $ 56.3 $ 2,081.0

(in millions) United States Luxembourg Americas

States Asia-Pacific Europe,

(in millions) United States Luxembourg Asia-Pacific Americas

States Europe,

Luxembourg Total

for the three months ended December 31, 2020

for the six months ended March 31, 2022

Investment management fees

6 unchanged sentences

$ 3,131.2 $ 703.6 $ 186.5 $ 161.1 $ 122.6 $ 4,305.0

(in millions) United States Luxembourg Asia-Pacific Americas

States Europe,

Luxembourg Total

for the three months ended March 31, 2021

Investment management fees

$ 1,091.0 $ 311.5 $ 83.6 $ 69.6 $ 42.7 $ 1,598.4

Sales and distribution fees

280.8 104.9 15.0 12.6 0.3 413.6

Shareholder servicing fees

43.6 10.1 2.0 — — 55.7

3.6 0.2 1.2 — 3.8 8.8

$ 1,419.0 $ 426.7 $ 101.8 $ 82.2 $ 46.8 $ 2,076.5

(in millions) United States Luxembourg Asia-Pacific Americas

States Europe,

Luxembourg Total

for the six months ended March 31, 2021

Investment management fees

$ 2,203.1 $ 533.3 $ 162.3 $ 139.6 $ 100.5 $ 3,138.8

Sales and distribution fees

558.7 194.7 29.0 24.9 3.2 810.5

Shareholder servicing fees

81.6 15.9 3.9 0.1 3.6 105.1

10.1 0.5 1.5 — 5.1 17.2

$ 2,853.5 $ 744.4 $ 196.7 $ 164.6 $ 112.4 $ 4,071.6

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

Revenues earned from sponsored funds were 81 % and 80 % of the Company’s total operating revenues for the three months ended December 31, 2021 and 2020.

Revenues earned from sponsored funds were 79 % and 80 % of the Company’s total operating revenues for the three and six months ended March 31, 2022 and 82 % and 81 % for the three and six months ended March 31, 2021.

Note 4 – Investments

2 unchanged sentences

Investments consisted of the following:

(in millions) December 31,

(in millions) March 31,

2022 September 30,

7 unchanged sentences

Total $ 1,398.4 $ 1,510.3

The Company recognized other-than-temporary impairment of $ 21.2 million in earnings during the six months ended March 31, 2022.

Note 5 – Fair Value Measurements

4 unchanged sentences

Expedient Total

as of December 31, 2021

as of March 31, 2022

Investments, at fair value

17 unchanged sentences

These investments were as follows:

(in millions) December 31,

(in millions) March 31,

2022 September 30,

6 unchanged sentences

1 The investments are expected to be returned through distributions over the life of the funds as a result of liquidations of the funds’ underlying assets.

Investments with known liquidation periods have an expected weighted-average life of 4.0 years at both December 31, 2021 and September 30, 2021.

Investments with known liquidation periods have an expected weighted-average life of 4.2 years and 4.0 years at March 31, 2022 and September 30, 2021.

2 Investments are redeemable on a monthly and quarterly basis.

1 unchanged sentence

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

for the three months ended December 31,

for the three months ended March 31,

Balance at beginning of period $ 18.2 $ 15.5 $ ( 56.7 ) $ 17.8 $ 36.9 $ ( 25.5 )

Total realized and unrealized gains (losses)

Included in investment and other income, net ( 1.8 ) — — ( 0.1 ) — —

Included in general, administrative and other expense — 10.3 — — — —

Purchases 6.8 — — 3.0 — —

Sales ( 1.3 ) — — ( 1.2 ) — —

Settlements — ( 8.7 ) 0.1 — ( 7.8 ) —

Foreign exchange revaluation — — 0.1 — — 0.2

Balance at End of Period $ 21.9 $ 17.1 $ ( 56.5 ) $ 19.5 $ 29.1 $ ( 25.3 )

Change in unrealized gains (losses) included in net income relating to assets and liabilities held at end of period $ ( 0.2 ) $ 10.3 $ — $ ( 0.1 ) $ — $ —

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

for the six months ended March 31,

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

Acquisitions — — ( 24.5 ) — — —

12 unchanged sentences

(in millions) Fair Value

Level December 31, 2021 September 30, 2021

Level March 31, 2022 September 30, 2021

Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value

6 unchanged sentences

Debt 2 $ 3,388.0 $ 3,121.9 $ 3,399.4 $ 3,434.1

Note 6 – Debt

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

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

As of March 31, 2022 , there were no amounts outstanding.

There were no other material changes to the Company’s debt during the six months ended March 31, 2022.

Note 7 – Consolidated Investment Products

CIPs consist of mutual and other investment funds, limited partnerships and similar structures and CLOs, all of which are sponsored by the Company, and include both voting interest entities and variable interest entities.

The Company had 63 CIPs, including 11 CLOs, as of December 31, 2021 and 60 CIPs, including 10 CLOs, as of September 30, 2021.

The Company had 64 CIPs, including 13 CLOs, as of March 31, 2022 and 60 CIPs, including 10 CLOs, as of September 30, 2021.

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

(in millions) December 31,

(in millions) March 31,

2022 September 30,

14 unchanged sentences

$ 7,868.3 $ 6,237.3

The CIPs did not have a significant impact on net income attributable to the Company during the three months ended December 31, 2021 and 2020.

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

The Company has no right to the CIPs’ assets, other than its direct equity investments in them and investment management and other fees earned from them.

4 unchanged sentences

Expedient Total

as of December 31, 2021

as of March 31, 2022

Cash and cash equivalents of CLOs $ 438.3 $ — $ — $ — $ 438.3

13 unchanged sentences

Total Assets Measured at Fair Value $ 456.2 $ 4,686.6 $ 563.2 $ 343.5 $ 6,049.5

Investments for which fair value was estimated using reported NAV as a practical expedient consist of a redeemable global hedge fund, nonredeemable private equity funds and a redeemable U.S.

Investments for which fair value was estimated using reported NAV as a practical expedient consist of a redeemable global hedge fund, a redeemable U.S.

equity fund and nonredeemable private equity funds.

These investments were as follows:

(in millions) December 31,

(in millions) March 31,

2022 September 30,

1 unchanged sentence

Investments with known liquidation periods $ 46.0 $ 141.4

Investments with unknown liquidation periods 12.0 —

Redeemable investments 2

2 unchanged sentences

1 The investments are expected to be returned through distributions over the life of the funds as a result of liquidations of the funds’ underlying assets.

Investments have an expected weighted-average life of 1.0 year at December 31, 2021 and 1.3 years at September 30, 2021.

Investments with known liquidation periods have an expected weighted-average life of 0.8 year at March 31, 2022 and 1.3 years at September 30, 2021.

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

3 Of the total unfunded commitments, the Company was contractually obligated to fund $ 0.2 million based on its ownership percentage in the CIPs, at December 31, 2021 and September 30, 2021.

3 Of the total unfunded commitments, the Company was contractually obligated to fund $ 0.2 million based on its ownership percentage in the CIPs, at March 31, 2022 and September 30, 2021.

Changes in Level 3 assets were as follows:

1 unchanged sentence

Securities Real Estate Loans Total

for the three months ended December 31, 2021

for the three months ended March 31, 2022

Balance at January 1, 2022 $ 539.0 $ 98.9 $ 34.2 $ 672.1

Realized and unrealized gains (losses) included in investment and other income of consolidated investment products, net 78.0 5.7 ( 0.3 ) 83.4

Purchases 115.3 70.8 0.1 186.2

Sales and settlements ( 81.9 ) — ( 0.4 ) ( 82.3 )

Deconsolidations ( 55.0 ) — — ( 55.0 )

Balance at March 31, 2022 $ 595.4 $ 175.4 $ 33.6 $ 804.4

Change in unrealized gains (losses) included in net income relating to assets held at March 31, 2022 $ 73.6 $ 5.7 $ ( 0.3 ) $ 79.0

(in millions) Equity and Debt

Securities Real Estate Loans Total

for the six months ended March 31, 2022

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

Realized and unrealized gains included in investment and other income of consolidated investment products, net 92.3 8.6 0.3 101.2

Realized and unrealized gains (losses) included in investment and other income of consolidated investment products, net 170.3 14.3 — 184.6

Purchases 133.5 71.7 14.1 219.3

Sales and settlements ( 105.8 ) — ( 1.0 ) ( 106.8 )

Deconsolidations ( 55.0 ) — — ( 55.0 )

Transfers into Level 3 0.1 — — 0.1

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

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

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

Balance at March 31, 2022 $ 595.4 $ 175.4 $ 33.6 $ 804.4

Change in unrealized gains included in net income relating to assets held at March 31, 2022 $ 166.1 $ 14.3 $ — $ 180.4

(in millions) Equity and Debt

Securities Real Estate Loans Total

for the three months ended December 31, 2020

for the three months ended March 31, 2021

Balance at January 1, 2021 $ 356.0 $ 407.8 $ 23.5 $ 787.3

Realized and unrealized gains included in investment and other income of consolidated investment products, net 1.0 1.2 — 2.2

Purchases 7.5 21.2 — 28.7

Sales and settlements ( 56.0 ) — ( 1.1 ) ( 57.1 )

Deconsolidations ( 36.2 ) — — ( 36.2 )

Transfers into Level 3 1.2 — — 1.2

Foreign exchange revaluation ( 2.3 ) ( 6.7 ) — ( 9.0 )

Balance at March 31, 2021 $ 271.2 $ 423.5 $ 22.4 $ 717.1

Change in unrealized gains (losses) included in net income relating to assets held at March 31, 2021 $ 1.2 $ 1.2 $ ( 0.1 ) $ 2.3

(in millions) Equity and Debt

Securities Real Estate Loans Total

for the six months ended March 31, 2021

Balance at October 1, 2020 $ 322.3 $ 339.2 $ 24.9 $ 686.4

2 unchanged sentences

Sales and settlements ( 57.0 ) — ( 2.5 ) ( 59.5 )

Deconsolidations ( 36.2 ) — — ( 36.2 )

Transfers into Level 3 1.2 — — 1.2

Foreign exchange revaluation 0.7 9.3 — 10.0

Balance at December 31, 2020 $ 356.0 $ 407.8 $ 23.5 $ 787.3

Change in unrealized gains included in net income relating to assets held at December 31, 2020 $ 18.3 $ 1.5 $ 0.1 $ 19.9

Balance at March 31, 2021 $ 271.2 $ 423.5 $ 22.4 $ 717.1

Change in unrealized gains included in net income relating to assets held at March 31, 2021 $ 19.7 $ 2.7 $ 0.1 $ 22.5

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

(in millions)

as of December 31, 2021 Fair Value Valuation Technique Significant Unobservable Inputs Range (Weighted Average 1 )

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

Equity and debt securities $ 529.3 Market pricing Private sale pricing $ 0.39 –$ 1,704.16 ($ 132.63 ) per share

2 unchanged sentences

Discount for lack of marketability 25.0 %

Enterprise value/

Revenue multiple 0.6 – 7.2 ( 5.1 )

Price-to-book value ratio 1.2

Control premium 20 %

Price-to-earnings ratio 27.9

49.8 Discounted cash flow Discount rate 3.1 %– 6.3 % ( 4.2 %)

Real estate 175.4 Discounted cash flow Discount rate 5.5 %– 6.3 % ( 6.0 %)

16 unchanged sentences

1 Based on the relative fair value of the instruments.

If the relevant significant inputs used in the market-based valuations, other than discount for lack of marketability, were independently higher (lower) as of December 31, 2021, the resulting fair value of the assets would be higher (lower).

If the relevant significant inputs used in the discounted cash flow valuations, as well as the discount for lack of marketability used in the market-based valuations, were independently higher (lower) as of December 31, 2021, the resulting fair value of the assets would be lower (higher).

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

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

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

(in millions) Fair Value

Level December 31, 2021 September 30, 2021

Level March 31, 2022 September 30, 2021

Value Estimated

10 unchanged sentences

Debt of CIPs consisted of the following:

December 31, 2021 September 30, 2021

March 31, 2022 September 30, 2021

(in millions) Amount Weighted-

4 unchanged sentences

$ 5,100.1 $ 3,671.0

The debt of CLOs had fixed and floating interest rates ranging from 0.87 % to 7.30 % at December 31, 2021, and from 1.00 % to 8.22 % at September 30, 2021.

The other debt had floating interest rates ranging from 1.63 % to 2.42 % at both December 31, 2021 and September 30, 2021.

The debt of CLOs had fixed and floating interest rates ranging from 0.88 % to 7.30 % at March 31, 2022, and from 1.00 % to 8.22 % at September 30, 2021.

The other debt had fixed and floating interest rates ranging from 1.72 % to 6.00 % at March 31, 2022, and from 1.63 % to 2.42 % at September 30, 2021.

The floating rates were primarily based on LIBOR.

The contractual maturities for the debt of CIPs at December 31, 2021 were as follows:

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

(in millions)

5 unchanged sentences

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

(in millions) December 31,

(in millions) March 31,

2022 September 30,

2 unchanged sentences

Fair Value $ 5,244.7 $ 3,972.0

There were no investments 90 days or more past due at December 31, 2021 and September 30, 2021.

The Company recognized $ 5.3 million and $ 0.9 million of net gains during the three months ended December 31, 2021 and 2020, related to its own economic interests in the CLOs.

The aggregate principal amount due of the debt of CLOs was $ 4,136.9 million and $ 3,629.9 million at December 31, 2021 and September 30, 2021.

Investments 90 days or more past due were immaterial at March 31, 2022.

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

The Company recognized $ 7.6 million and $ 12.9 million of net gains during the three and six months ended March 31, 2022 and $ 6.5 million and $ 7.4 million of net gains during the three and six months ended March 31, 2021, related to its own economic interests in the CLOs.

The aggregate principal amount due of the debt of CLOs was $ 5,039.8 million and $ 3,629.9 million at March 31, 2022 and September 30, 2021.

Note 8 – Redeemable Noncontrolling Interests

2 unchanged sentences

CIPs Minority Interests Total CIPs Minority Interests Total

for the three months ended December 31,

for the three months ended March 31,

Balance at beginning of period $ 662.5 $ 320.9 $ 983.4 $ 465.3 $ 150.3 $ 615.6

2 unchanged sentences

Net consolidations (deconsolidations) ( 115.9 ) — ( 115.9 ) 28.4 — 28.4

Adjustment to fair value — 188.5 188.5 — 52.3 52.3

Balance at End of Period $ 625.3 $ 512.8 $ 1,138.1 $ 609.9 $ 205.8 $ 815.7

(in millions) 2022 2021

CIPs Minority Interests Total CIPs Minority Interests Total

for the six months ended March 31,

Balance at beginning of period $ 622.5 $ 310.5 $ 933.0 $ 397.3 $ 144.6 $ 541.9

Net income (loss) ( 74.4 ) 24.7 ( 49.7 ) 19.4 11.3 30.7

Net subscriptions (distributions) and other 314.6 ( 10.9 ) 303.7 79.9 ( 2.4 ) 77.5

Net consolidations (deconsolidations) ( 237.4 ) — ( 237.4 ) 113.3 — 113.3

Adjustment to fair value — 188.5 188.5 — 52.3 52.3

Balance at End of Period $ 625.3 $ 512.8 $ 1,138.1 $ 609.9 $ 205.8 $ 815.7

Note 9 – Nonconsolidated Variable Interest Entities

Variable interest entities (“VIEs”) for which the Company is not the primary beneficiary consist of sponsored funds and other investment products in which the Company has an equity ownership interest.

VIEs for which the Company is not the primary beneficiary consist of sponsored funds and other investment products in which the Company has an equity ownership interest.

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

(in millions) December 31,

(in millions) March 31,

2022 September 30,

4 unchanged sentences

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

The Company did not provide financial or other support to its sponsored funds during the three months ended December 31, 2021.

The Company did not provide financial or other support to its sponsored funds during the six months ended March 31, 2022.

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

See Note 9 – Commitments and Contingencies for further information.

The loans were fully repaid by March 31, 2021.

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

Note 10 – Commitments and Contingencies

1 unchanged sentence

India Credit Fund Closure Matters .

Effective April 24, 2020, Franklin Templeton Trustee Services Private Limited (“FTTS”), a subsidiary of Franklin, announced its decision to wind up six fixed income mutual fund schemes of the Franklin Templeton Mutual Fund in India (referred to herein as the “Funds”), closing the Funds to redemptions.

At the time, the Funds had collective assets under management of approximately $ 3.4 billion.

In connection with the wind-up decision, FTTS sought to convene unitholder meetings for the Funds to approve the appointment of a liquidator and the asset management company to the Funds, Franklin Templeton Asset Management (India) Private Limited (“FTAMI”), ceased earning investment management fees on the Funds.

In May and June 2020, certain Fund unitholders and others commenced multiple writ petition actions in different courts in India against a number of respondents, including Franklin, its subsidiaries FTTS, FTAMI, and Templeton International, Inc., as sponsor of the Franklin Templeton Mutual Fund, and related individuals (collectively, the “Company Respondents”), the Securities and Exchange Board of India (“SEBI”), and other governmental entities.

The petitioners challenged the decision to wind up the Funds and alleged that the Company Respondents violated various SEBI regulations, mismanaged the Funds, misrepresented or omitted certain information relating to the Funds, and/or engaged in other alleged misconduct.

The petitioners requested a wide range of relief, including, among other items, an order quashing the winding up notices and blocking the unitholder votes, initiating investigations into the Company Respondents, and allowing the unitholder petitioners to redeem their investments with interest.

One of the petitioners obtained an interim injunction order staying the operation and implementation of the unitholder voting process.

Following appeals to the Supreme Court of India, the petitions were transferred to the High Court of Karnataka for further consolidated proceedings.

In October 2020, the High Court of Karnataka issued its judgment, in which it upheld the decision taken by FTTS to wind up the Funds and held that there was “nothing wrong with the decision making process,” but determined that, under applicable regulations, unitholder approval is required to implement the decision.

Certain Company Respondents and other parties filed cross-appeals to the Supreme Court of India, and certain intervenors filed applications, challenging aspects of the High Court’s judgment.

In December 2020, with the approval of the Supreme Court, and without prejudice to its arguments on appeal that unitholder approval of the wind-up decision is not required, FTTS proceeded to obtain approval from the majority of the voting unitholders for winding up the six Funds.

In February 2021, the Supreme Court issued a decision confirming the results of the unitholder votes and appointed a third-party asset manager to serve as the liquidator and begin cash distributions to unitholders.

In July 2021, the Supreme Court issued a ruling interpreting applicable regulations to require unitholder consent to effect a trustee’s decision to wind up a fund, while finding that, upon the trustee’s publication of its decision to unitholders under applicable regulations, fund business activities, including redemptions, are suspended pending the results of the unitholder vote.

The Supreme Court further found that FTTS’ April 2020 publication to unitholders of its wind-up decision complied with applicable regulations, effectively freezing redemptions.

Further hearings are expected to occur in connection with the remaining issues on appeal.

FTAMI continues to cooperate with the court-appointed liquidator in its work to liquidate the Funds’ remaining investments and distribute proceeds to unitholders.

As of December 2021, approximately $ 3.5 billion has been distributed to Fund unitholders.

Separately, following the completion of a forensic audit/inspection, in late November and early December 2020, SEBI initiated regulatory proceedings by issuing show cause notices against FTAMI, FTTS and certain FTAMI employees (including in their officer or director capacities), alleging certain deficiencies and areas of non-compliance in the management of the Funds.

In June 2021, SEBI issued orders against FTAMI, FTTS, and the FTAMI employee respondents, finding violations of certain regulatory provisions, including with respect to similarity in investment strategies among the Funds, calculation of duration and valuation of portfolio securities, deficiencies in documentation relating to investment diligence and investment terms, and portfolio risk management.

SEBI’s orders include, as applicable, aggregate monetary penalties of INR 20.0 crore (approximately $ 2.7 million);

disgorgement of investment management and advisory fees, together with interest through the date of SEBI’s order, totaling INR 512.5 crore (approximately $ 68.8 million), with continuing accrual of 12 % interest until paid;

and a prohibition on FTAMI from launching new fixed income funds in India for a two-year period.

The respondents filed appeals, as well as applications to stay enforcement of SEBI’s orders pending resolution of the appeals, with the Securities Appellate Tribunal (the “SAT”) in India.

In June 2021, the SAT granted the stay requested by FTAMI, subject to FTAMI’s deposit of INR 250.0 crore (approximately $ 33.6 million) into an escrow account, which has been deposited.

In July 2021, SEBI appealed the SAT’s stay order to the Supreme Court of India.

Based on FTAMI’s submission that it would not launch new fixed income schemes in India pending resolution of its appeal, the Supreme Court of India did not interfere with the

SAT’s stay order with respect to the monetary amounts and disposed of SEBI’s appeal.

In July 2021, the SAT also granted the stay requests of FTTS and the FTAMI employee respondents, subject to the deposit of an aggregate of INR 7.5 crore (approximately $ 1.0 million) into an escrow account.

The SAT appeals remain pending.

The Company has also responded to related inquiries and investigations commenced by certain governmental agencies in India, including the previously-reported “first information report” (the preliminary step in an investigation) registered by the Economic Offences Wing of the Chennai police department against certain of the Company Respondents in connection with a complaint by two Fund unitholders, as well as a related investigation by India’s Enforcement Directorate commenced in or around April 2021.

The Company has been cooperating in these matters.

The Company strongly believes that the decision taken by FTTS to wind up the Funds was in the best interests of unitholders.

The Company further believes that it has meritorious defenses to the outstanding claims in the pending proceedings and intends to continue vigorously defending against the claims.

The Company cannot at this time predict the eventual outcome of the matters described above or reasonably estimate the possible loss or range of loss that may arise from any final outcome of such matters, including due to the complexities and uncertainty involved in the appeals and the various questions of law and fact at issue.

During the six months ended March 31, 2022, there were no significant changes from the disclosure in the Form 10‑K for the fiscal year ended September 30, 2021.

As of March 31, 2022, the amount reported as distributed to Fund unitholders is approximately $ 3.5 billion.

Other Litigation Matters.

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Management is of the opinion that the ultimate resolution of such claims will not materially affect the Company’s business, financial position, results of operations or liquidity.

In management’s opinion, an adequate accrual has been made as of December 31, 2021 to provide for any probable losses that may arise from such matters for which the Company could reasonably estimate an amount.

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

Indemnifications and Guarantees

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Future payments for claims against the Company under these indemnities or guarantees could negatively impact the Company’s financial condition.

In management’s opinion, no material loss was deemed probable or reasonably possible pursuant to such indemnification agreements and/or guarantees as of December 31, 2021.

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

Other Commitments and Contingencies

At December 31, 2021, there were no material changes in the other commitments and contingencies as reported in the Company’s Annual Report on Form 10-K for fiscal year 2021.

At March 31, 2022, there were no material changes in the other commitments and contingencies as reported in the Company’s Annual Report on Form 10-K for fiscal year 2021.

Note 11 – Stock-Based Compensation

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Shares Weighted-

for the three months ended December 31, 2021

for the six months ended March 31, 2022

Nonvested balance at October 1, 2021 14,176 3,658 17,834 $ 22.27

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Forfeited/canceled ( 301 ) ( 166 ) ( 467 ) 25.48

Nonvested Balance at December 31, 2021 16,607 3,549 20,156 $ 24.53

Total unrecognized compensation expense related to nonvested stock and stock unit awards was $ 379.7 million at December 31, 2021.

Nonvested Balance at March 31, 2022 16,506 3,621 20,127 $ 24.54

Total unrecognized compensation expense related to nonvested stock and stock unit awards was $ 331.8 million at March 31, 2022.

This expense is expected to be recognized over a remaining weighted-average vesting period of 2.2 years.

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Three Months Ended

March 31, Six Months Ended

(in millions) 2022 2021 2022 2021

Dividend and interest income $ 5.1 $ 3.9 $ 11.2 $ 9.0

Gains on investments, net 25.8 48.7

Gains (losses) on investments, net ( 23.1 ) 10.2 2.7 58.9

Income from investments in equity method investees 27.0 45.9 51.7 84.4

Gains (losses) on derivatives, net 6.7 ( 6.1 ) ( 2.3 ) ( 16.1 )

Rental income 8.6 7.8 18.3 15.5

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Investment and other income, net $ 27.7 $ 67.1 $ 84.7 $ 144.3

Net gains (losses) recognized on equity securities measured at fair value and trading debt securities that were held by the Company at December 31, 2021 and 2020 were $( 4.4 ) million for the three months ended December 31, 2021, and $ 30.4 million for the three months ended December 31, 2020.

Net gains (losses) recognized on equity securities measured at fair value and trading debt securities that were held by the Company at March 31, 2022 and 2021 were $( 29.2 ) million and $( 34.5 ) million for the three and six months ended March 31, 2022, and $( 2.6 ) million and $ 51.2 million for the three and six months ended March 31, 2021.

Note 13 – Accumulated Other Comprehensive Income (Loss)

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Defined Benefit

for the three months ended December 31, 2021

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

Other comprehensive loss

Other comprehensive loss before reclassifications, net of tax ( 6.9 ) ( 4.6 ) ( 11.5 )

for the three months ended March 31, 2022

Balance at January 1, 2022 $ ( 377.4 ) $ ( 12.2 ) $ ( 389.6 )

Other comprehensive income (loss)

Other comprehensive income (loss) before reclassifications, net of tax ( 17.4 ) 5.4 ( 12.0 )

Reclassifications to compensation and benefits expense, net of tax — ( 0.1 ) ( 0.1 )

Total other comprehensive loss ( 6.9 ) ( 5.1 ) ( 12.0 )

Balance at December 31, 2021 $ ( 377.4 ) $ ( 12.2 ) $ ( 389.6 )

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

Total other comprehensive income (loss) ( 16.3 ) 5.3 ( 11.0 )

Balance at March 31, 2022 $ ( 393.7 ) $ ( 6.9 ) $ ( 400.6 )

(in millions) Currency

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Defined Benefit

for the three months ended December 31, 2020

for the six months ended March 31, 2022

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

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Other comprehensive income (loss) before reclassifications, net of tax ( 24.3 ) 0.8 ( 23.5 )

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

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

Total other comprehensive income (loss) ( 23.2 ) 0.2 ( 23.0 )

Balance at December 31, 2020 $ ( 306.1 ) $ ( 8.6 ) $ ( 314.7 )

Balance at March 31, 2022 $ ( 393.7 ) $ ( 6.9 ) $ ( 400.6 )

(in millions) Currency

Adjustments Unrealized

Defined Benefit

for the three months ended March 31, 2021

Balance at January 1, 2021 $ ( 306.1 ) $ ( 8.6 ) $ ( 314.7 )

Other comprehensive income (loss)

Other comprehensive income (loss) before reclassifications, net of tax ( 35.6 ) 1.0 ( 34.6 )

Reclassifications to net investment and other income, net of tax 0.8 — 0.8

Total other comprehensive income (loss) ( 34.8 ) 1.0 ( 33.8 )

Balance at March 31, 2021 $ ( 340.9 ) $ ( 7.6 ) $ ( 348.5 )

(in millions) Currency

Adjustments Unrealized

Defined Benefit

for the six months ended March 31, 2021

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

Other comprehensive income

Other comprehensive income before reclassifications, net of tax 57.8 0.4 58.2

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

Total other comprehensive income 58.7 0.4 59.1

Balance at March 31, 2021 $ ( 340.9 ) $ ( 7.6 ) $ ( 348.5 )

Note 14 – Subsequent Event

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

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

As of the time of this filing, there were no amounts outstanding.

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

(“Lexington”) for cash consideration of $ 1.0 billion and additional payments totaling $ 750.0 million to be paid in cash over the next three years.

In connection with the acquisition, the Company is granting a 25 % ownership stake in Lexington and performance-based cash retention awards that both vest over approximately five years.

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

What changed 10-Q

Item 1. Financial Statements