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Section 1: 8-K (8-K)

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false0000704051 0000704051 2020-01-29 2020-01-29


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

January 29, 2020
Date of Report (Date of earliest event reported)

Legg Mason, Inc.
(Exact name of registrant as specified in its charter)

Maryland
 
1-8529
 
52-1200960
(State or Other Jurisdiction of Incorporation)
 
(Commission File No.)
 
(IRS Employer
 Identification No.)
100 International Drive
Baltimore
,
MD
21202
(Address of principal executive offices)
Zip Code

(410) 539-0000
Registrant's telephone number, including area code

Not Applicable
(Former name or former address if changed since last report)

 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
 
 
 
 
 
Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
Common stock, $0.10 par value
 
LM
 
New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.






Item 2.02
 
Results of Operations and Financial Condition.
 
 
 
 
 
 
 
 
On January 29, 2020, Legg Mason, Inc. announced its results of operations for the quarter ended December 31, 2019. A copy of the related press release is attached hereto as Exhibit 99.
 
 
 
The information in this Section 2.02 and Exhibit 99 attached hereto shall not be deemed "filed" for purposes of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.
 
 
 
Item 9.01
 
Financial Statements and Exhibits.
 
 
 
(d)
 
Exhibits
 
 
 
 
 
Exhibit No.
Subject Matter
 
 
 
 
104
Cover Page Interactive Data File (embedded within the Inline XBRL document)







SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

                                          
                                         
LEGG MASON, INC.
 
 
(Registrant)
 
 
 
 
 
 
 
 
 
Date:  January 29, 2020
By:
/s/ Thomas C. Merchant
 
 
 
Thomas C. Merchant
 
 
 
Executive Vice President and General Counsel





(Back To Top)

Section 2: EX-99 (EXHIBIT 99)

Exhibit
News Release
402503742_imageleggmasona15.jpg



FOR IMMEDIATE RELEASE        
 
Investor Relations:
 
 
Media:
 
Alan Magleby
 
 
Mary Athridge
 
410-454-5246
 
 
212-805-6035
 
 
 
 

LEGG MASON REPORTS RESULTS FOR THIRD FISCAL QUARTER


--
Third Quarter Net Income of $74.8 million, or $0.83 per Diluted Share
Includes Restructuring Charges of $21.2 Million, or $0.17 per Diluted Share
-- Adjusted Net Income of $93.2 Million, or $1.03 per Diluted Share
-- Assets Under Management of $803.5 Billion
-- Long-Term Net Outflows of $1.6 Billion

 
Baltimore, Maryland - January 29, 2020 - Legg Mason, Inc. (NYSE: LM) today reported its operating results for the third fiscal quarter ended December 31, 2019.
 
Quarters Ended
 
Nine Months Ended
Financial Results
Dec
 
Sept
 
Dec
 
Dec
 
Dec
(Amounts in millions, except per share amounts)
2019
 
2019
 
2018
 
2019
 
2018
Operating Revenues
$
753.9

 
$
743.3

 
$
704.3

 
$
2,202.5

 
$
2,210.7

Operating Expenses
623.9

 
618.3

 
940.7

 
1,863.6

 
2,185.7

Operating Income (Loss)
130.0

 
125.0

 
(236.4
)
 
338.9

 
25.0

Net Income (Loss)1
74.8

 
67.1

 
(216.9
)
 
187.2

 
(78.0
)
Net Income (Loss) Per Share - Diluted1
0.83

 
0.74

 
(2.55
)
 
2.08

 
(0.95
)
 
 
 
 
 
 
 
 
 
 
Adjusted Net Income2
$
93.2

 
$
85.6

 
$
76.3

 
$
245.8

 
$
228.8

Adjusted Earnings Per Share - Diluted2
1.03

 
0.95

 
0.86

 
2.74

 
2.59

 
 
 
 
 
 
 
 
 
 
(1) Net Income Attributable to Legg Mason, Inc.
 
 
 
 
(2) See "Use of Supplemental Non-GAAP Financial Information".
 
 
 
 

Joseph A. Sullivan, Chairman and CEO of Legg Mason said, “Legg Mason delivered strong operating results in the quarter, driven by increased operating earnings aided by higher performance fees and continued expense discipline. Diversification remains a key differentiating factor for us, as inflows in alternatives and fixed income strategies partially offset equity outflows that were impacted by a large subadvisory redemption.  We continue to deliver on the strategic restructuring plan we laid out last spring, with over 80% of our projected annual run rate savings target realized as of this quarter-end driving margin expansion.
 
“As we begin a new decade, we believe investments in innovation and in expanding our alternatives product offering across retail channels position us to better serve our clients' needs.  We continue to leverage our distribution capabilities to enhance growth, as reinforced by strong gross sales across a variety of strategies and continue to review incremental opportunities to drive growth and long-term shareholder value.”

 
 


Brandywine Global | Clarion Partners | ClearBridge Investments | EnTrust Global | Martin Currie | QS Investors | RARE Infrastructure | Royce Investment Partners | Western Asset
1

News Release
402503742_imageleggmasona15.jpg

Assets Under Management of $803.5 Billion

Assets Under Management were $803.5 billion at December 31, 2019 compared with $781.8 billion at September 30, 2019, with the change resulting from $20.9 billion in positive market performance, and positive foreign exchange of $3.0 billion, partially offset by $1.6 billion in long-term outflows and $0.6 billion in realizations.

 
 
 
 
 
 
 
 
 
 
Quarter Ended December 31, 2019
 
 
Assets Under Management
($ in billions)
AUM
 
Flows
 
Operating Revenue Yield 1
 
 
Equity
$
214.0

 
$
(4.8
)
 
56 bps
 
 
Fixed Income
451.8

 
1.7

 
26 bps
 
 
Alternative
74.3

 
1.5

2 
58 bps
 
 
Long-Term Assets
740.1

 
(1.6
)
 
 
 
 
Liquidity
63.4

 
0.0

 
14 bps
 
 
Total
$
803.5

 
$
(1.6
)
 
36 bps
 
 
 
 
 
 
 
 
 
 
(1) Operating revenue yield equals total operating revenues less performance fees divided by average AUM
 
 
(2) Excludes realizations of $0.6 billion
 

At December 31, 2019, fixed income represented 56% of AUM, while equity represented 27%, alternative represented 9% and liquidity represented 8%.

By geography, 71% of AUM was from clients domiciled in the United States and 29% from non-US domiciled clients.

Average AUM during the quarter was $791.7 billion compared to $779.8 billion in the prior quarter and $739.3 billion in the third quarter of fiscal year 2019. Average long-term AUM was $729.7 billion compared to $716.6 billion in the prior quarter and $672.4 billion in the third quarter of fiscal year 2019.

 
 
 
 
 
 
 
 
 
 
 
 
 
Quarterly Performance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1-Year
 
3-Year
 
5-Year
 
10-Year
 
 
% of Strategy AUM beating Benchmark3
 
78%
 
79%
 
83%
 
84%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
% of Long-Term U.S. Fund Assets Beating Lipper Category Average
 
62%
 
65%
 
76%
 
68%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(3) See “Supplemental Data Regarding Quarterly Performance.”

 
 
 
 
 
 
 
 
 


Of Legg Mason’s long-term U.S. mutual fund assets, 65% were in funds rated 4 or 5 stars by Morningstar.






Brandywine Global | Clarion Partners | ClearBridge Investments | EnTrust Global | Martin Currie | QS Investors | RARE Infrastructure | Royce Investment Partners | Western Asset
2

News Release
402503742_imageleggmasona15.jpg

Operating Results - Comparison to the Second Quarter of Fiscal Year 2020

Adjusted net income was $93.2 million, or $1.03 per diluted share, compared to adjusted net income of $85.6 million, or $0.95 per diluted share. The increase in adjusted earnings was driven by higher investment advisory fees reflecting higher average AUM as well a $15.7 million increase in non-pass through performance fees. In addition, the increase in adjusted net income reflected savings from the strategic restructuring.

Net income was $74.8 million, or $0.83 per diluted share, compared to net income of $67.1 million, or $0.74 per diluted share, in the second quarter of fiscal year 2020. The change was impacted by the items described below.

Operating revenues of $753.9 million were up 1% from $743.3 million in the prior quarter reflecting:
An increase in separate account and fund advisory fee revenues of $5.4 million, or 1%, reflecting higher average AUM.
In addition, non-pass through performance fees increased by $15.7 million, partially offset by an $11.2 million decrease in pass through performance fees.

Operating expenses of $623.9 million increased 1% from $618.3 million in the prior quarter, reflecting:
Lower compensation of $2.7 million driven by an $11.2 million decrease in pass through performance fees and a $4.2 million decrease in strategic restructuring costs and a $3.6 million increase in strategic restructuring savings. These were partially offset by a higher gain in the market value of deferred compensation and seed investments of $12.0 million, with an offset in non-operating income, as compared to a gain of $2.9 million in the prior quarter as well as increased compensation and benefits related to the increase in non-pass through performance fees and higher advisory fees.
An increase in communications and technology expenses of $3.1 million reflecting higher consulting costs.
An increase in occupancy expenses of $5.7 million which included $5.9 million in restructuring costs.
The $21.2 million of restructuring costs this quarter included $18.5 million of strategic restructuring costs related to the implementation of our cost savings initiative and $2.4 million of professional fees for other corporate matters.

Non-operating expense was $5.3 million, as compared to $19.7 million in the prior quarter reflecting:
Gains on corporate investments, not offset in compensation, were $6.2 million compared with losses of $2.9 million in the prior quarter.
Gains on funded deferred compensation and seed investments, as described above.
A $0.6 million gain associated with the consolidation of sponsored investment vehicles compared to a $5.0 million gain in the prior quarter. The consolidation of sponsored investment vehicles has no impact on net income as the effects of consolidation are fully attributable to noncontrolling interests.

Operating margin was 17.2% compared to 16.8% in the prior quarter. Adjusted operating margin1, was 26.5%, as compared to 25.0% in the prior quarter.

Net income attributable to noncontrolling interests, excluding consolidated investment vehicles, was $14.4 million compared to $8.7 million in the prior quarter, principally related to Clarion, EnTrust Global and Royce.
(1) See "Use of Supplemental Non-GAAP Financial Information."

Brandywine Global | Clarion Partners | ClearBridge Investments | EnTrust Global | Martin Currie | QS Investors | RARE Infrastructure | Royce Investment Partners | Western Asset
3

News Release
402503742_imageleggmasona15.jpg


Comparison to the Third Quarter of Fiscal Year 2019

Adjusted net income was $93.2 million, or $1.03 per diluted share, compared to adjusted net income of $76.3 million, or $0.86 per diluted share, in the prior year quarter. The increase was driven by higher operating revenues reflecting an increase in investment advisory fees and non-pass through performance fees, as well as the impact of savings from the strategic restructuring.

Net income was $74.8 million, or $0.83 per diluted share, compared to a net loss of $216.9 million, or $2.55 per diluted share, in the third quarter of fiscal year 2019. In addition to the items noted below, the change was driven by non-cash intangible asset impairment charges of $365.2 million, or $3.17 per diluted share in the prior year quarter.

Operating revenues of $753.9 million were up 7% compared with $704.3 million in the prior year quarter reflecting:
An increase in advisory fee revenues of $27.8 million reflecting higher average long-term AUM.
In addition, performance fees increased $26.8 million, including an increase of $23.5 million in non-pass through performance fees.

Operating expenses of $623.9 million were down 34% compared with $940.7 million in the prior year quarter but excluding the non-cash impairment charges, expenses were up 8%, reflecting:
Compensation and benefits increased by 18%, primarily due to higher affiliate compensation on increased operating revenues as well as higher corporate compensation including increased sales commissions. In addition, there was a $12.0 million gain in the market value of deferred compensation and benefits with an offset in non-operating income, compared with a loss of $10.8 million in the prior year quarter. These more than offset decreased compensation and benefits resulting from the strategic restructuring.
Occupancy expenses increased by $8.4 million primarily due to strategic restructuring costs of $5.9 million.
Other expenses decreased by $14.1 million primarily due to strategic restructuring savings of $7.4 million and lower advertising and professional fees.

Non-operating expense was $5.3 million, compared to $30.3 million in the prior year quarter reflecting:
Gains on corporate investments, not offset in compensation, were $6.2 million compared with losses of $4.9 million in the prior year quarter.
Gains on funded deferred compensation and seed investments as described above.
A $0.6 million gain associated with the consolidation of sponsored investment vehicles, as compared to a gain of $2.6 million in the prior year quarter. The consolidation of sponsored investment vehicles has no impact on net income as the effects of consolidation are fully attributable to noncontrolling interests.

Operating margin was 17.2% as compared to (33.6)% in the prior year quarter, reflecting the impact of the non-cash impairment charges. Adjusted operating margin was 26.5%, as compared to 22.1% in the prior year quarter.

Net income attributable to noncontrolling interests, excluding consolidated investment vehicles, was $14.4 million, compared to $9.0 million in the prior year quarter, principally related to Clarion, EnTrust Global and Royce.

Brandywine Global | Clarion Partners | ClearBridge Investments | EnTrust Global | Martin Currie | QS Investors | RARE Infrastructure | Royce Investment Partners | Western Asset
4

News Release
402503742_imageleggmasona15.jpg

Quarterly Business Developments and Recent Announcements

Brandywine Global, ClearBridge Investments and Western Asset were recognized by Pensions & Investments (P&I) in their Best Places to Work in Investment Management survey for 2019.
Western Asset Management’s mutual funds in Hong Kong, Singapore and Taiwan, were winners of the 2019 BENCHMARK Quantitative Top Fund of the Year Awards.
During the quarter ended December 31, 2019, Virtus Investment Partners, Inc., Fred Alger Management, LLC and IndexIQ, a New York Life Investments Company, each entered into agreement to license Precidian Investments LLC ActiveShares® structure, bringing the total number of licensees to 14.

Balance Sheet

At December 31, 2019, Legg Mason’s cash position was $823.7 million.  Total debt was $2.0 billion, and stockholders' equity was $3.8 billion.  The ratio of total debt to total capital was 34%, compared to 35% in the prior quarter.   Seed investments totaled $220.1 million.

Conference Call to Discuss Results
A conference call to discuss the Company's results, hosted by Joseph A. Sullivan, will be held at 5:00 p.m. ET today. The call will be open to the general public. Interested participants should access the call by dialing 1-800-771-6916 (or for international calls 1-212-271-4657), at least 10 minutes prior to the scheduled start to ensure connection. A live, listen-only webcast will also be available via the Investor Relations section of www.leggmason.com.
The presentation slides that will be reviewed during the conference call will be available on the Investor Relations section of the Legg Mason website shortly after the release of the financial results.
A replay of the live broadcast will be available on the Legg Mason website, www.leggmason.com, in the Investor Relations section, or by dialing 1-800-633-8284 (or for international calls 1-402-977-9140), enter pass code 21951025# when prompted. Please note that the replay will be available beginning at 8:00 p.m. ET on Wednesday, January 29, 2020, and ending at 11:59 p.m. ET on Wednesday, February 12, 2020.

About Legg Mason

Guided by a mission of Investing to Improve Lives,TM  Legg Mason helps investors globally achieve better financial outcomes by expanding choice across investment strategies, vehicles and investor access through independent investment managers with diverse expertise in equity, fixed income, alternative and liquidity investments.  Legg Mason’s assets under management are $803.5 billion as of December 31, 2019.  To learn more, visit our web site, our newsroom, or follow us on LinkedIn, Twitter, or Facebook

This release contains forward-looking statements subject to risks, uncertainties and other factors that may cause actual results to differ materially. For a discussion of these risks and uncertainties, see "Risk Factors" and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Legg Mason's Annual report on Form 10-K for the fiscal year ended March 31, 2019 and, in the Company’s, quarterly reports on Form 10-Q.

Brandywine Global | Clarion Partners | ClearBridge Investments | EnTrust Global | Martin Currie | QS Investors | RARE Infrastructure | Royce Investment Partners | Western Asset
5

News Release
402503742_imageleggmasona15.jpg

Supplemental Data Regarding Quarterly Performance

Strategy Performance
For purposes of investment performance comparisons, strategies are an aggregation of discretionary portfolios (separate accounts, investment funds, and other products) into a single group that represents a particular investment objective. In the case of separate accounts, the investment performance of the account is based upon the performance of the strategy to which the account has been assigned. Each of our asset managers has its own specific guidelines for including portfolios in their strategies. For those managers which manage both separate accounts and investment funds in the same strategy, the performance comparison for all of the assets is based upon the performance of the separate account.

Approximately 87% of total AUM is included in strategy AUM as of December 31, 2019, although not all strategies have three-, five-, and ten-year histories. Total strategy AUM includes liquidity assets. Certain assets are not included in reported performance comparisons. These include: accounts that are not managed in accordance with the guidelines outlined above; accounts in strategies not marketed to potential clients; accounts that have not yet been assigned to a strategy; and certain smaller products at some of our affiliates.

Past performance is not indicative of future results.  For AUM included in institutional and retail separate accounts and investment funds managed in the same strategy as separate accounts, performance comparisons are based on gross-of-fee performance. For investment funds which are not managed in a separate account format, performance comparisons are based on net-of-fee performance. Funds-of-hedge funds generally do not have specified benchmarks. For purposes of this comparison, performance of those products is net of fees, and is compared to the relevant HFRX index. These performance comparisons do not reflect the actual performance of any specific separate account or investment fund; individual separate account and investment fund performance may differ. The information in this presentation is provided solely for use regarding this presentation and is not directed toward existing or potential clients of Legg Mason.

 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2019:
 
1-Year
 
3-Year
 
5-Year
 
10-Year
 
 
% of Strategy AUM beating Benchmark1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed Income
 
97%
 
99%
 
94%
 
98%
 
 
 
Equity
 
61%
 
56%
 
60%
 
50%
 
 
 
Alternatives
 
99%
 
95%
 
98%
 
99%
 
 
 


 
 
 
 
 
 
 
 
 
 
 
(1) Effective July 1, 2019, comparative benchmarks for certain strategies were added to measure relative performance where a stated benchmark was not previously provided
 

Long-term US Fund Assets Beating Lipper Category Average
Long-term US fund assets include open-end, closed end, and variable annuity funds. These performance comparisons do not reflect the actual performance of any specific fund; individual fund performance may differ. Past performance is not a guarantee of future results. Source: Lipper Inc.

 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2019:
 
1-Year
 
3-Year
 
5-Year
 
10-Year
 
 
% of Long-Term U.S. Fund Assets Beating Lipper Category Average
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed Income
 
78%
 
80%
 
79%
 
84%
 
 
 
Equity
 
45%
 
49%
 
72%
 
49%
 
 
 
Alternatives (performance relates to only 3 funds)
 
0%
 
100%
 
n/a
 
n/a
 
 
 
 
 
 
 
 
 
 
 
 
 

Brandywine Global | Clarion Partners | ClearBridge Investments | EnTrust Global | Martin Currie | QS Investors | RARE Infrastructure | Royce Investment Partners | Western Asset
6


LEGG MASON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Amounts in thousands)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended
 
Nine Months Ended
 
 
 
 
December
 
September
 
December
 
December
 
December
 
 
 
 
2019
 
2019
 
2018
 
2019
 
2018
Operating Revenues:
 
 
 
 
 
 
 
 
 
 
Investment advisory fees:
 
 
 
 
 
 
 
 
 
 
 
Separate accounts
$
266,609

 
$
264,438

 
$
256,657

 
$
791,488

 
$
778,119

 
 
Funds
378,995

 
375,765

 
361,173

 
1,121,572

 
1,128,660

 
 
Performance fees
39,407

 
34,869

 
12,619

 
81,137

 
68,529

 
Distribution and service fees
67,634

 
67,064

 
72,185

 
204,635

 
230,449

 
Other
1,269

 
1,128

 
1,688

 
3,706

 
4,897

 
 
 
Total operating revenues
753,914

 
743,264

 
704,322

 
2,202,538

 
2,210,654

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Expenses:
 
 
 
 
 
 
 
 
 
 
Compensation and benefits
375,033

 
377,727

 
316,876

 
1,132,588

 
1,043,329

 
Distribution and servicing
104,363

 
105,099

 
108,842

 
313,368

 
339,959

 
Communications and technology
57,101

 
53,953

 
56,664

 
166,328

 
170,893

 
Occupancy
32,490

 
26,809

 
24,077

 
84,923

 
76,333

 
Amortization of intangible assets
6,004

 
5,442

 
6,089

 
16,903

 
18,371

 
Impairment of intangible assets

 

 
365,200

 

 
365,200

 
Contingent consideration fair value adjustments

 

 

 
(1,165
)
 
571

 
Other
48,929

 
49,257

 
63,001

 
150,687

 
171,021

 
 
 
Total operating expenses
623,920

 
618,287

 
940,749

 
1,863,632

 
2,185,677

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income (Loss)
129,994

 
124,977

 
(236,427
)
 
338,906

 
24,977

 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Operating Income (Expense):
 
 
 
 
 
 
 
 
 
 
Interest income
2,882

 
2,652

 
3,126

 
9,539

 
7,992

 
Interest expense
(27,032
)
 
(27,331
)
 
(28,770
)
 
(82,846
)
 
(88,547
)
 
Other income (expense), net
18,009

 
458

 
(7,042
)
 
29,066

 
6,837

 
Non-operating income (expense) of
 
 
 
 
 
 
 
 
 
 
 
consolidated investment vehicles, net
814

 
4,529

 
2,369

 
14,904

 
1,954

 
 
 
Total non-operating income (expense)
(5,327
)
 
(19,692
)
 
(30,317
)
 
(29,337
)
 
(71,764
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Income (Loss) Before Income Tax Provision
124,667

 
105,285

 
(266,744
)
 
309,569

 
(46,787
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income tax provision (benefit)
33,664

 
28,754

 
(60,354
)
 
80,466

 
165

 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income (Loss)
91,003

 
76,531

 
(206,390
)
 
229,103

 
(46,952
)
 
Less: Net income attributable
 
 
 
 
 
 
 
 
 
 
 
 to noncontrolling interests
16,228

 
9,448

 
10,498

 
41,895

 
31,043

 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income (Loss) Attributable to Legg Mason, Inc.
$
74,775

 
$
67,083

 
$
(216,888
)
 
$
187,208

 
$
(77,995
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Continued)

7


LEGG MASON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS), CONTINUED
(Amounts in thousands, except per share amounts)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended
 
Nine Months Ended
 
 
 
 
 
December
 
September
 
December
 
December
 
December
 
 
 
 
 
2019
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income (Loss) Attributable to Legg Mason, Inc.
$
74,775

 
$
67,083

 
$
(216,888
)
 
$
187,208

 
$
(77,995
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Less: Earnings (distributed and undistributed)
 
 
 
 
 
 
 
 
 
 
 
 
allocated to participating securities (1)
2,428

 
2,213

 
1,049

 
6,138

 
3,190

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income (Loss) (Distributed and Undistributed)
 
 
 
 
 
 
 
 
 
 
 
Allocated to Shareholders (Excluding
 
 
 
 
 
 
 
 
 
 
 
Participating Securities)
$
72,347

 
$
64,870

 
$
(217,937
)
 
$
181,070

 
$
(81,185
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income (Loss) per Share Attributable to
 
 
 
 
 
 
 
 
 
 
 
Legg Mason, Inc. Shareholders:
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
$
0.83

 
$
0.75

 
$
(2.55
)
 
$
2.09

 
$
(0.95
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted
$
0.83

 
$
0.74

 
$
(2.55
)
 
$
2.08

 
$
(0.95
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted-Average Number of Shares
 
 
 
 
 
 
 
 
 
 
 
Outstanding(2):
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
86,878

 
86,813

 
85,537

 
86,666

 
85,381

 
 
 
 
Diluted
87,165

 
87,127

 
85,537

 
86,932

 
85,381

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Participating securities excluded from weighted-average number of shares outstanding were 2,935, 2,973, and 3,104 for the quarters ended December 2019, September 2019, and December 2018, respectively, and 2,919 and 3,104 for the nine months ended December 2019 and December 2018, respectively.
 
(2)
Diluted shares are the same as basic shares for periods with a loss.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended
 
 
 
Nine Months Ended
 
 
 
 
 
 
 
December
 
September
 
 
 
December
 
 
 
Strategic Restructuring effective January 1, 2019
2019
 
2019
 
 
 
2019
 
 
 
 
Strategic restructuring cost savings:
 
 
 
 
 
 
 
 
 
 
 
 
Compensation
$
11,139

 
$
7,523

 
 
 
$
21,512

 
 
 
 
 
Occupancy
78

 
175

 
 
 
493

 
 
 
 
 
Other
9,268

 
7,760

 
 
 
23,922

 
 
 
 
 
 
Total strategic restructuring cost savings
$
20,485

 
$
15,458

 
 
 
$
45,927

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Strategic restructuring costs:
 
 
 
 
 
 
 
 
 
 
 
 
Compensation and benefits
$
10,192

 
$
14,422

 
 
 
$
53,308

 
 
 
 
 
Occupancy
5,930

 

 
 
 
5,930

 
 
 
 
 
Other
2,352

 
1,503

 
 
 
8,059

 
 
 
 
 
 
Total strategic restructuring costs
$
18,474

 
$
15,925

 
 
 
$
67,297

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


 
 
 
 
 
 
 
 
 
 
 

LEGG MASON, INC. AND SUBSIDIARIES
SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION
RECONCILIATION OF NET INCOME (LOSS) ATTRIBUTABLE TO LEGG MASON, INC. TO ADJUSTED NET INCOME AND
RECONCILIATION OF NET INCOME PER DILUTED SHARE ATTRIBUTABLE TO LEGG MASON, INC. SHAREHOLDERS TO
ADJUSTED EARNINGS PER DILUTED SHARE(1)
(Amounts in thousands, except per share amounts)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended
 
Nine Months Ended
 
 
 
 
 
 
 
December
 
September
 
December
 
December
 
December
 
 
 
 
 
 
 
2019
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
Net Income (Loss) Attributable to Legg Mason, Inc.
 
$
74,775

 
$
67,083

 
$
(216,888
)
 
$
187,208

 
$
(77,995
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Plus (less):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restructuring costs:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Strategic restructuring and other corporate initiatives
 
20,920

 
19,666

 
5,881

 
73,484

 
14,303

 
 
 
 
Affiliate charges
 
237

 
237

 

 
1,677

 

 
 
Amortization of intangible assets
 
6,004

 
5,442

 
6,089

 
16,903

 
18,371

 
 
Gains and losses on seed and other investments
 
 
 
 
 
 
 
 
 
 
 
 
 
not offset by compensation or hedges
 
(4,827
)
 
(51
)
 
(4,314
)
 
(11,289
)
 
(12,014
)
 
 
Acquisition and transition-related costs
 

 

 

 

 
1,468

 
 
Impairments of intangible assets
 

 

 
365,200

 

 
365,200

 
 
Contingent consideration fair value adjustments
 

 

 

 
(1,165
)
 
571

 
 
Charges related to significant regulatory matters
 

 

 

 

 
4,151

 
 
Income tax adjustments:(2)
 
 
 
 
 
 
 


 

 
 
 
 
Impacts of non-GAAP adjustments
 
(6,030
)
 
(6,954
)
 
(94,568
)
 
(21,619
)
 
(98,331
)
 
 
 
 
Other tax items
 
2,100

 
220

 
14,856

 
620

 
13,095

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Net Income
 
$
93,179

 
$
85,643

 
$
76,256

 
$
245,819

 
$
228,819

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income (Loss) Per Diluted Share Attributable to
 
 
 
 
 
 
 
 
 
 
 
Legg Mason, Inc. Shareholders
 
$
0.83

 
$
0.74

 
$
(2.55
)
 
$
2.08

 
$
(0.95
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Plus (less), net of tax impacts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restructuring costs:
 
 
 
 
 
 
 
 
 
 
 
 
 
Strategic restructuring and other corporate initiatives
 
0.17

 
0.16

 
0.05

 
0.60

 
0.12

 
 
 
Affiliate charges
 

 

 

 
0.01

 

 
 
Amortization of intangible assets
 
0.05

 
0.05

 
0.05

 
0.14

 
0.15

 
 
Gains and losses on seed and other investments
 
 
 
 
 
 
 
 
 
 
 
 

not offset by compensation or hedges
 
(0.04
)
 

 
(0.04
)
 
(0.09
)
 
(0.10
)
 
 
Acquisition and transition-related costs
 

 

 

 

 
0.01

 
 
Impairments of intangible assets
 

 

 
3.17

 

 
3.15

 
 
Contingent consideration fair value adjustments
 

 

 

 
(0.01
)
 

 
 
Charges related to significant regulatory matters
 

 

 

 

 
0.05

 
 
Other tax items
 
0.02

 

 
0.18

 
0.01

 
0.16

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Earnings per Diluted Share
 
$
1.03

 
$
0.95

 
$
0.86

 
$
2.74

 
$
2.59

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) See explanations for "Use of Supplemental Non-GAAP Financial Information."
 
 
 
 
(2) The non-GAAP effective tax rates for the quarters ended December 31, 2019, September 30, 2019 and December 31, 2018
 
 
were 25.9%, 27.3%, and 18.5% respectively, and for the nine months ended December 31, 2019 and 2018 were
 
 
 26.7% and 24.8%, respectively.
 
 
 
 


8


LEGG MASON, INC. AND SUBSIDIARIES
SUPPLEMENTAL DATA
 RECONCILIATION OF GAAP BASIS OPERATING MARGIN TO ADJUSTED OPERATING MARGIN (1)
(Amounts in thousands)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended
 
 
Nine Months Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December
 
September
 
December
 
 
December
 
December
 
 
 
 
 
2019
 
2019
 
2018
 
 
2019
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Revenues, GAAP basis
$
753,914

 
$
743,264

 
$
704,322

 
 
$
2,202,538

 
$
2,210,654

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Plus (less):
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass through performance fees
(10,733
)
 
(21,914
)
 
(7,436
)
 
 
(33,677
)
 
(44,062
)
 
 
 
Operating revenues eliminated upon
 
 
 
 
 
 
 
 
 
 
 
 
 
 
consolidation of investment vehicles
69

 
156

 
155

 
 
350

 
461

 
 
 
Distribution and servicing expense excluding
 
 
 
 
 
 
 
 
 
 
 
 
 
 
consolidated investment vehicles
(104,349
)
 
(104,199
)
 
(108,771
)
 
 
(312,435
)
 
(339,845
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Operating Revenues
$
638,901

 
$
617,307

 
$
588,270

 
 
$
1,856,776

 
$
1,827,208

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income (Loss), GAAP basis
$
129,994

 
$
124,977

 
$
(236,427
)
 
 
$
338,906

 
$
24,977

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Plus (less):
 
 
 
 
 
 
 
 
 
 
 
 
 
Restructuring costs:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Strategic restructuring and other corporate initiatives
20,920

 
19,666

 
5,881

 
 
73,484

 
14,303

 
 
 
 
Affiliate charges
237

 
237

 

 
 
1,677

 

 
 
 
Amortization of intangible assets
6,004

 
5,442

 
6,089

 
 
16,903

 
18,371

 
 
 
Gains (losses) on deferred compensation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
and seed investments, net
12,022

 
2,910

 
(10,826
)
 
 
21,946

 
(5,590
)
 
 
 
Acquisition and transition-related costs

 

 

 
 

 
1,468

 
 
 
Impairment of intangible assets

 

 
365,200

 
 

 
365,200

 
 
 
Contingent consideration fair value adjustments

 

 

 
 
(1,165
)
 
571

 
 
 
Charges related to significant regulatory matters

 

 

 
 

 
4,151

 
 
 
Operating income (loss) of consolidated investment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
vehicles, net
172

 
1,298

 
343

 
 
1,729

 
1,331

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Operating Income
$
169,349

 
$
154,530

 
$
130,260

 
 
$
453,480

 
$
424,782

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Margin, GAAP basis
17.2

%
16.8

%
(33.6
)
%
 
15.4

%
1.1

%
Adjusted Operating Margin
26.5

 
25.0

 
22.1

 
 
24.4

 
23.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) See explanations for "Use of Supplemental Non-GAAP Financial Information."
 
 
 
 
 

9


LEGG MASON, INC. AND SUBSIDIARIES
SUPPLEMENTAL DATA
 RECONCILIATION OF CASH PROVIDED BY OPERATING ACTIVITIES
TO ADJUSTED EBITDA (1)
(Amounts in thousands)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended
 
Nine Months Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December
 
September
 
December
 
December
 
December
 
 
 
 
2019
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash provided by operating activities, GAAP basis
$
335,358

 
$
229,303

 
$
256,591

 
$
377,084

 
$
443,989

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Plus (less):
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net of accretion and amortization
 
 
 
 
 
 
 
 
 
 
 
 
of debt discounts and premiums
26,676

 
26,874

 
28,259

 
81,925

 
86,956

 
 
Current tax expense (benefit)
6,137

 
6,927

 
(1,218
)
 
8,818

 
17,635

 
 
Net change in assets and liabilities
(153,838
)
 
(111,207
)
 
(170,384
)
 
38,032

 
(24,794
)
 
 
Net change in assets and liabilities
 
 
 
 
 
 
 
 
 
 
 
 
of consolidated investment vehicles
(45,539
)
 
8,061

 
60,158

 
(50,490
)
 
(9,966
)
 
 
Net income attributable to noncontrolling interests
(16,228
)
 
(9,448
)
 
(10,498
)
 
(41,895
)
 
(31,043
)
 
 
Net gains (losses) and earnings on investments
662

 
2,329

 
21,367

 
9,739

 
36,495

 
 
Net gains (losses) on consolidated investment vehicles
814

 
4,529

 
2,369

 
14,904

 
1,954

 
 
Other
(193
)
 
(101
)
 
(68
)
 
(637
)
 
(289
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
$
153,849

 
$
157,267

 
$
186,576

 
$
437,480

 
$
520,937

 
 
 
 
 
 
 
 
 
 
 
 
 
(1) 
See explanations for "Use of Supplemental Non-GAAP Financial Information."
 
 
 
 


10


LEGG MASON, INC. AND SUBSIDIARIES
(Amounts in billions)
(Unaudited)
Assets Under Management
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended
 
 
 
 
By asset class:
December 2019
 
September 2019
 
June 2019
 
March 2019
 
December 2018
 
 
 
 
 
Equity
$
214.0

 
$
203.3

 
$
205.6

 
$
202.0

 
$
181.0

 
 
 
 
 
Fixed Income
451.8

 
442.7

 
438.0

 
419.6

 
406.6

 
 
 
 
 
Alternative
74.3

 
72.6

 
70.1

 
68.6

 
66.3

 
 
 
 
 
 
Long-Term Assets
740.1

 
718.6

 
713.7

 
690.2

 
653.9

 
 
 
 
 
Liquidity
63.4

 
63.2

 
66.5

 
67.8

 
73.3

 
 
 
 
 
 
Total
$
803.5

 
$
781.8

 
$
780.2

 
$
758.0

 
$
727.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended
 
Nine Months Ended
By asset class (average):
December 2019
 
September 2019
 
June 2019
 
March 2019
 
December 2018
 
December 2019
 
December 2018
 
Equity
$
209.3

 
$
204.2

 
$
202.7

 
$
195.4

 
$
198.2

 
$
205.6

 
$
204.1

 
Fixed Income
447.3

 
440.9

 
427.0

 
413.7

 
407.4

 
438.0

 
411.9

 
Alternative
73.1

 
71.5

 
69.3

 
67.0

 
66.8

 
71.3

 
66.3

 
 
Long-Term Assets
729.7

 
716.6

 
699.0

 
676.1

 
672.4

 
714.9

 
682.3

 
Liquidity
62.0

 
63.2

 
66.9

 
72.6

 
66.9

 
63.9

 
63.3

 
 
Total
$
791.7

 
$
779.8

 
$
765.9

 
$
748.7

 
$
739.3

 
$
778.8

 
$
745.6

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Component Changes in Assets Under Management
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended
 
Nine Months Ended
 
 
 
December 2019
 
September 2019
 
June 2019
 
March 2019
 
December 2018
 
December 2019
 
December 2018
Beginning of period
$
781.8

 
$
780.2

 
$
758.0

 
$
727.2

 
$
755.4

 
$
758.0

 
$
754.1

Net client cash flows: