This summary is based on the fourth quarter fiscal 2008 earnings call conducted by Legg Mason, Inc. (LM) on May 6, 2008.
Management:
Sr. VP, Head of Corporate Marketing and Communications: Timothy F. Munoz
President and CEO: Mark R. Fetting
Sr. VP: F. Barry Bilson
Sr. VP, CFO and Treasurer: Charles J. Daley, Jr.
Key Investors Issues
- EPS loss was $1.81 a share compared to earnings of $1.19 a share last year.
- Net loss was $255.5 million compared to a net income of $172.5 million in the same quarter of last year.
- Revenues were $1.07 billion, down 6% from $1.14 billion in the fourth quarter of fiscal 2007.
Fourth Quarter Highlights
Revenues were $1.07 billion, down 6% from $1.14 billion in the fourth quarter of fiscal 2007, reflecting lower investment advisory fees as a result of the decline in performance fees and year-over-year changes in the mix of equity and fixed income assets.
The company reported a net loss of $255.5 million, or $1.81 per share, compared to net income of $172.5 million, or $1.19 per share, in the fourth quarter of fiscal 2007.
- The fourth quarter net loss resulted from two non-cash charges: previously announced support for money market funds, totaling $291 million after tax and compensation related adjustments, or $2.06 per share and a charge of $94.8 million after tax, or 66 cents per share, for a reduction in the value of acquired management contracts held by a Wealth Management subsidiary since the time of its acquisition by Legg Mason.
- The company continued to provide, on a proactive basis, financial support to several of money market funds. The non-cash charges from this support led to a net loss. The company incurred a non-cash charge for a write-down of certain acquired management contracts. Excluding these two non-cash charges, cash income, as adjusted, was $178.5 million.
AUM decreased to $950.1 billion as of March 31, 2008, down $48.4 billion, or 5%, from $998.5 billion at December 31, 2007, primarily as a result of market depreciation of $28.5 billion in the fourth quarter and net client cash outflows of $19.2 billion.
- Equity outflows were $17 billion and fixed income outflows were $7 billion, while liquidity inflows totaled $5 billion.
- Average AUM was $975 billion, compared to $1,014 billion in the third quarter of fiscal 2008 and $959 billion in the fourth quarter of fiscal 2007. At March 31, 2008, equity products represented 29% of AUM, fixed income represented 53% and liquidity represented 18%. By business division, 54% of total AUM was in Institutional, 40% in Managed Investments and 6% in Wealth Management. Assets managed for non-U.S. domiciled clients represented 34% of total AUM at March 31, 2008.
Operating expenses increased by 7% from the prior year quarter, primarily due to the $151 million write-down of certain acquired management contracts.
Other non-operating expenses were $530.5 million, driven by approximately $517.2 million of losses and other costs related to the company''s money market fund support.
Cash income was a loss of $207.3 million, or $1.47 per share, compared to cash income of $222.4 million, or $1.54 per share, in the fourth quarter of fiscal 2007.
- Cash income, as adjusted, was $178.5 million, or $1.25 per share, compared to $222.4 million, or $1.54 per share, in the comparable period last fiscal year.
- The pre-tax profit margin decreased to (36.7%) from 24% in the fourth quarter of fiscal 2007.
- The pre-tax profit margin, as adjusted, was 30.1%, down from 33.3% in the prior fiscal year quarter.
Revenues of $1.07 billion decreased 10% from $1.19 billion in the prior quarter ended December 31, 2007.
There was a loss of $255.5 million in the quarter, compared to net income of $154.6 million in the prior quarter. The decline in net income was largely the result of the non-cash charges to support money market funds and the write-down of certain acquired management contracts.
- Cash income was a loss of $207.3 million, or $1.47 per share, compared to cash income of $205.1 million, or $1.42 per share, in the third quarter of fiscal 2008.
- Cash income, as adjusted, of $178.5 million, or $1.25 per share, represented a decrease of 22% and 21%, respectively, compared to the third quarter of fiscal 2008.
- The pre-tax profit margin was (36.7%) compared to 20.8% in the prior quarter. The pre-tax profit margin, as adjusted, was 30.1%, down from 33% in the prior quarter.
The adverse market conditions were challenging for all divisions, though the company''s investment managers continued to expand their distribution into key opportunity markets and to launch select new products.
Several managers received industry recognition for their products and performance.
