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Legg Mason Inc. Reports Operating Results (10-K)
Posted by: gurufocus (IP Logged)
Date: May 27, 2011 03:19PM

Legg Mason Inc. (LM) filed Annual Report for the period ended 2011-03-31. Legg Mason Inc. has a market cap of $5.14 billion; its shares were traded at around $33.33 with a P/E ratio of 21.1 and P/S ratio of 1.8. The dividend yield of Legg Mason Inc. stocks is 0.7%.



Highlight of Business Operations:

During fiscal year 2011, in addition to the normal course operation of our business, we launched a business model streamlining initiative, reorganized and realigned our executive management team and improved our earnings. In May 2010, we launched the streamlining initiative that we expect will drive increased profitability and growth while transitioning certain shared services, such as information technology services, to our investment managers, who are closer to the actual client relationships, without any corresponding change to their revenue sharing or other compensation arrangements. The initiative involves headcount reductions in operations, technology and other administrative areas at the corporate level, which may be partially offset by headcount increases at the asset managers, and will ultimately enable us to eliminate a portion of the corporate office space that was dedicated to our operations and technology employees. The plan is projected to result in annual costs savings of approximately $130 million to $150 million, which we expect to achieve on a run rate basis by the fourth quarter of fiscal year 2012, which is when we expect the plan to be substantially complete.

During fiscal year 2011, we experienced a 24% growth in our net income as compared to fiscal year 2010. Our financial results were significantly helped by strong equity and fixed income markets during the year. Those strong markets contributed to $56.3 billion in market appreciation increases to our assets under management during the year. We also experienced $61 billion in outflows from our assets under management during the fiscal year, which is 25% lower than the outflows experienced in the prior fiscal year. During the fiscal year, our assets under management shifted in favor of higher yielding assets, with equity assets increasing to 28% of our total managed assets at March 31, 2011 from 25.4% at March 31, 2010. In addition, we continued to manage our balance sheet during the fiscal year, resulting in approximately $1 billion in available cash at the end of the fiscal year despite our repurchasing 14.6 million shares of our common stock during the fiscal year at a cost of $445 million.

Our subsidiary asset managers primarily earn revenues by charging fees for managing the investment assets of clients. Fees are typically calculated as a percentage of the value of assets under management and vary with the type of account managed, the amount of assets in the account, the asset manager and the type of client. Accordingly, the fee income of each of our asset managers will typically increase or decrease as its average assets under management increases or decreases. We may also earn performance fees from certain accounts if the investment performance of the assets in the account meets or exceeds a specified benchmark during a measurement period. For the fiscal years ended March 31, 2011, 2010 and 2009, $96.7 million, $71.5 million and $17.4 million, respectively, of our $2.4 billion, $2.3 billion and $2.9 billion in total investment advisory revenues represented performance fee revenues. Increases in assets under management generally result from inflows of additional assets from new and existing clients and from appreciation in the value of client assets (including investment income earned on client assets). Conversely, decreases in assets under management generally result from client redemptions and withdrawals and from depreciation in the value of client assets. Our assets under management may also increase as a result of business acquisitions, or decrease as a result of dispositions.

For the fiscal years ended March 31, 2011, 2010 and 2009, our aggregate operating revenues were $2.8 billion, $2.6 billion and $3.4 billion, respectively. Our operating revenues by division (in millions) in each of those fiscal years were as follows:

Our Americas division includes the separate account management operations of our U.S.-based asset managers and our mutual, closed-end and other proprietary fund operations, and distribution operations that are located in the United States. The asset managers in this division provide a wide range of separate account investment management services to institutional clients, including pension and other retirement plans, corporations, insurance companies, endowments and foundations and governments, and to high net worth individuals and families. This division also sponsors and manages various groups of U.S. mutual funds, including the Legg Mason Funds, The Royce Funds and the Western Asset Funds, and provides investment advisory services to a number of retail separately managed account programs. For the fiscal years ended March 31, 2011, 2010 and 2009, our Americas division generated aggregate revenues of $1.9 billion, $1.9 billion and $2.3 billion, respectively.

As of March 31, 2011 and 2010, our Americas division managed assets with a value of $476.8 billion and $475.8 billion, respectively. As of March 31, 2011, 61% of the assets managed by this division were fixed income and liquidity assets managed by Western Asset Management. Of the assets managed by this division at March 31, 2011,

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