PR Newswire
BALTIMORE, Oct. 28, 2016
BALTIMORE, Oct. 28, 2016 /PRNewswire/ -- Legg Mason, Inc. (NYSE: LM) today reported its operating results for the second fiscal quarter ended September 30, 2016. The Company reported net income1 of $66.4 million, or $0.63 per diluted share, as compared to net income of $33.5 million, or $0.31 per diluted share, in the previous quarter, and net income of $64.3 million, or $0.58 per diluted share, in the second quarter of fiscal 2016. The current quarter's results included acquisition and transition-related costs of $13.2 million, or $0.09 per diluted share, as compared to acquisition and transition-related costs of $56.8 million, or $0.37 per diluted share, last quarter. The current quarter also included a credit of $7.0 million, or $0.05 per diluted share, related to a contingent consideration fair value adjustment, compared to a similar credit of $18.0 million, or $0.11 per diluted share, in the prior quarter. In addition, the current quarter included a tax benefit of $6.3 million, or $0.06 per diluted share, largely due to a reduction in the United Kingdom corporate tax rate. For the current quarter, operating revenues were $748.4 million, up 7% from $700.2 million in the prior quarter, and up 11% compared to $673.1 million in the second quarter of fiscal 2016. Operating expenses were $620.7 million, down 1% from $626.6 million in the prior quarter, and up 15% from $540.1 million in the second quarter of fiscal 2016.
Legg Mason also announced today that its Board of Directors has declared a quarterly cash dividend on its common stock in the amount of $0.22 per share.
Quarters Ended |
Six Months Ended | ||||||||||||||||||
Financial Results |
Sep |
Jun |
Sep |
Sep |
Sep | ||||||||||||||
(Amounts in millions, except per share amounts) |
2016 |
2016 |
2015 |
2016 |
2015 | ||||||||||||||
Operating Revenues |
$ |
748.4 |
$ |
700.2 |
$ |
673.1 |
$ |
1,448.5 |
$ |
1,381.7 |
|||||||||
Operating Expenses |
620.7 |
626.6 |
540.1 |
1,247.3 |
1,124.2 |
||||||||||||||
Operating Income |
127.6 |
73.6 |
133.0 |
201.2 |
257.5 |
||||||||||||||
Net Income 1 |
66.4 |
33.5 |
64.3 |
99.9 |
158.9 |
||||||||||||||
Net Income Per Share - Diluted1 |
0.63 |
0.31 |
0.58 |
0.94 |
1.42 |
||||||||||||||
Assets Under Management |
|||||||||||||||||||
(Amounts in billions) |
|||||||||||||||||||
End of Period Assets Under Management |
$ |
732.9 |
$ |
741.9 |
$ |
672.1 |
$ |
732.9 |
$ |
672.1 |
|||||||||
Average Assets Under Management |
742.1 |
709.1 |
687.2 |
723.3 |
695.0 |
||||||||||||||
Comments on the Second Quarter of Fiscal Year 2017 Results
Joseph A. Sullivan, Chairman and CEO of Legg Mason said, "Legg Mason delivered solid operating results despite a challenging quarter for active managers. Gross and net sales in our global retail distribution platform were strong, as our teams worked to deliver our expanded investment capabilities to investors around the world.
"Our long term strategy is straightforward. We are offering global investors expanded choice across investment strategies, vehicles and access. We believe this, in turn, will reaccelerate organic growth by leveraging these capabilities in high growth areas, increasingly in multi-asset vehicles, as clients look to execute on their investment objectives in a more holistic fashion. To complement this strategy, we are pleased to be an industry leader in the rate at which capital is returned to shareholders while also continuing to invest in our business.
"Scale, diversification and global reach are going to be critically important in an increasingly regulated, low growth and low rate environment. The current Legg Mason platform helps address those concerns, by offering investors relevant and differentiated product sets, a wide variety of competitively priced investment options, and global distribution access. We intend to be among the leaders in delivering on these needs for investors and we're pleased to see progress as we execute on our strategic plan."
Assets Under Management of $732.9 Billion
Assets Under Management ("AUM") were $732.9 billion at September 30, 2016 compared with $741.9 billion at June 30, 2016, driven by liquidity outflows of $25.4 billion and long-term outflows of $0.3 billion. This was partially offset by positive market performance of $15.7 billion and $1.0 billion in positive foreign exchange. AUM was up 9% from $672.1 billion at September 30, 2015.
Comparison to the First Quarter of Fiscal Year 2017
Net income was $66.4 million, or $0.63 per diluted share, as compared with net income of $33.5 million, or $0.31 per diluted share, in the first quarter of fiscal year 2017. This quarter's results included acquisition and transition-related costs totaling $13.2 million, or $0.09 per diluted share. The current quarter also included a tax benefit of $6.3 million, or $0.06 per diluted share, largely due to a reduction in the United Kingdom corporate tax rate. The prior quarter included acquisition and transition-related costs of $56.8 million, or $0.37 per diluted share.
Comparison to the Second Quarter of Fiscal Year 2016
Net income was $66.4 million, or $0.63 per diluted share, as compared with net income of $64.3 million, or $0.58 per diluted share, in the second quarter of fiscal year 2016. This quarter's results included acquisition and transition-related costs totaling $13.2 million, or $0.9 per diluted share. The current quarter also included a tax benefit of $6.3 million, or $0.06 per diluted share, largely due to a reduction in the United Kingdom corporate tax rate. The prior year's second quarter included an $11.1 million, or $0.06 per diluted share loss on an Australian dollar hedge, as well as a tax benefit of $5.0 million, or $0.05 per diluted share, primarily due to the successful conclusion of certain tax examinations.
Quarterly Business Developments and Recent Announcements
Quarterly Performance
At September 30, 2016: | |||||
1-Year |
3-Year |
5-Year |
10-Year | ||
% of Strategy AUM beating Benchmark3 |
73% |
68% |
82% |
83% | |
% of Long-Term US Fund Assets Beating Lipper Category Average3 |
|||||
Alternatives |
91% |
100% |
100% |
n/a | |
Equity |
71% |
46% |
69% |
59% | |
Fixed Income |
63% |
74% |
75% |
85% | |
Total US Fund Assets |
67% |
59% |
72% |
70% |
Of Legg Mason's long-term U.S. mutual fund assets, 41.4% were in funds rated 4 or 5 stars by Morningstar.
Balance Sheet
At September 30, 2016, Legg Mason's cash position was $571 million. Total debt was $2.2 billion and stockholders' equity was $4.1 billion. The ratio of total debt to total capital was 36%, in line with the prior quarter. In the second fiscal quarter, the Company completed additional open market purchases of 2.7 million shares which reduced the weighted average shares by 1.3 million.
The Board of Directors has declared a quarterly cash dividend on the Company's common stock in the amount of $0.22 per share. The dividend is payable January 9, 2017 to shareholders of record at the close of business on December 14, 2016.
Conference Call to Discuss Results
A conference call to discuss the Company's results, hosted by Joseph A. Sullivan, will be held at 8:00 a.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 43491054, at least 10 minutes prior to the scheduled start to ensure connection. A live, listen-only webcast will also be available via the investor relations section of www.leggmason.com.
The presentation slides that will be reviewed during the discussion of the conference call will be available on the Investor Relations section of the Legg Mason website shortly after the release of the financial results.
A replay of the live broadcast will be available on the Legg Mason website, www.leggmason.com, in the investor relations section, or by dialing 1-888-843-7419 (or for international calls 1-630-652-3042), enter pass code 43491054# when prompted. Please note that the replay will be available beginning at 11:30 a.m. EDT on Friday, October 28, 2016, and ending at 11:59 p.m. EST on Friday, November 11, 2016.
About Legg Mason
Legg Mason is a global asset management firm, with $732.9 billion in AUM as of September 30, 2016. The Company provides active asset management in many major investment centers throughout the world. Legg Mason is headquartered in Baltimore, Maryland, and its common stock is listed on the New York Stock Exchange (symbol: LM).
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, 2016 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 eighty-eight percent of total AUM is included in strategy AUM as of September 30, 2016, 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 in connection with this presentation, and is not directed toward existing or potential clients of Legg Mason.
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.
(1) Net Income Attributable to Legg Mason, Inc.
(2) See "Use of Supplemental Non-GAAP Financial Information."
(3) See "Supplemental Data Regarding Quarterly Performance."
LEGG MASON, INC. AND SUBSIDIARIES | ||||||||||||
CONSOLIDATED STATEMENTS OF INCOME | ||||||||||||
(Amounts in thousands) | ||||||||||||
(Unaudited) | ||||||||||||
Quarters Ended |
Six Months Ended | |||||||||||
September |
June |
September |
September |
September | ||||||||
2016 |
2016 |
2015 |
2016 |
2015 | ||||||||
Operating Revenues: |
||||||||||||
Investment advisory fees: |
||||||||||||
Separate accounts |
$ 233,328 |
$ 226,853 |
$ 205,155 |
$ 460,181 |
$ 413,259 | |||||||
Funds |
377,079 |
363,463 |
359,871 |
740,542 |
744,216 | |||||||
Performance fees |
41,970 |
17,459 |
7,902 |
59,429 |
26,555 | |||||||
Distribution and service fees |
94,545 |
91,382 |
99,602 |
185,927 |
196,462 | |||||||
Other |
1,448 |
1,008 |
556 |
2,456 |
1,244 | |||||||
Total operating revenues |
748,370 |
700,165 |
673,086 |
1,448,535 |
1,381,736 | |||||||
Operating Expenses: (1) |
||||||||||||
Compensation and benefits |
368,330 |
358,625 |
282,433 |
726,955 |
597,485 | |||||||
Distribution and servicing |
128,868 |
124,663 |
138,930 |
253,531 |
288,218 | |||||||
Communications and technology |
51,281 |
52,732 |
49,845 |
104,013 |
98,522 | |||||||
Occupancy |
30,558 |
33,142 |
25,716 |
63,700 |
51,703 | |||||||
Amortization of intangible assets |
6,271 |
5,703 |
670 |
11,974 |
1,327 | |||||||
Other |
35,429 |
51,745 |
42,462 |
87,174 |
86,908 | |||||||
Total operating expenses |
620,737 |
626,610 |
540,056 |
1,247,347 |
1,124,163 | |||||||
Operating Income |
127,633 |
73,555 |
133,030 |
201,188 |
257,573 | |||||||
Other Non-Operating Income (Expense): |
||||||||||||
Interest income |
1,545 |
1,848 |
1,229 |
3,393 |
2,546 | |||||||
Interest expense |
(27,925) |
(24,565) |
(13,280) |
(52,490) |
(25,229) | |||||||
Other income (expense), net |
9,975 |
6,585 |
(28,110) |
16,560 |
(22,399) | |||||||
Other non-operating income (expense) of |
||||||||||||
consolidated investment vehicles, net |
5,206 |
3,228 |
(2,303) |
8,434 |
(1,896) | |||||||
Total other non-operating income (expense) |
(11,199) |
(12,904) |
(42,464) |
(24,103) |
(46,978) | |||||||
Income Before Income Tax Provision |
116,434 |
60,651 |
90,566 |
177,085 |
210,595 | |||||||
Income tax provision |
29,902 |
15,311 |
27,647 |
45,213 |
52,737 | |||||||
Net Income |
86,532 |
45,340 |
62,919 |
131,872 |
157,858 | |||||||
Less: Net income (loss) attributable |
||||||||||||
to noncontrolling interests |
20,091 |
11,888 |
(1,400) |
31,979 |
(1,009) | |||||||
Net Income Attributable to Legg Mason, Inc. |
$ 66,441 |
$ 33,452 |
$ 64,319 |
$ 99,893 |
$ 158,867 | |||||||
(Continued) | ||||||||||||
(1)Operating expenses include acquisition and transition-related costs related to business combinations. | ||||||||||||
Acquisition and transition-related costs: |
||||||||||||
Compensation |
$ 6,821 |
$ 30,186 |
$ — |
$ 37,007 |
$ — | |||||||
Occupancy |
5,086 |
9,093 |
— |
14,179 |
— | |||||||
Other |
1,269 |
17,506 |
— |
18,775 |
— | |||||||
Total acquisition and transition-related costs |
$ 13,176 |
$ 56,785 |
$ — |
$ 69,961 |
$ — |
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 | ||||||||
2016 |
2016 |
2015 |
2016 |
2015 | ||||||||
Net Income Attributable to Legg Mason, Inc. |
$ 66,441 |
$ 33,452 |
$ 64,319 |
$ 99,893 |
$ 158,867 | |||||||
Less: Earnings (distributed and undistributed) |
||||||||||||
allocated to participating securities (1) |
2,183 |
1,051 |
1,615 |
3,173 |
3,951 | |||||||
Net Income (Distributed and Undistributed) |
||||||||||||
Allocated to Shareholders (Excluding |
||||||||||||
Participating Securities) |
$ 64,258 |
$ 32,401 |
$ 62,704 |
$ 96,720 |
$ 154,916 | |||||||
Net Income per Share Attributable to |
||||||||||||
Legg Mason, Inc. Shareholders: |
||||||||||||
Basic |
$ 0.63 |
$ 0.31 |
$ 0.58 |
$ 0.94 |
$ 1.43 | |||||||
Diluted |
$ 0.63 |
$ 0.31 |
$ 0.58 |
$ 0.94 |
$ 1.42 | |||||||
Weighted-Average Number of Shares |
||||||||||||
Outstanding: |
||||||||||||
Basic |
101,817 |
104,465 |
107,851 |
103,075 |
108,399 | |||||||
Diluted |
102,057 |
104,677 |
108,784 |
103,301 |
109,503 | |||||||
(1)Participating securities excluded from weighted-average number of shares outstanding were 3,447, 3,134, and 2,772 for the quarters ended September 2016, June 2016, and September 2015, respectively, and 3,291 and 2,754 for the six months ended September 2016 and September 2015, respectively. |
LEGG MASON, INC. AND SUBSIDIARIES | ||||||||||||||||||||
CONSOLIDATING STATEMENTS OF INCOME | ||||||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||
Quarters Ended | ||||||||||||||||||||
September 2016 |
June 2016 |
September 2015 | ||||||||||||||||||
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 |
Consolidated Investment Vehicles |
Consolidated Totals | ||||||||||||
Total operating revenues |
$ 748,384 |
$ (14) |
$ 748,370 |
$ 700,177 |
$ (12) |
$ 700,165 |
$ 673,168 |
$ (82) |
$ 673,086 | |||||||||||
Total operating expenses |
620,613 |
124 |
620,737 |
626,511 |
99 |
626,610 |
540,023 |
33 |
540,056 | |||||||||||
Operating Income (Loss) |
127,771 |
(138) |
127,633 |
73,666 |
(111) |
73,555 |
133,145 |
(115) |
133,030 | |||||||||||
Other non-operating income (expense) |
(17,023) |
5,824 |
(11,199) |
(15,495) |
2,591 |
(12,904) |
(40,988) |
(1,476) |
(42,464) | |||||||||||
Income (Loss) Before Income Tax Provision |
110,748 |
5,686 |
116,434 |
58,171 |
2,480 |
60,651 |
92,157 |
(1,591) |
90,566 | |||||||||||
Income tax provision |
29,902 |
— |
29,902 |
15,311 |
— |
15,311 |
27,647 |
— |
27,647 | |||||||||||
Net Income (Loss) |
80,846 |
5,686 |
86,532 |
42,860 |
2,480 |
45,340 |
64,510 |
(1,591) |
62,919 | |||||||||||
Less: Net income (loss) attributable |
||||||||||||||||||||
to noncontrolling interests |
14,405 |
5,686 |
20,091 |
9,408 |
2,480 |
11,888 |
191 |
(1,591) |
(1,400) | |||||||||||
Net Income Attributable to Legg Mason, Inc. |
$ 66,441 |
$ — |
$ 66,441 |
$ 33,452 |
$ — |
$ 33,452 |
$ 64,319 |
$ — |
$ 64,319 | |||||||||||
Six Months Ended |
||||||||||||||||||||
September 2016 |
September 2015 |
|||||||||||||||||||
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 |
Consolidated Investment Vehicles |
Consolidated Totals |
|||||||||||||||
Total operating revenues |
$ 1,448,561 |
$ (26) |
$ 1,448,535 |
$ 1,381,903 |
$ (167) |
$ 1,381,736 |
||||||||||||||
Total operating expenses |
1,247,124 |
223 |
1,247,347 |
1,124,110 |
53 |
1,124,163 |
||||||||||||||
Operating Income (Loss) |
201,437 |
(249) |
201,188 |
257,793 |
(220) |
257,573 |
||||||||||||||
Other non-operating income (expense) |
(32,518) |
8,415 |
(24,103) |
(45,867) |
(1,111) |
(46,978) |
||||||||||||||
Income (Loss) Before Income Tax Provision |
168,919 |
8,166 |
177,085 |
211,926 |
(1,331) |
210,595 |
||||||||||||||
Income tax provision |
45,213 |
— |
45,213 |
52,737 |
— |
52,737 |
||||||||||||||
Net Income (Loss) |
123,706 |
8,166 |
131,872 |
159,189 |
(1,331) |
157,858 |
||||||||||||||
Less: Net income (loss) attributable |
||||||||||||||||||||
to noncontrolling interests |
23,813 |
8,166 |
31,979 |
322 |
(1,331) |
(1,009) |
||||||||||||||
Net Income Attributable to Legg Mason, Inc. |
$ 99,893 |
$ — |
$ 99,893 |
$ 158,867 |
$ — |
$ 158,867 |
||||||||||||||
(1)Other represents consolidated sponsored investment vehicles 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 |
||||||||||
2016 |
2016 |
2015 |
2016 |
2015 |
||||||||||
Operating Revenues, GAAP basis |
$ 748,370 |
$ 700,165 |
$ 673,086 |
$ 1,448,535 |
$ 1,381,736 |
|||||||||
Plus (less): |
||||||||||||||
Pass-through performance fees |
(35,831) |
(14,600) |
— |
(50,431) |
— |
|||||||||
Operating revenues eliminated upon |
||||||||||||||
consolidation of investment vehicles |
14 |
12 |
82 |
26 |
167 |
|||||||||
Distribution and servicing expense excluding |
||||||||||||||
consolidated investment vehicles |
(128,806) |
(124,590) |
(138,920) |
(253,396) |
(288,200) |
|||||||||
Operating Revenues, as Adjusted |
$ 583,747 |
$ 560,987 |
$ 534,248 |
$ 1,144,734 |
$ 1,093,703 |
|||||||||
Operating Income, GAAP basis |
$ 127,633 |
$ 73,555 |
$ 133,030 |
$ 201,188 |
$ 257,573 |
|||||||||
Plus (less): |
||||||||||||||
Gains (losses) on deferred compensation |
||||||||||||||
and seed investments, net |
5,432 |
2,166 |
(5,499) |
7,598 |
(4,289) |
|||||||||
Amortization of intangible assets |
6,271 |
5,703 |
670 |
11,974 |
1,327 |
|||||||||
Contingent consideration fair value adjustments |
(7,000) |
(18,000) |
— |
(25,000) |
— |
|||||||||
Operating income of consolidated investment |
||||||||||||||
vehicles, net |
138 |
111 |
115 |
249 |
220 |
|||||||||
Operating Income, as Adjusted |
$ 132,474 |
$ 63,535 |
$ 128,316 |
$ 196,009 |
$ 254,831 |
|||||||||
Operating Margin, GAAP basis |
17.1 |
% |
10.5 |
% |
19.8 |
% |
13.9 |
% |
18.6 |
% | ||||
Operating Margin, as Adjusted |
22.7 |
11.3 |
24.0 |
17.1 |
23.3 |
|||||||||
(1)See explanations for "Use of Supplemental Non-GAAP Financial Information." |
LEGG MASON, INC. AND SUBSIDIARIES | ||||||||||||
SUPPLEMENTAL DATA | ||||||||||||
RECONCILIATION OF CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | ||||||||||||
TO ADJUSTED EBITDA (1) | ||||||||||||
(Amounts in thousands) | ||||||||||||
(Unaudited) | ||||||||||||
Quarters Ended |
Six Months Ended | |||||||||||
September |
June |
September |
September |
September | ||||||||
2016 |
2016 |
2015 |
2016 |
2015 | ||||||||
Cash provided by (used in) operating activities, GAAP basis |
$ 303,829 |
$ (165,970) |
$ 149,038 |
$ 137,859 |
$ 151,708 | |||||||
Plus (less): |
||||||||||||
Interest expense, net of accretion and amortization |
||||||||||||
of debt discounts and premiums |
26,487 |
23,906 |
13,032 |
50,393 |
24,805 | |||||||
Current tax expense (benefit) |
15,689 |
(783) |
4,262 |
14,906 |
5,988 | |||||||
Net change in assets and liabilities |
(190,181) |
260,996 |
(10,162) |
70,815 |
136,298 | |||||||
Net (income) loss attributable to noncontrolling interests |
(20,091) |
(11,888) |
1,400 |
(31,979) |
1,009 | |||||||
Net gains (losses) and earnings on investments |
1,103 |
(4,494) |
12,019 |
(3,391) |
22,336 | |||||||
Net gains (losses) on consolidated investment vehicles |
5,206 |
3,228 |
(2,303) |
8,434 |
(1,896) | |||||||
Other |
948 |
(1,447) |
367 |
(499) |
175 | |||||||
Adjusted EBITDA |
$ 142,990 |
$ 103,548 |
$ 167,653 |
$ 246,538 |
$ 340,423 | |||||||
(1)See explanations for "Use of Supplemental Non-GAAP Financial Information." We have previously disclosed Adjusted EBITDA (also referred to as "EBITDA, bank defined" in the past) that conformed to calculations required by our debt covenants, which adjusted for certain items that required cash settlement that are not part of the current definition. |
LEGG MASON, INC. AND SUBSIDIARIES | |||||||||||||||
(Amounts in billions) | |||||||||||||||
(Unaudited) | |||||||||||||||
Assets Under Management |
|||||||||||||||
Quarters Ended |
|||||||||||||||
By asset class: |
September 2016 |
June 2016 |
March 2016 |
December 2015 |
September 2015 |
||||||||||
Equity |
$ 168.4 |
$ 161.1 |
$ 162.3 |
$ 167.3 |
$ 164.8 |
||||||||||
Fixed Income |
396.9 |
387.2 |
372.3 |
364.8 |
363.1 |
||||||||||
Alternative |
72.0 |
72.6 |
22.7 |
24.1 |
18.1 |
||||||||||
Long-Term Assets |
637.3 |
620.9 |
557.3 |
556.2 |
546.0 |
||||||||||
Liquidity |
95.6 |
121.0 |
112.3 |
115.3 |
126.1 |
||||||||||
Total |
$ 732.9 |
$ 741.9 |
$ 669.6 |
$ 671.5 |
$ 672.1 |
||||||||||
Quarters Ended |
Six Months Ended | ||||||||||||||
By asset class (average): |
September 2016 |
June 2016 |
March 2016 |
December 2015 |
September 2015 |
September 2016 |
September 2015 | ||||||||
Equity |
$ 166.1 |
$ 162.3 |
$ 159.0 |
$ 170.7 |
$ 176.5 |
$ 164.6 |
$ 181.1 | ||||||||
Fixed Income |
393.7 |
377.6 |
365.3 |
366.3 |
365.2 |
385.5 |
367.7 | ||||||||
Alternative |
72.1 |
57.8 |
23.3 |
22.8 |
18.7 |
63.8 |
19.0 | ||||||||
Long-Term Assets |
631.9 |
597.7 |
547.6 |
559.8 |
560.4 |
613.9 |
567.8 | ||||||||
Liquidity |
110.2 |
111.4 |
114.7 |
123.2 |
126.8 |
109.4 |
127.2 | ||||||||
Total |
$ 742.1 |
$ 709.1 |
$ 662.3 |
$ 683.0 |
$ 687.2 |
$ 723.3 |
$ 695.0 | ||||||||
Component Changes in Assets Under Management |
|||||||||||||||
Quarters Ended |
Six Months Ended | ||||||||||||||
September 2016 |
June 2016 |
March 2016 |
December 2015 |
September 2015 |
September 2016 |
September 2015 | |||||||||
Beginning of period |
$ 741.9 |
$ 669.6 |
$ 671.5 |
$ 672.1 |
$ 699.2 |
$ 669.6 |
$ 702.7 | ||||||||
Net client cash flows: |
|||||||||||||||
Equity |
(1.5) |
(3.0) |
(4.4) |
(4.3) |
0.3 |
(4.5) |
(1.0) | ||||||||
Fixed Income |
2.8 |
3.9 |
(7.8) |
2.3 |
3.1 |
6.7 |
5.9 | ||||||||
Alternative |
(1.6) |
(2.0) |
(1.0) |
(0.4) |
(0.3) |
(3.6) |
(0.5) | ||||||||
Long-Term flows |
(0.3) |
(1.1) |
(13.2) |
(2.4) |
3.1 |
(1.4) |
4.4 | ||||||||
Liquidity |
(25.4) |
8.0 |
(3.3) |
(10.9) |
(3.0) |
(17.4) |
(0.7) | ||||||||
Total net client cash flows |
(25.7) |
6.9 |
(16.5) |
(13.3) |
0.1 |
(18.8) |
3.7 | ||||||||
Market performance and other |
15.7 |
12.3 |
9.7 |
6.4 |
(22.6) |
27.9 |
(31.4) | ||||||||
Impact of foreign exchange |
1.0 |
2.0 |
4.7 |
(0.5) |
(4.6) |
3.1 |
(2.9) | ||||||||
Acquisitions |
— |
51.1 |
0.2 |
6.8 |
— |
51.1 |
— | ||||||||
End of period |
$ 732.9 |
$ 741.9 |
$ 669.6 |
$ 671.5 |
$ 672.1 |
$ 732.9 |
$ 672.1 | ||||||||
NOTE 1: Alternative assets include all AUM managed by Clarion Partners, EnTrustPermal, RARE Infrastructure, and Permal Capital Management. | |||||||||||||||
NOTE 2: 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 agreements, amortization related to intangible assets, income (loss) of consolidated investment vehicles, the impact of fair value adjustments of contingent consideration liabilities, if any, 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 expenses or net income (loss) attributable to non-controlling 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 Other non-operating income (expense), and thus have no impact on Net Income Attributable to Legg Mason, Inc. We adjust for the impact of 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 results of other asset management firms that have not engaged in significant acquisitions. Impairment charges 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 performance fees, which are passed through as compensation expense or net income (loss) attributable to non-controlling 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 Attributable to Legg Mason, Inc. and indicates what our operating margin would have been without the 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 non-controlling 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, 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 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 (used in) by 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.
We have previously disclosed Adjusted EBITDA that conformed to calculations required by our debt covenants, which adjusted for certain items that required cash settlement that are not part of the current definition.
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/legg-mason-reports-second-fiscal-quarter-results-300353374.html
SOURCE Legg Mason, Inc.
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