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Section 1: 8-K (8-K)

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false0000704051 0000704051 2019-10-30 2019-10-30


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

October 30, 2019
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 October 30, 2019, Legg Mason, Inc. announced its results of operations for the quarter ended September 30, 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:  October 30, 2019
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
400726972_imageleggmasona12.jpg



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

LEGG MASON REPORTS RESULTS FOR SECOND FISCAL QUARTER


--
Second Quarter Net Income of $67.1 million, or $0.74 per Diluted Share
Includes Restructuring Charges of $19.7 Million, or $0.16 per Diluted Share
-- Adjusted Net Income of $85.6 Million, or $0.95 per Diluted Share
-- Assets Under Management of $781.8 Billion
-- Long-term Net Outflows of $0.2 Billion

 
Baltimore, Maryland - October 30, 2019 - Legg Mason, Inc. (NYSE: LM) today reported its operating results for the second fiscal quarter ended September 30, 2019.
 
Quarters Ended
 
Six Months Ended
Financial Results
Sep
 
Jun
 
Sep
 
Sep
 
Sep
(Amounts in millions, except per share amounts)
2019
 
2019
 
2018
 
2019
 
2018
Operating Revenues
$
743.3

 
$
705.4

 
$
758.4

 
$
1,448.6

 
$
1,506.3

Operating Expenses
618.3

 
621.4

 
622.7

 
1,239.7

 
1,244.9

Operating Income
125.0

 
83.9

 
135.7

 
208.9

 
261.4

Net Income1
67.1

 
45.4

 
72.8

 
112.4

 
138.9

Net Income Per Share - Diluted1
0.74

 
0.51

 
0.82

 
1.25

 
1.57

 
 
 
 
 
 
 
 
 
 
Adjusted Net Income2
$
85.6

 
$
67.0

 
$
78.0

 
$
152.6

 
$
152.6

Adjusted Earnings Per Share - Diluted2
0.95

 
0.75

 
0.88

 
1.70

 
1.72

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

“Legg Mason delivered strong financial results in a volatile quarter for the markets”, said Joseph A. Sullivan, Chairman and CEO of Legg Mason.

“More specifically, this quarter’s results reinforced the benefits of diversification, as strong inflows across alternative products mostly offset equity and fixed income outflows. Further, we continued to make meaningful progress on our strategic restructuring efforts driving a significant improvement in adjusted earnings and margins, and we remain on track to meet or exceed projected cost savings by the end of fiscal year 2021.

“Looking ahead, we will continue to focus on the evolving needs of our clients, encouraging innovation across investment strategies, vehicles and distribution to increasingly leverage the company’s durable competitive advantages to drive growth and long-term shareholder value.”

 
 


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

News Release
400726972_imageleggmasona12.jpg

Assets Under Management of $781.8 Billion

Assets Under Management were $781.8 billion at September 30, 2019 compared with $780.2 billion at June 30, 2019, with the change resulting from positive market performance and other of $8.7 billion, partially offset by liquidity outflows of $3.5 billion, negative foreign exchange of $3.2 billion, long-term net outflows of $0.2 billion and realizations of $0.2 billion.

 
 
 
 
 
 
 
 
 
 
Quarter Ended September 30, 2019
 
 
Assets Under Management
($ in billions)
AUM
 
Flows
 
Operating Revenue Yield 1
 
 
Equity
$
203.3

 
$
(2.1
)
 
57 bps
 
 
Fixed Income
442.7

 
(0.5
)
 
26 bps
 
 
Alternative
72.6

 
2.4

2 
58 bps
 
 
Long-Term Assets
718.6

 
(0.2
)
 
 
 
 
Liquidity
63.2

 
(3.5
)
 
14 bps
 
 
Total
$
781.8

 
$
(3.7
)
 
36 bps
 
 
 
 
 
 
 
 
 
 
(1) Operating revenue yield equals total operating revenues less performance fees divided by average AUM
 
 
(2) Excludes realizations of $0.2 billion
 

At September 30, 2019, fixed income represented 57% of AUM, while equity represented 26%, 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 $779.8 billion compared to $765.9 billion in the prior quarter and $750.2 billion in the second fiscal quarter of 2019. Average long-term AUM was $716.6 billion compared to $699.0 billion in the prior quarter and $690.0 billion in the second quarter of fiscal year 2019.

 
 
 
 
 
 
 
 
 
 
 
 
 
Quarterly Performance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1-Year
 
3-Year
 
5-Year
 
10-Year
 
 
% of Strategy AUM beating Benchmark3
 
75%
 
79%
 
82%
 
84%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
% of Long-Term U.S. Fund Assets Beating Lipper Category Average
 
70%
 
66%
 
71%
 
64%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(3) See “Supplemental Data Regarding Quarterly Performance.”

 
 
 
 
 
 
 
 
 


Of Legg Mason’s long-term U.S. mutual fund assets, 68% 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
400726972_imageleggmasona12.jpg

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

Adjusted net income was $85.6 million, or $0.95 per diluted share, compared to adjusted net income of $67.0 million, or $0.75 per diluted share. The increase was driven by an increase in operating revenues, reflecting higher average AUM and one additional day in the quarter as well as a $7.1 million increase in non-pass through performance fees. In addition, the increase in adjusted net income reflected the impact of strategic restructuring savings as well as seasonally lower compensation and benefits expenses.

Net income was $67.1 million, or $0.74 per diluted share, compared to net income of $45.4 million, or $0.51 per diluted share, in the first quarter of fiscal year 2020. In addition to the items noted above, the changes were impacted by $13.2 million in reduced restructuring costs and losses on corporate investments not offset in compensation, compared with gains in the prior quarter.

Operating revenues of $743.3 million were up 5% compared to $705.4 million in the prior quarter reflecting:
An increase in separate account and fund advisory fee revenues of $13.0 million, or 2%, reflecting higher average AUM and one additional day in the quarter.
Performance fees increased by $28.0 million, of which $7.1 million were non-pass through.

Operating expenses of $618.3 million were down 1% from $621.4 million in the prior quarter, reflecting:
Lower compensation of $2.1 million driven by a $14.3 million decrease in strategic restructuring costs, a smaller gain in the market value of deferred compensation and seed investments of $2.9 million, with an offset in non-operating income, as compared to a gain of $7.0 million in the prior quarter as well as $5.0 million in lower seasonal compensation. These decreases more than offset increased compensation and benefits related to a $21.0 million increase in pass through performance fees, as well as higher advisory fees and non-pass through performance fees.
A decrease in other expenses of $3.2 million largely due to lower conference and travel and entertainment expenses, which more than offset a $1.0 million increase in restructuring costs.
The $19.7 million of restructuring costs consisted of $15.9 million of strategic restructuring costs related to the implementation of our cost savings initiative and $3.8 million of professional fees for other corporate matters

Non-operating expense was $19.7 million, as compared to $4.3 million in the prior quarter reflecting:
Losses on Corporate investments, not offset in compensation, were $2.9 million compared with gains of $3.1 million in the prior quarter.
Gains on funded deferred compensation and seed investments, as described above.
A $5.0 million gain associated with the consolidation of sponsored investment vehicles compared to a $10.1 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 16.8% compared to 11.9% in the prior quarter. Adjusted operating margin1, was 25.0%, as compared to 21.6% in the prior quarter.

Net income attributable to noncontrolling interests, excluding consolidated investment vehicles, was $8.7 million compared to $9.7 million in the prior quarter, principally related to Clarion, EnTrust Global, RARE 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 & Associates | Western Asset
3

News Release
400726972_imageleggmasona12.jpg


Comparison to the Second Quarter of Fiscal Year 2019

Adjusted net income was $85.6 million, or $0.95 per diluted share, compared to adjusted net income of $78.0 million, or $0.88 per diluted share, in the prior year quarter. The increase was driven by a decrease in operating expenses as a result of the impact of savings from the strategic restructuring as well as an increase in non-pass through performance fees. These more than offset a decline in investment advisory and distribution and service fees reflecting lower operating revenue yields, despite higher average long-term assets under management.

Net income was $67.1 million, or $0.74 per diluted share, compared to net income of $72.8 million, or $0.82 per diluted share, in the second quarter of fiscal year 2019. In addition to the items noted above, the changes were driven by $19.7 million of restructuring costs in the current quarter as well as a discrete tax benefit of $2.8 million related to the completion of a prior year audit in fiscal 2019 partially offset by $5.6 million in corporate restructuring charges in the second quarter of fiscal year 2019.

Operating revenues of $743.3 million were down 2% compared with $758.4 million in the prior year quarter reflecting:
A decrease in distribution and service fees of $12.0 million reflecting a shift to lower fee earning mutual fund share classes and lower average fund AUM earning distribution fee revenue as well as a decrease in advisory fee revenues of $5.3 million, primarily due to asset mix, the shift from funds to lower fee vehicles and specific fee reductions.
These decreases were partially offset by an increase in non-pass through performance fees of $5.1 million.

Operating expenses of $618.3 million were down 1% compared with $622.7 million in the prior year quarter reflecting:
Distribution and servicing expenses decreased by $9.4 million reflecting the shift of assets under management as described above.
Compensation and benefits increased by 4%, primarily due to $14.4 million in strategic restructuring costs. Excluding the strategic restructuring costs, compensation and benefits were $1.6 million lower primarily due to strategic restructuring savings, which more than offset higher affiliate compensation as well as higher corporate compensation including increased sales commissions.
Communications and technology expenses decreased by $3.5 million primarily due to strategic restructuring savings.
Other expenses decreased by $2.9 million despite $4.8 million in restructuring costs. The lower other expenses were due in part to strategic restructuring savings of $5.3 million and lower professional fees.
A $2.9 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 $4.0 million in the prior year quarter.

Non-operating expense was $19.7 million, compared to $24.8 million in the prior year quarter reflecting:
Losses on corporate investments, not offset in compensation, were $2.9 million compared with gains of $2.9 million in the prior year quarter.
Gains on funded deferred compensation and seed investments as described above.
A $5.0 million gain associated with the consolidation of sponsored investment vehicles, as compared to a $4.3 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 16.8% as compared to 17.9% in the prior year quarter. Adjusted operating margin was 25.0%, as compared to 24.5% in the prior year quarter.

Net income attributable to noncontrolling interests, excluding consolidated investment vehicles, was $8.7 million, compared to $11.3 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
400726972_imageleggmasona12.jpg


Quarterly Business Developments and Recent Announcements

On July 15, 2019, Legg Mason repaid $250 million in Senior Notes.
On July 30, 2019 Stephen C. Hooley, a financial services, technology and operational efficiency executive, was elected to Legg Mason’s Board of Directors.
On September 3, 2019 Legg Mason and Cathay Financial Holdings, the largest financial holding company in Taiwan, announced that Legg Mason Investments (Taiwan) Limited and Cathay United Bank entered into a partnership to introduce theme based, customized investment portfolios to Taiwanese investors.
On October 15, 2019 Legg Mason announced the launch of the Clarion Partners Real Estate Income Fund Inc. (CPREIF), its first commercial real estate-focused fund designed for individual investors.

Balance Sheet

At September 30, 2019, Legg Mason’s cash position was $580.9 million.  Total debt was $2.0 billion, and stockholders' equity was $3.7 billion.  The ratio of total debt to total capital was 35%, compared to 38% in the prior quarter.   Seed investments totaled $211.2 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 1-800-891-8256 (or for international calls 1-212-271-4651), confirmation number 21932009 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 21932009 when prompted. Please note that the replay will be available beginning at 8:00 p.m. ET on Wednesday, October 30, 2019, and ending at 11:59 p.m. ET on Wednesday, November 13, 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 $781.8 billion as of September 30, 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 & Associates | Western Asset
5

News Release
400726972_imageleggmasona12.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 September 30, 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 September 30, 2019:
 
1-Year
 
3-Year
 
5-Year
 
10-Year
 
 
% of Strategy AUM beating Benchmark1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed Income
 
75%
 
97%
 
90%
 
98%
 
 
 
Equity
 
66%
 
56%
 
54%
 
48%
 
 
 
Alternatives
 
97%
 
88%
 
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 September 30, 2019:
 
1-Year
 
3-Year
 
5-Year
 
10-Year
 
 
% of Long-Term U.S. Fund Assets Beating Lipper Category Average
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed Income
 
74%
 
78%
 
73%
 
78%
 
 
 
Equity
 
66%
 
54%
 
69%
 
48%
 
 
 
Alternatives (performance relates to only 3 funds)
 
49%
 
0%
 
n/a
 
n/a
 
 
 
 
 
 
 
 
 
 
 
 
 

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


LEGG MASON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended
 
Six Months Ended
 
 
 
 
September
 
June
 
September
 
September
 
September
 
 
 
 
2019
 
2019
 
2018
 
2019
 
2018
Operating Revenues:
 
 
 
 
 
 
 
 
 
 
Investment advisory fees:
 
 
 
 
 
 
 
 
 
 
 
Separate accounts
$
264,438

 
$
260,441

 
$
261,567

 
$
524,879

 
$
521,462

 
 
Funds
375,765

 
366,812

 
383,923

 
742,577

 
767,487

 
 
Performance fees
34,869

 
6,861

 
31,874

 
41,730

 
55,910

 
Distribution and service fees
67,064

 
69,937

 
79,074

 
137,001

 
158,264

 
Other
1,128

 
1,309

 
1,989

 
2,437

 
3,209

 
 
 
Total operating revenues
743,264

 
705,360

 
758,427

 
1,448,624

 
1,506,332

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Expenses:
 
 
 
 
 
 
 
 
 
 
Compensation and benefits
377,727

 
379,828

 
364,885

 
757,555

 
726,453

 
Distribution and servicing
105,099

 
103,906

 
114,525

 
209,005

 
231,117

 
Communications and technology
53,953

 
55,274

 
57,489

 
109,227

 
114,229

 
Occupancy
26,809

 
25,624

 
27,352

 
52,433

 
52,256

 
Amortization of intangible assets
5,442

 
5,457

 
6,102

 
10,899

 
12,282

 
Contingent consideration fair value adjustments

 
(1,165
)
 
145

 
(1,165
)
 
571

 
Other
49,257

 
52,501

 
52,201

 
101,758

 
108,020

 
 
 
Total operating expenses
618,287

 
621,425

 
622,699

 
1,239,712

 
1,244,928

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
124,977

 
83,935

 
135,728

 
208,912

 
261,404

 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Operating Income (Expense):
 
 
 
 
 
 
 
 
 
 
Interest income
2,652

 
4,005

 
2,420

 
6,657

 
4,866

 
Interest expense
(27,331
)
 
(28,483
)
 
(29,860
)
 
(55,814
)
 
(59,777
)
 
Other income (expense), net
458

 
10,599

 
6,627

 
11,057

 
13,879

 
Non-operating income (expense) of
 
 
 
 
 
 
 
 
 
 
 
consolidated investment vehicles, net
4,529

 
9,561

 
(3,998
)
 
14,090

 
(415
)
 
 
 
Total non-operating income (expense)
(19,692
)
 
(4,318
)
 
(24,811
)
 
(24,010
)
 
(41,447
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Income Before Income Tax Provision
105,285

 
79,617

 
110,917

 
184,902

 
219,957

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income tax provision
28,754

 
18,048

 
29,844

 
46,802

 
60,519

 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income
76,531

 
61,569

 
81,073

 
138,100

 
159,438

 
Less: Net income attributable
 
 
 
 
 
 
 
 
 
 
 
 to noncontrolling interests
9,448

 
16,219

 
8,270

 
25,667

 
20,545

 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income Attributable to Legg Mason, Inc.
$
67,083

 
$
45,350

 
$
72,803

 
$
112,433

 
$
138,893

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Continued)

7


LEGG MASON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME, CONTINUED
(Amounts in thousands, except per share amounts)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended
 
Six Months Ended
 
 
 
 
 
September
 
June
 
September
 
September
 
September
 
 
 
 
 
2019
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income Attributable to Legg Mason, Inc.
$
67,083

 
$
45,350

 
$
72,803

 
$
112,433

 
$
138,893

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Less: Earnings (distributed and undistributed)
 
 
 
 
 
 
 
 
 
 
 
 
allocated to participating securities (1)
2,213

 
1,510

 
2,577

 
3,711

 
4,898

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income (Distributed and Undistributed)
 
 
 
 
 
 
 
 
 
 
 
Allocated to Shareholders (Excluding
 
 
 
 
 
 
 
 
 
 
 
Participating Securities)
$
64,870

 
$
43,840

 
$
70,226

 
$
108,722

 
$
133,995

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income per Share Attributable to
 
 
 
 
 
 
 
 
 
 
 
Legg Mason, Inc. Shareholders:
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
$
0.75

 
$
0.51

 
$
0.82

 
$
1.26

 
$
1.57

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted
$
0.74

 
$
0.51

 
$
0.82

 
$
1.25

 
$
1.57

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted-Average Number of Shares
 
 
 
 
 
 
 
 
 
 
 
Outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
86,813

 
86,297

 
85,482

 
86,558

 
85,303

 
 
 
 
Diluted
87,127

 
86,494

 
85,612

 
86,816

 
85,536

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Participating securities excluded from weighted-average number of shares outstanding were 2,973, 2,852, and 3,156 for the quarters ended September 2019, June 2019, and September 2018, respectively, and 2,911 and 3,105 for the six months ended September 2019 and September 2018, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended
 
 
 
Six Months Ended
 
 
 
 
 
 
 
September
 
June
 
 
 
September
 
 
 
Strategic Restructuring effective January 1, 2019
2019
 
2019
 
 
 
2019
 
 
 
 
Strategic restructuring cost savings:
 
 
 
 
 
 
 
 
 
 
 
 
Compensation
$
7,523

 
$
2,850

 
 
 
$
10,373

 
 
 
 
 
Occupancy
175

 
240

 
 
 
415

 
 
 
 
 
Other
7,760

 
6,894

 
 
 
14,654

 
 
 
 
 
 
Total strategic restructuring cost savings
$
15,458

 
$
9,984

 
 
 
$
25,442

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Strategic restructuring costs:
 
 
 
 
 
 
 
 
 
 
 
 
Compensation and benefits
$
14,422

 
$
28,694

 
 
 
$
43,116

 
 
 
 
 
Occupancy

 

 
 
 

 
 
 
 
 
Other
1,503

 
4,204

 
 
 
5,707

 
 
 
 
 
 
Total strategic restructuring costs
$
15,925

 
$
32,898

 
 
 
$
48,823

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


 
 
 
 
 
 
 
 
 
 
 


8


LEGG MASON, INC. AND SUBSIDIARIES
SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION
RECONCILIATION OF NET INCOME 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
 
Six Months Ended
 
 
 
 
 
 
 
September
 
June
 
September
 
September
 
September
 
 
 
 
 
 
 
2019
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
Net Income Attributable to Legg Mason, Inc.
 
$
67,083

 
$
45,350

 
$
72,803

 
$
112,433

 
$
138,893

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Plus (less):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restructuring costs:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Strategic restructuring and other corporate initiatives
 
19,666

 
32,898

 
5,647

 
52,564

 
8,422

 
 
 
 
Affiliate charges
 
237

 
1,203

 

 
1,440

 

 
 
Amortization of intangible assets
 
5,442

 
5,457

 
6,102

 
10,899

 
12,282

 
 
Gains and losses on seed and other investments
 
 
 
 
 
 
 
 
 
 
 
 
 
not offset by compensation or hedges
 
(51
)
 
(6,411
)
 
(1,285
)
 
(6,462
)
 
(7,700
)
 
 
Acquisition and transition-related costs
 

 

 

 

 
1,468

 
 
Contingent consideration fair value adjustments
 

 
(1,165
)
 
145

 
(1,165
)
 
571

 
 
Charges related to significant regulatory matters
 

 

 
151

 

 
4,151

 
 
Income tax adjustments:(2)
 
 
 
 
 
 
 


 

 
 
 
 
Impacts of non-GAAP adjustments
 
(6,954
)
 
(8,635
)
 
(2,721
)
 
(15,589
)
 
(3,763
)
 
 
 
 
Other tax items
 
220

 
(1,700
)
 
(2,806
)
 
(1,480
)
 
(1,761
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Net Income
 
$
85,643

 
$
66,997

 
$
78,036

 
$
152,640

 
$
152,563

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income Per Diluted Share Attributable to
 
 
 
 
 
 
 
 
 
 
 
Legg Mason, Inc. Shareholders
 
$
0.74

 
$
0.51

 
$
0.82

 
$
1.25

 
$
1.57

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Plus (less), net of tax impacts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restructuring costs:
 
 
 
 
 
 
 
 
 
 
 
 
 
Strategic restructuring and other corporate initiatives
 
0.16

 
0.27

 
0.05

 
0.43

 
0.07

 
 
 
Affiliate charges
 

 
0.01

 

 
0.01

 

 
 
Amortization of intangible assets
 
0.05

 
0.04

 
0.05

 
0.09

 
0.10

 
 
Gains and losses on seed and other investments
 
 
 
 
 
 
 
 
 
 
 
 

not offset by compensation or hedges
 

 
(0.05
)
 
(0.01
)
 
(0.05
)
 
(0.06
)
 
 
Acquisition and transition-related costs
 

 

 

 

 
0.01

 
 
Contingent consideration fair value adjustments
 

 
(0.01
)
 

 
(0.01
)
 

 
 
Charges related to significant regulatory matters
 

 

 

 

 
0.05

 
 
Other tax items
 

 
(0.02
)
 
(0.03
)
 
(0.02
)
 
(0.02
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Earnings per Diluted Share
 
$
0.95

 
$
0.75

 
$
0.88

 
$
1.70

 
$
1.72

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) See explanations for "Use of Supplemental Non-GAAP Financial Information."
 
 
 
 
(2) The non-GAAP effective tax rates for the quarters ended September 30, 2019, June 30, 2019 and September 30, 2018
 
 
were 27.3%, 27.0%, and 28.4% respectively, and for the six months ended September 30, 2019 and 2018 were
 
 
 27.2% and 27.6%, respectively.
 
 
 
 


9


LEGG MASON, INC. AND SUBSIDIARIES
SUPPLEMENTAL DATA
 RECONCILIATION OF GAAP BASIS OPERATING MARGIN TO ADJUSTED OPERATING MARGIN (1)
(Amounts in thousands)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended
 
 
Six Months Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September
 
June
 
September
 
 
September
 
September
 
 
 
 
 
2019
 
2019
 
2018
 
 
2019
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Revenues, GAAP basis
$
743,264

 
$
705,360

 
$
758,427

 
 
$
1,448,624

 
$
1,506,332

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Plus (less):
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass-through performance fees
(21,914
)
 
(1,030
)
 
(24,006
)
 
 
(22,944
)
 
(36,626
)
 
 
 
Operating revenues eliminated upon
 
 
 
 
 
 
 
 
 
 
 
 
 
 
consolidation of investment vehicles
156

 
125

 
103

 
 
281

 
306

 
 
 
Distribution and servicing expense excluding
 
 
 
 
 
 
 
 
 
 
 
 
 
 
consolidated investment vehicles
(104,199
)
 
(103,887
)
 
(114,516
)
 
 
(208,086
)
 
(231,074
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Operating Revenues
$
617,307

 
$
600,568

 
$
620,008

 
 
$
1,217,875

 
$
1,238,938

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income, GAAP basis
$
124,977

 
$
83,935

 
$
135,728

 
 
$
208,912

 
$
261,404

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Plus (less):
 
 
 
 
 
 
 
 
 
 
 
 
 
Restructuring costs:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Strategic restructuring and other corporate initiatives
19,666

 
32,898

 
5,647

 
 
52,564

 
8,422

 
 
 
 
Affiliate charges
237

 
1,203

 

 
 
1,440

 

 
 
 
Amortization of intangible assets
5,442

 
5,457

 
6,102

 
 
10,899

 
12,282

 
 
 
Gains (losses) on deferred compensation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
and seed investments, net
2,910

 
7,014

 
3,964

 
 
9,924

 
5,236

 
 
 
Acquisition and transition-related costs

 

 

 
 

 
1,468

 
 
 
Contingent consideration fair value adjustments

 
(1,165
)
 
145

 
 
(1,165
)
 
571

 
 
 
Charges related to significant regulatory matters

 

 
151

 
 

 
4,151

 
 
 
Operating loss of consolidated investment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
vehicles, net
1,298

 
259

 
372

 
 
1,557

 
988

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Operating Income
$
154,530

 
$
129,601

 
$
152,109

 
 
$
284,131

 
$
294,522

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Margin, GAAP basis
16.8

%
11.9

%
17.9

%
 
14.4

%
17.4

%
Adjusted Operating Margin
25.0

 
21.6

 
24.5

 
 
23.3

 
23.8

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

10


LEGG MASON, INC. AND SUBSIDIARIES
SUPPLEMENTAL DATA
 RECONCILIATION OF CASH PROVIDED BY OPERATING ACTIVITIES
TO ADJUSTED EBITDA (1)
(Amounts in thousands)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended
 
Six Months Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September
 
June
 
September
 
September
 
September
 
 
 
 
2019
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash provided by (used in) operating activities, GAAP basis
$
229,303

 
$
(187,577
)
 
$
289,568

 
$
41,726

 
$
187,398

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Plus (less):
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net of accretion and amortization
 
 
 
 
 
 
 
 
 
 
 
 
of debt discounts and premiums
26,874

 
28,375

 
29,341

 
55,249

 
58,697

 
 
Current tax expense (benefit)
6,927

 
(4,246
)
 
9,975

 
2,681

 
18,853

 
 
Net change in assets and liabilities
(111,207
)
 
303,077

 
(69,426
)
 
191,870

 
145,590

 
 
Net change in assets and liabilities
 
 
 
 
 
 
 
 
 
 
 
 
of consolidated investment vehicles
8,061

 
(13,012
)
 
(84,704
)
 
(4,951
)
 
(70,124
)
 
 
Net income attributable to noncontrolling interests
(9,448
)
 
(16,219
)
 
(8,270
)
 
(25,667
)
 
(20,545
)
 
 
Net gains (losses) and earnings on investments
2,329

 
6,748

 
8,336

 
9,077

 
15,128

 
 
Net gains (losses) on consolidated investment vehicles
4,529

 
9,561

 
(3,998
)
 
14,090

 
(415
)
 
 
Other
(101
)
 
(343
)
 
153

 
(444
)
 
(221
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
$
157,267

 
$
126,364

 
$
170,975

 
$
283,631

 
$
334,361

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


11


LEGG MASON, INC. AND SUBSIDIARIES
(Amounts in billions)
(Unaudited)
Assets Under Management
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended
 
 
 
 
By asset class:
September 2019
 
June 2019
 
March 2019
 
December 2018
 
September 2018
 
 
 
 
 
Equity
$
203.3

 
$
205.6

 
$
202.0

 
$
181.0

 
$
214.5

 
 
 
 
 
Fixed Income
442.7

 
438.0

 
419.6

 
406.6

 
411.0

 
 
 
 
 
Alternative
72.6

 
70.1

 
68.6

 
66.3

 
67.4

 
 
 
 
 
 
Long-Term Assets
718.6

 
713.7

 
690.2

 
653.9

 
692.9

 
 
 
 
 
Liquidity
63.2

 
66.5

 
67.8

 
73.3

 
62.5

 
 
 
 
 
 
Total
$
781.8

 
$
780.2

 
$
758.0

 
$
727.2

 
$
755.4

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended
 
Six Months Ended
By asset class (average):
September 2019
 
June 2019
 
March 2019
 
December 2018
 
September 2018
 
September 2019
 
September 2018
 
Equity
$
204.2

 
$
202.7

 
$
195.4

 
$
198.2

 
$
212.2

 
$
203.2

 
$
208.9

 
Fixed Income
440.9

 
427.0

 
413.7

 
407.4

 
411.4

 
433.3

 
414.3

 
Alternative
71.5

 
69.3

 
67.0

 
66.8

 
66.4

 
70.5

 
66.2

 
 
Long-Term Assets
716.6

 
699.0

 
676.1

 
672.4

 
690.0

 
707.0

 
689.4

 
Liquidity
63.2

 
66.9

 
72.6

 
66.9

 
60.2

 
64.8

 
61.3

 
 
Total
$
779.8

 
$
765.9

 
$
748.7

 
$
739.3

 
$
750.2

 
$
771.8

 
$
750.7

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Component Changes in Assets Under Management
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended
 
Six Months Ended
 
 
 
September 2019
 
June 2019
 
March 2019
 
December 2018
 
September 2018
 
September 2019
 
September 2018
Beginning of period
$
780.2

 
$
758.0

 
$
727.2

 
$
755.4

 
$
744.6

 
$
758.0

 
$
754.1

Net client cash flows:
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity
(2.1
)
 
(3.6
)
 
(1.0
)
 
(3.3
)
 
(1.1
)
 
(5.7
)
 
(3.3
)
Fixed Income
(0.5
)
 
3.9

 
0.1

 
(5.1
)
 
(0.5
)
 
3.4

 
0.8

Alternative
2.4

 
0.8

 
0.9

 
(0.1
)
 
0.6

 
3.2