Legg Mason Reports Continuing Progress for Second Quarter of Fiscal Year 2010


    
    - Net Income(1) of $46 Million, or $0.30 per Diluted Share -

    - Cash Income, As Adjusted(2), of $90 Million -

    - Assets Under Management of $703 Billion -





    
</pre>
<p><location>BALTIMORE</location>, <chron>Oct. 22</chron> /CNW/ -- Legg Mason, Inc. (NYSE:   LM) today reported its operating results for the second fiscal quarter ended <chron>September 30, 2009</chron>.  The Company reported net income of <money>$45.8 million</money>, or <money>$0.30</money> per diluted share, as compared to net income of <money>$50.1 million</money>, or <money>$0.35</money> per diluted share, in the first fiscal quarter of 2010.  Included in this quarter's results were transaction costs related to the equity unit exchange of <money>$22 million</money>, which were partially offset by ongoing interest savings from the exchange of <money>$15 million</money> per quarter.  Cash income, as adjusted, for the second quarter was <money>$90.0 million</money>, as compared to <money>$86.8 million</money> in the first quarter of fiscal 2010.</p>
<p/>
<p>Assets Under Management ("AUM") were <money>$702.7 billion</money>, up 7% from <money>$656.9 billion</money> at <chron>June 30, 2009</chron>, driven by market appreciation, partly offset by reduced outflows, and down 17% from <money>$841.9 billion</money> at <chron>September 30, 2008</chron>.</p>
<pre>
    


    
</pre>
<p> </p>
<p>(Amounts in millions, except per share amounts)</p>
<p> </p>
<pre>
    
                                 Quarters Ended            Six Months Ended
                            Sept     June        Sept       Sept      Sept
                            2009     2009        2008       2009      2008
                            ----     ----        ----       ----      ----
    
</pre>
<p> </p>
<pre>
    
    Operating Revenues    $659.9   $613.1      $966.1   $1,273.0  $2,020.2
    Operating Expenses     582.0    554.8       745.9    1,136.8   1,571.0
    Operating Income        77.9     58.3       220.2      136.2     449.2
    Net Income (Loss)(1)    45.8     50.1      (108.7)      95.8    (144.9)
    Cash Income, as
      adjusted(2)           90.0     86.8       140.2      176.8     306.7
    Net Income (Loss) per
     Diluted Share          0.30     0.35       (0.77)      0.64     (1.03)
    Cash Income per
     Diluted Share, as
     adjusted(2)            0.59     0.61        0.99       1.19      2.16
    
</pre>
<p> </p>
<pre>
    
    (1) Net income represents net income (loss) attributable to Legg Mason,
        Inc.
    
</pre>
<p> </p>
<pre>
    
    (2) Please see Supplemental Data below for non-GAAP performance measures.

    Comments on the Second Quarter of Fiscal Year 2010 Results
    
</pre>
<p>Mark R. Fetting, Chairman and CEO, said, "In our second quarter, Legg Mason generated another quarter of improving cash income, as adjusted, continued to operate its business efficiently and further strengthened its balance sheet.  This quarter, operating income has significantly increased over last quarter, driven by higher assets under management.  Our excess cash position of <money>$1.1 billion</money> - combined with our significant cash tax benefits - puts us in a position to further reduce debt and to reinvest in our businesses.  We continue to strive for improvements in our investment performance, to enhance our investment capabilities and to provide innovative solutions to our clients, all of which are significant drivers of value for our shareholders.</p>
<p/>
<p>As of the end of September, approximately 81% of Legg Mason's U.S. long-term funds were beating their respective Lipper category averages over the 10-year period, and most of our affiliates are delivering significant improvements in their performance over the one-year period and, increasingly, over longer periods as well. In both our Americas and International centralized distribution channels, stronger gross sales and moderating outflows have contributed to our improving net flows.  If these trends continue, Legg Mason will be positioned to return to positive net flows."</p>
<pre>
    

    Assets Under Management Increased to $703 Billion
    
</pre>
<p>AUM increased 7% to <money>$702.7 billion</money> as compared with <money>$656.9 billion</money> at <chron>June 30, 2009</chron> driven by market appreciation partially offset by reduced outflows. AUM decreased 17% from <money>$841.9 billion</money> at <chron>September 30, 2008</chron>.</p>
<pre>
    

    --  Fixed income outflows were approximately $10 billion, equity outflows
        were $2 billion, and liquidity inflows were $4 billion.  Total
outflows
        of $8 billion reflected a 73% improvement from the prior quarter's $30
        billion.
    --  At September 30, 2009, fixed income represented 55% of AUM, equity 24%
        and liquidity 21%.
    --  AUM for U.S. domiciled clients was 64% of total AUM and 36% for non-US
        clients.  By business division, 69% of AUM was in the Americas
Division
        and 31% of AUM was in the International Division.

    --  Average AUM during the quarter was $684.0 billion as compared to
$647.2
        billion in the first quarter of fiscal 2010 and $898.4 billion in the
        second quarter of fiscal 2009.

    Comparison to the First Quarter of Fiscal Year 2010
    
</pre>
<p>Net income was <money>$45.8 million</money> or <money>$0.30</money> per diluted share as compared to <money>$50.1 million</money> or <money>$0.35</money> per diluted share in the first quarter.</p>
<pre>
    

    --  Revenues of $659.9 million were up 8% from $613.1 million in the prior
        quarter ended June 30, 2009.  This reflects an increase in AUM as well
        as an increase in the percentage of higher yielding equity assets and
        higher performance fees.
    --  Operating expenses of $582.0 million increased 5% from $554.8 million
        in the first quarter of fiscal 2010.  The increase was primarily
        attributable to increased compensation on higher revenues, and $3.5
        million in additional occupancy expenses related to the move of the
        company's headquarters in September.
    --  Operating margins were 12% as compared to 10% in first quarter of
        fiscal 2010.  Operating margins, as adjusted(2), were 21% as compared
        to 20% in the first fiscal quarter.
    --  Other income (expense) was ($2.9) million, as compared to $22.4
million
        in the first quarter of fiscal 2010.  Gains on funded deferred
        compensation plan and seed capital investments that are offset in
        compensation and benefits were $24.1 million in the quarter as
compared
        to $31.4 million in the first quarter. Second quarter results included
        $22 million in transaction costs from the exchange of 91% of our
equity
        units in August, partially offset by a $14.8 million reduction in
        interest expense from the exchange.  In addition, gains from fund
        support declined from $17.6 million in the June quarter to $5.6
million
        this quarter.
    --  Cash income, as adjusted, was $90.0 million, or $0.59 per diluted
        share, as compared to cash income, as adjusted, of $86.8 million or
        $0.61 per diluted share in the first quarter.

    --  Pre-tax profit margin decreased to 11.4% from 13.2% in the first
        quarter.  Pre-tax profit margin, as adjusted(2), was 15.4%, down from
        18.3% in the first quarter of 2010.

    Comparison to the Second Quarter of Fiscal Year 2009

    
</pre>
<p>Net income was <money>$45.8 million</money> or <money>$0.30</money> per diluted share, up from a net loss of <money>$108.7 million</money> or (<money>$0.77</money>) per diluted share, in the second quarter of fiscal 2009 as the prior year's second quarter results included significant money market fund support charges.</p>
<pre>
    
    --  Revenues of $659.9 decreased 32% from the prior year quarter, driven
by
        a decline in fees earned due to lower average assets under management
        and changes in the mix of our AUM to lower average fee assets.
    --  Operating expenses decreased by 22% from the prior year quarter. This
        was primarily due to lower distribution and servicing fees on a lower
        asset base, decreased variable compensation, and cost saving measures
        that resulted in decreases in compensation, communications and
        technology and other operating expenses.
    --  Operating margins were 12% as compared to 23% in the prior year
        quarter.  Operating margins, as adjusted, were 21% as compared with
29%
        for the prior year quarter.
    --  As previously discussed, other income (expense) in the second quarter
        was ($2.9) million as compared to ($388.1) million in the prior year
        quarter, primarily due to $324.6 million in money market fund support
        charges in the prior period.
    --  Cash income, as adjusted, of $90.0 million, or $0.59 per diluted
share,
        as compared to cash income, as adjusted, of $140.2 million for the
        quarter ended September 30, 2008, or $0.99 per diluted share.

    --  Pre-tax profit margin increased to 11.4% from a loss in the second
        fiscal quarter of 2009.  The pre-tax profit margin, as adjusted, was
        15.4%, as compared to a loss in the prior year quarter.

    Quarterly Business Developments

    Product


    --  Permal closed a second fund focused on secondary market hedge fund
        opportunities.


    --  Legg Mason International Distribution launched two new funds: the Legg
        Mason Capital Management Opportunity Fund and the Permal Global
        Absolute Fund.


    --  The Western Asset Global Corporate Defined Opportunity Fund, Legg
        Mason's third closed-end offering calendar year to date, was
registered
        with the SEC.


    --  Legg Mason re-branded and simplified its Legg Mason branded,
        retail-oriented fund families into one fund family, following the
        completion of a consolidated operating platform earlier this year,
        which allows investors to broadly exchange products across both fund
        families and to aggregate purchases within a wider menu of funds.


    Performance


    --  At September 30, 2009, 81% of Legg Mason's long-term U.S. fund assets
        were beating their Lipper category averages for the 1-year period; 65%
        for the 3-year period; 62% for the 5-year period and 81% for the
        10-year period.


    --  53% of Legg Mason's U.S. Mutual fund assets were rated 4 and 5 stars
by
        Morningstar, including 91% of Royce's fund assets, at September 30,
        2009.


    --  Although 3- and 5- year performance remains challenged, at September
        30, 2009, all 9 Western Asset Funds outperformed their benchmarks for
        the 3-month period, and 8 out of 9 outperformed their benchmarks for
        the calendar year-to-date and 1-year period.  Over the 10-year time
        horizon, 3 out of 4 Western Asset Funds outperformed their benchmarks.


    --  Although longer-term performance remains challenged, at September 30,
        2009, all 6 funds managed by LM Capital Management outperformed their
        benchmarks and landed in the 1st quartile of their respective Lipper
        categories for both the 3-month and calendar year-to-date periods.


    --  At September 30, 2009, 14 out of 15 ClearBridge funds outperformed
        their benchmarks for the 1-year period and 11 out of 15 for the
        calendar year-to-date period. In addition, 8 out of 14 outperformed
        their benchmarks for the 3-year period, 6 out of 14 for the 5-year
        period, and 11 out of 14 for the 10-year period.

    Balance Sheet
    
</pre>
<p>At <chron>September 30, 2009</chron>, Legg Mason's cash position was <money>$1.6 billion</money>.  Total debt was <money>$2.0 billion</money> and stockholders' equity was <money>$5.7 billion</money>.  The ratio of total debt to total capital (total equity plus total debt) was 25%. As a result of the exchange of equity units in August, the total number of shares outstanding was 161.3 million as of <chron>September 30, 2009</chron> as compared to 142.5 million as of <chron>June 30, 2009</chron>.</p>
<pre>
    

    Conference Call to Discuss Results

    
</pre>
<p>A conference call to discuss the Company's results, hosted by <person>Mr. Fetting</person>, will be held at <chron>8:30 a.m.</chron> E.D.T. today. The call will be open to the general public. Interested participants should access the call by dialing 1-866-793-1306 (or for international calls 1-703-639-1308) at least 10 minutes prior to the scheduled start to ensure connection.</p>
<p/>
<p>The presentation slides that will be reviewed during the conference call will be available on the Investor Relations section of the Legg Mason website (<a href="http://www.leggmason.com/investor_relations.aspx">www.leggmason.com/investor_relations.aspx</a>) shortly after the release of the quarter ended <chron>September 30, 2009</chron> financial results.</p>
<p/>
<p>A replay or transcript of the live broadcast will be available on the Legg Mason website, in the investor relations section, or by dialing 1-888-266-2081 (or for international calls 1-703-925-2533), access Pin Number 1402845 after the completion of the call.  Please note that the replay will be available beginning at <chron>2:00 p.m.</chron>, E.D.T. on <chron>Thursday, October 22, 2009</chron> and ending on <chron>November 5, 2009</chron>.</p>
<pre>
    

    About Legg Mason
    
</pre>
<p>Legg Mason is a global asset management firm, with <money>$703 billion</money> in assets under management as of <chron>September 30, 2009</chron>.  The Company provides active asset management in many major investment centers throughout the world. Legg Mason is headquartered in <location>Baltimore</location>, Maryland, and its common stock is listed on the New York Stock Exchange (symbol: LM).</p>
<p/>
<p>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 <chron>March 31, 2009</chron> and in the Company's quarterly reports on form 10-Q.</p>
<pre>
    


    
</pre>
<p> </p>
<p> </p>
<p> </p>
<pre>
    
                             LEGG MASON, INC. AND SUBSIDIARIES
                           CONSOLIDATED STATEMENTS OF OPERATIONS
                      (Amounts in thousands, except per share amounts)
                                        (Unaudited)
    
</pre>
<p> </p>
<pre>
    
                                                        For the Six Months
                                  Quarters Ended             Ended
                              ----------------------    ------------------
    
</pre>
<p> </p>
<pre>
    
                               Sept.    June     Sept.      Sept.     Sept.
                               2009     2009     2008       2009      2008
                              -----     -----   ------     -----     -----
    Operating Revenues:
      Investment
       advisory fees:
        Separate accounts  $206,972  $190,888   $283,116   $397,860  $599,791
        Funds               347,371   328,024    540,829    675,395 1,110,387
        Performance fees      9,566     5,684      3,437     15,250    13,582
      Distribution and
       service fees          94,619    86,701    135,796    181,320   289,295
      Other                   1,368     1,787      2,959      3,155     7,113
                              -----     -----      -----      -----     -----
          Total operating
           revenues         659,896   613,084    966,137  1,272,980 2,020,168
                            -------   -------    -------  --------- ---------
    
</pre>
<p> </p>
<pre>
    
    Operating Expenses:
      Compensation and
       benefits             287,559   268,812    322,183    556,371   699,851
      Distribution and
       servicing            174,388   172,464    278,969    346,852   586,842
      Communications and
       technology            40,538    40,490     49,085     81,028    99,371
      Occupancy              35,689    32,584     33,755     68,273    67,899
      Amortization of
       intangible assets      5,664     5,628      9,599     11,292    19,223
      Other                  38,174    34,791     52,333     72,965    97,822
                             ------    ------     ------     ------    ------
          Total operating
           expenses         582,012   554,769    745,924  1,136,781 1,571,008
                            -------   -------    -------  ---------  --------
    
</pre>
<p> </p>
<pre>
    
                             ------    ------    -------    -------   -------
    Operating Income         77,884    58,315    220,213    136,199   449,160
                             ------    ------    -------    -------   -------
    
</pre>
<p> </p>
<pre>
    
    Other Income (Expense)
      Interest income         1,737     1,821     21,025      3,558    44,293
      Interest expense      (28,565)  (43,390)   (45,832)   (71,955)  (90,295)
      Fund support            5,613    17,558   (324,640)    23,171  (591,514)
      Other                  18,324    46,400    (38,646)    64,724   (37,339)
                             ------    ------    -------     ------    -------
          Total other income
           (expense)         (2,891)   22,389   (388,093)    19,498  (674,855)
                             ------    ------   --------     ------   ------
    
</pre>
<p> </p>
<pre>
    
    Income (Loss) from
     Operations before
      Income Tax Provision
       (Benefit)             74,993    80,704   (167,880)   155,697  (225,695)
    
</pre>
<p> </p>
<pre>
    
      Income tax provision
       (benefit)             27,671    28,380    (58,891)    56,051   (80,625)
                             ------    ------    -------     ------    -------
    
</pre>
<p> </p>
<pre>
    
    Net Income (Loss)        47,322    52,324   (108,989)    99,646  (145,070)
      Less: Net income
       attributable
       to noncontrolling
       interests              1,548     2,270       (254)     3,818      (208)
                              -----     -----        ----      -----      ----
    
</pre>
<p> </p>
<pre>
    
    Net Income (Loss)
     attributable to
     Legg Mason, Inc.       $45,774   $50,054  $(108,735)   $95,828  (144,862)
                            =======   =======  =========    =======  =========
    
</pre>
<p> </p>
<pre>
    
    Net income (loss)
     per share
     attributable to Legg
     Mason, Inc.
     common shareholders:
      Basic                   $0.30     $0.35     $(0.77)     $0.65    $(1.03)
                              =====     =====     ======      =====     ======
    
</pre>
<p> </p>
<pre>
    
      Diluted                 $0.30     $0.35     $(0.77)     $0.64    $(1.03)
                              =====     =====     ======      =====     ======
    
</pre>
<p> </p>
<pre>
    
    Weighted average
     number of shares
      outstanding:
          Basic             151,267   142,006    140,900    146,696    140,573
          Diluted (1)       153,224   143,126    140,900    148,708    140,573
    
</pre>
<p> </p>
<p>(1)  Diluted shares are the same as basic shares for periods with a loss</p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<pre>
    
                           LEGG MASON, INC. AND SUBSIDIARIES
                                   SUPPLEMENTAL DATA
    
</pre>
<p> </p>
<pre>
    
         RECONCILIATION OF NET INCOME (LOSS) ATTRIBUTABLE TO LEGG MASON, INC.
                  TO CASH INCOME (LOSS), AND CASH INCOME, AS ADJUSTED
                   (Amounts in thousands, except per share amounts)
                                      (Unaudited)
    
</pre>
<p> </p>
<p> </p>
<pre>
    
                                                         For the Six Months
                                 Quarters Ended                Ended
                             -----------------------     -----------------
    
</pre>
<p> </p>
<pre>
    
                             Sept.     June     Sept.     Sept.     Sept.
                             2009      2009     2008      2009      2008
                            ------    ------   ------    ------    -------
    
</pre>
<p> </p>
<pre>
    
    Net Income (Loss)
     attributable
     to Legg Mason, Inc.   $45,774  $50,054  $(108,735)  $95,828  $(144,862)
    
</pre>
<p> </p>
<pre>
    
      Plus:
        Amortization of
         intangible assets   5,664    5,628      9,599    11,292     19,223
        Deferred income
         taxes on intangible
          assets            34,023   35,297     40,201    69,320     69,855
        Imputed interest on
         convertible debt(1) 8,587    8,364      8,062    16,951     15,915
    
</pre>
<p> </p>
<pre>
    
                            ------   ------    -------   -------    -------
    Cash Income (Loss)      94,048   99,343    (50,873)  193,391    (39,869)
                            ------   ------    -------   -------    -------
    
</pre>
<p> </p>
<pre>
    
      Plus
       (Less):
        Net money market
         fund support
         (gains) losses (2) (4,041) (12,524)   191,109   (16,565)   346,555
    
</pre>
<p> </p>
<pre>
    
                           -------  -------   --------  --------   --------
    Cash Income, as
     adjusted              $90,007  $86,819   $140,236  $176,826   $306,686
                           -------  -------   --------  --------   --------
    
</pre>
<p> </p>
<p> </p>
<p> </p>
<pre>
    
    Net Income (Loss) per
     Diluted Share
     Attributable to Legg
     Mason, Inc.
     common shareholders     $0.30    $0.35     $(0.77)    $0.64     $(1.03)
    
</pre>
<p> </p>
<pre>
    
      Plus:
        Amortization of
         intangible assets    0.04     0.04       0.07      0.08       0.14
        Deferred income
         Taxes on
         intangible assets    0.22     0.24       0.28      0.47       0.50
        Imputed interest on
         convertible debt(1)  0.05     0.06       0.06      0.11       0.11
    
</pre>
<p> </p>
<pre>
    
                              ----     ----      -----      ----      -----
    Cash Income (Loss) per
     Diluted Share            0.61     0.69      (0.36)     1.30      (0.28)
                              ----     ----      -----      ----      -----
    
</pre>
<p> </p>
<pre>
    
      Plus
       (Less):
        Net money market fund
         support
         (gains) losses (2)  (0.02)   (0.08)      1.35     (0.11)      2.44
    
</pre>
<p> </p>
<pre>
    
                             -----    -----      -----     -----      -----
    Cash Income per Diluted
     Share, as adjusted      $0.59    $0.61      $0.99     $1.19      $2.16
                             -----    -----      -----     -----      -----
    
</pre>
<p> </p>
<p> </p>
<pre>
    
    (1)  Effective April 1, 2009, Legg Mason is required to retroactively
         impute (non-cash) interest expense on convertible debt using an
         effective interest rate that would have been attributable to
         nonconvertible debt at the original date of issuance.  This
         adjustment also includes the actual tax benefits relating to
         the convertible debt that are not recognized for GAAP purposes.
    (2)  Includes related adjustments to operating expenses, if applicable,
         and income tax provision (benefit).


    
</pre>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<pre>
    
                           LEGG MASON, INC. AND SUBSIDIARIES
                                   SUPPLEMENTAL DATA
    
</pre>
<p> </p>
<pre>
    
      OPERATING MARGIN ADJUSTED FOR COMPENSATION RELATED INVESTMENT GAINS
               (LOSSES) AND DISTRIBUTION AND SERVICING EXPENSE, AND
        PRE-TAX PROFIT MARGIN ADJUSTED FOR DISTRIBUTION AND SERVICING EXPENSE
                               (Amounts in thousands)
                                   (Unaudited)
    
</pre>
<p> </p>
<pre>
    
                                                          For the Six Months
                               Quarters Ended                   Ended
                          -------------------------      ------------------
    
</pre>
<p> </p>
<pre>
    
                         Sept.      June       Sept.       Sept.      Sept.
                         2009       2009       2008        2009       2008
                        -----       ----      -----       -----      ------
    
</pre>
<p> </p>
<pre>
    
    Operating Revenues,
     GAAP basis       $659,896    $613,084   $966,137  $1,272,980  $2,020,168
    
</pre>
<p> </p>
<pre>
    
      Less:
        Distribution and
         servicing
         expense       174,388     172,464    278,969     346,852     586,842
                       -------     -------    -------     -------     -------
    
</pre>
<p> </p>
<pre>
    
    Operating Revenues,
     as adjusted      $485,508    $440,620   $687,168    $926,128  $1,433,326
                      --------    --------   --------    --------  ----------
    
</pre>
<p> </p>
<p> </p>
<p> </p>
<p>Operating Income   <money>$77,884</money>     <money>$58,315</money>   <money>$220,213</money>    <money>$136,199</money>    <money>$449,160</money></p>
<p> </p>
<pre>
    
      Add (Less):
        Gains (losses)
         on deferred
         compensation
         and seed
         investments    24,133     31,386    (19,931)      55,518    (25,103)
                        ------     ------     -------      ------    -------
    
</pre>
<p> </p>
<p> </p>
<pre>
    
    Operating Income,
     as adjusted      $102,017    $89,701   $200,282      191,717   $424,057
                      --------    -------   --------     --------   --------
    
</pre>
<p> </p>
<pre>
    
    Operating margin,
     GAAP basis          11.8%        9.5%      22.8%        10.7%      22.2%
    Operating margin,
     as adjusted         21.0        20.4       29.1         20.7       29.6
    
</pre>
<p> </p>
<p> </p>
<p> </p>
<pre>
    
    Income (Loss) from
     Operations before
     Income Tax Provision
    (Benefit), GAAP
       Basis          $74,993     $80,704  $(167,880)    $155,697  $(225,695)
                      -------     -------  ---------     --------   ---------
    
</pre>
<p> </p>
<p> </p>
<pre>
    
    Pre-tax profit
     margin, GAAP
     basis              11.4%       13.2%      (17.4)%       12.2%    (11.2)%
    Pre-tax profit
     margin,
     as adjusted        15.4        18.3       (24.4)        16.8     (15.7)
    
</pre>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<pre>
    
                      LEGG MASON, INC. AND SUBSIDIARIES
                            (Amounts in billions)
                                 (Unaudited)
    
</pre>
<p> </p>
<pre>
    
    Assets Under Management
                                             Quarters Ended
                                             --------------
                                 Sept.  June   March   December   Sept.
                                 2009   2009    2009     2008     2008
                                -----   -----  ------  ---------  ------
    By asset class:
      Equity                   $165.6  $143.6  $126.9   $148.4  $214.8
      Fixed Income              385.7   366.6   357.6    392.1   451.8
      Liquidity                 151.4   146.7   147.9    157.7   175.3
                                -----   -----   -----    -----   -----
        Total                  $702.7  $656.9  $632.4   $698.2  $841.9
                               ======  ======  ======   ======  ======
    
</pre>
<p> </p>
<pre>
    
    By asset class (average):
      Equity                   $155.7  $138.0  $134.2   $169.6  $239.9
      Fixed Income              377.5   362.3   370.0    408.3   476.7
      Liquidity                 150.8   146.9   153.2    167.2   181.8
                                -----   -----   -----    -----   -----
        Total                  $684.0  $647.2  $657.4   $745.1  $898.4
                               ======  ======  ======   ======  ======
    
</pre>
<p> </p>
<pre>
    
    By division:
      Americas                 $484.3  $457.1  $446.7   $490.6  $591.5
      International             218.4   199.8   185.7    207.6   250.4
                                -----   -----   -----    -----   -----
        Total                  $702.7  $656.9  $632.4   $698.2  $841.9
                               ======  ======  ======   ======  ======
    
</pre>
<p> </p>
<p> </p>
<p>Component Changes in Assets Under Management</p>
<p> </p>
<pre>
    
                                             Quarters Ended
                                             --------------
                                 Sept.   June   March     Dec.   Sept.
                                 2009    2009    2009    2008    2008
                                -----   -----  ------    -----   -----
    Beginning of period        $656.9  $632.4  $698.2   $841.9  $922.8
    Net client cash flows        (8.1)  (30.3)  (43.5)   (77.0)  (20.0)
    Market performance and
     other                       53.9    54.8   (21.7)   (66.7)  (60.9)
    Acquisitions
     (Dispositions), net            -       -    (0.6)       -       -
                                    -       -    ----        -       -
    End of period              $702.7  $656.9  $632.4   $698.2  $841.9
                               ======  ======  ======   ======  ======
    
</pre>
<p> </p>
<p>By Division</p>
<p> </p>
<pre>
    
    Americas
      Beginning of period      $457.1  $446.7  $490.6   $591.5  $650.8
      Net client cash flows     (11.8)  (27.0)  (28.4)   (47.4)  (21.0)
      Market performance and
       other                     39.0    37.4   (14.9)   (53.5)  (38.3)
      Acquisitions
       (Dispositions), net          -       -    (0.6)       -       -
                                    -       -    ----        -       -
      End of period            $484.3  $457.1  $446.7   $490.6  $591.5
                               ======  ======  ======   ======  ======
    
</pre>
<p> </p>
<pre>
    
    International
      Beginning of period      $199.8  $185.7  $207.6   $250.4  $272.0
      Net client cash flows       3.7    (3.3)  (15.1)   (29.6)    1.0
      Market performance and
       other                     14.9    17.4    (6.8)   (13.2)  (22.6)
      Acquisitions
       (Dispositions), net          -       -       -        -       -
                                    -       -       -        -       -
      End of period            $218.4  $199.8  $185.7   $207.6  $250.4
                               ======  ======  ======   ======  ======



    
</pre>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<pre>
    
                       LEGG MASON, INC. AND SUBSIDIARIES
                 COMPONENT CHANGES IN ASSETS UNDER MANAGEMENT
                             (Amounts in billions)
                                  (Unaudited)
    
</pre>
<p> </p>
<pre>
    
                            For the Six Months     For the Twelve Months
                                 Ended                    Ended
                         ---------------------    --------------------
                         September   September   September    September
                            2009        2008        2009         2008
                         ----------  ----------  ----------   ----------
    Beginning of period      $632.4      $950.1      $841.9    $1,011.6
    Net client cash
     flows                    (38.4)      (38.5)     (158.9)      (66.7)
    Market performance
     and other                108.7       (69.2)       20.3      (101.8)
    Acquisitions
     (Dispositions), net          -        (0.5)       (0.6)       (1.2)
                                  -        ----        ----        ----
    End of period            $702.7      $841.9      $702.7      $841.9
                             ======      ======      ======      ======
    
</pre>
<p> </p>
<p>By Division</p>
<p> </p>
<pre>
    
                            For the Six Months     For the Twelve Months
                                   Ended                    Ended
    Americas                -------------------    ---------------------
      Beginning of
       period                $446.7      $672.2      $591.5      $731.1
      Net client cash
       flows                  (38.8)      (34.4)     (114.6)      (51.5)
      Market
       performance and
       other                   76.4       (45.8)        8.0       (87.6)
      Acquisitions
       (Dispositions),
       net                        -        (0.5)       (0.6)       (0.5)
                                  -        ----        ----        ----
      End of period          $484.3      $591.5      $484.3      $591.5
                             ======      ======      ======      ======
    
</pre>
<p> </p>
<pre>
    
    International
      Beginning of
       period                $185.7      $277.9      $250.4      $280.5
      Net client cash
       flows                    0.4        (4.1)      (44.3)      (15.2)
      Market
       performance and
       other                   32.3       (23.4)       12.3       (14.2)
      Acquisitions
       (Dispositions),
       net                        -           -           -        (0.7)
                                  -           -           -        ----
      End of period          $218.4      $250.4      $218.4      $250.4
                             ======      ======      ======      ======

    Use of Supplemental Data as Non-GAAP Performance Measures

    
</pre>
<p>As supplemental information, we are providing the following performance measures that are based on methodologies other than generally accepted accounting principles ("non-GAAP") that management uses as benchmarks in evaluating and comparing the period-to-period operating performance of Legg Mason, Inc. and its subsidiaries:</p>
<pre>
    

    --  Cash income
    --  Cash income, as adjusted
    --  Operating margin, as adjusted

    --  Pre-tax profit margin, as adjusted

    Cash Income (Loss) and Cash Income (Loss), as Adjusted

    
</pre>
<p>We define "cash income" as net income (loss) attributable to Legg Mason Inc. plus amortization and deferred taxes related to intangible assets and goodwill, and imputed interest and tax benefits on contingent convertible debt less deferred income taxes on goodwill and intangible asset impairment.  We define "cash income, as adjusted" as cash income plus (less) net money market fund support losses (gains) and impairment charges less net losses on the sale of the underlying SIV securities.</p>
<p/>
<p>We believe that cash income and cash income, as adjusted, provide good representations of our operating performance adjusted for non-cash acquisition related items and other items that facilitate comparison of our results to the results of other asset management firms that have not engaged in money market fund support transactions, issued contingent convertible debt or made significant acquisitions, including any related goodwill or intangible asset impairments.</p>
<p/>
<p>We also believe that cash income and cash income, as adjusted, are important metrics in estimating the value of an asset management business. These measures are provided in addition to net income, but are not a substitute for net income and may not be comparable to non-GAAP performance measures, including measures of cash earnings or cash income, of other companies. Further, cash income and cash income, as adjusted, are not liquidity measures and should not be used in place of cash flow measures determined under GAAP.  Legg Mason considers cash income and cash income, as adjusted, to be useful to investors because they are important metrics in measuring the economic performance of asset management companies, as indicators of value, and because they facilitate comparisons of Legg Mason's operating results with the results of other asset management firms that have not engaged in money market fund support transactions or significant acquisitions.</p>
<p/>
<p>In calculating cash income, we add the impact of the amortization of intangible assets from acquisitions, such as management contracts, to net income to reflect the fact that these non-cash expenses distort comparisons of Legg Mason's operating results with the results of other asset management firms that have not engaged in significant acquisitions.  Deferred taxes on indefinite-life intangible assets and goodwill represent actual tax benefits that are not realized under GAAP absent an impairment charge or the disposition of the related business.  Because we actually receive these tax benefits on indefinite-life intangibles and goodwill over time, we add them to net income in the calculation of cash income.  Conversely, we subtract the income tax benefits on these impairment charges that have been recognized under GAAP. We also include imputed interest, which is a non-cash expense, on contingent convertible debt required by new accounting standards as well as the actual tax benefits on the related contingent convertible debt that are not realized under GAAP.  In calculating cash income, as adjusted, we add (subtract) net money market fund support losses (gains) less net losses on the sale of the underlying SIV securities and impairment charges to cash income to reflect that these charges distort comparisons of Legg Mason's operating results to prior periods and the results of other asset management firms that have not engaged in money market fund support transactions or significant acquisitions, including any related impairments.</p>
<p/>
<p>Should a disposition or impairment charge for indefinite-life intangibles or goodwill occur, its impact on cash income and cash income, as adjusted, may distort actual changes in the operating performance or value of our firm. Also, realized losses on money market fund support transactions are reflective of changes in the operating performance and value of our firm. Accordingly, we monitor these items and their related impact, including taxes, on cash income and cash income, as adjusted, to ensure that appropriate adjustments and explanations accompany such disclosures.</p>
<p/>
<p>Although depreciation and amortization of fixed assets are non-cash expenses, we do not add these charges in calculating cash income or cash income, as adjusted, because these charges are related to assets that will ultimately require replacement.</p>
<pre>
    

    Operating Margin, as Adjusted

    
</pre>
<p>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 and the impact on compensation expense of gains or losses on seed capital investments by our affiliates under revenue sharing agreements by (ii) our operating revenues less distribution and servicing expenses that are passed through to third-party distributors, which we refer to as "adjusted operating revenues".  The compensation items are removed from operating income in the calculation because they are offset by an equal amount in Other non-operating income, and thus have no impact on Net Income.  We use adjusted operating revenues in the calculation to show the operating margin without distribution revenues that are passed through to third parties as a direct cost of selling our products.  Legg Mason believes that operating margin, as adjusted, is a useful measure of our performance because it provides a measure of our core business activities excluding items that have no impact on net income and because it indicates what Legg Mason's operating margin would have been without the distribution revenues that are passed through to third parties as a direct cost of selling our products.  This measure is provided in addition to the Company's 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.</p>
<pre>
    

    Pre-tax Profit Margin, as Adjusted
    
</pre>
<p>We calculate "pre-tax margin, as adjusted," by dividing income (loss) from operations before income tax provision by adjusted operating revenues. Legg Mason believes that pre-tax profit margin adjusted for distribution and servicing expense is a useful measure of our performance because it indicates what Legg Mason's pre-tax profit margin would have been without the distribution revenues that are passed through to third parties as a direct cost of selling our products, and thus shows the effect of these revenues on our pre-tax profit margin. This measure is provided in addition to the pre-tax profit margin calculated under GAAP, but is not a substitute for calculations of margin under GAAP and may not be comparable to non-GAAP performance measures, including measures of adjusted margins, of other companies.</p>
<pre>
    






    

For further information: For further information: Investor Relations: Alan Magleby, +1-410-454-5246, amagleby@leggmason.com, or Media: Mary Athridge, +1-212-805-6035, mkathridge@leggmason.com, both of Legg Mason Web Site: http://www.leggmason.com

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LEGG MASON, INC.

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