News Release
imageleggmasona11.jpg



FOR IMMEDIATE RELEASE        
 
Investor Relations:
 
 
Media:
 
Alan Magleby
 
 
Mary Athridge
 
410-454-5246
 
 
212-805-6035
 
amagleby@leggmason.com
 
 
mkathridge@leggmason.com
 

LEGG MASON REPORTS RESULTS FOR SECOND FISCAL QUARTER
--
Net Income of $72.8 Million, or $0.82 per Diluted Share
-- Assets Under Management of $755.4 Billion     
-- Long-term Net Outflows of $1.0 Billion

Baltimore, Maryland - October 24, 2018 - Legg Mason, Inc. (NYSE: LM) today reported its operating results for the second fiscal quarter ended September 30, 2018.

 
 
 
 
 
 
Quarters Ended
 
Six Months Ended
Financial Results
Sep
 
Jun
 
Sep
 
Sep
 
Sep
(Amounts in millions, except per share amounts)
2018
 
2018
 
2017
 
2018
 
2017
Operating Revenues
$
758.4

 
$
747.9

 
$
768.3

 
$
1,506.3

 
$
1,562.2

Operating Expenses
622.7

 
622.2

 
623.9

 
1,244.9

 
1,310.6

Operating Income
135.7

 
125.7

 
144.4

 
261.4

 
251.6

Net Income1
72.8

 
66.1

 
75.7

 
138.9

 
126.6

Net Income Per Share - Diluted1
0.82

 
0.75

 
0.78

 
1.57

 
1.29

 
 
 
 
 
 
 
 
 
 
Assets Under Management
 
 
 
 
 
 
 
 
 
(Amounts in billions)
 
 
 
 
 
 
 
 
 
End of Period Assets Under Management
$
755.4

 
$
744.6

 
$
754.4

 
$
755.4

 
$
754.4

Average Assets Under Management
750.2

 
749.5

 
750.3

 
750.7

 
745.8

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

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.”





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

News Release
imageleggmasona11.jpg


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.

 
 
 
 
 
 
 
 
 
 
Quarter Ended September 30, 2018
 
 
Assets Under Management
AUM
(in billions)
 
Flows
(in billions)
 
Operating Revenue Yield 1
 
 
Equity
$
214.5

 
$
(1.1
)
 
60 bps
 
 
Fixed Income
411.0

 
(0.5
)
 
27 bps
 
 
Alternative
67.4

 
0.6

2 
61 bps
 
 
Long-Term Assets
692.9

 
(1.0
)
 
 
 
 
Liquidity
62.5

 
3.0

 
14 bps
 
 
Total
$
755.4

 
$
2.0

 
38 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, 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.


 
 
 
 
 
 
 
 
 
 
 
 
 
Quarterly Performance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At September 30, 2018:
 
1-Year
 
3-Year
 
5-Year
 
10-Year
 
 
% of Strategy AUM beating Benchmark3
 
42%
 
68%
 
73%
 
82%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
% of Long-Term U.S. Fund Assets Beating Lipper Category Average
 
37%
 
59%
 
61%
 
66%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(3) See “Supplemental Data Regarding Quarterly Performance.”

 
 
 
 
 
 
 
 
 


Of Legg Mason’s long-term U.S. mutual fund assets, 50% were in funds rated 4 or 5 stars by Morningstar.



Brandywine Global | Clarion Partners | ClearBridge Investments | EnTrustPermal | Martin Currie | QS Investors | RARE Infrastructure | Royce & Associates | Western Asset
2

News Release
imageleggmasona11.jpg

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.


(4) See "Use of Supplemental Non-GAAP Financial Information."


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

News Release
imageleggmasona11.jpg


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.

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

News Release
imageleggmasona11.jpg


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,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 $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.






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

News Release
imageleggmasona11.jpg

Supplemental Data Regarding Quarterly Performance

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

Approximately 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
At September 30, 2018:
 
1-Year
 
3-Year
 
5-Year
 
10-Year
 
 
% of Strategy AUM beating Benchmark
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed Income
 
41%
 
84%
 
84%
 
92%
 
 
 
Equity
 
22%
 
28%
 
37%
 
59%
 
 
 
Alternatives
 
67%
 
71%
 
92%
 
59%
 
 
 
 
 
 
 
 
 
 
 
 
 

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, 2018:
 
1-Year
 
3-Year
 
5-Year
 
10-Year
 
 
% of Long-Term U.S. Fund Assets Beating Lipper Category Average
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed Income
 
38%
 
69%
 
79%
 
81%
 
 
 
Equity
 
36%
 
51%
 
45%
 
53%
 
 
 
Alternatives (performance relates to only 3 funds)
 
0%
 
0%
 
92%
 
n/a
 
 
 
 
 
 
 
 
 
 
 
 
 

Brandywine Global | Clarion Partners | ClearBridge Investments | EnTrustPermal | 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
 
 
 
 
2018
 
2018
 
2017
 
2018
 
2017
Operating Revenues:
 
 
 
 
 
 
 
 
 
 
Investment advisory fees:
 
 
 
 
 
 
 
 
 
 
 
Separate accounts
$
261,567

 
$
259,895

 
$
253,128

 
$
521,462

 
$
503,174

 
 
Funds
383,923

 
383,564

 
393,035

 
767,487

 
775,263

 
 
Performance fees
31,874

 
24,036

 
40,821

 
55,910

 
122,358

 
Distribution and service fees
79,074

 
79,190

 
80,668

 
158,264

 
159,574

 
Other
1,989

 
1,220

 
686

 
3,209

 
1,811

 
 
 
Total operating revenues
758,427

 
747,905

 
768,338

 
1,506,332

 
1,562,180

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Expenses:
 
 
 
 
 
 
 
 
 
 
Compensation and benefits
364,885

 
361,568

 
367,951

 
726,453

 
781,258

 
Distribution and servicing
114,525

 
116,592

 
123,634

 
231,117

 
245,983

 
Communications and technology
57,489

 
56,740

 
51,299

 
114,229

 
101,602

 
Occupancy
27,352

 
24,904

 
25,171

 
52,256

 
49,579

 
Amortization of intangible assets
6,102

 
6,180

 
6,082

 
12,282

 
12,421

 
Impairment of intangible assets

 

 

 

 
34,000

 
Contingent consideration fair value adjustments
145

 
426

 

 
571

 
(16,550
)
 
Other
52,201

 
55,819

 
49,782

 
108,020

 
102,263

 
 
 
Total operating expenses
622,699

 
622,229

 
623,919

 
1,244,928

 
1,310,556

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
135,728

 
125,676

 
144,419

 
261,404

 
251,624

 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Operating Income (Expense):
 
 
 
 
 
 
 
 
 
 
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)
 
 
 
 
 
 
 
 
 
 
 
 
 

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
 
 
 
 
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.


8


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
 
 
 
 
 
 


9


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."
 
 
 
 
 

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
 
 
 
 
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."
 
 
 
 


11


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.
 
 
 
 

12

News Release
imageleggmasona11.jpg


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.


Brandywine Global | Clarion Partners | ClearBridge Investments | EnTrustPermal | Martin Currie | QS Investors | RARE Infrastructure | Royce & Associates | Western Asset
13

News Release
imageleggmasona11.jpg

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.

Brandywine Global | Clarion Partners | ClearBridge Investments | EnTrustPermal | Martin Currie | QS Investors | RARE Infrastructure | Royce & Associates | Western Asset
14

View differences made from one to another to evaluate Legg Mason, Inc.'s financial trajectory

Compare SEC Filings Year-over-Year (YoY) and Quarter-over-Quarter (QoQ)
Sample 10-K Year-over-Year (YoY) Comparison

Compare this 8-K Corporate News to its predecessor by reading our highlights to see what text and tables were  removed  ,   added    and   changed   by Legg Mason, Inc..

Continue

Never Miss A New SEC Filing Again


Real-Time SEC Filing Notifications
Screenshot taken from Gmail for a new 10-K Annual Report
Last10K.com Member Feature

Receive an e-mail as soon as a company files an Annual Report, Quarterly Report or has new 8-K corporate news.

Continue

We Highlighted This SEC Filing For You


SEC Filing Sentiment Analysis - Bullish, Bearish, Neutral
Screenshot taken from Wynn's 2018 10-K Annual Report
Last10K.com Member Feature

Read positive and negative remarks made by management in their entirety without having to find them in a 10-K/Q.

Continue

Widen Your SEC Filing Reading Experience


Increased Reading Area for SEC Filings
Screenshot taken from Adobe Inc.'s 10-Q Quarterly Report
Last10K.com Member Feature

Remove data columns and navigations in order to see much more filing content and tables in one view

Continue

Uncover Actionable Information Inside SEC Filings


SEC Filing Disclosures
Screenshot taken from Lumber Liquidators 10-K Annual Report
Last10K.com Member Feature

Read both hidden opportunities and early signs of potential problems without having to find them in a 10-K/Q

Continue

Adobe PDF, Microsoft Word and Excel Downloads


Download Annual and Quarterly Reports as PDF, Word and Excel Documents
Screenshots of actual 10-K and 10-Q SEC Filings in PDF, Word and Excel formats
Last10K.com Member Feature

Export Annual and Quarterly Reports to Adobe PDF, Microsoft Word and Excel for offline viewing, annotations and analysis

Continue

FREE Financial Statements


Download Annual and Quarterly Reports as PDF, Word and Excel Documents
Screenshot of actual balance sheet from company 10-K Annual Report
Last10K.com Member Feature

Get one-click access to balance sheets, income, operations and cash flow statements without having to find them in Annual and Quarterly Reports

Continue for FREE

Intrinsic Value Calculator


Intrinsic Value Calculator
Screenshot of intrinsic value for AT&T (2019)
Last10K.com Member Feature

Our Intrinsic Value calculator estimates what an entire company is worth using up to 10 years of financial ratios to determine if a stock is overvalued or not

Continue

Financial Stability Report


Financial Stability Report
Screenshot of financial stability report for Coco-Cola (2019)
Last10K.com Member Feature

Our Financial Stability reports uses up to 10 years of financial ratios to determine the health of a company's EPS, Dividends, Book Value, Return on Equity, Current Ratio and Debt-to-Equity

Continue

Get a Better Picture of a Company's Performance


Financial Ratios
Available Financial Ratios
Last10K.com Member Feature

See how over 70 Growth, Profitability and Financial Ratios perform over 10 Years

Continue

Log in with your credentials

or    

Forgot your details?

Create Account