(State or Other Jurisdiction of Incorporation) | (Commission File No.) | (IRS Employer Identification No.) |
, | ||||
(Address of principal executive offices) | Zip Code |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: | |
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act: | ||||
Title of each class | Trading Symbol | Name of each exchange on which registered | ||
Item 2.02 | Results of Operations and Financial Condition. | ||||
On January 29, 2020, Legg Mason, Inc. announced its results of operations for the quarter ended December 31, 2019. A copy of the related press release is attached hereto as Exhibit 99. | |||||
The information in this Section 2.02 and Exhibit 99 attached hereto shall not be deemed "filed" for purposes of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing. | |||||
Item 9.01 | Financial Statements and Exhibits. | ||||
(d) | Exhibits | ||||
Exhibit No. | Subject Matter | ||||
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. |
LEGG MASON, INC. | |||
(Registrant) | |||
Date: January 29, 2020 | By: | /s/ Thomas C. Merchant | |
Thomas C. Merchant | |||
Executive Vice President and General Counsel |
Investor Relations: | Media: | |||
Alan Magleby | Mary Athridge | |||
410-454-5246 | 212-805-6035 | |||
amagleby@leggmason.com | mkathridge@leggmason.com |
-- | Third Quarter Net Income of $74.8 million, or $0.83 per Diluted Share |
• | Includes Restructuring Charges of $21.2 Million, or $0.17 per Diluted Share |
Quarters Ended | Nine Months Ended | ||||||||||||||||||
Financial Results | Dec | Sept | Dec | Dec | Dec | ||||||||||||||
(Amounts in millions, except per share amounts) | 2019 | 2019 | 2018 | 2019 | 2018 | ||||||||||||||
Operating Revenues | $ | 753.9 | $ | 743.3 | $ | 704.3 | $ | 2,202.5 | $ | 2,210.7 | |||||||||
Operating Expenses | 623.9 | 618.3 | 940.7 | 1,863.6 | 2,185.7 | ||||||||||||||
Operating Income (Loss) | 130.0 | 125.0 | (236.4 | ) | 338.9 | 25.0 | |||||||||||||
Net Income (Loss)1 | 74.8 | 67.1 | (216.9 | ) | 187.2 | (78.0 | ) | ||||||||||||
Net Income (Loss) Per Share - Diluted1 | 0.83 | 0.74 | (2.55 | ) | 2.08 | (0.95 | ) | ||||||||||||
Adjusted Net Income2 | $ | 93.2 | $ | 85.6 | $ | 76.3 | $ | 245.8 | $ | 228.8 | |||||||||
Adjusted Earnings Per Share - Diluted2 | 1.03 | 0.95 | 0.86 | 2.74 | 2.59 | ||||||||||||||
(1) Net Income Attributable to Legg Mason, Inc. | |||||||||||||||||||
(2) See "Use of Supplemental Non-GAAP Financial Information". |
Quarter Ended December 31, 2019 | |||||||||||
Assets Under Management ($ in billions) | AUM | Flows | Operating Revenue Yield 1 | ||||||||
Equity | $ | 214.0 | $ | (4.8 | ) | 56 bps | |||||
Fixed Income | 451.8 | 1.7 | 26 bps | ||||||||
Alternative | 74.3 | 1.5 | 2 | 58 bps | |||||||
Long-Term Assets | 740.1 | (1.6 | ) | ||||||||
Liquidity | 63.4 | 0.0 | 14 bps | ||||||||
Total | $ | 803.5 | $ | (1.6 | ) | 36 bps | |||||
(1) Operating revenue yield equals total operating revenues less performance fees divided by average AUM | |||||||||||
(2) Excludes realizations of $0.6 billion |
Quarterly Performance | |||||||||||
1-Year | 3-Year | 5-Year | 10-Year | ||||||||
% of Strategy AUM beating Benchmark3 | 78% | 79% | 83% | 84% | |||||||
% of Long-Term U.S. Fund Assets Beating Lipper Category Average | 62% | 65% | 76% | 68% | |||||||
(3) See “Supplemental Data Regarding Quarterly Performance.” |
• | An increase in separate account and fund advisory fee revenues of $5.4 million, or 1%, reflecting higher average AUM. |
• | In addition, non-pass through performance fees increased by $15.7 million, partially offset by an $11.2 million decrease in pass through performance fees. |
• | Lower compensation of $2.7 million driven by an $11.2 million decrease in pass through performance fees and a $4.2 million decrease in strategic restructuring costs and a $3.6 million increase in strategic restructuring savings. These were partially offset by a higher gain in the market value of deferred compensation and seed investments of $12.0 million, with an offset in non-operating income, as compared to a gain of $2.9 million in the prior quarter as well as increased compensation and benefits related to the increase in non-pass through performance fees and higher advisory fees. |
• | An increase in communications and technology expenses of $3.1 million reflecting higher consulting costs. |
• | An increase in occupancy expenses of $5.7 million which included $5.9 million in restructuring costs. |
• | The $21.2 million of restructuring costs this quarter included $18.5 million of strategic restructuring costs related to the implementation of our cost savings initiative and $2.4 million of professional fees for other corporate matters. |
• | Gains on corporate investments, not offset in compensation, were $6.2 million compared with losses of $2.9 million in the prior quarter. |
• | Gains on funded deferred compensation and seed investments, as described above. |
• | A $0.6 million gain associated with the consolidation of sponsored investment vehicles compared to a $5.0 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. |
• | An increase in advisory fee revenues of $27.8 million reflecting higher average long-term AUM. |
• | In addition, performance fees increased $26.8 million, including an increase of $23.5 million in non-pass through performance fees. |
• | Compensation and benefits increased by 18%, primarily due to higher affiliate compensation on increased operating revenues as well as higher corporate compensation including increased sales commissions. In addition, there was a $12.0 million gain in the market value of deferred compensation and benefits with an offset in non-operating income, compared with a loss of $10.8 million in the prior year quarter. These more than offset decreased compensation and benefits resulting from the strategic restructuring. |
• | Occupancy expenses increased by $8.4 million primarily due to strategic restructuring costs of $5.9 million. |
• | Other expenses decreased by $14.1 million primarily due to strategic restructuring savings of $7.4 million and lower advertising and professional fees. |
• | Gains on corporate investments, not offset in compensation, were $6.2 million compared with losses of $4.9 million in the prior year quarter. |
• | Gains on funded deferred compensation and seed investments as described above. |
• | A $0.6 million gain associated with the consolidation of sponsored investment vehicles, as compared to a gain of $2.6 million in the prior year quarter. The consolidation of sponsored investment vehicles has no impact on net income as the effects of consolidation are fully attributable to noncontrolling interests. |
• | Brandywine Global, ClearBridge Investments and Western Asset were recognized by Pensions & Investments (P&I) in their Best Places to Work in Investment Management survey for 2019. |
• | Western Asset Management’s mutual funds in Hong Kong, Singapore and Taiwan, were winners of the 2019 BENCHMARK Quantitative Top Fund of the Year Awards. |
• | During the quarter ended December 31, 2019, Virtus Investment Partners, Inc., Fred Alger Management, LLC and IndexIQ, a New York Life Investments Company, each entered into agreement to license Precidian Investments LLC ActiveShares® structure, bringing the total number of licensees to 14. |
At December 31, 2019: | 1-Year | 3-Year | 5-Year | 10-Year | |||||||
% of Strategy AUM beating Benchmark1 | |||||||||||
Fixed Income | 97% | 99% | 94% | 98% | |||||||
Equity | 61% | 56% | 60% | 50% | |||||||
Alternatives | 99% | 95% | 98% | 99% | |||||||
(1) Effective July 1, 2019, comparative benchmarks for certain strategies were added to measure relative performance where a stated benchmark was not previously provided |
At December 31, 2019: | 1-Year | 3-Year | 5-Year | 10-Year | |||||||
% of Long-Term U.S. Fund Assets Beating Lipper Category Average | |||||||||||
Fixed Income | 78% | 80% | 79% | 84% | |||||||
Equity | 45% | 49% | 72% | 49% | |||||||
Alternatives (performance relates to only 3 funds) | 0% | 100% | n/a | n/a | |||||||
LEGG MASON, INC. AND SUBSIDIARIES | ||||||||||||||||||||||
CONSOLIDATED STATEMENTS OF INCOME (LOSS) | ||||||||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||
Quarters Ended | Nine Months Ended | |||||||||||||||||||||
December | September | December | December | December | ||||||||||||||||||
2019 | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||
Operating Revenues: | ||||||||||||||||||||||
Investment advisory fees: | ||||||||||||||||||||||
Separate accounts | $ | 266,609 | $ | 264,438 | $ | 256,657 | $ | 791,488 | $ | 778,119 | ||||||||||||
Funds | 378,995 | 375,765 | 361,173 | 1,121,572 | 1,128,660 | |||||||||||||||||
Performance fees | 39,407 | 34,869 | 12,619 | 81,137 | 68,529 | |||||||||||||||||
Distribution and service fees | 67,634 | 67,064 | 72,185 | 204,635 | 230,449 | |||||||||||||||||
Other | 1,269 | 1,128 | 1,688 | 3,706 | 4,897 | |||||||||||||||||
Total operating revenues | 753,914 | 743,264 | 704,322 | 2,202,538 | 2,210,654 | |||||||||||||||||
Operating Expenses: | ||||||||||||||||||||||
Compensation and benefits | 375,033 | 377,727 | 316,876 | 1,132,588 | 1,043,329 | |||||||||||||||||
Distribution and servicing | 104,363 | 105,099 | 108,842 | 313,368 | 339,959 | |||||||||||||||||
Communications and technology | 57,101 | 53,953 | 56,664 | 166,328 | 170,893 | |||||||||||||||||
Occupancy | 32,490 | 26,809 | 24,077 | 84,923 | 76,333 | |||||||||||||||||
Amortization of intangible assets | 6,004 | 5,442 | 6,089 | 16,903 | 18,371 | |||||||||||||||||
Impairment of intangible assets | — | — | 365,200 | — | 365,200 | |||||||||||||||||
Contingent consideration fair value adjustments | — | — | — | (1,165 | ) | 571 | ||||||||||||||||
Other | 48,929 | 49,257 | 63,001 | 150,687 | 171,021 | |||||||||||||||||
Total operating expenses | 623,920 | 618,287 | 940,749 | 1,863,632 | 2,185,677 | |||||||||||||||||
Operating Income (Loss) | 129,994 | 124,977 | (236,427 | ) | 338,906 | 24,977 | ||||||||||||||||
Non-Operating Income (Expense): | ||||||||||||||||||||||
Interest income | 2,882 | 2,652 | 3,126 | 9,539 | 7,992 | |||||||||||||||||
Interest expense | (27,032 | ) | (27,331 | ) | (28,770 | ) | (82,846 | ) | (88,547 | ) | ||||||||||||
Other income (expense), net | 18,009 | 458 | (7,042 | ) | 29,066 | 6,837 | ||||||||||||||||
Non-operating income (expense) of | ||||||||||||||||||||||
consolidated investment vehicles, net | 814 | 4,529 | 2,369 | 14,904 | 1,954 | |||||||||||||||||
Total non-operating income (expense) | (5,327 | ) | (19,692 | ) | (30,317 | ) | (29,337 | ) | (71,764 | ) | ||||||||||||
Income (Loss) Before Income Tax Provision | 124,667 | 105,285 | (266,744 | ) | 309,569 | (46,787 | ) | |||||||||||||||
Income tax provision (benefit) | 33,664 | 28,754 | (60,354 | ) | 80,466 | 165 | ||||||||||||||||
Net Income (Loss) | 91,003 | 76,531 | (206,390 | ) | 229,103 | (46,952 | ) | |||||||||||||||
Less: Net income attributable | ||||||||||||||||||||||
to noncontrolling interests | 16,228 | 9,448 | 10,498 | 41,895 | 31,043 | |||||||||||||||||
Net Income (Loss) Attributable to Legg Mason, Inc. | $ | 74,775 | $ | 67,083 | $ | (216,888 | ) | $ | 187,208 | $ | (77,995 | ) | ||||||||||
(Continued) |
LEGG MASON, INC. AND SUBSIDIARIES | |||||||||||||||||||||||
CONSOLIDATED STATEMENTS OF INCOME (LOSS), CONTINUED | |||||||||||||||||||||||
(Amounts in thousands, except per share amounts) | |||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||
Quarters Ended | Nine Months Ended | ||||||||||||||||||||||
December | September | December | December | December | |||||||||||||||||||
2019 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||
Net Income (Loss) Attributable to Legg Mason, Inc. | $ | 74,775 | $ | 67,083 | $ | (216,888 | ) | $ | 187,208 | $ | (77,995 | ) | |||||||||||
Less: Earnings (distributed and undistributed) | |||||||||||||||||||||||
allocated to participating securities (1) | 2,428 | 2,213 | 1,049 | 6,138 | 3,190 | ||||||||||||||||||
Net Income (Loss) (Distributed and Undistributed) | |||||||||||||||||||||||
Allocated to Shareholders (Excluding | |||||||||||||||||||||||
Participating Securities) | $ | 72,347 | $ | 64,870 | $ | (217,937 | ) | $ | 181,070 | $ | (81,185 | ) | |||||||||||
Net Income (Loss) per Share Attributable to | |||||||||||||||||||||||
Legg Mason, Inc. Shareholders: | |||||||||||||||||||||||
Basic | $ | 0.83 | $ | 0.75 | $ | (2.55 | ) | $ | 2.09 | $ | (0.95 | ) | |||||||||||
Diluted | $ | 0.83 | $ | 0.74 | $ | (2.55 | ) | $ | 2.08 | $ | (0.95 | ) | |||||||||||
Weighted-Average Number of Shares | |||||||||||||||||||||||
Outstanding(2): | |||||||||||||||||||||||
Basic | 86,878 | 86,813 | 85,537 | 86,666 | 85,381 | ||||||||||||||||||
Diluted | 87,165 | 87,127 | 85,537 | 86,932 | 85,381 | ||||||||||||||||||
(1) | Participating securities excluded from weighted-average number of shares outstanding were 2,935, 2,973, and 3,104 for the quarters ended December 2019, September 2019, and December 2018, respectively, and 2,919 and 3,104 for the nine months ended December 2019 and December 2018, respectively. | ||||||||||||||||||||||
(2) | Diluted shares are the same as basic shares for periods with a loss. | ||||||||||||||||||||||
Quarters Ended | Nine Months Ended | ||||||||||||||||||||||
December | September | December | |||||||||||||||||||||
Strategic Restructuring effective January 1, 2019 | 2019 | 2019 | 2019 | ||||||||||||||||||||
Strategic restructuring cost savings: | |||||||||||||||||||||||
Compensation | $ | 11,139 | $ | 7,523 | $ | 21,512 | |||||||||||||||||
Occupancy | 78 | 175 | 493 | ||||||||||||||||||||
Other | 9,268 | 7,760 | 23,922 | ||||||||||||||||||||
Total strategic restructuring cost savings | $ | 20,485 | $ | 15,458 | $ | 45,927 | |||||||||||||||||
Strategic restructuring costs: | |||||||||||||||||||||||
Compensation and benefits | $ | 10,192 | $ | 14,422 | $ | 53,308 | |||||||||||||||||
Occupancy | 5,930 | — | 5,930 | ||||||||||||||||||||
Other | 2,352 | 1,503 | 8,059 | ||||||||||||||||||||
Total strategic restructuring costs | $ | 18,474 | $ | 15,925 | $ | 67,297 | |||||||||||||||||
LEGG MASON, INC. AND SUBSIDIARIES | |||||||||||||||||||||||||
SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION | |||||||||||||||||||||||||
RECONCILIATION OF NET INCOME (LOSS) ATTRIBUTABLE TO LEGG MASON, INC. TO ADJUSTED NET INCOME AND | |||||||||||||||||||||||||
RECONCILIATION OF NET INCOME PER DILUTED SHARE ATTRIBUTABLE TO LEGG MASON, INC. SHAREHOLDERS TO | |||||||||||||||||||||||||
ADJUSTED EARNINGS PER DILUTED SHARE(1) | |||||||||||||||||||||||||
(Amounts in thousands, except per share amounts) | |||||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||||
Quarters Ended | Nine Months Ended | ||||||||||||||||||||||||
December | September | December | December | December | |||||||||||||||||||||
2019 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||
Net Income (Loss) Attributable to Legg Mason, Inc. | $ | 74,775 | $ | 67,083 | $ | (216,888 | ) | $ | 187,208 | $ | (77,995 | ) | |||||||||||||
Plus (less): | |||||||||||||||||||||||||
Restructuring costs: | |||||||||||||||||||||||||
Strategic restructuring and other corporate initiatives | 20,920 | 19,666 | 5,881 | 73,484 | 14,303 | ||||||||||||||||||||
Affiliate charges | 237 | 237 | — | 1,677 | — | ||||||||||||||||||||
Amortization of intangible assets | 6,004 | 5,442 | 6,089 | 16,903 | 18,371 | ||||||||||||||||||||
Gains and losses on seed and other investments | |||||||||||||||||||||||||
not offset by compensation or hedges | (4,827 | ) | (51 | ) | (4,314 | ) | (11,289 | ) | (12,014 | ) | |||||||||||||||
Acquisition and transition-related costs | — | — | — | — | 1,468 | ||||||||||||||||||||
Impairments of intangible assets | — | — | 365,200 | — | 365,200 | ||||||||||||||||||||
Contingent consideration fair value adjustments | — | — | — | (1,165 | ) | 571 | |||||||||||||||||||
Charges related to significant regulatory matters | — | — | — | — | 4,151 | ||||||||||||||||||||
Income tax adjustments:(2) | |||||||||||||||||||||||||
Impacts of non-GAAP adjustments | (6,030 | ) | (6,954 | ) | (94,568 | ) | (21,619 | ) | (98,331 | ) | |||||||||||||||
Other tax items | 2,100 | 220 | 14,856 | 620 | 13,095 | ||||||||||||||||||||
Adjusted Net Income | $ | 93,179 | $ | 85,643 | $ | 76,256 | $ | 245,819 | $ | 228,819 | |||||||||||||||
Net Income (Loss) Per Diluted Share Attributable to | |||||||||||||||||||||||||
Legg Mason, Inc. Shareholders | $ | 0.83 | $ | 0.74 | $ | (2.55 | ) | $ | 2.08 | $ | (0.95 | ) | |||||||||||||
Plus (less), net of tax impacts: | |||||||||||||||||||||||||
Restructuring costs: | |||||||||||||||||||||||||
Strategic restructuring and other corporate initiatives | 0.17 | 0.16 | 0.05 | 0.60 | 0.12 | ||||||||||||||||||||
Affiliate charges | — | — | — | 0.01 | — | ||||||||||||||||||||
Amortization of intangible assets | 0.05 | 0.05 | 0.05 | 0.14 | 0.15 | ||||||||||||||||||||
Gains and losses on seed and other investments | |||||||||||||||||||||||||
not offset by compensation or hedges | (0.04 | ) | — | (0.04 | ) | (0.09 | ) | (0.10 | ) | ||||||||||||||||
Acquisition and transition-related costs | — | — | — | — | 0.01 | ||||||||||||||||||||
Impairments of intangible assets | — | — | 3.17 | — | 3.15 | ||||||||||||||||||||
Contingent consideration fair value adjustments | — | — | — | (0.01 | ) | — | |||||||||||||||||||
Charges related to significant regulatory matters | — | — | — | — | 0.05 | ||||||||||||||||||||
Other tax items | 0.02 | — | 0.18 | 0.01 | 0.16 | ||||||||||||||||||||
Adjusted Earnings per Diluted Share | $ | 1.03 | $ | 0.95 | $ | 0.86 | $ | 2.74 | $ | 2.59 | |||||||||||||||
(1) See explanations for "Use of Supplemental Non-GAAP Financial Information." | |||||||||||||||||||||||||
(2) The non-GAAP effective tax rates for the quarters ended December 31, 2019, September 30, 2019 and December 31, 2018 | |||||||||||||||||||||||||
were 25.9%, 27.3%, and 18.5% respectively, and for the nine months ended December 31, 2019 and 2018 were | |||||||||||||||||||||||||
26.7% and 24.8%, respectively. |
LEGG MASON, INC. AND SUBSIDIARIES | ||||||||||||||||||||||||
SUPPLEMENTAL DATA | ||||||||||||||||||||||||
RECONCILIATION OF GAAP BASIS OPERATING MARGIN TO ADJUSTED OPERATING MARGIN (1) | ||||||||||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||
Quarters Ended | Nine Months Ended | |||||||||||||||||||||||
December | September | December | December | December | ||||||||||||||||||||
2019 | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||||
Operating Revenues, GAAP basis | $ | 753,914 | $ | 743,264 | $ | 704,322 | $ | 2,202,538 | $ | 2,210,654 | ||||||||||||||
Plus (less): | ||||||||||||||||||||||||
Pass through performance fees | (10,733 | ) | (21,914 | ) | (7,436 | ) | (33,677 | ) | (44,062 | ) | ||||||||||||||
Operating revenues eliminated upon | ||||||||||||||||||||||||
consolidation of investment vehicles | 69 | 156 | 155 | 350 | 461 | |||||||||||||||||||
Distribution and servicing expense excluding | ||||||||||||||||||||||||
consolidated investment vehicles | (104,349 | ) | (104,199 | ) | (108,771 | ) | (312,435 | ) | (339,845 | ) | ||||||||||||||
Adjusted Operating Revenues | $ | 638,901 | $ | 617,307 | $ | 588,270 | $ | 1,856,776 | $ | 1,827,208 | ||||||||||||||
Operating Income (Loss), GAAP basis | $ | 129,994 | $ | 124,977 | $ | (236,427 | ) | $ | 338,906 | $ | 24,977 | |||||||||||||
Plus (less): | ||||||||||||||||||||||||
Restructuring costs: | ||||||||||||||||||||||||
Strategic restructuring and other corporate initiatives | 20,920 | 19,666 | 5,881 | 73,484 | 14,303 | |||||||||||||||||||
Affiliate charges | 237 | 237 | — | 1,677 | — | |||||||||||||||||||
Amortization of intangible assets | 6,004 | 5,442 | 6,089 | 16,903 | 18,371 | |||||||||||||||||||
Gains (losses) on deferred compensation | ||||||||||||||||||||||||
and seed investments, net | 12,022 | 2,910 | (10,826 | ) | 21,946 | (5,590 | ) | |||||||||||||||||
Acquisition and transition-related costs | — | — | — | — | 1,468 | |||||||||||||||||||
Impairment of intangible assets | — | — | 365,200 | — | 365,200 | |||||||||||||||||||
Contingent consideration fair value adjustments | — | — | — | (1,165 | ) | 571 | ||||||||||||||||||
Charges related to significant regulatory matters | — | — | — | — | 4,151 | |||||||||||||||||||
Operating income (loss) of consolidated investment | ||||||||||||||||||||||||
vehicles, net | 172 | 1,298 | 343 | 1,729 | 1,331 | |||||||||||||||||||
Adjusted Operating Income | $ | 169,349 | $ | 154,530 | $ | 130,260 | $ | 453,480 | $ | 424,782 | ||||||||||||||
Operating Margin, GAAP basis | 17.2 | % | 16.8 | % | (33.6 | ) | % | 15.4 | % | 1.1 | % | |||||||||||||
Adjusted Operating Margin | 26.5 | 25.0 | 22.1 | 24.4 | 23.2 | |||||||||||||||||||
(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 | Nine Months Ended | |||||||||||||||||||||
December | September | December | December | December | ||||||||||||||||||
2019 | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||
Cash provided by operating activities, GAAP basis | $ | 335,358 | $ | 229,303 | $ | 256,591 | $ | 377,084 | $ | 443,989 | ||||||||||||
Plus (less): | ||||||||||||||||||||||
Interest expense, net of accretion and amortization | ||||||||||||||||||||||
of debt discounts and premiums | 26,676 | 26,874 | 28,259 | 81,925 | 86,956 | |||||||||||||||||
Current tax expense (benefit) | 6,137 | 6,927 | (1,218 | ) | 8,818 | 17,635 | ||||||||||||||||
Net change in assets and liabilities | (153,838 | ) | (111,207 | ) | (170,384 | ) | 38,032 | (24,794 | ) | |||||||||||||
Net change in assets and liabilities | ||||||||||||||||||||||
of consolidated investment vehicles | (45,539 | ) | 8,061 | 60,158 | (50,490 | ) | (9,966 | ) | ||||||||||||||
Net income attributable to noncontrolling interests | (16,228 | ) | (9,448 | ) | (10,498 | ) | (41,895 | ) | (31,043 | ) | ||||||||||||
Net gains (losses) and earnings on investments | 662 | 2,329 | 21,367 | 9,739 | 36,495 | |||||||||||||||||
Net gains (losses) on consolidated investment vehicles | 814 | 4,529 | 2,369 | 14,904 | 1,954 | |||||||||||||||||
Other | (193 | ) | (101 | ) | (68 | ) | (637 | ) | (289 | ) | ||||||||||||
Adjusted EBITDA | $ | 153,849 | $ | 157,267 | $ | 186,576 | $ | 437,480 | $ | 520,937 | ||||||||||||
(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: | December 2019 | September 2019 | June 2019 | March 2019 | December 2018 | ||||||||||||||||||||||||
Equity | $ | 214.0 | $ | 203.3 | $ | 205.6 | $ | 202.0 | $ | 181.0 | |||||||||||||||||||
Fixed Income | 451.8 | 442.7 | 438.0 | 419.6 | 406.6 | ||||||||||||||||||||||||
Alternative | 74.3 | 72.6 | 70.1 | 68.6 | 66.3 | ||||||||||||||||||||||||
Long-Term Assets | 740.1 | 718.6 | 713.7 | 690.2 | 653.9 | ||||||||||||||||||||||||
Liquidity | 63.4 | 63.2 | 66.5 | 67.8 | 73.3 | ||||||||||||||||||||||||
Total | $ | 803.5 | $ | 781.8 | $ | 780.2 | $ | 758.0 | $ | 727.2 | |||||||||||||||||||
Quarters Ended | Nine Months Ended | ||||||||||||||||||||||||||||
By asset class (average): | December 2019 | September 2019 | June 2019 | March 2019 | December 2018 | December 2019 | December 2018 | ||||||||||||||||||||||
Equity | $ | 209.3 | $ | 204.2 | $ | 202.7 | $ | 195.4 | $ | 198.2 | $ | 205.6 | $ | 204.1 | |||||||||||||||
Fixed Income | 447.3 | 440.9 | 427.0 | 413.7 | 407.4 | 438.0 | 411.9 | ||||||||||||||||||||||
Alternative | 73.1 | 71.5 | 69.3 | 67.0 | 66.8 | 71.3 | 66.3 | ||||||||||||||||||||||
Long-Term Assets | 729.7 | 716.6 | 699.0 | 676.1 | 672.4 | 714.9 | 682.3 | ||||||||||||||||||||||
Liquidity | 62.0 | 63.2 | 66.9 | 72.6 | 66.9 | 63.9 | 63.3 | ||||||||||||||||||||||
Total | $ | 791.7 | $ | 779.8 | $ | 765.9 | $ | 748.7 | $ | 739.3 | $ | 778.8 | $ | 745.6 | |||||||||||||||
Component Changes in Assets Under Management | |||||||||||||||||||||||||||||
Quarters Ended | Nine Months Ended | ||||||||||||||||||||||||||||
December 2019 | September 2019 | June 2019 | March 2019 | December 2018 | December 2019 | December 2018 | |||||||||||||||||||||||
Beginning of period | $ | 781.8 | $ | 780.2 | $ | 758.0 | $ | 727.2 | $ | 755.4 | $ | 758.0 | $ | 754.1 | |||||||||||||||
Net client cash flows: | |||||||||||||||||||||||||||||
Equity | (4.8 | ) | (2.1 | ) | (3.6 | ) | (1.0 | ) | (3.3 | ) | (10.5 | ) | (6.6 | ) | |||||||||||||||
Fixed Income | 1.7 | (0.5 | ) | 3.9 | 0.1 | (5.1 | ) | 5.1 | (4.3 | ) | |||||||||||||||||||
Alternative | 1.5 | 2.4 | 0.8 | 0.9 | (0.1 | ) | 4.7 | 0.6 | |||||||||||||||||||||
Long-Term flows | (1.6 | ) | (0.2 | ) | 1.1 | — | (8.5 | ) | (0.7 | ) | (10.3 | ) | |||||||||||||||||
Liquidity | — | (3.5 | ) | (1.6 | ) | (8.1 | ) | 10.5 | (5.1 | ) | 10.4 | ||||||||||||||||||
Total net client cash flows | (1.6 | ) | (3.7 | ) | (0.5 | ) | (8.1 | ) | 2.0 | (5.8 | ) | 0.1 | |||||||||||||||||
Realizations(1) | (0.6 | ) | (0.2 | ) | (0.4 | ) | (0.3 | ) | (0.2 | ) | (1.2 | ) | (0.7 | ) | |||||||||||||||
Market performance and other | 20.9 | 8.7 | 21.9 | 39.1 | (30.0 | ) | 51.4 | (17.8 | ) | ||||||||||||||||||||
Impact of foreign exchange | 3.0 | (3.2 | ) | 0.6 | 0.1 | — | 0.5 | (8.5 | ) | ||||||||||||||||||||
Acquisition | — | — | 0.6 | — | — | 0.6 | — | ||||||||||||||||||||||
End of period | $ | 803.5 | $ | 781.8 | $ | 780.2 | $ | 758.0 | $ | 727.2 | $ | 803.5 | $ | 727.2 | |||||||||||||||
(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) Due to effects of rounding, the sum of the quarterly results may differ immaterially from the year-to-date results. |
• | Restructuring costs, including: |
◦ | Corporate charges related to the ongoing strategic restructuring and other cost saving and business initiatives, including severance, lease and other costs; and |
◦ | Affiliate charges, including affiliate restructuring and severance costs, and certain one-time charges arising from the issuance of management equity plan awards |
• | Amortization of intangible assets |
• | Gains and losses on seed and other investments that are not offset by compensation or hedges |
• | Acquisition expenses and transition-related costs for integration activities, including certain related professional fees and costs associated with the transition and acquisition of acquired businesses |
• | Impairments of intangible assets |
• | Contingent consideration fair value adjustments |
• | Charges (credits) related to significant litigation or regulatory matters |
• | Income tax expense (benefit) adjustments to provide an effective non-GAAP tax rate commensurate with our expected annual pre-tax Adjusted Net Income, including: |
◦ | The impact on income tax expense (benefit) of the above non-GAAP adjustments; and |
◦ | Other tax items, including deferred tax asset and liability adjustments associated with statutory rate changes, the impact of other aspects of recent U.S. tax reform, and shortfalls (and windfalls) associated with stock-based compensation |
• | Include: |
◦ | Net investment advisory fees eliminated upon consolidation of investment vehicles |
• | Exclude: |
◦ | 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 |
◦ | Performance fees that are passed through as compensation expense or net income (loss) attributable to noncontrolling interests |
• | Restructuring costs, including: |
◦ | Corporate charges related to the ongoing strategic restructuring and other cost saving and business initiatives, including severance, lease and other costs; and |
◦ | Affiliate charges, including affiliate restructuring and severance costs, and certain one-time charges arising from the issuance of management equity plan awards |
• | Amortization of intangible assets |
• | The impact on compensation expense of: |
◦ | Gains and losses on investments made to fund deferred compensation plans |
◦ | Gains and losses on seed capital investments by our affiliates under revenue sharing arrangements |
• | Acquisition expenses and transition-related costs for integration activities, including certain related professional fees and costs associated with the transition and acquisition of acquired businesses |
• | Impairments of intangible assets |
• | Contingent consideration fair value adjustments |
• | Charges (credits) related to significant regulatory matters |
• | Income (loss) of consolidated investment vehicles |
• | Interest expense, net of accretion and amortization of debt discounts and premiums |
• | Current income tax expense (benefit) |
• | Net change in assets and liabilities, which aligns with the Consolidated Statements of Cash Flows |
• | Net (income) loss attributable to noncontrolling interests |
• | Net gains (losses) and earnings on investments |
• | Net gains (losses) on consolidated investment vehicles |
• | Other |
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