BALTIMORE, Oct. 24, 2018 /PRNewswire/ -- Legg Mason, Inc.
(NYSE: LM) today reported its operating results for the second
fiscal quarter ended September 30,
2018.
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Quarters
Ended
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Six Months
Ended
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Financial
Results
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Sep
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Jun
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Sep
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Sep
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Sep
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(Amounts in
millions, except per share amounts)
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2018
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2018
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2017
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2018
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2017
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Operating
Revenues
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$
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758.4
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$
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747.9
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$
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768.3
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$
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1,506.3
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$
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1,562.2
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Operating
Expenses
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622.7
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622.2
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623.9
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1,244.9
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1,310.6
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Operating
Income
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135.7
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125.7
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144.4
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261.4
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251.6
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Net
Income1
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72.8
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66.1
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75.7
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138.9
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126.6
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Net Income Per Share
- Diluted1
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0.82
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0.75
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0.78
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1.57
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1.29
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Assets Under
Management
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(Amounts in
billions)
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End of Period Assets
Under Management
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$
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755.4
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$
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744.6
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$
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754.4
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$
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755.4
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$
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754.4
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Average Assets Under
Management
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750.2
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749.5
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750.3
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750.7
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745.8
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(1)
Net Income Attributable to Legg Mason, Inc.
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Joseph A. Sullivan, Chairman and
CEO of Legg Mason said, "We are pleased to have delivered a solid
quarter, even as the industry continued to navigate significant
challenges. Executing our strategy of expanding client choice
has diversified our platform across investment strategies, clients
and geographies, making our business more resilient.
"Flows in the month of September were strong, our unfunded
pipeline remains near record levels, and our business mix, with
alternative and institutional inflows partially offsetting softness
in retail and traditional strategies, demonstrates this business
resilience.
"We look forward to continuing to deliver more of the platform's
potential to our clients and the related financial results for our
stakeholders."
Assets Under Management of $755.4
Billion
Assets Under Management ("AUM") were $755.4 billion at September 30, 2018 compared with $744.6 billion at June 30,
2018 resulting from positive market performance of
$11.0 billion and liquidity inflows
of $3.0 billion. These more
than offset negative foreign exchange of $2.0 billion, long-term outflows of $1.0 billion and realizations of $0.2 billion.
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Quarter Ended
September 30, 2018
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Assets Under
Management
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AUM
(in
billions)
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Flows
(in
billions)
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Operating
Revenue Yield 1
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Equity
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$
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214.5
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$
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(1.1)
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60 bps
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Fixed
Income
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411.0
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(0.5)
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27 bps
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Alternative
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67.4
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0.62
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61 bps
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Long-Term
Assets
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692.9
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(1.0)
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Liquidity
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62.5
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3.0
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14 bps
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Total
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$
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755.4
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$
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2.0
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38 bps
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(1) Operating
revenue yield equals total operating income less performance fees
divided by average AUM
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(2) Excludes
realizations of $0.2 billion
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At September 30, 2018, fixed income represented 55% of AUM,
while equity represented 28%, alternatives represented 9% and
liquidity represented 8%.
By geography, 70% of AUM was from clients domiciled in
the United States and 30% from
non-US domiciled clients.
Average AUM during the quarter was $750.2
billion compared to $749.5
billion in the prior quarter and $750.3 billion in the second quarter of fiscal
year 2018. Average long-term AUM was $690.0 billion compared to $687.7 billion in the prior quarter and
$675.1 billion in the second quarter
of fiscal year 2018.
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Quarterly
Performance
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At September 30,
2018:
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1-Year
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3-Year
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5-Year
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10-Year
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% of Strategy AUM
beating Benchmark3
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42%
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68%
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73%
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82%
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% of Long-Term U.S.
Fund Assets Beating Lipper Category Average
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37%
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59%
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61%
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66%
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(3) See
"Supplemental Data Regarding Quarterly Performance."
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Of Legg Mason's long-term U.S. mutual fund assets, 50% were in
funds rated 4 or 5 stars by Morningstar.
Operating Results - Comparison to the First Quarter of Fiscal
Year 2019
Net income was $72.8
million, or $0.82 per diluted
share, compared to net income of $66.1
million, or $0.75 per diluted
share, in the first quarter of fiscal year 2019. The increase
was driven by lower seasonal compensation costs and a discrete tax
benefit.
This quarter's results included:
- Discrete tax benefit related to the completion of a prior year
audit of $2.8 million, or
$0.03 per diluted share.
- Real estate charge associated with the sublease of office space
in the Company's Baltimore
headquarters of $2.4 million, or
$0.02 per diluted share.
The prior quarter results included:
- Regulatory charge of $4.0
million, or $0.04 per diluted
share.
- EnTrustPermal acquisition and transition-related costs of
$1.5 million, or $0.01 per diluted share.
Operating revenues of $758.4
million were up 1% compared with $747.9 million in the prior quarter
reflecting:
- An increase in pass through performance fees of $11.4 million.
- Higher advisory fee revenues of $2.0
million reflecting one additional day in the quarter.
Operating expenses were $622.7
million compared with $622.2
million in the prior quarter reflecting:
- Higher compensation and benefits of $3.3
million reflecting increased pass through performance fees,
partially offset by seasonal compensation factors in the prior
quarter.
- Occupancy expense increased by $2.4
million reflecting the real estate charge.
- A $4.0 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 $1.3 million gain in the prior quarter.
- Other expenses decreased by $3.6
million as the prior quarter included a regulatory charge of
$4.0 million.
Non-operating expense was $24.8
million, as compared to $16.6
million in the prior quarter reflecting:
- Gains on corporate investments, not offset in compensation,
were $2.9 million compared with gains
of $5.8 million in the prior
quarter.
- Gains on funded deferred compensation and seed investments, as
described above.
- A $4.3 million loss associated
with the consolidation of sponsored investment vehicles compared to
a $3.7 million gain in the prior
quarter. The consolidation of sponsored investment vehicles
has no impact on net income as the effects of consolidation are
fully attributable to noncontrolling interests.
Operating margin was 17.9% compared to 16.8% in the prior
quarter. Operating margin, as adjusted4, was
23.6%, as compared to 22.3% in the prior quarter.
Net income attributable to noncontrolling interests,
excluding consolidated investment vehicles, was $11.3 million compared to $9.7 million in the prior quarter, principally
related to Clarion, EnTrustPermal, RARE and Royce.
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(4)
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See "Use of
Supplemental Non-GAAP Financial Information."
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Operating Results - Comparison to the Second Quarter of
Fiscal Year 2018
Net income was $72.8
million, or $0.82 per diluted
share, compared to net income of $75.7
million, or $0.78 per diluted
share, in the second quarter of fiscal year 2018.
This quarter's results included:
- Discrete tax benefit of $2.8
million, or $0.03 per diluted
share.
- Real estate charge of $2.4
million, or $0.02 per diluted
share.
The prior year quarter results included:
- Severance charges of $1.7
million, or $0.01 per diluted
share.
- EnTrustPermal acquisition and transition-related costs of
$1.4 million, or $0.01 per diluted share.
- Year-to-date annualization tax benefit of $1.2 million, or $0.01 per diluted share.
Operating revenues of $758.4
million were down 1% compared with $768.3 million in the prior year quarter
reflecting:
- Lower non-pass through performance fees of $13.1 million.
Operating expenses were $622.7
million compared with $623.9
million in the second quarter of fiscal year 2018
reflecting:
- Lower compensation and benefits of $3.1
million, due to the decrease in non-pass through performance
fees.
- Lower distribution and servicing expenses of $9.1 million.
- A $6.2 million increase in
communications and technology expenses reflecting incremental
spending.
- An increase in occupancy expenses of $2.2 million reflecting the real estate
charge.
- A $4.0 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 gain of $4.8 million in the prior year quarter.
Non-operating expense was $24.8
million, compared to $18.1
million in the second quarter of fiscal year 2018
reflecting:
- Gains on corporate investments, not offset in compensation,
were $2.9 million compared with gains
of $2.4 million in the prior year
quarter.
- Gains on funded deferred compensation and seed investments, as
described above.
- $4.3 million in losses associated
with the consolidation of sponsored investment vehicles, as
compared to $2.1 million in gains in
the prior year quarter. The consolidation of sponsored
investment vehicles has no impact on net income as the effects of
consolidation are fully attributable to noncontrolling
interests.
Operating margin was 17.9% as compared to 18.8% in the
second quarter of fiscal year 2018. Operating margin, as
adjusted, was 23.6%, as compared to 24.9% in the second quarter of
fiscal year 2018.
Net income attributable to noncontrolling interests,
excluding consolidated investment vehicles, was $11.3 million, compared to $10.4 million in the prior year quarter,
principally related to Clarion, EnTrustPermal, RARE and Royce.
Quarterly Business Developments and Recent
Announcements
- Legg Mason paid-off the $125.5
million that was outstanding on the Company's revolver
during FQ2.
- On October 4, 2018, Legg Mason
announced it had launched its first actively managed taxable
fixed-income ETF, sub-advised by Western Asset Management Company,
LLC, a Legg Mason affiliate and globally integrated fixed-income
manager, the Western Asset Total Return ETF [Nasdaq: WBND].
Balance Sheet
At September 30, 2018, Legg
Mason's cash position was $611.2
million. Total debt, net was $2.2 billion, and stockholders' equity was
$3.9 billion. The ratio of
total debt to total capital was 37%, compared to 38% in the prior
quarter. Seed investments totaled $250.2 million.
Conference Call to Discuss Results
A conference call to discuss the Company's results, hosted by
Joseph A. Sullivan, Chairman and CEO
of Legg Mason, Inc., 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 47604534, at least 10 minutes prior to the
scheduled start to ensure a 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, in the investor relations section, or by dialing
1-888-843-7419 (or for international calls 1-630-652-3042) and
entering pass code 47604534# when prompted. Please note that the
replay will be available beginning at 8:00 p.m. EDT on Wednesday, October 24, 2018, and ending at 11:59
p.m. EST on Wednesday, November 7,
2018
About Legg Mason
Guided by a mission of Investing to
Improve Lives,™ 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 $755.4
billion as of September 30,
2018. 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.
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 89% of total AUM is included in strategy AUM as of
September 30, 2018, 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.
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At September 30,
2018:
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1-Year
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3-Year
|
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5-Year
|
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10-Year
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% of Strategy AUM
beating Benchmark
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Fixed
Income
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41%
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84%
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84%
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92%
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Equity
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22%
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28%
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37%
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59%
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Alternatives
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67%
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71%
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92%
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59%
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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.
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At September 30,
2018:
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1-Year
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3-Year
|
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5-Year
|
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10-Year
|
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% of Long-Term U.S.
Fund Assets Beating Lipper Category Average
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Fixed
Income
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38%
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69%
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79%
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81%
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Equity
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36%
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51%
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45%
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53%
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Alternatives
(performance relates to only 3 funds)
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0%
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0%
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92%
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n/a
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LEGG MASON, INC.
AND SUBSIDIARIES
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CONSOLIDATED
STATEMENTS OF INCOME
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(Amounts in
thousands)
|
|
(Unaudited)
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Quarters
Ended
|
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Six Months
Ended
|
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|
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September
|
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June
|
|
September
|
|
September
|
|
September
|
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|
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2018
|
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2018
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2017
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2018
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2017
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Operating
Revenues:
|
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|
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Investment advisory
fees:
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Separate
accounts
|
$
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261,567
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$
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259,895
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$
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253,128
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$
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521,462
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$
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503,174
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Funds
|
383,923
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383,564
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393,035
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767,487
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775,263
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Performance
fees
|
31,874
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|
24,036
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|
40,821
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|
55,910
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|
122,358
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|
Distribution and
service fees
|
79,074
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|
|
79,190
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|
|
80,668
|
|
|
158,264
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|
|
159,574
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Other
|
1,989
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|
|
1,220
|
|
|
686
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|
|
3,209
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|
|
1,811
|
|
|
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|
Total operating
revenues
|
758,427
|
|
|
747,905
|
|
|
768,338
|
|
|
1,506,332
|
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|
1,562,180
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Operating
Expenses:
|
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|
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|
|
|
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Compensation and
benefits
|
364,885
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|
361,568
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367,951
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|
726,453
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|
781,258
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Distribution and
servicing
|
114,525
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|
|
116,592
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|
|
123,634
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|
|
231,117
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|
|
245,983
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Communications and
technology
|
57,489
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|
56,740
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51,299
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|
|
114,229
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|
|
101,602
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Occupancy
|
27,352
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|
24,904
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|
25,171
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|
52,256
|
|
|
49,579
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|
Amortization of
intangible assets
|
6,102
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|
|
6,180
|
|
|
6,082
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|
|
12,282
|
|
|
12,421
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|
Impairment of
intangible assets
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
34,000
|
|
|
Contingent
consideration fair value adjustments
|
145
|
|
|
426
|
|
|
—
|
|
|
571
|
|
|
(16,550)
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Other
|
52,201
|
|
|
55,819
|
|
|
49,782
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|
|
108,020
|
|
|
102,263
|
|
|
|
|
Total operating
expenses
|
622,699
|
|
|
622,229
|
|
|
623,919
|
|
|
1,244,928
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|
|
1,310,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Income
|
135,728
|
|
|
125,676
|
|
|
144,419
|
|
|
261,404
|
|
|
251,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Operating
Income (Expense):
|
|
|
|
|
|
|
|
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|
Interest
income
|
2,420
|
|
|
2,446
|
|
|
1,572
|
|
|
4,866
|
|
|
3,040
|
|
|
Interest
expense
|
(29,860)
|
|
|
(29,917)
|
|
|
(29,077)
|
|
|
(59,777)
|
|
|
(58,343)
|
|
|
Other income,
net
|
6,627
|
|
|
7,252
|
|
|
7,289
|
|
|
13,879
|
|
|
18,677
|
|
|
Non-operating income
(expense) of
|
|
|
|
|
|
|
|
|
|
|
|
consolidated
investment vehicles, net
|
(3,998)
|
|
|
3,583
|
|
|
2,094
|
|
|
(415)
|
|
|
3,091
|
|
|
|
|
Total non-operating
income (expense)
|
(24,811)
|
|
|
(16,636)
|
|
|
(18,122)
|
|
|
(41,447)
|
|
|
(33,535)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before
Income Tax Provision
|
110,917
|
|
|
109,040
|
|
|
126,297
|
|
|
219,957
|
|
|
218,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
provision
|
29,844
|
|
|
30,675
|
|
|
38,673
|
|
|
60,519
|
|
|
66,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
81,073
|
|
|
78,365
|
|
|
87,624
|
|
|
159,438
|
|
|
151,161
|
|
|
Less: Net income
attributable
|
|
|
|
|
|
|
|
|
|
|
|
to
noncontrolling interests
|
8,270
|
|
|
12,275
|
|
|
11,960
|
|
|
20,545
|
|
|
24,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
Attributable to Legg Mason, Inc.
|
$
|
72,803
|
|
|
$
|
66,090
|
|
|
$
|
75,664
|
|
|
$
|
138,893
|
|
|
$
|
126,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Continued)
|
|
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
|
|
|
|
|
2018
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
Attributable to Legg Mason, Inc.
|
$
|
72,803
|
|
|
$
|
66,090
|
|
|
$
|
75,664
|
|
|
$
|
138,893
|
|
|
$
|
126,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Earnings
(distributed and undistributed)
|
|
|
|
|
|
|
|
|
|
|
|
allocated to
participating securities (1)
|
2,577
|
|
|
2,324
|
|
|
2,687
|
|
|
4,898
|
|
|
4,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
(Distributed and Undistributed)
|
|
|
|
|
|
|
|
|
|
|
Allocated to
Shareholders (Excluding
|
|
|
|
|
|
|
|
|
|
|
Participating
Securities)
|
$
|
70,226
|
|
|
$
|
63,766
|
|
|
$
|
72,977
|
|
|
$
|
133,995
|
|
|
$
|
122,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income per
Share Attributable to
|
|
|
|
|
|
|
|
|
|
|
Legg Mason, Inc.
Shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.82
|
|
|
$
|
0.75
|
|
|
$
|
0.78
|
|
|
$
|
1.57
|
|
|
$
|
1.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
$
|
0.82
|
|
|
$
|
0.75
|
|
|
$
|
0.78
|
|
|
$
|
1.57
|
|
|
$
|
1.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
Number of Shares
|
|
|
|
|
|
|
|
|
|
|
Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
85,482
|
|
|
85,120
|
|
|
93,087
|
|
|
85,303
|
|
|
93,973
|
|
|
|
|
Diluted
|
85,612
|
|
|
85,491
|
|
|
93,496
|
|
|
85,536
|
|
|
94,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Participating securities excluded from
weighted-average number of shares outstanding were 3,156, 3,053,
and 3,417 for the
quarters ended September 2018, June 2018,
and September 2017, respectively, and 3,105 and 3,305 for the six
months
ended September 2018 and September 2017,
respectively.
|
|
LEGG MASON, INC.
AND SUBSIDIARIES
|
|
|
CONSOLIDATING
STATEMENTS OF INCOME
|
|
|
(Amounts in
thousands)
|
|
|
(Unaudited)
|
|
|
|
|
|
Quarters
Ended
|
|
|
|
|
|
September
2018
|
|
June 2018
|
|
September
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
$
|
758,530
|
|
|
$
|
(103)
|
|
|
$
|
758,427
|
|
$
|
748,108
|
|
|
$
|
(203)
|
|
|
$
|
747,905
|
|
$
|
768,361
|
|
|
$
|
(23)
|
|
|
$
|
768,338
|
|
|
|
Total operating
expenses
|
622,430
|
|
|
269
|
|
|
622,699
|
|
621,816
|
|
|
413
|
|
|
622,229
|
|
623,814
|
|
|
105
|
|
|
623,919
|
|
|
|
Operating Income
(Loss)
|
136,100
|
|
|
(372)
|
|
|
135,728
|
|
126,292
|
|
|
(616)
|
|
|
125,676
|
|
144,547
|
|
|
(128)
|
|
|
144,419
|
|
|
|
Non-operating income
(expense)
|
(22,189)
|
|
|
(2,622)
|
|
|
(24,811)
|
|
(19,784)
|
|
|
3,148
|
|
|
(16,636)
|
|
(19,794)
|
|
|
1,672
|
|
|
(18,122)
|
|
|
|
Income (Loss)
Before Income Tax Provision
|
113,911
|
|
|
(2,994)
|
|
|
110,917
|
|
106,508
|
|
|
2,532
|
|
|
109,040
|
|
124,753
|
|
|
1,544
|
|
|
126,297
|
|
|
|
Income tax
provision
|
29,844
|
|
|
—
|
|
|
29,844
|
|
30,675
|
|
|
—
|
|
|
30,675
|
|
38,673
|
|
|
—
|
|
|
38,673
|
|
|
|
Net Income
(Loss)
|
84,067
|
|
|
(2,994)
|
|
|
81,073
|
|
75,833
|
|
|
2,532
|
|
|
78,365
|
|
86,080
|
|
|
1,544
|
|
|
87,624
|
|
|
|
Less: Net income
(loss) attributable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
noncontrolling interests
|
11,264
|
|
|
(2,994)
|
|
|
8,270
|
|
9,743
|
|
|
2,532
|
|
|
12,275
|
|
10,416
|
|
|
1,544
|
|
|
11,960
|
|
|
|
Net Income
Attributable to Legg Mason, Inc.
|
$
|
72,803
|
|
|
$
|
—
|
|
|
$
|
72,803
|
|
$
|
66,090
|
|
|
$
|
—
|
|
|
$
|
66,090
|
|
$
|
75,664
|
|
|
$
|
—
|
|
|
$
|
75,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
Ended
|
|
|
|
|
|
|
|
|
|
|
|
September
2018
|
|
September
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
$
|
1,506,638
|
|
|
$
|
(306)
|
|
|
$
|
1,506,332
|
|
$
|
1,562,247
|
|
|
$
|
(67)
|
|
|
$
|
1,562,180
|
|
|
|
|
|
|
|
|
Total operating
expenses
|
1,244,246
|
|
|
682
|
|
|
1,244,928
|
|
1,310,428
|
|
|
128
|
|
|
1,310,556
|
|
|
|
|
|
|
|
|
Operating Income
(Loss)
|
262,392
|
|
|
(988)
|
|
|
261,404
|
|
251,819
|
|
|
(195)
|
|
|
251,624
|
|
|
|
|
|
|
|
|
Non-operating income
(expense)
|
(41,973)
|
|
|
526
|
|
|
(41,447)
|
|
(35,922)
|
|
|
2,387
|
|
|
(33,535)
|
|
|
|
|
|
|
|
|
Income (Loss)
Before Income Tax Provision
|
220,419
|
|
|
(462)
|
|
|
219,957
|
|
215,897
|
|
|
2,192
|
|
|
218,089
|
|
|
|
|
|
|
|
|
Income tax
provision
|
60,519
|
|
|
—
|
|
|
60,519
|
|
66,928
|
|
|
—
|
|
|
66,928
|
|
|
|
|
|
|
|
|
Net Income
(Loss)
|
159,900
|
|
|
(462)
|
|
|
159,438
|
|
148,969
|
|
|
2,192
|
|
|
151,161
|
|
|
|
|
|
|
|
|
Less: Net income
(Loss) attributable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
noncontrolling interests
|
21,007
|
|
|
(462)
|
|
|
20,545
|
|
22,385
|
|
|
2,192
|
|
|
24,577
|
|
|
|
|
|
|
|
|
Net Income
Attributable to Legg Mason, Inc.
|
$
|
138,893
|
|
|
$
|
—
|
|
|
$
|
138,893
|
|
$
|
126,584
|
|
|
$
|
—
|
|
|
$
|
126,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Other
represents consolidated sponsored investment products that are not
designated as CIVs
|
|
|
|
|
|
|
|
|
LEGG MASON, INC.
AND SUBSIDIARIES
|
|
SUPPLEMENTAL
DATA
|
|
RECONCILIATION OF OPERATING MARGIN, AS
ADJUSTED (1)
|
|
(Amounts in
thousands)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters
Ended
|
|
|
Six Months
Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
|
|
June
|
|
September
|
|
|
September
|
|
September
|
|
|
|
|
|
2018
|
|
2018
|
|
2017
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Revenues, GAAP basis
|
$
|
758,427
|
|
|
$
|
747,905
|
|
|
$
|
768,338
|
|
|
|
$
|
1,506,332
|
|
|
$
|
1,562,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plus
(less):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass-through
performance fees
|
(24,006)
|
|
|
(12,620)
|
|
|
(19,874)
|
|
|
|
(36,626)
|
|
|
(85,305)
|
|
|
|
|
Operating revenues
eliminated upon
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidation of
investment vehicles
|
103
|
|
|
203
|
|
|
23
|
|
|
|
306
|
|
|
67
|
|
|
|
|
Distribution and
servicing expense excluding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidated
investment vehicles
|
(114,516)
|
|
|
(116,558)
|
|
|
(123,578)
|
|
|
|
(231,074)
|
|
|
(245,927)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Revenues, as Adjusted
|
$
|
620,008
|
|
|
$
|
618,930
|
|
|
$
|
624,909
|
|
|
|
$
|
1,238,938
|
|
|
$
|
1,231,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income,
GAAP basis
|
$
|
135,728
|
|
|
$
|
125,676
|
|
|
$
|
144,419
|
|
|
|
$
|
261,404
|
|
|
$
|
251,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plus
(less):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains on deferred
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and seed investments,
net
|
3,964
|
|
|
1,272
|
|
|
4,824
|
|
|
|
5,236
|
|
|
10,252
|
|
|
|
|
Impairment of
intangible assets
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
34,000
|
|
|
|
|
Amortization of
intangible assets
|
6,102
|
|
|
6,180
|
|
|
6,082
|
|
|
|
12,282
|
|
|
12,421
|
|
|
|
|
Contingent
consideration fair value adjustments
|
145
|
|
|
426
|
|
|
—
|
|
|
|
571
|
|
|
(16,550)
|
|
|
|
|
Charge related to
regulatory matter
|
151
|
|
|
4,000
|
|
|
—
|
|
|
|
4,151
|
|
|
—
|
|
|
|
|
Operating loss of
consolidated investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
vehicles,
net
|
372
|
|
|
616
|
|
|
128
|
|
|
|
988
|
|
|
195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income,
as Adjusted
|
$
|
146,462
|
|
|
$
|
138,170
|
|
|
$
|
155,453
|
|
|
|
$
|
284,632
|
|
|
$
|
291,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Margin,
GAAP basis
|
17.9
|
|
%
|
16.8
|
|
%
|
18.8
|
|
%
|
|
17.4
|
|
%
|
16.1
|
|
%
|
|
Operating Margin, as
Adjusted
|
23.6
|
|
|
22.3
|
|
|
24.9
|
|
|
|
23.0
|
|
|
23.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) See
explanations for "Use of Supplemental Non-GAAP Financial
Information."
|
|
|
|
|
|
|
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
|
|
|
|
|
2018
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by
(used in) operating activities, GAAP basis
|
$
|
289,568
|
|
|
$
|
(102,170)
|
|
|
$
|
290,390
|
|
|
$
|
187,398
|
|
|
$
|
174,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plus
(less):
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
of accretion and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
of debt discounts and
premiums
|
29,341
|
|
|
29,356
|
|
|
28,343
|
|
|
58,697
|
|
|
56,673
|
|
|
|
Current tax
expense
|
9,975
|
|
|
8,878
|
|
|
9,662
|
|
|
18,853
|
|
|
15,734
|
|
|
|
Net change in assets
and liabilities
|
(69,426)
|
|
|
215,016
|
|
|
(144,921)
|
|
|
145,590
|
|
|
70,334
|
|
|
|
Net change in assets
and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
of consolidated
investment vehicles
|
(84,704)
|
|
|
14,580
|
|
|
(561)
|
|
|
(70,124)
|
|
|
31,200
|
|
|
|
Net income
attributable to noncontrolling interests
|
(8,270)
|
|
|
(12,275)
|
|
|
(11,960)
|
|
|
(20,545)
|
|
|
(24,577)
|
|
|
|
Net gains and
earnings on investments
|
8,336
|
|
|
6,792
|
|
|
1,491
|
|
|
15,128
|
|
|
7,037
|
|
|
|
Net gains (losses) on
consolidated investment vehicles
|
(3,998)
|
|
|
3,583
|
|
|
2,094
|
|
|
(415)
|
|
|
3,091
|
|
|
|
Other
|
153
|
|
|
(374)
|
|
|
194
|
|
|
(221)
|
|
|
271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA
|
$
|
170,975
|
|
|
$
|
163,386
|
|
|
$
|
174,732
|
|
|
$
|
334,361
|
|
|
$
|
334,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
See explanations for
"Use of Supplemental Non-GAAP Financial Information."
|
|
|
|
|
|
LEGG MASON, INC.
AND SUBSIDIARIES
|
|
(Amounts in
billions)
|
|
(Unaudited)
|
|
Assets Under
Management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters
Ended
|
|
|
|
|
|
By asset
class:
|
September
2018
|
|
June 2018
|
|
March 2018
|
|
December
2017
|
|
September
2017
|
|
|
|
|
|
Equity
|
$
|
214.5
|
|
|
$
|
206.4
|
|
|
$
|
203.0
|
|
|
$
|
207.6
|
|
|
$
|
201.2
|
|
|
|
|
|
|
Fixed
Income
|
411.0
|
|
|
412.3
|
|
|
422.3
|
|
|
420.1
|
|
|
411.9
|
|
|
|
|
|
|
Alternative
|
67.4
|
|
|
66.4
|
|
|
66.1
|
|
|
66.3
|
|
|
65.8
|
|
|
|
|
|
|
|
Long-Term
Assets
|
692.9
|
|
|
685.1
|
|
|
691.4
|
|
|
694.0
|
|
|
678.9
|
|
|
|
|
|
|
Liquidity
|
62.5
|
|
|
59.5
|
|
|
62.7
|
|
|
73.2
|
|
|
75.5
|
|
|
|
|
|
|
|
Total
|
$
|
755.4
|
|
|
$
|
744.6
|
|
|
$
|
754.1
|
|
|
$
|
767.2
|
|
|
$
|
754.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters
Ended
|
|
Six Months
Ended
|
|
By asset class
(average):
|
September
2018
|
|
June 2018
|
|
March 2018
|
|
December
2017
|
|
September
2017
|
|
September
2018
|
|
September
2017
|
|
Equity
|
$
|
212.2
|
|
|
$
|
205.0
|
|
|
$
|
208.8
|
|
|
$
|
204.7
|
|
|
$
|
198.9
|
|
|
$
|
208.9
|
|
|
$
|
194.5
|
|
|
Fixed
Income
|
411.4
|
|
|
416.7
|
|
|
422.2
|
|
|
414.8
|
|
|
410.2
|
|
|
414.3
|
|
|
405.7
|
|
|
Alternative
|
66.4
|
|
|
66.0
|
|
|
66.1
|
|
|
65.8
|
|
|
66.0
|
|
|
66.2
|
|
|
66.7
|
|
|
|
Long-Term
Assets
|
690.0
|
|
|
687.7
|
|
|
697.1
|
|
|
685.3
|
|
|
675.1
|
|
|
689.4
|
|
|
666.9
|
|
|
Liquidity
|
60.2
|
|
|
61.8
|
|
|
69.8
|
|
|
74.6
|
|
|
75.2
|
|
|
61.3
|
|
|
78.9
|
|
|
|
Total
|
$
|
750.2
|
|
|
$
|
749.5
|
|
|
$
|
766.9
|
|
|
$
|
759.9
|
|
|
$
|
750.3
|
|
|
$
|
750.7
|
|
|
$
|
745.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Component Changes
in Assets Under Management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters
Ended
|
|
Six Months
Ended
|
|
|
|
September
2018
|
|
June 2018
|
|
March 2018
|
|
December
2017
|
|
September
2017
|
|
September
2018
|
|
September
2017
|
|
Beginning of
period
|
$
|
744.6
|
|
|
$
|
754.1
|
|
|
$
|
767.2
|
|
|
$
|
754.4
|
|
|
$
|
741.2
|
|
|
$
|
754.1
|
|
|
$
|
728.4
|
|
|
Net client cash
flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
(1.1)
|
|
|
(2.2)
|
|
|
(2.1)
|
|
|
(3.2)
|
|
|
(2.4)
|
|
|
(3.3)
|
|
|
(1.4)
|
|
|
Fixed
Income
|
(0.5)
|
|
|
1.3
|
|
|
2.8
|
|
|
5.4
|
|
|
0.9
|
|
|
0.8
|
|
|
1.2
|
|
|
Alternative
|
0.6
|
|
|
—
|
|
|
0.5
|
|
|
—
|
|
|
(0.7)
|
|
|
0.6
|
|
|
(1.5)
|
|
|
Long-Term
flows
|
(1.0)
|
|
|
(0.9)
|
|
|
1.2
|
|
|
2.2
|
|
|
(2.2)
|
|
|
(1.9)
|
|
|
(1.7)
|
|
|
Liquidity
|
3.0
|
|
|
(2.9)
|
|
|
(10.7)
|
|
|
(2.3)
|
|
|
0.2
|
|
|
—
|
|
|
(11.3)
|
|
|
Total net client cash
flows
|
2.0
|
|
|
(3.8)
|
|
|
(9.5)
|
|
|
(0.1)
|
|
|
(2.0)
|
|
|
(1.9)
|
|
|
(13.0)
|
|
|
Realizations(1)
|
(0.2)
|
|
|
(0.3)
|
|
|
(0.5)
|
|
|
(0.3)
|
|
|
(0.5)
|
|
|
(0.5)
|
|
|
(1.9)
|
|
|
Market performance
and other(2)
|
11.0
|
|
|
1.1
|
|
|
(6.0)
|
|
|
13.5
|
|
|
13.5
|
|
|
12.2
|
|
|
38.3
|
|
|
Impact of foreign
exchange
|
(2.0)
|
|
|
(6.5)
|
|
|
2.9
|
|
|
(0.4)
|
|
|
2.2
|
|
|
(8.5)
|
|
|
2.9
|
|
|
Acquisitions
(disposition), net
|
—
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
(0.3)
|
|
|
End of
period
|
$
|
755.4
|
|
|
$
|
744.6
|
|
|
$
|
754.1
|
|
|
$
|
767.2
|
|
|
$
|
754.4
|
|
|
$
|
755.4
|
|
|
$
|
754.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Realizations
represent investment manager-driven distributions primarily related
to the sale of assets. Realizations are specific to our alternative
managers and do not include client-driven distributions (e.g.
client requested redemptions, liquidations or asset
transfers).
|
|
(2) The quarter ended
September 30, 2017 includes a reclassification of $1.0 billion from
long-term net client cash flows to Market performance and
other. For the six months ended September 30, 2017, Other
includes a $3.7 billion reconciliation to previously reported
amounts.
|
|
(3) Due to effects of
rounding, the sum of the quarterly results may differ immaterially
from the year-to-date results.
|
|
|
|
|
Use of Supplemental Non-GAAP Financial Information
As
supplemental information, we are providing a performance measure
for "Operating Margin, as Adjusted" and a liquidity measure for
"Adjusted EBITDA", each of which are based on methodologies other
than generally accepted accounting principles ("non-GAAP").
Our management uses these measures as benchmarks in evaluating and
comparing our period-to-period operating performance and
liquidity.
Operating Margin, as Adjusted
We calculate "Operating
Margin, as Adjusted," by dividing (i) Operating Income, adjusted to
exclude the impact on compensation expense of gains or losses on
investments made to fund deferred compensation plans, the impact on
compensation expense of gains or losses on seed capital investments
by our affiliates under revenue sharing arrangements, amortization
related to intangible assets, income (loss) of consolidated
investment vehicles, the impact of fair value adjustments of
contingent consideration liabilities, if any, unusual and other
non-core charges (including the previously disclosed regulatory
charge), and impairment charges by (ii) our operating revenues,
adjusted to add back net investment advisory fees eliminated upon
consolidation of investment vehicles, less distribution and
servicing expenses which we use as an approximate measure of
revenues that are passed through to third parties, and less
performance fees that are passed through as compensation expense or
net income (loss) attributable to noncontrolling interests, which
we refer to as "Operating Revenues, as Adjusted." The deferred
compensation items are removed from Operating Income in the
calculation because they are offset by an equal amount in
Non-operating income (expense), net, and thus have no impact on Net
Income (Loss) Attributable to Legg Mason, Inc. We adjust for the
impact of the amortization of management contract assets and the
impact of fair value adjustments of contingent consideration
liabilities, if any, which arise from acquisitions to reflect the
fact that these items distort comparison of our operating results
with the results of other asset management firms that have not
engaged in significant acquisitions. Impairment charges, unusual
and other non-core charges (including the previously disclosed
regulatory charge), and income (loss) of consolidated investment
vehicles are removed from Operating Income in the calculation
because these items are not reflective of our core asset management
operations. We use Operating Revenues, as Adjusted, in the
calculation to show the operating margin without distribution and
servicing expenses, which we use to approximate our distribution
revenues that are passed through to third parties as a direct cost
of selling our products, although distribution and servicing
expenses may include commissions paid in connection with the
launching of closed-end funds for which there is no corresponding
revenue in the period. We also use Operating Revenues, as
Adjusted, in the calculation to show the operating margin without
performances fees which are passed through as compensation expense
or net income (loss) attributable to noncontrolling interests per
the terms of certain more recent acquisitions. Operating
Revenues, as Adjusted, also include our advisory revenues we
receive from consolidated investment vehicles that are eliminated
in consolidation under GAAP.
We believe that Operating Margin, as Adjusted, is a useful
measure of our performance because it provides a measure of our
core business activities. It excludes items that have no impact on
Net Income (Loss) Attributable to Legg Mason, Inc. and indicates
what our operating margin would have been without distribution
revenues that are passed through to third parties as a direct cost
of selling our products, performance fees that are passed through
as compensation expense or net income (loss) attributable to
noncontrolling interests per the terms of certain more recent
acquisitions, amortization related to intangible assets, changes in
the fair value of contingent consideration liabilities, if any,
impairment charges, unusual and other non-core charges (including
the previously disclosed regulatory charge), and the impact of the
consolidation of certain investment vehicles described above.
The consolidation of these investment vehicles does not have an
impact on Net Income (Loss) Attributable to Legg Mason, Inc.
This measure is provided in addition to our operating margin
calculated under GAAP but is not a substitute for calculations of
margins under GAAP and may not be comparable to non-GAAP
performance measures, including measures of adjusted margins of
other companies.
Adjusted EBITDA
We define Adjusted EBITDA as cash
provided by (used in) operating activities plus (minus) interest
expense, net of accretion and amortization of debt discounts and
premiums, current income tax expense (benefit), the net change in
assets and liabilities, net (income) loss attributable to
noncontrolling interests, net gains (losses) and earnings on
investments, net gains (losses) on consolidated investment
vehicles, and other. The net change in assets and liabilities
adjustment aligns with the Consolidated Statements of Cash
Flows. Adjusted EBITDA is not reduced by equity-based
compensation expense, including management equity plan non-cash
issuance-related charges. Most management equity plan units
may be put to or called by Legg Mason for cash payment, although
their terms do not require this to occur.
We believe that this measure is useful to investors and us as it
provides additional information with regard to our ability to meet
working capital requirements, service our debt, and return capital
to our shareholders. This measure is provided in addition to
Cash provided by operating activities and may not be comparable to
non-GAAP performance measures or liquidity measures of other
companies, including their measures of EBITDA or Adjusted
EBITDA. Further, this measure is not to be confused with Net
Income, Cash provided by operating activities, or other measures of
earnings or cash flows under GAAP, and are provided as a supplement
to, and not in replacement of, GAAP measures.
View original
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SOURCE Legg Mason, Inc.