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Section 1: 8-K (8-K)

Document
false0000704051 0000704051 2020-04-29 2020-04-29


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

April 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 April 29, 2020, Legg Mason, Inc. announced its results of operations for the quarter and fiscal year ended March 31, 2020. A copy of the related press release is attached hereto as Exhibit 99.1.
 
 
 
The information in this Section 2.02 and Exhibit 99.1 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 7.01
 
Regulation FD Disclosure
 
 
 
 
 
The fiscal fourth quarter earnings presentation slides are attached hereto as Exhibit 99.2 to this Form 8-K.
 
 
 
 
 
The information in this Section 7.01 and Exhibit 99.2 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:  April 29, 2020
By:
/s/ Thomas C. Merchant
 
 
 
Thomas C. Merchant
 
 
 
Executive Vice President and General Counsel





(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1 EARNINGS RELEASE)

Exhibit
News Release
403787028_imageleggmasona15.jpg



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 2020


--
Fourth Quarter Net Income of $64.2 Million, or $0.70 per Diluted Share
Includes Restructuring Charges of $17.8 Million, or $0.14 per Diluted Share
-- Adjusted Net Income of $93.2 Million, or $1.02 per Diluted Share
-- Assets Under Management of $730.8 Billion
-- Long-term Outflows of $12.1 Billion, Liquidity Inflows of $11.6 Billion
-- Quarterly Dividend Declared of $0.40 per Share

 
Baltimore, Maryland - April 29, 2020 - Legg Mason, Inc. (NYSE: LM) today reported its operating results for the fourth fiscal quarter and the fiscal year ended March 31, 2020.
 
Quarters Ended
 
Fiscal Years Ended
Financial Results
Mar
 
Dec
 
Mar
 
Mar
 
Mar
(Amounts in millions, except per share amounts)
2020
 
2019
 
2019
 
2020
 
2019
Operating Revenues
$
719.6

 
$
753.9

 
$
692.6

 
$
2,922.1

 
$
2,903.3

Operating Expenses
553.3

 
623.9

 
614.5

 
2,417.0

 
2,800.2

Operating Income
166.3

 
130.0

 
78.1

 
505.2

 
103.1

Net Income (Loss)1
64.2

 
74.8

 
49.5

 
251.4

 
(28.5
)
Net Income (Loss) Per Share - Diluted1
0.70

 
0.83

 
0.56

 
2.79

 
(0.38
)
 
 
 
 
 
 
 
 
 
 
Adjusted Net Income2
$
93.2

 
$
93.2

 
$
59.8

 
$
339.0

 
$
288.6

Adjusted Earnings Per Share - Diluted2
1.02

 
1.03

 
0.67

 
3.76

 
3.26

 
 
 
 
 
 
 
 
 
 
(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 stated, “We are pleased to report solid fiscal fourth quarter performance, with adjusted earnings that were essentially flat on a sequential quarterly basis.

“This has been one of the most eventful periods in our history, as the COVID-19 pandemic and resulting global economic 'shut down' rightfully overshadowed the significant announcement of Legg Mason’s pending acquisition by Franklin Templeton. Recent events have only reinforced the importance of this combination, as the transaction will create a bigger and more diversified business with extensive global distribution capabilities, a powerful global operating infrastructure and the financial strength to invest in better serving our clients through market cycles.

“I would like to express my heartfelt thanks to all of our Legg Mason and Affiliate colleagues who have demonstrated great resiliency as they continue to work remotely amid ongoing uncertainty to continue delivering for our clients, shareholders and for each other during these unprecedented times.”
 
 

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

News Release
403787028_imageleggmasona15.jpg

Assets Under Management of $730.8 Billion

Assets Under Management were $730.8 billion at March 31, 2020 compared with $803.5 billion at December 31, 2019, reflecting $64.2 billion in negative market performance and other, long-term outflows of $12.1 billion, negative foreign exchange of $7.8 billion and realizations of $0.2 billion, partially offset by liquidity inflows of $11.6 billion.

 
 
 
 
 
 
 
 
 
 
Quarter Ended March 31, 2020
 
 
Assets Under Management
($ in billions)
AUM
 
Flows
 
Operating Revenue Yield 1
 
 
Equity
$
161.2

 
$
(6.0
)
 
58 bps
 
 
Fixed Income
420.2

 
(8.4
)
 
26 bps
 
 
Alternative
74.3

 
2.3

2 
58 bps
 
 
Long-Term Assets
655.7

 
(12.1
)
 
 
 
 
Liquidity
75.1

 
11.6

 
14 bps
 
 
Total
$
730.8

 
$
(0.5
)
 
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 March 31, 2020, fixed income represented 58% of AUM, while equity represented 22%, alternative represented 10% and liquidity represented 10%.

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 $782.4 billion compared to $791.7 billion in the prior quarter and $748.7 billion in the fourth quarter of fiscal year 2019. Average long-term AUM was $716.4 billion compared to $729.7 billion in the prior quarter and $676.1 billion in the fourth quarter of fiscal year 2019.

 
 
 
 
 
 
 
 
 
 
 
 
 
Quarterly Performance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1-Year
 
3-Year
 
5-Year
 
10-Year
 
 
% of Strategy AUM beating Benchmark3
 
33%
 
34%
 
71%
 
88%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
% of Long-Term U.S. Fund Assets Beating Lipper Category Average
 
60%
 
61%
 
73%
 
71%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(3) See “Supplemental Data Regarding Quarterly Performance.”

 
 
 
 
 
 
 
 
 


Of Legg Mason’s long-term U.S. mutual fund assets, 66% 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
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Operating Results - Comparison to the Third Quarter of Fiscal Year 2020

Adjusted net income was $93.2 million, or $1.02 per diluted share, compared to adjusted net income of $93.2 million, or $1.03 per diluted share. Adjusted net income was unchanged despite a $19.1 million decrease in non-pass through performance fees as well as lower investment advisory fees reflecting lower average AUM as these declines were offset by lower compensation related to the decrease in revenues, non-controlling interests, incremental strategic restructuring savings and a lower tax rate. In addition to the above, adjusted net income per share decreased $0.01 largely due to additional shares from the vesting of the Clarion Partners performance award granted at their acquisition.

Net income was $64.2 million, or $0.70 per diluted share, compared to net income of $74.8 million, or $0.83 per diluted share, in the third quarter of fiscal year 2020. The change was impacted by the items described below.

Operating revenues of $719.6 million were down 5% from $753.9 million in the prior quarter reflecting:
A decrease in separate account and fund advisory fee revenues of $11.7 million, or 2%, reflecting one less day in the quarter and lower average AUM.
A decrease in non-pass through performance fees of $19.1 million, and a decrease in pass through performance fees of $2.4 million.

Operating expenses of $553.3 million decreased 11% from $623.9 million in the prior quarter, reflecting:
A decrease in compensation of $70.7 million driven by a loss of $32.5 million in the market value of deferred compensation and seed investments, with an offset in non-operating income, as compared to a gain of $12.0 million in the prior quarter as well as decreased compensation and benefits related to the decrease in non-pass through performance fees and lower advisory fees.
An increase in communications and technology expenses of $2.0 million reflecting higher technology maintenance and restructuring costs.
A decrease in occupancy expenses of $7.0 million reflecting a $6.0 million decrease in restructuring costs.
Other expenses increased by $9.8 million reflecting a $7.5 million increase in restructuring costs.

Non-operating expense was $65.3 million, as compared to $5.3 million in the prior quarter reflecting:
Losses on funded deferred compensation and seed investments, as described above.
Losses on corporate investments, not offset in compensation, were $12.6 million compared with gains of $6.2 million in the prior quarter.
A $4.1 million gain associated with the consolidation of sponsored investment vehicles compared to a $0.6 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 23.1% compared to 17.2% in the prior quarter. Adjusted operating margin1, was 25.8%, as compared to 26.5% in the prior quarter.

Net income attributable to noncontrolling interests, excluding consolidated investment vehicles, was $7.3 million compared to $14.4 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
403787028_imageleggmasona15.jpg


Comparison to the Fourth Quarter of Fiscal Year 2019

Adjusted net income was $93.2 million, or $1.02 per diluted share, compared to adjusted net income of $59.8 million, or $0.67 per diluted share, in the prior year quarter. The increase was driven by higher operating revenues reflecting an increase in investment advisory fees, as well as the impact of savings from the strategic restructuring.

Net income was $64.2 million, or $0.70 per diluted share, compared to net income of $49.5, or $0.56 per diluted share, in the fourth quarter of fiscal year 2019. The change was impacted by the items described below.

Operating revenues of $719.6 million were up 4% compared with $692.6 million in the prior year quarter reflecting:
An increase in advisory fee revenues of $31.4 million reflecting higher average long-term AUM.
An increase in performance fees of $1.5 million, including an increase of $3.3 million in pass through performance fees partially offset by a $1.8 million decrease in non-pass through performance fees.

Operating expenses of $553.3 million were down 10% compared with $614.5 million in the prior year quarter reflecting:
Compensation decreased by $51.3 million, or 14%, driven by a loss of $32.5 million in the market value of deferred compensation and seed investments, with an offset in non-operating income, as compared to a gain of $16.0 million in the prior quarter as well as savings from the strategic restructuring of $9.9 million.
Communications and technology expenses increased by $1.8 million primarily due to higher strategic restructuring costs.
Occupancy expenses decreased by $3.5 million reflecting lower strategic restructuring costs.
Other expenses decreased by $8.5 million primarily due to strategic restructuring savings of $9.5 million.

Non-operating expense was $65.3 million, compared to $2.8 million in the prior year quarter reflecting:
Gains on funded deferred compensation and seed investments as described above.
Losses on corporate investments, not offset in compensation, were $12.6 million compared with gains of $10.2 million in the prior year quarter.
A $4.1 million gain associated with the consolidation of sponsored investment vehicles, as compared to a loss of $4.5 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 23.1%, as compared to 11.3% in the prior year quarter. Adjusted operating margin was 25.8%, as compared to 20.4% in the prior year quarter.

Net income attributable to noncontrolling interests, excluding consolidated investment vehicles, was $7.3 million, compared to $5.7 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
403787028_imageleggmasona15.jpg

Comparison to the Full Fiscal Year 2019


Adjusted net income was $339.0 million, or $3.76 per diluted share, compared to adjusted net income of $288.6 million, or $3.26 per diluted share, in the prior year. The increase was driven by higher operating revenues reflecting an increase in investment advisory fees, higher non-pass though performance fees as well as the impact of savings from the strategic restructuring.

Net income was $251.4 million, or $2.79 per diluted share, compared to a net loss of $28.5 million, or $0.38 per diluted share, in 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 $3.12 per diluted share in the prior year.

Operating revenues of $2.9 billion increased 1% compared with the prior year reflecting:
An increase in investment advisory fee revenues, reflecting higher average AUM.
Increased non-pass through performance fees of $21.2 million partially offset by a decrease in pass through performance fees of $7.1 million.

Operating expenses of $2.4 billion were down 14% from the prior year but excluding the non-cash impairment charges in fiscal 2019, operating expenses were down 1% due to the following:
Increased compensation related to increased revenues and higher strategic restructuring costs.
Distribution and servicing expenses decreased $26.1 million resulting from lower AUM on which we pay third party distributors.
Occupancy expenses increased $5.1 million related to higher strategic restructuring costs.
A $28.9 million decrease in other expenses, due to savings from the strategic restructuring.
A $10.6 million loss in the market value of deferred compensation and seed investments, which is recorded as a decrease in compensation and benefits with an offset in non-operating income, compared with a gain of $10.4 million in the prior year.

Non-operating expense was $94.6 million, compared to $74.6 million in the prior year reflecting:
Gains on funded deferred compensation and seed investments, as described above.
Losses on corporate investments, not offset in compensation, were $6.2 million compared with gains of $22.5 million in the prior year.
A $19.7 million gain associated with the consolidation of sponsored investment vehicles, as compared to a $2.4 million loss 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 17.3% as compared to 3.6% in the prior year which included the impact of the intangible asset impairment charges. Adjusted operating margin was 24.8%, as compared to 22.6% in the prior year.

Net income attributable to noncontrolling interests, excluding consolidated investment vehicles, was $40.2 million, compared to $35.7 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 Investment Partners | Western Asset
5

News Release
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Quarterly Business Developments and Recent Announcements

On January 20, 2020, Legg Mason was notified that it had received a score of “B” on the 2019 CDP Climate Change Disclosure, an increase from the prior year.
On January 21, 2020 Legg Mason announced that it has received a perfect score of 100 on the 2020 Corporate Equality Index (CEI), the nation’s premier benchmarking survey and report on corporate policies and practices related to LGBTQ+ workplace equality.
On April 2, 2020, American Century Investment's (ACI) launched new Actively Managed ETFs utilizing Precidian’s ActiveShares® structure.
  

Balance Sheet

At March 31, 2020, Legg Mason’s cash position was $1.0 billion.  Total debt was $2.0 billion, and stockholders' equity was $3.8 billion.  The ratio of total debt to total capital was 35%, compared to 34% in the prior quarter. Seed investments totaled $192.8 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 13, 2020 to shareholders of record at the close of business on June 16, 2020.

Presentation Slides
The Fiscal 4th quarter presentation slides will be available on the Investor Relations section of the Legg Mason website shortly after the release of the financial results.

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 $730.8 billion as of March 31, 2020.  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
6

News Release
403787028_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 88% of total AUM is included in strategy AUM as of March 31, 2020, 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, 2020:
 
1-Year
 
3-Year
 
5-Year
 
10-Year
 
 
% of Strategy AUM beating Benchmark1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed Income
 
13%
 
15%
 
69%
 
99%
 
 
 
Equity
 
68%
 
58%
 
65%
 
64%
 
 
 
Alternatives
 
93%
 
93%
 
90%
 
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 March 31, 2020:
 
1-Year
 
3-Year
 
5-Year
 
10-Year
 
 
% of Long-Term U.S. Fund Assets Beating Lipper Category Average
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed Income
 
70%
 
71%
 
73%
 
76%
 
 
 
Equity
 
47%
 
47%
 
72%
 
64%
 
 
 
Alternatives (performance relates to only 3 funds)
 
58%
 
100%
 
n/a
 
n/a
 
 
 
 
 
 
 
 
 
 
 
 
 

Brandywine Global | Clarion Partners | ClearBridge Investments | EnTrust Global | Martin Currie | QS Investors | RARE Infrastructure | Royce Investment Partners | Western Asset
7


LEGG MASON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Amounts in thousands)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended
 
Fiscal Years Ended
 
 
 
 
March
 
December
 
March
 
March
 
March
 
 
 
 
2020
 
2019
 
2019
 
2020
 
2019
Operating Revenues:
 
 
 
 
 
 
 
 
 
 
Investment advisory fees:
 
 
 
 
 
 
 
 
 
 
 
Separate accounts
$
260,477

 
$
266,609

 
$
251,234

 
$
1,051,965

 
$
1,029,353

 
 
Funds
373,453

 
378,995

 
351,312

 
1,495,025

 
1,479,972

 
 
Performance fees
17,884

 
39,407

 
16,371

 
99,021

 
84,900

 
Distribution and service fees
65,763

 
67,634

 
72,518

 
270,398

 
302,967

 
Other
2,010

 
1,269

 
1,170

 
5,716

 
6,067

 
 
 
Total operating revenues
719,587

 
753,914

 
692,605

 
2,922,125

 
2,903,259

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Expenses:
 
 
 
 
 
 
 
 
 
 
Compensation and benefits
304,331

 
375,033

 
355,640

 
1,436,919

 
1,398,969

 
Distribution and servicing
99,828

 
104,363

 
99,317

 
413,196

 
439,276

 
Communications and technology
59,060

 
57,101

 
57,245

 
225,388

 
228,138

 
Occupancy
25,504

 
32,490

 
28,963

 
110,427

 
105,296

 
Amortization of intangible assets
5,636

 
6,004

 
6,033

 
22,539

 
24,404

 
Impairment of intangible assets

 

 

 

 
365,200

 
Contingent consideration fair value adjustments
250

 

 

 
(915
)
 
571

 
Other
58,724

 
48,929

 
67,282

 
209,411

 
238,303

 
 
 
Total operating expenses
553,333

 
623,920

 
614,480

 
2,416,965

 
2,800,157

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
166,254

 
129,994

 
78,125

 
505,160

 
103,102

 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Operating Income (Expense):
 
 
 
 
 
 
 
 
 
 
Interest income
2,755

 
2,882

 
4,184

 
12,294

 
12,176

 
Interest expense
(27,024
)
 
(27,032
)
 
(28,794
)
 
(109,870
)
 
(117,341
)
 
Other income (expense), net
(42,378
)
 
18,009

 
24,286

 
(13,312
)
 
31,123

 
Non-operating income (expense) of
 
 
 
 
 
 
 
 
 
 
 
consolidated investment vehicles, net
1,358

 
814

 
(2,519
)
 
16,262

 
(565
)
 
 
 
Total non-operating income (expense)
(65,289
)
 
(5,327
)
 
(2,843
)
 
(94,626
)
 
(74,607
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Income Before Income Tax Provision
100,965

 
124,667

 
75,282

 
410,534

 
28,495

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income tax provision
25,582

 
33,664

 
20,396

 
106,048

 
20,561

 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income
75,383

 
91,003

 
54,886

 
304,486

 
7,934

 
Less: Net income attributable
 
 
 
 
 
 
 
 
 
 
 
 to noncontrolling interests
11,224

 
16,228

 
5,399

 
53,119

 
36,442

 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income (Loss) Attributable to Legg Mason, Inc.
$
64,159

 
$
74,775

 
$
49,487

 
$
251,367

 
$
(28,508
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(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
 
 
 
 
 
2020
 
2019
 
2019
 
2020
 
2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income (Loss) Attributable to Legg Mason, Inc.
$
64,159

 
$
74,775

 
$
49,487

 
$
251,367

 
$
(28,508
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Less: Earnings (distributed and undistributed)
 
 
 
 
 
 
 
 
 
 
 
 
allocated to participating securities (1)
1,955

 
2,428

 
1,703

 
8,095

 
4,225

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income (Loss) (Distributed and Undistributed)
 
 
 
 
 
 
 
 
 
 
 
Allocated to Shareholders (Excluding
 
 
 
 
 
 
 
 
 
 
 
Participating Securities)
$
62,204

 
$
72,347

 
$
47,784

 
$
243,272

 
$
(32,733
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income (Loss) per Share Attributable to
 
 
 
 
 
 
 
 
 
 
 
Legg Mason, Inc. Shareholders:
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
$
0.71

 
$
0.83

 
$
0.56

 
$
2.80

 
$
(0.38
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted
$
0.70

 
$
0.83

 
$
0.56

 
$
2.79

 
$
(0.38
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted-Average Number of Shares
 
 
 
 
 
 
 
 
 
 
 
Outstanding(2):
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
87,329

 
86,878

 
85,552

 
86,831

 
85,423

 
 
 
 
Diluted
88,534

 
87,165

 
85,613

 
87,337

 
85,423

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Participating securities excluded from weighted-average number of shares outstanding were 2,779, 2,935, and 3,055 for the quarters ended March 2020, December 2019, and March 2019, respectively, and 2,884 and 3,092 for the fiscal years ended March 2020 and March 2019, respectively.
 
(2)
Diluted shares are the same as basic shares for periods with a loss.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended
 
Fiscal Year Ended
 
 
 
 
 
 
 
March
 
December
 
March
 
March
 
 
 
Strategic Restructuring effective January 1, 2019
2020
 
2019
 
2019
 
2020
 
 
 
 
Strategic restructuring cost savings:
 
 
 
 
 
 

 
 
 
 
 
Compensation
$
11,516

 
$
11,139

 
$
1,663

 
$
33,028

 
 
 
 
 
Occupancy
262

 
78

 
300

 
755

 
 
 
 
 
Other
11,164

 
9,268

 
1,642

 
35,086

 
 
 
 
 
 
Total strategic restructuring cost savings
$
22,942

 
$
20,485

 
$
3,605

 
$
68,869

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Strategic restructuring costs:
 
 
 
 
 
 
 
 
 
 
 
 
Compensation and benefits
$
3,936

 
$
10,192

 
$

 
$
57,244

 
 
 
 
 
Occupancy
(27
)
 
5,930

 
2,848

 
5,903

 
 
 
 
 
Other
(172
)
 
2,352

 
6,504

 
7,887

 
 
 
 
 
 
Total strategic restructuring costs
$
3,737

 
$
18,474

 
$
9,352

 
$
71,034

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


 
 
 
 
 
 
 
 
 
 
 


9


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
 
Fiscal Years Ended
 
 
 
 
 
 
 
March
 
December
 
March
 
March
 
March
 
 
 
 
 
 
 
2020
 
2019
 
2019
 
2020
 
2019
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
Net Income (Loss) Attributable to Legg Mason, Inc.
 
$
64,159

 
$
74,775

 
$
49,487

 
$
251,367

 
$
(28,508
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Plus (less):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restructuring costs:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Strategic restructuring and other corporate initiatives
 
17,035

 
20,920

 
9,352

 
90,519

 
23,655

 
 
 
 
Affiliate charges
 
737

 
237

 
7,526

 
2,414

 
7,526

 
 
Amortization of intangible assets
 
5,636

 
6,004

 
6,033

 
22,539

 
24,404

 
 
Gains and losses on seed and other investments
 
 
 
 
 
 
 
 
 
 
 
 
 
not offset by compensation or hedges
 
12,545

 
(4,827
)
 
(5,763
)
 
1,256

 
(17,777
)
 
 
Acquisition and transition-related costs
 

 

 
998

 

 
2,466

 
 
Impairments of intangible assets
 

 

 

 

 
365,200

 
 
Contingent consideration fair value adjustments
 
250

 

 

 
(915
)
 
571

 
 
Charges related to significant regulatory matters
 

 

 

 

 
4,151

 
 
Income tax adjustments:(2)
 
 
 
 
 
 
 


 

 
 
 
 
Impacts of non-GAAP adjustments
 
(9,666
)
 
(6,030
)
 
(4,718
)
 
(31,285
)
 
(103,049
)
 
 
 
 
Other tax items
 
2,477

 
2,100

 
(3,115
)
 
3,097

 
9,980

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Net Income
 
$
93,173

 
$
93,179

 
$
59,800

 
$
338,992

 
$
288,619

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income (Loss) Per Diluted Share Attributable to
 
 
 
 
 
 
 
 
 
 
 
Legg Mason, Inc. Shareholders
 
$
0.70

 
$
0.83

 
$
0.56

 
$
2.79

 
$
(0.38
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Plus (less), net of tax impacts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restructuring costs:
 
 
 
 
 
 
 
 
 
 
 
 
 
Strategic restructuring and other corporate initiatives
 
0.14

 
0.17

 
0.08

 
0.73

 
0.20

 
 
 
Affiliate charges
 

 

 
0.06

 
0.02

 
0.06

 
 
Amortization of intangible assets
 
0.05

 
0.05

 
0.05

 
0.18

 
0.21

 
 
Gains and losses on seed and other investments
 
 
 
 
 
 
 
 
 
 
 
 

not offset by compensation or hedges
 
0.10

 
(0.04
)
 
(0.05
)
 
0.01

 
(0.15
)
 
 
Acquisition and transition-related costs
 

 

 
0.01

 

 
0.02

 
 
Impairments of intangible assets
 

 

 

 

 
3.12

 
 
Contingent consideration fair value adjustments
 

 

 

 

 
0.01

 
 
Charges related to significant regulatory matters
 

 

 

 

 
0.05

 
 
Other tax items
 
0.03

 
0.02

 
(0.04
)
 
0.03

 
0.12

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Earnings per Diluted Share
 
$
1.02

 
$
1.03

 
$
0.67

 
$
3.76

 
$
3.26

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) See explanations for "Use of Supplemental Non-GAAP Financial Information."
 
 
 
 
(2) The non-GAAP effective tax rates for the quarters ended March 31, 2020, December 31, 2019 and March 31, 2019
 
 
were 24.6%, 25.9%, and 26.0% respectively, and for the year-ended March 31, 2020 and 2019 were
 
 
 26.1% and 26.0%, respectively.
 
 
 
 


10


LEGG MASON, INC. AND SUBSIDIARIES
SUPPLEMENTAL DATA
 RECONCILIATION OF GAAP BASIS OPERATING MARGIN TO ADJUSTED OPERATING MARGIN (1)
(Amounts in thousands)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended
 
 
Fiscal Years Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
March
 
December
 
March
 
 
March
 
March
 
 
 
 
 
2020
 
2019
 
2019
 
 
2020
 
2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Revenues, GAAP basis
$
719,587

 
$
753,914

 
$
692,605

 
 
$
2,922,125

 
$
2,903,259

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Plus (less):
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass through performance fees
(8,306
)
 
(10,733
)
 
(4,986
)
 
 
(41,983
)
 
(49,048
)
 
 
 
Operating revenues eliminated upon
 
 
 
 
 
 
 
 
 
 
 
 
 
 
consolidation of investment vehicles
52

 
69

 
138

 
 
402

 
599

 
 
 
Distribution and servicing fees
(65,763
)
 
(67,634
)
 
(72,518
)
 
 
(270,398
)
 
(302,967
)
 
 
 
Investment advisory fees
(34,038
)
 
(36,715
)
 
(26,781
)
 
 
(141,838
)
 
(136,177
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Operating Revenues
$
611,532

 
$
638,901

 
$
588,458

 
 
$
2,468,308

 
$
2,415,666

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income (Loss), GAAP basis
$
166,254

 
$
129,994

 
$
78,125

 
 
$
505,160

 
$
103,102

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Plus (less):
 
 
 
 
 
 
 
 
 
 
 
 
 
Restructuring costs:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Strategic restructuring and other corporate initiatives
17,035

 
20,920

 
9,352

 
 
90,519

 
23,655

 
 
 
 
Affiliate charges
737

 
237

 
9,289

 
 
2,414

 
9,289

 
 
 
Amortization of intangible assets
5,636

 
6,004

 
6,033

 
 
22,539

 
24,404

 
 
 
Gains (losses) on deferred compensation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
and seed investments, net
(32,540
)
 
12,022

 
16,006

 
 
(10,594
)
 
10,416

 
 
 
Acquisition and transition-related costs

 

 
1,217

 
 

 
2,685

 
 
 
Impairment of intangible assets

 

 

 
 

 
365,200

 
 
 
Contingent consideration fair value adjustments
250

 

 

 
 
(915
)
 
571

 
 
 
Charges related to significant regulatory matters

 

 

 
 

 
4,151

 
 
 
Operating loss of consolidated investment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
vehicles, net
165

 
172

 
257

 
 
1,894

 
1,588

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Operating Income
$
157,537

 
$
169,348

 
$
120,279

 
 
$
611,017

 
$
545,061

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Margin, GAAP basis
23.1

%
17.2

%
11.3

%
 
17.3

%
3.6

%
Adjusted Operating Margin
25.8

 
26.5

 
20.4

 
 
24.8

 
22.6

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(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
 
 
 
 
2020
 
2019
 
2019
 
2020
 
2019
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash provided by operating activities, GAAP basis
$
183,472

 
$
335,358

 
$
116,877

 
$
560,556

 
$
560,866

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Plus (less):
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net of accretion and amortization
 
 
 
 
 
 
 
 
 
 
 
 
of debt discounts and premiums
26,601

 
26,676

 
28,328

 
108,526

 
115,284

 
 
Current tax expense (benefit)
179

 
6,137

 
9,081

 
8,997

 
26,716

 
 
Net change in assets and liabilities
(43,414
)
 
(153,838
)
 
(27,724
)
 
(5,382
)
 
(52,518
)
 
 
Net change in assets and liabilities
 
 
 
 
 
 
 
 
 
 
 
 
of consolidated investment vehicles
31,095

 
(45,539
)
 
(7,701
)
 
(19,395
)
 
(17,667
)
 
 
Net income attributable to noncontrolling interests
(11,224
)
 
(16,228
)
 
(5,399
)
 
(53,119
)
 
(36,442
)
 
 
Net gains (losses) and earnings on investments
19,551

 
662

 
(8,790
)
 
29,290

 
27,705

 
 
Net gains (losses) on consolidated investment vehicles
1,358

 
814

 
(2,519
)
 
16,262

 
(565
)
 
 
Other
(95
)
 
(193
)
 
(866
)
 
(732
)
 
(1,155
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
$
207,523

 
$
153,849

 
$
101,287

 
$
645,003

 
$
622,224

 
 
 
 
 
 
 
 
 
 
 
 
 
(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 2020
 
December 2019
 
September 2019
 
June 2019
 
March 2019
 
 
 
 
 
Equity
$
161.2

 
$
214.0

 
$
203.3

 
$
205.6

 
$
202.0

 
 
 
 
 
Fixed Income
420.2

 
451.8

 
442.7

 
438.0

 
419.6

 
 
 
 
 
Alternative
74.3

 
74.3

 
72.6

 
70.1

 
68.6

 
 
 
 
 
 
Long-Term Assets
655.7

 
740.1

 
718.6

 
713.7

 
690.2

 
 
 
 
 
Liquidity
75.1

 
63.4

 
63.2

 
66.5

 
67.8

 
 
 
 
 
 
Total
$
730.8

 
$
803.5

 
$
781.8

 
$
780.2

 
$
758.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended
 
Fiscal Years Ended
By asset class (average):
March 2020
 
December 2019
 
September 2019
 
June 2019
 
March 2019
 
March 2020
 
March 2019
 
Equity
$
193.9

 
$
209.3

 
$
204.2

 
$
202.7

 
$
195.4

 
$
201.3

 
$
203.1

 
Fixed Income
447.5

 
447.3

 
440.9

 
427.0

 
413.7

 
439.8

 
412.9

 
Alternative
75.0

 
73.1

 
71.5

 
69.3

 
67.0

 
72.3

 
66.5

 
 
Long-Term Assets
716.4

 
729.7

 
716.6

 
699.0

 
676.1

 
713.4

 
682.5

 
Liquidity
66.0

 
62.0

 
63.2

 
66.9

 
72.6

 
64.6

 
65.5

 
 
Total
$
782.4

 
$
791.7

 
$
779.8

 
$
765.9

 
$
748.7

 
$
778.0

 
$
748.0