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Section 1: 8-K (PRESS RELEASE 3.31.19)

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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

Date of Report (Date of earliest event reported)
May 13, 2019


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, Maryland
                
21202
(Address of principal executive offices)
 
(Zip Code)

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

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:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
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 o
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. o
 





Item 2.02
 
Results of Operations and Financial Condition.
 
 
 
 
 
 
 
 
On May 13, 2019, Legg Mason, Inc. announced its results of operations for the quarter and fiscal year ended March 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
 
 
99
Press Release of Legg Mason, Inc. dated May 13, 2019








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:  May 13, 2019
By:
/s/ Thomas C. Merchant
 
 
 
Thomas C. Merchant
 
 
 
Executive Vice President and General Counsel






LEGG MASON, INC.
EXHIBIT INDEX

Exhibit No.
     
Subject Matter
                                                          
 
 
 
99
     









(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

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

LEGG MASON REPORTS RESULTS FOR FOURTH FISCAL QUARTER AND FISCAL YEAR-ENDED 2019

-- Fourth Quarter Net Income of $49.5 Million, or $0.56 per Diluted Share
-- Strategic Restructuring and Affiliate Charges of $18.6 Million, or $0.14 per Diluted Share
-- Assets Under Management of $758.0 Billion     
-- Breakeven Long-term Flows
-- Quarterly Dividend Increased by 18% to $0.40 Per Share
 
Baltimore, Maryland - May 13, 2019 - Legg Mason, Inc. (NYSE: LM) today reported its operating results for the fourth fiscal quarter and the fiscal year ended March 31, 2019.
 
 
 
 
 
 
Quarters Ended
 
Fiscal Years Ended
Financial Results
Mar
 
Dec
 
Mar
 
Mar
 
Mar
(Amounts in millions, except per share amounts)
2019
 
2018
 
2018
 
2019
 
2018
Operating Revenues
$
692.6

 
$
704.3

 
$
785.1

 
$
2,903.3

 
$
3,140.3

Operating Expenses
614.5

 
940.7

 
685.3

 
2,800.2

 
2,816.3

Operating Income (Loss)
78.1

 
(236.4
)
 
99.7

 
103.1

 
324.0

Net Income (Loss)1
49.5

 
(216.9
)
 
9.3

 
(28.5
)
 
285.1

Net Income (Loss) Per Share - Diluted1
0.56

 
(2.55
)
 
0.10

 
(0.38
)
 
3.01

 
 
 
 
 
 
 
 
 
 
Assets Under Management
 
 
 
 
 
 
 
 
 
(Amounts in billions)
 
 
 
 
 
 
 
 
 
End of Period Assets Under Management
$
758.0

 
$
727.2

 
$
754.1

 
$
758.0

 
$
754.1

Average Assets Under Management
748.7

 
739.3

 
766.9

 
748.0

 
754.4

 
 
 
 
 
 
 
 
 
 
(1) Net Income (Loss) Attributable to Legg Mason, Inc.
 
 
 
 
 
 
 
 
 


Joseph A. Sullivan, Chairman and CEO of Legg Mason said, “This quarter’s results reinforce the benefits of diversification of our investment management platform across asset classes, with  alternative and fixed income net inflows offset by decelerating equity net outflows.  Our distribution platform contributed with a favorable inflection in retail net flows reflecting higher sales and slower redemptions. We continue to focus on meeting evolving client demand by expanding client choice in investment strategies, vehicles and distribution access. Looking ahead, lead indicators of improving investment performance, ongoing product development, and increasing interest in alternative strategies bode well for organic growth prospects.
 
“On top of improving fundamental trends, we have refined the perspective and scope of our strategic restructuring which will deliver meaningful cost reductions. Finally, we are thoughtfully allocating capital, including paying down $250 million of our public debt in July, and approving an 18% increase in the quarterly dividend.”



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

News Release
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Assets Under Management of $758.0 Billion

Assets Under Management were $758.0 billion at March 31, 2019 compared with $727.2 billion at December 31, 2018, resulting from $39.2 billion in positive market performance and other, offset by $0.3 billion in realizations, and liquidity outflows of $8.1 billion.

 
 
 
 
 
 
 
 
 
 
Quarter Ended March 31, 2019
 
 
Assets Under Management
($ in billions)
AUM
 
Flows
 
Operating Revenue Yield 1
 
 
Equity
$
202.0

 
$
(1.0
)
 
58 bps
 
 
Fixed Income
419.6

 
0.1

 
27 bps
 
 
Alternative
68.6

 
0.9

2 
60 bps
 
 
Long-Term Assets
690.2

 
0.0

 
 
 
 
Liquidity
67.8

 
(8.1
)
 
14 bps
 
 
Total
$
758.0

 
$
(8.1
)
 
37 bps
 
 
 
 
 
 
 
 
 
 
(1) Operating revenue yield equals total operating revenues less performance fees divided by average AUM
 
 
(2) Excludes realizations of $0.3 billion
 

At March 31, 2019, fixed income represented 55% of AUM, while equity represented 27%, alternative represented 9% and liquidity represented 9%.

By geography, 69% of AUM was from clients domiciled in the United States and 31% from non-US domiciled clients.

Average AUM during the quarter was $748.7 billion compared to $739.3 billion in the prior quarter and $766.9 billion in the fourth quarter of fiscal year 2018. Average long-term AUM was $676.1 billion compared to $672.4 billion in the prior quarter and $697.1 billion in the fourth quarter of fiscal year 2018.


 
 
 
 
 
 
 
 
 
 
 
 
 
Quarterly Performance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1-Year
 
3-Year
 
5-Year
 
10-Year
 
 
% of Strategy AUM beating Benchmark3
 
56%
 
78%
 
74%
 
84%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
% of Long-Term U.S. Fund Assets Beating Lipper Category Average
 
48%
 
63%
 
72%
 
61%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(3) See “Supplemental Data Regarding Quarterly Performance.”

 
 
 
 
 
 
 
 
 


Of Legg Mason’s long-term U.S. mutual fund assets, 56% 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 & Associates | Western Asset
2

News Release
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Operating Results - Comparison to the Third Quarter of Fiscal Year 2019

Net income was $49.5 million, or $0.56 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 net impact of the factors listed below, the changes were driven by two fewer days in the quarter and higher seasonal compensation.

This quarter's results included:
Strategic restructuring costs4 of $9.4 million, or $0.08 per diluted share.
Affiliate charges of $9.2 million, or $0.06 per diluted share, which included Royce management equity plan costs of $2.4 million.
The prior quarter's results included:
Non-cash intangible asset impairment charges of $365.2 million, or $3.11 per diluted share, primarily related to commingled fund management contracts at EnTrust Global and RARE Infrastructure.
Net discrete tax expenses and other tax items of $10.5 million, or $0.12 per diluted share.
Corporate restructuring costs4 of $5.9 million, or $0.05 per diluted share.

Operating revenues of $692.6 million were down 2% compared to $704.3 million in the prior quarter reflecting:
A decrease in separate account and fund advisory fee revenues of $15.3 million, or 2%, reflecting two fewer days in the quarter.
This was partially offset by a $3.8 million increase in performance fees.

Operating expenses were $614.5 million compared to $940.7 million in the prior quarter, but excluding the non-cash impairment charges of $365.2 million in the fiscal third quarter, expenses were up 7%, reflecting:
Higher compensation of $38.8 million driven by a $16.0 million gain in the market value of deferred compensation and seed investments which is recorded as an increase in compensation and benefits, with an offset in non-operating income, as compared to a loss of $10.8 million in the prior quarter, as well as seasonal compensation expenses.
An increase in occupancy expenses of $4.9 million driven by Corporate restructuring costs.
An increase in other expenses of $4.3 million related to Corporate and other restructuring costs, as well as an increase in affiliate related legal and professional fees.

Non-operating expense was $2.8 million, as compared to $30.3 million in the prior quarter reflecting:
Gain on corporate investments, not offset in compensation, were $10.2 million compared with losses of $4.9 million in the prior quarter.
A residual distribution of $8.4 million from an investment holding in the prior quarter.
Gains on funded deferred compensation and seed investments, as described above.
A $4.5 million loss associated with the consolidation of sponsored investment vehicles compared to a $2.6 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 11.3% compared to (33.6)% in the prior quarter, reflecting the impact of the non-cash impairment charges of $365.2 million in the prior quarter. Operating margin, as adjusted5, was 17.1%, as compared to 21.1% in the prior quarter.

Net income attributable to noncontrolling interests, excluding consolidated investment vehicles, was $5.7 million compared to $9.0 million in the prior quarter, principally related to Clarion, EnTrust Global, RARE and Royce.
(4) For the March and December quarters, Strategic restructuring costs include both global business platform as well as other corporate functions
(5) See "Use of Supplemental Non-GAAP Financial Information."

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

News Release
397916351_imageleggmasona11.jpg


Operating Results - Comparison to the Fourth Quarter of Fiscal Year 2018

Net income was $49.5 million, or $0.56 per diluted share, compared to net income of $9.3 million, or $0.10 per diluted share, in the fourth quarter of fiscal year 2018. In addition to the factors listed below, the changes reflecting lower revenues driven by lower average long-term AUM and lower non-pass through performance fees.

This quarter's results included:
Strategic restructuring costs4 of $9.4 million, or $0.08 per diluted share.
Affiliate charges of $9.2 million, or $0.06 per diluted share, which included Royce management equity plan costs of $2.4 million.

The prior year quarter's results included:
A charge of $67.0 million, or $0.76 per diluted share, related to the previously disclosed regulatory matter.
Contingent consideration credit adjustments of $15.5 million, or $0.11 per diluted share.
EnTrustGlobal acquisition and transition-related costs of $1.8 million, or $0.01 per diluted share.
Corporate severance costs of $1.9 million, or $0.01 per diluted share.

Operating revenues of $692.6 million down 12% compared with $785.1 million in the prior year quarter reflecting:
Decreases principally due to lower average long-term AUM.
A decrease in non-pass through performance fees of $21.6 million.

Operating expenses of $614.5 million were down 10% compared with $685.3 million in the prior year quarter reflecting:
Decreased compensation and distribution and service fees, related to decreased revenues driven by lower average long-term AUM and performance fees.
Regulatory charge of $67.0 million reflected in Other Expenses in the prior year quarter.
Excluding the regulatory charge, other expenses increased $7.3 million related to Corporate and other restructuring costs, as well as an increase in affiliate related legal and professional fees.
A $16.0 million gain in the market value of deferred compensation and seed investments, which is recorded as an increase in compensation and benefits with an offset in non-operating income, compared with a loss of $2.2 million in the prior year quarter.

Non-operating expense was $2.8 million, compared to $43.1 million in the prior year quarter reflecting:
Gains on corporate investments, not offset in compensation, were $10.2 million compared with losses of $11.9 million in the prior year quarter.
Gains on funded deferred compensation and seed investments as described above.
A $4.5 million loss associated with the consolidation of sponsored investment vehicles, as compared to an $1.3 million loss 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 11.3% as compared to12.7% in the prior year quarter. Operating margin, as adjusted, was 17.1%, as compared to 23.8% in the prior year quarter.

Net income attributable to noncontrolling interests, excluding consolidated investment vehicles, was $5.7 million, compared to $8.6 million in the prior year quarter, principally related to Clarion, EnTrust Global, RARE and Royce.




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

News Release
397916351_imageleggmasona11.jpg


Comparison to the Full Fiscal Year 2018

Net loss was $28.5 million, or $0.38 per diluted share, compared to net income of $285.1 million, or $3.01 per diluted share, for fiscal year 2018. In addition to the factors listed below, the decreased earnings were driven by lower advisory fee and distribution and service fee revenue due to a lower operating revenue yield and lower non-pass through performance fees.

This year’s results included:
Non-cash impairment charges of $365.2 million, or $3.07 per diluted share
Strategic and corporate restructuring costs of $18.5 million, or $0.15 per diluted share.
Affiliate charges of $9.2 million, or $0.06 per diluted share, which included Royce management equity plan costs of $2.4 million.
A charge of $4.2 million, or $0.05 per diluted share, reflecting the previously disclosed regulatory matter.
Net discrete tax expenses and other tax items of $7.7 million, or $0.09 per diluted share.

The prior year's results included:
Tax benefit of $213.7 million, or $2.26 per diluted share
Non-cash impairment charges of $229.0 million, or $1.96 per diluted share
A charge of $67.0 million, or $0.71 per diluted share, related to a previously disclosed regulatory matter.
Contingent consideration credit adjustments of $31.3 million, or $0.33 per diluted share.
EnTrustGlobal acquisition and transition-related costs of $7.0 million, or $0.05 per diluted share.

Operating revenues of $2.9 billion were down 8% compared with $3.1 billion in the prior year reflecting:
Lower advisory fee and distribution and service fee revenue due to a lower operating revenue yield.
A decrease in non-pass through performance fees of $83.2 million, and a decrease in pass through performance fees of $59.7 million.

Operating expenses of $2.8 billion were in line with the prior year, but excluding the non-cash impairment charges in both years, and the regulatory charges in both years and contingent consideration credit adjustments, were down 5% reflecting:
Decreased compensation, related to decreased revenues driven by lower average long-term AUM and lower performance fees.
Distribution and servicing expenses decreased $50.0 million resulting from lower AUM on which we pay third party distributors.
An $18.8 million increase in other expenses, due to global business platform and other corporate restructuring costs of $20.3 million.
A $10.4 million gain in the market value of deferred compensation and seed investments, which is recorded as an increase in compensation and benefits with an offset in non-operating income, compared with a gain of $12.3 million in the prior year.

Non-operating expense was $74.6 million, compared to $90.2 million in the prior year reflecting:
Gain on corporate investments, not offset in compensation, were $22.5 million compared with net losses of $1.8 million in the prior year.
Gains on funded deferred compensation and seed investments, as described above.
A $2.4 million loss associated with the consolidation of sponsored investment vehicles, as compared to a $10.0 million gain in the prior year. 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 3.6% as compared to 10.3% in the prior year. Operating margin, as adjusted, was 21.1%, as compared to 24.6% in the prior year.

Net income attributable to noncontrolling interests, excluding consolidated investment vehicles, was $35.7 million, compared to $44.6 million in the prior year, principally related to Clarion, EnTrust Global, RARE and Royce.

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

News Release
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Quarterly Business Developments and Recent Announcements

On April 15, 2019, S&P Global Ratings affirmed the BBB senior debt rating of Legg Mason and moved the rating outlook to positive from stable.
On April 10, 2019, Clarion Partners acquired a majority stake in Gramercy Europe (Jersey) Limited, a European real estate business specializing in pan-European logistics and industrial assets.
On April 8, 2019, The U.S. Securities and Exchange Commission (SEC) issued a notice of application for exemptive relief for Precidian Investments’ proprietary exchange traded fund (ETF) intellectual property, ActiveShares®.
On April 2, 2019 Legg Mason announced that it has received a perfect score of 100 on the 2019 Corporate Equality Index (CEI), the nation’s premier benchmarking survey and report on corporate policies and practices related to LGBTQ+ workplace equality.

Balance Sheet

At March 31, 2019, Legg Mason’s cash position was $921.1 million.  Total debt was $2.2 billion, and stockholders' equity was $3.7 billion.  The ratio of total debt to total capital was 38%, in line with the prior quarter. Seed investments totaled $227.8 million.

The Board of Directors has declared a quarterly cash dividend on the Company’s common stock in the amount of $0.40, per share. The dividend is payable on July 22, 2019 to shareholders of record at the close of business on July 2, 2019.

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. EDT today. The call will be open to the general public. Interested participants should access the call by dialing 1-800-447-0521 (or for international calls 1-847-413-3238), confirmation number 48533739, 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 1-888-843-7419 (or for international calls 1-630-652-3042), enter pass code 48533739# when prompted. Please note that the replay will be available beginning at 8:00 p.m. EDT on Monday, May 13, 2019, and ending at 11:59 p.m. EDT on Monday, May 27, 2019.

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 $758.0 billion as of March 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, 2018 and, in the Company’s, quarterly reports on Form 10-Q.



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6

News Release
397916351_imageleggmasona11.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 88% of total AUM is included in strategy AUM as of March 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 March 31, 2019:
 
1-Year
 
3-Year
 
5-Year
 
10-Year
 
 
% of Strategy AUM beating Benchmark
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed Income
 
46%
 
89%
 
84%
 
96%
 
 
 
Equity
 
47%
 
45%
 
45%
 
35%
 
 
 
Alternatives
 
98%
 
83%
 
97%
 
100%
 
 
 
 
 
 
 
 
 
 
 
 
 

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 March 31, 2019:
 
1-Year
 
3-Year
 
5-Year
 
10-Year
 
 
% of Long-Term U.S. Fund Assets Beating Lipper Category Average
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed Income
 
29%
 
73%
 
81%
 
84%
 
 
 
Equity
 
67%
 
54%
 
63%
 
36%
 
 
 
Alternatives (performance relates to only 3 funds)
 
32%
 
0%
 
0%
 
n/a
 
 
 
 
 
 
 
 
 
 
 
 
 

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LEGG MASON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Amounts in thousands)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended
 
Fiscal Years Ended
 
 
 
 
March
 
December
 
March
 
March
 
March
 
 
 
 
2019
 
2018
 
2018
 
2019
 
2018
Operating Revenues:
 
 
 
 
 
 
 
 
 
 
Investment advisory fees:
 
 
 
 
 
 
 
 
 
 
 
Separate accounts
$
251,234

 
$
256,657

 
$
261,920

 
$
1,029,353

 
$
1,020,790

 
 
Funds
351,312

 
361,173

 
394,206

 
1,479,972

 
1,564,839

 
 
Performance fees
16,371

 
12,619

 
46,501

 
84,900

 
227,785

 
Distribution and service fees
72,518

 
72,185

 
80,899

 
302,967

 
321,936

 
Other
1,170

 
1,688

 
1,526

 
6,067

 
4,972

 
 
 
Total operating revenues
692,605

 
704,322

 
785,052

 
2,903,259

 
3,140,322

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Expenses:
 
 
 
 
 
 
 
 
 
 
Compensation and benefits
355,640

 
316,876

 
365,469

 
1,398,969

 
1,508,798

 
Distribution and servicing
99,317

 
108,842

 
119,094

 
439,276

 
489,331

 
Communications and technology
57,245

 
56,664

 
56,957

 
228,138

 
212,798

 
Occupancy
28,963

 
24,077

 
26,199

 
105,296

 
100,760

 
Amortization of intangible assets
6,033

 
6,089

 
6,112

 
24,404

 
24,604

 
Impairment of intangible assets

 
365,200

 

 
365,200

 
229,000

 
Contingent consideration fair value adjustments

 

 
(15,518
)
 
571

 
(31,329
)
 
Other
67,282

 
63,001

 
127,029

 
238,303

 
282,359

 
 
 
Total operating expenses
614,480

 
940,749

 
685,342

 
2,800,157

 
2,816,321

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income (Loss)
78,125

 
(236,427
)
 
99,710

 
103,102

 
324,001

 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Operating Income (Expense):
 
 
 
 
 
 
 
 
 
 
Interest income
4,184

 
3,126

 
2,239

 
12,176

 
7,106

 
Interest expense
(28,794
)
 
(28,770
)
 
(30,441
)
 
(117,341
)
 
(117,872
)
 
Other income (expense), net
24,286

 
(7,042
)
 
(13,372
)
 
31,123

 
10,824

 
Non-operating income (expense) of
 
 
 
 
 
 
 
 
 
 
 
consolidated investment vehicles, net
(2,519
)
 
2,369

 
(1,535
)
 
(565
)
 
9,781

 
 
 
Total non-operating income (expense)
(2,843
)
 
(30,317
)
 
(43,109
)
 
(74,607
)
 
(90,161
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Income Before Income Tax Provision
 
 
 
 
 
 
 
 
 
 
 
(Benefit)
75,282

 
(266,744
)
 
56,601

 
28,495

 
233,840

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income tax provision (benefit)
20,396

 
(60,354
)
 
39,958

 
20,561

 
(102,510
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income (Loss)
54,886

 
(206,390
)
 
16,643

 
7,934

 
336,350

 
Less: Net income attributable
 
 
 
 
 
 
 
 
 
 
 
 to noncontrolling interests
5,399

 
10,498

 
7,374

 
36,442

 
51,275

 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income (Loss) Attributable to Legg
 
 
 
 
 
 
 
 
 
 
 
Mason, Inc.
$
49,487

 
$
(216,888
)
 
$
9,269

 
$
(28,508
)
 
$
285,075

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Continued)
 
 
 
 
 
 
 
 
 
 
 
 
 

8


LEGG MASON, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF INCOME (LOSS), CONTINUED
 
(Amounts in thousands, except per share amounts)
 
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended
 
Fiscal Years Ended
 
 
 
 
 
March
 
December
 
March
 
March
 
March
 
 
 
 
 
2019
 
2018
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income (Loss) Attributable to Legg Mason, Inc.
$
49,487

 
$
(216,888
)
 
$
9,269

 
$
(28,508
)
 
$
285,075

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Less: Earnings (distributed and undistributed)
 
 
 
 
 
 
 
 
 
 
 
 
allocated to participating securities (1)
1,703

 
1,049

 
923

 
4,225

 
10,128

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income (Loss) (Distributed and Undistributed)
 
 
 
 
 
 
 
 
 
 
 
Allocated to Shareholders (Excluding
 
 
 
 
 
 
 
 
 
 
 
Participating Securities)
$
47,784

 
$
(217,937
)
 
$
8,346

 
$
(32,733
)
 
$
274,947

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income (Loss) per Share Attributable to
 
 
 
 
 
 
 
 
 
 
 
Legg Mason, Inc. Shareholders:
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
$
0.56

 
$
(2.55
)
 
$
0.10

 
$
(0.38
)
 
$
3.03

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted
$
0.56

 
$
(2.55
)
 
$
0.10

 
$
(0.38
)
 
$
3.01

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted-Average Number of Shares
 
 
 
 
 
 
 
 
 
 
 
Outstanding: (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
85,552

 
85,537

 
84,526

 
85,423

 
90,734

 
 
 
 
Diluted
85,613

 
85,537

 
85,079

 
85,423

 
91,194

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Participating securities excluded from weighted-average number of shares outstanding were 3,055, 3,104, and 3,343 for the quarters ended March 2019, December 2018, and March 2018, respectively, and 3,092 and 3,327 for the fiscal years ended March 2019 and March 2018, respectively.
 
(2)
Diluted shares are the same as basic shares for periods with a loss.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Strategic Restructuring effective January 1, 2019
Quarter
Ended
March
2019
 
 
 
 
 
 
 
 
 
 
Strategic restructuring cost savings:
 
 
 
 
 
 
 
 
 
 
 
 
Compensation
$
1,663

 
 
 
 
 
 
 
 
 
 
 
Occupancy
300

 
 
 
 
 
 
 
 
 
 
 
Other
1,642

 
 
 
 
 
 
 
 
 
 
 
 
Total strategic restructuring cost savings
$
3,605

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Strategic restructuring costs:
 
 
 
 
 
 
 
 
 
 
 
 
Occupancy
$
2,848

 
 
 
 
 
 
 
 
 
 
 
Other
6,504

 
 
 
 
 
 
 
 
 
 
 
 
Total strategic restructuring costs
$
9,352

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


 


9


LEGG MASON, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF INCOME (LOSS)
(Amounts in thousands)
(Unaudited)
 
 
 
 
Quarters Ended
 
 
 
 
March 2019
 
December 2018
 
March 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance Before Consolidation of Consolidated Investment Vehicles and Other (1)
 
Consolidated Investment Vehicles and Other (1)
 
Consolidated Totals
Balance Before Consolidation of Consolidated Investment Vehicles and Other (1)
 
Consolidated Investment Vehicles and Other (1)
 
Consolidated Totals
Balance Before Consolidation of Consolidated Investment Vehicles and Other (1)
 
Consolidated Investment Vehicles and Other (1)
 
Consolidated Totals
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total operating revenues
$
692,743

 
$
(138
)
 
$
692,605

$
704,477

 
$
(155
)
 
$
704,322

$
785,280

 
$
(228
)
 
$
785,052

Total operating expenses
614,361

 
119

 
614,480

940,561

 
188

 
940,749

685,610

 
(268
)
 
685,342

Operating Income (Loss)
78,382

 
(257
)
 
78,125

(236,084
)
 
(343
)
 
(236,427
)
99,670

 
40

 
99,710

Non-operating income (expense)
(2,840
)
 
(3
)
 
(2,843
)
(32,158
)
 
1,841

 
(30,317
)
(41,802
)
 
(1,307
)
 
(43,109
)
Income (Loss) Before Income Tax Provision (Benefit)
75,542

 
(260
)
 
75,282

(268,242
)
 
1,498

 
(266,744
)
57,868

 
(1,267
)
 
56,601

Income tax provision (benefit)
20,396

 

 
20,396

(60,354
)
 

 
(60,354
)
39,958

 

 
39,958

Net Income (Loss)
55,146

 
(260
)
 
54,886

(207,888
)
 
1,498

 
(206,390
)
17,910

 
(1,267
)
 
16,643

Less: Net income (loss) attributable
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 to noncontrolling interests
5,659

 
(260
)
 
5,399

9,000

 
1,498

 
10,498

8,641

 
(1,267
)
 
7,374

Net Income (Loss) Attributable to Legg Mason, Inc.
$
49,487

 
$

 
$
49,487

$
(216,888
)
 
$

 
$
(216,888
)
$
9,269

 
$

 
$
9,269

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fiscal Years Ended
 
 
 
 
 
 
 
 
 
 
March 2019
 
March 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance Before Consolidation of Consolidated Investment Vehicles and Other (1)
 
Consolidated Investment Vehicles and Other (1)
 
Consolidated Totals
Balance Before Consolidation of Consolidated Investment Vehicles and Other (1)
 
Consolidated Investment Vehicles and Other (1)
 
Consolidated Totals
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total operating revenues
$
2,903,858

 
$
(599
)
 
$
2,903,259

$
3,140,900

 
$
(578
)
 
$
3,140,322

 
 
 
 
 
Total operating expenses
2,799,168

 
989

 
2,800,157

2,816,022

 
299

 
2,816,321

 
 
 
 
 
Operating Income (Loss)
104,690

 
(1,588
)
 
103,102

324,878

 
(877
)
 
324,001

 
 
 
 
 
Non-operating income (expense)
(76,971
)
 
2,364

 
(74,607
)
(97,694
)
 
7,533

 
(90,161
)
 
 
 
 
 
Income Before Income Tax Provision (Benefit)
27,719

 
776

 
28,495

227,184

 
6,656

 
233,840

 
 
 
 
 
Income tax provision (benefit)
20,561

 

 
20,561

(102,510
)
 

 
(102,510
)
 
 
 
 
 
Net Income
7,158

 
776

 
7,934

329,694

 
6,656

 
336,350

 
 
 
 
 
Less: Net income attributable
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 to noncontrolling interests
35,666

 
776

 
36,442

44,619

 
6,656

 
51,275

 
 
 
 
 
Net Income (Loss) Attributable to Legg Mason, Inc.
$
(28,508
)
 
$

 
$
(28,508
)
$
285,075

 
$

 
$
285,075

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Other represents consolidated sponsored investment products that are not designated as CIVs
 
 
 
 
 
 


10


LEGG MASON, INC. AND SUBSIDIARIES
SUPPLEMENTAL DATA
 RECONCILIATION OF OPERATING MARGIN, AS ADJUSTED (1)
(Amounts in thousands)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended
 
 
Fiscal Years Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
March
 
December
 
March
 
 
March
 
March
 
 
 
 
 
2019
 
2018
 
2018
 
 
2019
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Revenues, GAAP basis
$
692,605

 
$
704,322

 
$
785,052

 
 
$
2,903,259

 
$
3,140,322

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Plus (less):
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass-through performance fees
(4,986
)
 
(7,436
)
 
(13,482
)
 
 
(49,048
)
 
(108,757
)
 
 
 
Operating revenues eliminated upon
 
 
 
 
 
 
 
 
 
 
 
 
 
 
consolidation of investment vehicles
138

 
155

 
228

 
 
599

 
578

 
 
 
Distribution and servicing expense excluding
 
 
 
 
 
 
 
 
 
 
 
 
 
 
consolidated investment vehicles
(99,299
)
 
(108,771
)
 
(119,312
)
 
 
(439,144
)
 
(489,310
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Revenues, as Adjusted
$
588,458

 
$
588,270

 
$
652,486

 
 
$
2,415,666

 
$
2,542,833

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income (Loss), GAAP basis
$
78,125

 
$
(236,427
)
 
$
99,710

 
 
$
103,102

 
$
324,001

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Plus (less):
 
 
 
 
 
 
 
 
 
 
 
 
 
Gains (losses) on deferred compensation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
and seed investments, net
16,006

 
(10,826
)
 
(2,240
)
 
 
10,416

 
12,345

 
 
 
Impairment of intangible assets

 
365,200

 

 
 
365,200

 
229,000

 
 
 
Amortization of intangible assets
6,033

 
6,089

 
6,112

 
 
24,404

 
24,604

 
 
 
Contingent consideration fair value adjustments

 

 
(15,518
)
 
 
571

 
(31,329
)
 
 
 
Charge related to regulatory matter

 

 
67,000

 
 
4,151

 
67,000

 
 
 
Operating (income) loss of consolidated investment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
vehicles, net
257

 
343

 
(40
)
 
 
1,588

 
877

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income, as Adjusted
$
100,421

 
$
124,379

 
$
155,024

 
 
$
509,432

 
$
626,498

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Margin, GAAP basis
11.3

%
(33.6
)
%
12.7

%
 
3.6

%
10.3

%
Operating Margin, as Adjusted
17.1

 
21.1

 
23.8

 
 
21.1

 
24.6

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

11


LEGG MASON, INC. AND SUBSIDIARIES
SUPPLEMENTAL DATA
 RECONCILIATION OF CASH PROVIDED BY OPERATING ACTIVITIES
TO ADJUSTED EBITDA (1)
(Amounts in thousands)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended
 
Fiscal Years Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
March
 
December
 
March
 
March
 
March
 
 
 
 
2019
 
2018
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash provided by operating activities, GAAP basis
$
116,877

 
$
256,591

 
$
197,550

 
$
560,866

 
$
489,368

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Plus (less):
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net of accretion and amortization
 
 
 
 
 
 
 
 
 
 
 
 
of debt discounts and premiums
28,328

 
28,259

 
29,880

 
115,284

 
115,056

 
 
Current tax expense (benefit)
9,081

 
(1,218
)
 
14,426

 
26,716

 
38,983

 
 
Net change in assets and liabilities
(27,724
)
 
(170,384
)
 
(128,797
)
 
(52,518
)
 
(31,125
)
 
 
Net change in assets and liabilities
 
 
 
 
 
 
 
 
 
 
 
 
of consolidated investment vehicles
(7,701
)
 
60,158

 
16,569

 
(17,667
)
 
67,792

 
 
Net income attributable to noncontrolling interests
(5,399
)
 
(10,498
)
 
(7,374
)
 
(36,442
)
 
(51,275
)
 
 
Net gains (losses) and earnings on investments
(8,790
)
 
21,367

 
(3,179
)
 
27,705

 
(305
)
 
 
Net gains (losses) on consolidated investment vehicles
(2,519
)
 
2,369

 
(1,535
)
 
(565
)
 
9,781

 
 
Other
(866
)
 
(68
)
 
(1,981
)
 
(1,155
)
 
(1,047
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
$
101,287

 
$
186,576

 
$
115,559

 
$
622,224

 
$
637,228

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


12


LEGG MASON, INC. AND SUBSIDIARIES
(Amounts in billions)
(Unaudited)
Assets Under Management
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended
 
 
 
 
By asset class:
March 2019
 
December 2018
 
September 2018
 
June 2018
 
March 2018
 
 
 
 
 
Equity
$
202.0

 
$
181.0

 
$
214.5

 
$
206.4

 
$
203.0

 
 
 
 
 
Fixed Income
419.6

 
406.6

 
411.0

 
412.3

 
422.3

 
 
 
 
 
Alternative
68.6

 
66.3

 
67.4

 
66.4

 
66.1

 
 
 
 
 
 
Long-Term Assets
690.2

 
653.9

 
692.9

 
685.1

 
691.4

 
 
 
 
 
Liquidity
67.8

 
73.3

 
62.5

 
59.5

 
62.7

 
 
 
 
 
 
Total
$
758.0

 
$
727.2

 
$
755.4

 
$
744.6

 
$
754.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended
 
Fiscal Years Ended
By asset class (average):
March 2019
 
December 2018
 
September 2018
 
June 2018
 
March 2018
 
March 2019
 
March 2018
 
Equity
$
195.4

 
$
198.2

 
$
212.2

 
$
205.0

 
$
208.8

 
$
203.1

 
$
200.5

 
Fixed Income
413.7

 
407.4

 
411.4

 
416.7

 
422.2

 
412.9

 
412.0

 
Alternative
67.0

 
66.8

 
66.4

 
66.0

 
66.1

 
66.5

 
66.3

 
 
Long-Term Assets
676.1

 
672.4

 
690.0

 
687.7

 
697.1

 
682.5

 
678.8

 
Liquidity
72.6

 
66.9

 
60.2

 
61.8

 
69.8

 
65.5

 
75.6

 
 
Total
$
748.7

 
$
739.3

 
$
750.2

 
$
749.5

 
$
766.9

 
$
748.0

 
$
754.4

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Component Changes in Assets Under Management
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended
 
Fiscal Years Ended
 
 
 
March 2019
 
December 2018
 
September 2018
 
June 2018
 
March 2018
 
March 2019
 
March 2018
Beginning of period
$
727.2

 
$
755.4

 
$
744.6

 
$
754.1

 
$
767.2

 
$
754.1

 
$
728.4

Net client cash flows:
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity
(1.0
)
 
(3.3
)
 
(1.1
)
 
(2.2
)
 
(2.1
)
 
(7.5
)
 
(6.7
)
Fixed Income
0.1

 
(5.1
)
 
(0.5
)
 
1.3

 
2.8

 
(4.3
)
 
9.4

Alternative
0.9