Item 1. Financial Statements
Item 1. Financial Statements.
FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Unaudited
Three Months Ended
March 31, Six Months Ended
March 31,
(in millions, except per share data) 2022 2021 2022 2021
Operating Revenues
Investment management fees $ 1,649.2 $ 1,598.4 $ 3,409.7 $ 3,138.8
Sales and distribution fees 370.2 413.6 768.4 810.5
Shareholder servicing fees 52.2 55.7 99.9 105.1
Other 9.4 8.8 27.0 17.2
Total operating revenues 2,081.0 2,076.5 4,305.0 4,071.6
Operating Expenses
Compensation and benefits 752.5 732.3 1,555.1 1,457.8
Sales, distribution and marketing 482.4 541.8 992.5 1,048.3
Information systems and technology 126.9 117.5 250.7 234.0
Occupancy 53.0 53.8 109.3 109.5
Amortization of intangible assets 60.4 57.9 118.7 116.1
General, administrative and other 142.8 116.9 258.0 240.5
Total operating expenses 1,618.0 1,620.2 3,284.3 3,206.2
Operating Income 463.0 456.3 1,020.7 865.4
Other Income (Expenses)
Investment and other income, net 27.7 67.1 84.7 144.3
Interest expense ( 22.9 ) ( 15.9 ) ( 42.2 ) ( 45.6 )
Investment and other income of consolidated investment products, net 3.0 111.2 107.7 202.3
Expenses of consolidated investment products ( 4.6 ) ( 5.2 ) ( 8.8 ) ( 15.6 )
Other income, net 3.2 157.2 141.4 285.4
Income before taxes 466.2 613.5 1,162.1 1,150.8
Taxes on income 107.1 128.1 258.2 270.6
Net income 359.1 485.4 903.9 880.2
Less: net income (loss) attributable to
Redeemable noncontrolling interests ( 57.2 ) 12.0 ( 49.7 ) 30.7
Nonredeemable noncontrolling interests 66.7 91.6 150.8 122.4
Net Income Attributable to Franklin Resources, Inc. $ 349.6 $ 381.8 $ 802.8 $ 727.1
Earnings per Share
Basic $ 0.68 $ 0.74 $ 1.57 $ 1.42
Diluted 0.68 0.74 1.57 1.42
See Notes to Consolidated Financial Statements.
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FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Unaudited
(in millions) Three Months Ended
March 31, Six Months Ended
March 31,
2022 2021 2022 2021
Net Income $ 359.1 $ 485.4 $ 903.9 $ 880.2
Other Comprehensive Income (Loss)
Currency translation adjustments, net of tax ( 16.3 ) ( 34.8 ) ( 23.2 ) 58.7
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
Less: comprehensive income (loss) attributable to
Redeemable noncontrolling interests ( 57.2 ) 12.0 ( 49.7 ) 30.7
Nonredeemable noncontrolling interests 66.7 91.6 150.8 122.4
Comprehensive Income Attributable to Franklin Resources, Inc. $ 338.6 $ 348.0 $ 779.8 $ 786.2
See Notes to Consolidated Financial Statements.
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FRANKLIN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
Unaudited
(in millions, except share and per share data) March 31,
2022 September 30,
2021
Assets
Cash and cash equivalents $ 4,411.6 $ 4,357.8
Receivables 1,370.7 1,428.2
Investments (including $ 589.3 and $ 588.3 at fair value at March 31, 2022 and September 30, 2021)
1,398.4 1,510.3
Assets of consolidated investment products
Cash and cash equivalents 603.1 289.4
Investments, at fair value 7,134.6 5,820.1
Property and equipment, net 744.0 770.0
Goodwill 4,718.2 4,457.7
Intangible assets, net 4,721.9 4,710.2
Operating lease right-of-use assets 398.3 448.4
Other 332.1 376.3
Total Assets $ 25,832.9 $ 24,168.4
Liabilities
Compensation and benefits $ 1,014.8 $ 1,179.3
Accounts payable and accrued expenses 504.7 479.3
Commissions 229.7 259.8
Income taxes 591.8 693.6
Debt 3,388.0 3,399.4
Liabilities of consolidated investment products
Accounts payable and accrued expenses 654.3 558.0
Debt 5,100.1 3,671.0
Deferred tax liabilities 252.3 311.7
Operating lease liabilities 462.6 518.4
Other 306.9 354.3
Total liabilities 12,505.2 11,424.8
Commitments and Contingencies (Note 10)
Redeemable Noncontrolling Interests 1,138.1 933.0
Stockholders’ Equity
Preferred stock, $ 1.00 par value, 1,000,000 shares authorized; none issued
— —
Common stock, $ 0.10 par value, 1,000,000,000 shares authorized; 500,374,393 and 501,807,677 shares issued and outstanding at March 31, 2022 and September 30, 2021
50.0 50.2
Retained earnings 11,891.3 11,550.8
Accumulated other comprehensive loss ( 400.6 ) ( 377.6 )
Total Franklin Resources, Inc. stockholders’ equity 11,540.7 11,223.4
Nonredeemable noncontrolling interests 648.9 587.2
Total stockholders’ equity 12,189.6 11,810.6
Total Liabilities, Redeemable Noncontrolling Interests and Stockholders’ Equity $ 25,832.9 $ 24,168.4
See Notes to Consolidated Financial Statements.
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FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS ’ EQUITY
Unaudited
Franklin Resources, Inc. Non-
redeemable
Non-
controlling
Interests Total
Stockholders’
Equity
Common Stock Capital
in
Excess
of Par
Value Retained
Earnings Accum-
ulated
Other
Compre-
hensive
Loss Stockholders’
Equity
(in millions)
for the 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
Net income 453.2 453.2 84.1 537.3
Other comprehensive loss ( 12.0 ) ( 12.0 ) ( 12.0 )
Dividends declared on common stock ($ 0.29 per share)
( 148.9 ) ( 148.9 ) ( 148.9 )
Repurchase of common stock
( 0.7 ) — ( 58.8 ) 37.1 ( 21.7 ) ( 21.7 )
Issuance of common stock
1.4 0.1 47.6 47.7 47.7
Stock-based compensation
11.2 11.2 11.2
Net distributions and other ( 27.8 ) ( 27.8 )
Balance at December 31, 2021 502.5 $ 50.3 $ — $ 11,892.2 $ ( 389.6 ) $ 11,552.9 $ 643.5 $ 12,196.4
Net income 349.6 349.6 66.7 416.3
Other comprehensive loss ( 11.0 ) ( 11.0 ) ( 11.0 )
Dividends declared on common stock ($ 0.29 per share)
( 148.3 ) ( 148.3 ) ( 148.3 )
Repurchase of common stock ( 2.7 ) ( 0.4 ) ( 66.7 ) ( 13.7 ) ( 80.8 ) ( 80.8 )
Issuance of common stock 0.6 0.1 18.5 18.6 18.6
Stock-based compensation 48.2 48.2 48.2
Net distributions and other ( 21.7 ) ( 21.7 )
Net deconsolidation of investment products ( 39.6 ) ( 39.6 )
Adjustment to fair value of redeemable noncontrolling interests ( 188.5 ) ( 188.5 ) ( 188.5 )
Balance at March 31, 2022 500.4 $ 50.0 $ — $ 11,891.3 $ ( 400.6 ) $ 11,540.7 $ 648.9 $ 12,189.6
See Notes to Consolidated Financial Statements.
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FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS ’ EQUITY
Unaudited
Franklin Resources, Inc. Non-
redeemable
Non-
controlling
Interests Total
Stockholders’
Equity
Common Stock Capital
in
Excess
of Par
Value Retained
Earnings Accum-
ulated
Other
Compre-
hensive
Loss Stockholders’
Equity
(in millions)
for the 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
Adoption of new accounting guidance
( 3.3 ) ( 3.3 ) ( 3.3 )
Net income 345.3 345.3 30.8 376.1
Other comprehensive income 92.9 92.9 92.9
Dividends declared on common stock ($ 0.28 per share)
( 144.0 ) ( 144.0 ) ( 144.0 )
Repurchase of common stock ( 2.1 ) ( 0.2 ) ( 39.9 ) ( 5.5 ) ( 45.6 ) ( 45.6 )
Issuance of common stock 12.5 1.2 32.5 33.7 33.7
Stock-based compensation 7.4 7.4 7.4
Net subscriptions and other 93.3 93.3
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.
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FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Six Months Ended
March 31,
(in millions) 2022 2021
Net Income $ 903.9 $ 880.2
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation 112.5 86.2
Amortization of deferred sales commissions 35.0 38.4
Depreciation and other amortization 42.7 44.8
Amortization of intangible assets 118.7 116.1
Net gains on investments ( 2.7 ) ( 51.5 )
Income from investments in equity method investees ( 51.7 ) ( 84.4 )
Net gains on investments of consolidated investment products ( 62.6 ) ( 140.5 )
Net purchase of investments by consolidated investment products ( 321.8 ) ( 242.5 )
Deferred income taxes 3.3 ( 16.0 )
Other 10.0 ( 8.6 )
Changes in operating assets and liabilities:
Increase in receivables and other assets ( 121.6 ) ( 112.7 )
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
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
Purchase of investments ( 375.9 ) ( 368.5 )
Liquidation of investments 726.0 207.8
Purchase of investments by consolidated collateralized loan obligations ( 2,170.2 ) ( 1,656.0 )
Liquidation of investments by consolidated collateralized loan obligations 1,058.8 524.7
Decrease in loans receivable, net — 42.7
Additions of property and equipment, net ( 42.5 ) ( 20.8 )
Acquisitions, net of cash acquired
( 372.3 ) —
Payments of contingent consideration asset 12.6 10.6
Net consolidation (deconsolidation) of investment products 12.2 ( 18.4 )
Net cash used in investing activities ( 1,151.3 ) ( 1,277.9 )
[Table continued on next page]
See Notes to Consolidated Financial Statements.
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FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
[Table continued from previous page]
Six Months Ended
March 31,
(in millions) 2022 2021
Issuance of common stock $ 13.6 $ 11.0
Dividends paid on common stock ( 290.5 ) ( 276.8 )
Repurchase of common stock ( 104.3 ) ( 90.4 )
Proceeds from issuance of debt — 748.3
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
Payments on debt of consolidated investment products ( 1,609.9 ) ( 488.7 )
Payments on contingent consideration liabilities ( 4.1 ) —
Noncontrolling interests 254.2 187.3
Net cash provided by financing activities 1,275.9 1,330.8
Effect of exchange rate changes on cash and cash equivalents ( 27.6 ) 14.9
Increase in cash and cash equivalents 367.5 614.1
Cash and cash equivalents, beginning of period 4,647.2 3,989.8
Cash and Cash Equivalents, End of Period $ 5,014.7 $ 4,603.9
Supplemental Disclosure of Cash Flow Information
Cash paid for income taxes $ 350.1 $ 319.2
Cash paid for interest 54.7 62.8
Cash paid for interest by consolidated investment products
65.7 44.3
See Notes to Consolidated Financial Statements.
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FRANKLIN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
Note 1 – Basis of Presentation
The unaudited interim financial statements of Franklin Resources, Inc. (“Franklin”) and its consolidated subsidiaries (collectively, the “Company”) included herein have been prepared in accordance with the instructions to Form 10-Q and the rules and regulations of the U.S. Securities and Exchange Commission. Under these rules and regulations, some information and footnote disclosures normally included in financial statements prepared under accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been shortened or omitted. Management believes that all adjustments necessary for a fair statement of the financial position and the results of operations for the periods shown have been made. All adjustments are normal and recurring. Management also believes that the accounting estimates are appropriate, and the resulting balances are reasonable; however, due to the inherent uncertainties in making estimates, actual amounts may differ from these estimates. These financial statements should be read together with the Company’s audited financial statements included in its Annual Report on Form 10-K for the fiscal year ended September 30, 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 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. In accordance with U.S. GAAP, the Company should have consolidated the CLOs as the Company is the primary beneficiary of these entities and should not have consolidated the limited partnership. The error had no impact to net income attributable to the Company, earnings per share, retained earnings, or total Franklin Resources, Inc. stockholders’ equity.
The Company determined that the error did not result in a material misstatement to its previously issued consolidated financial statements. 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 six months ended March 31, 2021 is as follows:
(in millions) As Reported Adjustments As Revised
Net cash provided by operating activities $ 505.4 $ 40.9 $ 546.3
Net cash used in investing activities ( 773.0 ) ( 504.9 ) ( 1,277.9 )
Net cash provided by financing activities 659.9 670.9 1,330.8
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Note 2 – Earnings per Share
The components of basic and diluted earnings per share were as follows:
(in millions, except per share data) Three Months Ended
March 31, Six Months Ended
March 31,
2022 2021 2022 2021
Net income attributable to Franklin Resources, Inc. $ 349.6 $ 381.8 $ 802.8 $ 727.1
Less: 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
Weighted-average shares outstanding – basic 490.0 490.5 489.9 490.8
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
Earnings per Share
Basic $ 0.68 $ 0.74 $ 1.57 $ 1.42
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 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 Asia-Pacific Americas
Excluding
United
States Europe,
Middle East
and Africa,
Excluding
Luxembourg Total
for the three months ended March 31, 2022
Investment management fees
$ 1,202.1 $ 237.2 $ 89.5 $ 64.6 $ 55.8 $ 1,649.2
Sales and distribution fees
261.6 89.3 6.6 12.7 — 370.2
Shareholder servicing fees
42.1 9.3 0.3 — 0.5 52.2
Other
9.1 0.2 0.1 — — 9.4
Total
$ 1,514.9 $ 336.0 $ 96.5 $ 77.3 $ 56.3 $ 2,081.0
(in millions) United States Luxembourg Asia-Pacific Americas
Excluding
United
States Europe,
Middle East
and Africa,
Excluding
Luxembourg Total
for the six months ended March 31, 2022
Investment management fees
$ 2,486.1 $ 495.6 $ 171.3 $ 134.9 $ 121.8 $ 3,409.7
Sales and distribution fees
540.0 188.1 14.2 26.1 — 768.4
Shareholder servicing fees
78.9 19.4 0.7 0.1 0.8 99.9
Other
26.2 0.5 0.3 — — 27.0
Total
$ 3,131.2 $ 703.6 $ 186.5 $ 161.1 $ 122.6 $ 4,305.0
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(in millions) United States Luxembourg Asia-Pacific Americas
Excluding
United
States Europe,
Middle East
and Africa,
Excluding
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
Other
3.6 0.2 1.2 — 3.8 8.8
Total
$ 1,419.0 $ 426.7 $ 101.8 $ 82.2 $ 46.8 $ 2,076.5
(in millions) United States Luxembourg Asia-Pacific Americas
Excluding
United
States Europe,
Middle East
and Africa,
Excluding
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
Other
10.1 0.5 1.5 — 5.1 17.2
Total
$ 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 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
The disclosures below include details of the Company’s investments, excluding those of consolidated investment products (“CIPs”). See Note 7 – Consolidated Investment Products for information related to the investments held by these entities.
Investments consisted of the following:
(in millions) March 31,
2022 September 30,
2021
Investments, at fair value
Sponsored funds and separate accounts $ 351.7 $ 368.3
Investments related to long-term incentive plans 185.8 160.0
Other equity and debt investments 51.8 60.0
Total investments, at fair value 589.3 588.3
Investments in equity method investees 593.0 814.3
Other investments 216.1 107.7
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.
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Note 5 – Fair Value Measurements
The disclosures below include details of the Company’s fair value measurements, excluding those of CIPs. See Note 7 – Consolidated Investment Products for information related to fair value measurements of the assets and liabilities of these entities.
The assets and liabilities measured at fair value on a recurring basis were as follows:
(in millions) Level 1 Level 2 Level 3 NAV as a
Practical
Expedient Total
as of March 31, 2022
Assets
Investments, at fair value
Sponsored funds and separate accounts $ 220.4 $ 34.7 $ 21.9 $ 74.7 $ 351.7
Investments related to long-term incentive plans 185.8 — — — 185.8
Other equity and debt investments 3.6 17.0 — 31.2 51.8
Contingent consideration asset — — 17.1 — 17.1
Total Assets Measured at Fair Value $ 409.8 $ 51.7 $ 39.0 $ 105.9 $ 606.4
Liabilities
Contingent consideration liabilities $ — $ — $ 56.5 $ — $ 56.5
(in millions) Level 1 Level 2 Level 3 NAV as a
Practical
Expedient Total
as of September 30, 2021
Assets
Investments, at fair value
Sponsored funds and separate accounts $ 241.3 $ 18.4 $ 24.6 $ 84.0 $ 368.3
Investments related to long-term incentive plans 160.0 — — — 160.0
Other equity and debt investments 3.3 13.3 — 43.4 60.0
Contingent consideration asset — — 19.4 — 19.4
Total Assets Measured at Fair Value $ 404.6 $ 31.7 $ 44.0 $ 127.4 $ 607.7
Liabilities
Contingent consideration liabilities $ — $ — $ 42.4 $ — $ 42.4
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Investments for which fair value was estimated using reported NAV as a practical expedient primarily consist of nonredeemable private debt, equity and infrastructure funds, and redeemable global equity and private real estate funds. These investments were as follows:
(in millions) March 31,
2022 September 30,
2021
Nonredeemable investments 1
Investments with unknown liquidation periods $ 46.8 $ 46.6
Investments with known liquidation periods 32.2 53.9
Redeemable investments 2
26.9 26.9
Unfunded commitments 51.7 51.8
_______________
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 4.2 years and 4.0 years at March 31, 2022 and September 30, 2021.
2 Investments are redeemable on a monthly and quarterly basis.
Changes in the Level 3 assets and liabilities were as follows:
2022 2021
(in millions) Investments Contingent Consideration Asset Contingent Consideration Liabilities Investments Contingent Consideration Asset Contingent Consideration Liabilities
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 ) $ — $ —
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2022 2021
(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 ) — — —
Total realized and unrealized gains (losses)
Included in investment and other income, net ( 1.6 ) — — ( 0.2 ) — —
Included in general, administrative and other expense — 10.3 1.1 — — —
Purchases 10.3 — — 8.5 — —
Sales ( 6.3 ) — — ( 5.5 ) — —
Settlements ( 3.2 ) ( 12.6 ) 9.1 ( 0.5 ) ( 10.6 ) —
Transfers out of Level 3
( 1.9 ) — — ( 0.2 ) — —
Foreign exchange revaluation — — 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 $ ( 0.4 ) $ 10.3 $ 1.3 $ ( 0.2 ) $ — $ —
Financial instruments that were not measured at fair value were as follows:
(in millions) Fair Value
Level March 31, 2022 September 30, 2021
Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value
Financial Assets
Cash and cash equivalents 1 $ 4,411.6 $ 4,411.6 $ 4,357.8 $ 4,357.8
Other investments
Time deposits 2 12.7 12.7 13.2 13.2
Equity securities 3 203.4 203.4 94.5 99.1
Financial Liability
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.
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Note 7 – Consolidated Investment Products
CIPs consist of mutual and other investment funds, limited partnerships and similar structures and CLOs, all of which are sponsored by the Company, and include both voting interest entities and variable interest entities (“VIEs”). The Company had 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) March 31,
2022 September 30,
2021
Assets
Cash and cash equivalents $ 603.1 $ 289.4
Receivables 130.6 127.8
Investments, at fair value 7,134.6 5,820.1
Total Assets $ 7,868.3 $ 6,237.3
Liabilities
Accounts payable and accrued expenses $ 654.3 $ 558.0
Debt 5,100.1 3,671.0
Other liabilities 19.7 13.8
Total liabilities 5,774.1 4,242.8
Redeemable Noncontrolling Interests 625.3 622.5
Stockholders ’ Equity
Franklin Resources, Inc.’s interests 1,017.4 1,000.7
Nonredeemable noncontrolling interests 451.5 371.3
Total stockholders’ equity 1,468.9 1,372.0
Total Liabilities, Redeemable Noncontrolling Interests and Stockholders ’ Equity
$ 7,868.3 $ 6,237.3
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. The debt holders of the CIPs have no recourse to the Company’s assets beyond the level of its direct investment, therefore the Company bears no other risks associated with the CIPs’ liabilities.
Fair Value Measurements
Assets of CIPs measured at fair value on a recurring basis were as follows:
(in millions) Level 1 Level 2 Level 3 NAV as a
Practical
Expedient Total
as of March 31, 2022
Assets
Cash and cash equivalents of CLOs $ 438.3 $ — $ — $ — $ 438.3
Receivables of CLOs — 58.8 — — 58.8
Investments
Equity and debt securities 164.0 699.1 595.4 246.0 1,704.5
Loans — 5,221.1 33.6 — 5,254.7
Real estate — — 175.4 — 175.4
Total Assets Measured at Fair Value $ 602.3 $ 5,979.0 $ 804.4 $ 246.0 $ 7,631.7
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(in millions) Level 1 Level 2 Level 3 NAV as a
Practical
Expedient Total
as of September 30, 2021
Assets
Cash and cash equivalents of CLOs $ 145.4 $ — $ — $ — $ 145.4
Receivables of CLOs — 84.0 — — 84.0
Investments
Equity and debt securities 310.8 647.3 453.3 343.5 1,754.9
Loans — 3,955.3 20.5 — 3,975.8
Real estate — — 89.4 — 89.4
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, a redeemable U.S. equity fund and nonredeemable private equity funds. These investments were as follows:
(in millions) March 31,
2022 September 30,
2021
Nonredeemable investments 1
Investments with known liquidation periods $ 46.0 $ 141.4
Investments with unknown liquidation periods 12.0 —
Redeemable investments 2
188.0 202.1
Unfunded commitments 3
0.5 0.5
_______________
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 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 March 31, 2022 and September 30, 2021.
Changes in Level 3 assets were as follows:
(in millions) Equity and Debt
Securities Real Estate Loans Total
Level 3
Assets
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
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(in millions) Equity and Debt
Securities Real Estate Loans Total
Level 3
Assets
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 (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 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
Level 3
Assets
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
Level 3
Assets
for the six months ended March 31, 2021
Balance at October 1, 2020 $ 322.3 $ 339.2 $ 24.9 $ 686.4
Realized and unrealized gains included in investment and other income of consolidated investment products, net 20.1 2.7 — 22.8
Purchases 20.1 72.3 — 92.4
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 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
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Valuation techniques and significant unobservable inputs used in Level 3 fair value measurements were as follows:
(in millions)
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
66.1 Market comparable companies Enterprise value/
EBITDA multiple 14.7
Discount for lack of marketability 25.0 %
Price-to-book value ratio 1.2
Real estate 175.4 Discounted cash flow Discount rate 5.5 %– 6.3 % ( 6.0 %)
Exit capitalization rate 4.5 %– 5.5 % ( 4.9 %)
(in millions)
as of September 30, 2021 Fair Value Valuation Technique Significant Unobservable Inputs Range (Weighted Average 1 )
Equity and debt securities $ 301.1 Market pricing Private sale pricing $ 0.39 -$ 100.00 ($ 19.34 ) per share
102.3 Market comparable companies Enterprise value/
EBITDA multiple 6.0 – 20.6 ( 13.7 )
Discount for lack of marketability 6.0 %– 25.5 % ( 17.6 %)
Enterprise value/
Revenue multiple 0.6 – 7.2 ( 5.1 )
Price-to-book value ratio 0.7 – 1.8 ( 1.4 )
Control premium 20 %
Price-to-earnings ratio 28.8
49.9 Discounted cash flow Discount rate 3.3 %– 6.3 % ( 4.3 %)
Real estate 89.4 Discounted cash flow Discount rate 5.8 %– 6.0 % ( 5.9 %)
Exit capitalization rate 5.0 %– 5.3 % ( 5.1 %)
__________________
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 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 March 31, 2022 September 30, 2021
Carrying
Value Estimated
Fair Value Carrying
Value Estimated
Fair Value
Financial Asset
Cash and cash equivalents 1 $ 164.8 $ 164.8 $ 144.0 $ 144.0
Financial Liabilities
Debt of CLOs 1
2 or 3 $ 5,029.6 $ 5,067.3 $ 3,634.1 $ 3,610.6
Other debt 3 70.5 66.1 36.9 36.6
__________________
1 Substantially all was Level 2.
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Debt
Debt of CIPs consisted of the following:
March 31, 2022 September 30, 2021
(in millions) Amount Weighted-
Average
Effective
Interest Rate Amount Weighted-
Average
Effective
Interest Rate
Debt of CLOs
$ 5,029.6 1.86 % $ 3,634.1 2.11 %
Other debt
70.5 2.52 % 36.9 1.95 %
Total
$ 5,100.1 $ 3,671.0
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 March 31, 2022 were as follows:
(in millions)
for the fiscal years ending September 30, Amount
2022 (remainder of year) $ 19.6
2023 —
2024 98.9
2025 —
2026 —
Thereafter 4,981.6
Total $ 5,100.1
Collateralized Loan Obligations
The unpaid principal balance and fair value of the investments of CLOs were as follows:
(in millions) March 31,
2022 September 30,
2021
Unpaid principal balance $ 5,235.2 $ 3,951.1
Difference between unpaid principal balance and fair value 9.5 20.9
Fair Value $ 5,244.7 $ 3,972.0
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.
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Note 8 – Redeemable Noncontrolling Interests
Changes in redeemable noncontrolling interests were as follows:
(in millions) 2022 2021
CIPs Minority Interests Total CIPs Minority Interests Total
for the three months ended March 31,
Balance at beginning of period $ 662.5 $ 320.9 $ 983.4 $ 465.3 $ 150.3 $ 615.6
Net income (loss) ( 69.6 ) 12.4 ( 57.2 ) 6.4 5.6 12.0
Net subscriptions (distributions) and other 148.3 ( 9.0 ) 139.3 109.8 ( 2.4 ) 107.4
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
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) March 31,
2022 September 30,
2021
Investments $ 535.0 $ 639.2
Receivables 153.4 172.1
Total $ 688.4 $ 811.3
While the Company has no legal or contractual obligation to do so, it routinely makes cash investments in the course of launching sponsored funds. As it has done in the past, the Company also may voluntarily elect to provide its sponsored funds with additional direct or indirect financial support based on its business objectives. The Company did not provide financial or other support to its sponsored funds 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. 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
Legal Proceedings
India Credit Fund Closure Matters . 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.
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Other Litigation Matters. The Company is from time to time involved in other litigation relating to claims arising in the normal course of business. Management is of the opinion that the ultimate resolution of such claims will not materially affect the Company’s business, financial position, results of operations or liquidity. In management’s opinion, an adequate accrual has been made as of 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
In the ordinary course of business or in connection with certain acquisition agreements, the Company enters into contracts that provide for indemnifications by the Company in certain circumstances. In addition, certain Company entities guarantee certain financial and performance-related obligations of various Franklin subsidiaries. The Company is also subject to certain legal requirements and agreements providing for indemnifications of directors, officers and personnel against liabilities and expenses they may incur under certain circumstances in connection with their service in those positions. The terms of these indemnities and guarantees vary pursuant to applicable facts and circumstances, and from agreement to agreement. Future payments for claims against the Company under these indemnities or guarantees could negatively impact the Company’s financial condition. In management’s opinion, no material loss was deemed probable or reasonably possible pursuant to such indemnification agreements and/or guarantees as of March 31, 2022.
Other Commitments and Contingencies
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
Stock and stock unit award activity was as follows:
(shares in thousands) Time-Based
Shares Performance-
Based Shares Total
Shares Weighted-
Average
Grant-Date
Fair Value
for the six months ended March 31, 2022
Nonvested balance at October 1, 2021 14,176 3,658 17,834 $ 22.27
Granted 4,465 227 4,692 34.89
Vested ( 1,834 ) ( 98 ) ( 1,932 ) 25.26
Forfeited/canceled ( 301 ) ( 166 ) ( 467 ) 25.48
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.
Note 12 – Investment and Other Income, Net
Investment and other income, net consisted of the following:
Three Months Ended
March 31, Six Months Ended
March 31,
(in millions) 2022 2021 2022 2021
Dividend and interest income $ 5.1 $ 3.9 $ 11.2 $ 9.0
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
Foreign currency exchange gains (losses), net 5.8 6.5 9.7 ( 10.0 )
Other, net ( 2.4 ) ( 1.1 ) ( 6.6 ) 2.6
Investment and other income, net $ 27.7 $ 67.1 $ 84.7 $ 144.3
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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)
Changes in accumulated other comprehensive income (loss) by component were as follows:
(in millions) Currency
Translation
Adjustments Unrealized
Losses on
Defined Benefit
Plans Total
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 )
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
Translation
Adjustments Unrealized
Losses on
Defined Benefit
Plans Total
for the six months ended March 31, 2022
Balance at October 1, 2021 $ ( 370.5 ) $ ( 7.1 ) $ ( 377.6 )
Other comprehensive income (loss)
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 March 31, 2022 $ ( 393.7 ) $ ( 6.9 ) $ ( 400.6 )
(in millions) Currency
Translation
Adjustments Unrealized
Losses on
Defined Benefit
Plans Total
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
Translation
Adjustments Unrealized
Losses on
Defined Benefit
Plans Total
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 )
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Note 14 – Subsequent Event
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.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.