Legg Mason Reports Results for First Fiscal Quarter 2011


    
    - First Quarter Net Income of $48 Million, or $0.30 per Diluted Share -

    - $1.3 Billion Closed-End Fund Raise Resulted in $0.07 per Diluted Share
of
    Related Expenses -

    - First Quarter Adjusted Income of $96 Million, or $0.60 per Diluted Share
    -

    - Assets Under Management of $645 Billion -







    
</pre>
<p><span class="xn-location">BALTIMORE</span>, <span class="xn-chron">July 26</span> /CNW/ -- Legg Mason, Inc. (NYSE:   LM) today reported its operating results for the first fiscal quarter ended <span class="xn-chron">June 30, 2010</span>.  The Company reported net income(1) of <span class="xn-money">$47.9 million</span> or <span class="xn-money">$0.30</span> per diluted share, as compared with <span class="xn-money">$63.6 million</span>, or <span class="xn-money">$0.39</span> per diluted share, in the previous quarter.  In the quarter, Legg Mason raised <span class="xn-money">$1.3 billion</span>(2) through a closed-end fund launch, the largest in the industry since 2007.  Adjusted income(3), for the first quarter was <span class="xn-money">$96.3 million</span>, or <span class="xn-money">$0.60</span> per diluted share, as compared to <span class="xn-money">$111.3 million</span>, or <span class="xn-money">$0.69</span> per diluted share, in the fourth quarter of fiscal 2010. For the first quarter, revenues were <span class="xn-money">$674.2 million</span>, up from <span class="xn-money">$671.4 million</span> in the prior quarter.  Operating expenses of <span class="xn-money">$571.4 million</span> were up 1% from <span class="xn-money">$565.6 million</span> in the fourth quarter for fiscal year 2010 and included <span class="xn-money">$17.6 million</span> in costs related to the closed-end fund launch.</p>
<p/>
<p>Assets Under Management ("AUM") were <span class="xn-money">$645.4 billion</span>, down 6% as compared with <span class="xn-money">$684.5 billion</span> as of <span class="xn-chron">March 31, 2010</span> and down 2% from <span class="xn-money">$656.9 billion</span> as of <span class="xn-chron">June 30, 2009</span>.</p>
<p/>
<p>Legg Mason also announced today that its Board of Directors has declared a quarterly cash dividend on its common stock in the amount of <span class="xn-money">$0.04</span> per share.</p>
<pre>
    


    
</pre>
<p> </p>
<p>(Amounts in millions, except per share amounts)</p>
<p> </p>
<pre>
    
                                     Quarters Ended
                                     --------------
                               June     March         %     June     %
                                2010      2010     Change    2009 Change
                                ----      ----     ------    ---- ------
    
</pre>
<p> </p>
<p>Total Operating Revenues  <span class="xn-money">$674.2</span>    <span class="xn-money">$671.4</span>          0% <span class="xn-money">$613.1</span>     10%</p>
<p> </p>
<p>Total Operating Expenses   571.4     565.6          1%  554.8      3%</p>
<p> </p>
<p>Operating Income           102.8     105.8         -3%   58.3     76%</p>
<p> </p>
<p>Net Income(1)               47.9      63.6        -25%   50.1     -4%</p>
<p> </p>
<p>Adjusted Income(3)          96.3     111.3        -13%   86.8     11%</p>
<p> </p>
<pre>
    
    Net Income Per Share -
     Diluted(1)                 0.30      0.39        -23%   0.35    -14%
    
</pre>
<p> </p>
<pre>
    
    Adjusted Income Per Share
     (3)                        0.60      0.69        -13%   0.61     -2%
    
</pre>
<p> </p>
<pre>
    
    (1) Net income represents net income attributable to Legg Mason, Inc.
    (2) Assuming full exercise of underwriters'  over allotment option
    (3) Adjusted income was formerly reported as "cash income, as
    adjusted." Please see Supplemental Data
    below for non-GAAP performance measures



    Comments on First Fiscal Quarter 2011 Results
    
</pre>
<p>Mark R. Fetting, Chairman and CEO, said, "We delivered a solid quarter in a volatile market with more work to do to fully position Legg Mason for future growth.  We are pleased to announce our first quarter of equity inflows in over four years, including the largest closed-end fund capital raise in the industry since 2007.  In fixed income, we are hard at work on the longer term process of turning flows to positive following sustained improved investment performance.  We believe that Western Asset's improved performance is a testament to both the strength of their investment process and the enhancements they made in integrating their risk management efforts with that process.  Over the short term, market volatility has led to swings in equity performance, but our affiliates are positioning well for improvement in client results.  Our overall 3- and 5-year performance numbers show improvement over the past year, and we are working in partnership with our affiliates to create investment vehicles that will bring clients back into the market and help them rebuild wealth.</p>
<p/>
<p>"We are making progress on our plans to transfer certain support functions to our affiliates and we are on track to meet our targets. Even as we streamline our business model, we continue to look at growth opportunities, and our affiliates continue to add talent, including an experienced professional to service sovereign wealth clients at Permal. We are actively evaluating the addition of investment capabilities.  With regard to use of capital, we have entered into an accelerated share repurchase arrangement and remain fully committed to additional ways to drive shareholder value," concluded <span class="xn-person">Mr. Fetting</span>.</p>
<pre>
    

    Assets Under Management Decreased to $645 Billion
    
</pre>
<p>AUM decreased to <span class="xn-money">$645.4 billion</span> at <span class="xn-chron">June 30, 2010</span> from <span class="xn-money">$684.5 billion</span>, driven by net outflows of <span class="xn-money">$23.1 billion</span> and market declines of <span class="xn-money">$16.0 billion</span>. Long-term asset net outflows of <span class="xn-money">$8.7 billion</span> continue to trend favorably.</p>
<pre>
    
    --  Fixed income outflows were $9.4 billion and liquidity outflows were
        $14.4 billion for the quarter ended June 30th. Equity inflows of $0.7
        billion mark the first quarter of equity inflows in over four years.
    --  At June 30, 2010, fixed income represented 56% of AUM, while equity
        represented 24% and liquidity represented 20% of AUM.
    --  By business division, 70% of AUM was in the Americas Division and 30%
        of AUM was in the International Division.
    --  Average AUM during the quarter was $668.3 billion compared to $681.2
        billion in the fourth quarter of fiscal 2010 and $647.2 billion in the
        first quarter of fiscal 2009.

    Comparison to the Fourth Quarter of Fiscal Year 2010
    
</pre>
<p>Net income was <span class="xn-money">$47.9 million</span>, or <span class="xn-money">$0.30</span> per diluted share, as compared with <span class="xn-money">$63.6 million</span>, or <span class="xn-money">$0.39</span> per diluted share, in the fourth quarter of fiscal year 2010.</p>
<pre>
    
    --  Revenues of $674.2 million were up from $671.4 million in the prior
        quarter, due to higher realization rates which more than offset a 2%
        decline in average AUM.  Performance fees of $22.8 million were in
line
        with the prior quarter due to fees earned at Western Asset Management,
        Brandywine Global and Permal.
    --  Operating expenses of $571.4 million increased 1% from $565.6 million
        in the fourth quarter of fiscal 2010 due to $17.6 million of expenses
        related to the launch of the closed-end fund this quarter.  The
current
        quarter's expenses also included $3.2 million in severance and other
        costs related to the previously announced streamlining initiative.
    --  Operating margin was 15.2%, as compared to 15.8% in the fourth quarter
        of fiscal 2010.  Operating margin, as adjusted(4), was 20.9% as
        compared with 23.3% in the fourth quarter. The impact of the
closed-end
        fund launch on our operating margin, as adjusted, was 2.9%
    --  Adjusted income was $96.3 million, or $0.60 per diluted share,
compared
        to adjusted income of $111.3 million, or $0.69 per diluted share, in
        the prior quarter.

    (4) Please see Supplemental Data below for non-GAAP performance measures

    Comparison to the First Quarter of Fiscal Year 2010
    
</pre>
<p>Net income was <span class="xn-money">$47.9 million</span>, or <span class="xn-money">$0.30</span> per diluted share, as compared with net income of <span class="xn-money">$50.1 million</span>, or <span class="xn-money">$0.35</span> per diluted share, in the first quarter of fiscal year 2010.</p>
<pre>
    
    --  Revenues of $674.2 million increased 10% from $613.1 million in the
        prior year quarter reflecting higher performance fees and a 3%
increase
        in average AUM.
    --  Operating expenses of $571.4 million increased by 3% from $554.8
        million in the prior year quarter. This was primarily due to costs
        associated with this quarter's closed-end fund launch.
    --  Operating margin was 15.2% as compared to 9.5% in the prior year
        quarter.  Operating margin, as adjusted, was 20.9% as compared with
        20.4% in the same period a year ago.
    --  Adjusted income was $96.3 million, or $0.60 per diluted share,
compared
        to adjusted income of $86.8 million, or $0.61 per diluted share, for
        the first fiscal quarter 2010.

    Quarterly Business Developments

    Product

    --  Legg Mason and ClearBridge Advisors raised $1.3 billion for the
        ClearBridge Energy MLP Fund Inc. (CEM), assuming full exercise of the
        underwriters' over allotment option.

    --  Legg Mason International and Western Asset launched the Legg Mason
        Western Asset Global Credit Absolute Return Fund in the UK and
Ireland.

    --  Legg Mason Japan received an award for "Best Sales, Client Service and
        Marketing Support for fiscal year 2010" from MaDo, an industry
        publication focused on the marketing and retail distribution of mutual
        funds in Japan.

    --  Western Asset's Global Inflation-Linked composite won the top honor in
        the Global Fixed Income, Inflation-Linked category by AsianInvestor
        Magazine.

    Performance

    At June 30, 2010:

    --  Of Legg Mason's long-term U.S. mutual fund assets, 46% were beating
        their Lipper category averages for the 1-year period; 71% for the
        3-year period; 73% for the 5-year period and 78% for the 10-year
        period.
    --  Of Legg Mason's long-term U.S. mutual funds assets, 55% were rated 4
or
        5 stars by Morningstar, including 92% of Royce's fund assets and 73%
of
        Western's fund assets.
    --  All 9 of the Western Asset funds outperformed their benchmarks for the
        1-year period; 4 out of 9 outperformed their benchmarks for the 3-year
        period; 3 out of 8 outperformed for the 5-year period and all 4 funds
        outperformed for the 10-year period.
    --  Ten out of 24 funds managed by Royce outperformed their benchmarks for
        the 1-year period; 16 out of 19 for the 3-year period; all 17
        outperformed for the 5-year period and all 9 outperformed for the
        10-year period.
    --  Five out of six funds managed by Legg Mason Capital Management
        outperformed their benchmarks for the 1-year period; none outperformed
        for the 3- and 5-year periods and 1 out of 6 outperformed for the
        10-year period.
    --  None of the funds managed by ClearBridge Advisors outperformed in the
        1-year period; 5 out of 13 funds outperformed for the 3-year period; 4
        out 13 outperformed for the 5-year period and 8 out of 13 outperformed
        for the 10-year period.

    Balance Sheet

    
</pre>
<p>At <span class="xn-chron">June 30, 2010</span>, Legg Mason's cash position was <span class="xn-money">$1.2 billion</span>.  Total debt was <span class="xn-money">$1.4 billion</span> and stockholders' equity was <span class="xn-money">$5.6 billion</span>.  The ratio of total debt to total capital (total equity plus total debt) was 20%. In the quarter, the Company announced it had entered into an accelerated share repurchase arrangement.  As of <span class="xn-chron">June 30</span>, Legg Mason has repurchased and retired 9.7 million shares of common stock.  The balance sheet amounts exclude consolidated investment vehicles.</p>
<p/>
<p>The Board of Directors has declared a quarterly cash dividend on its common stock in the amount of <span class="xn-money">$0.04</span> per share. The dividend is payable on <span class="xn-chron">October 25, 2010</span> to shareholders of record at the close of business on <span class="xn-chron">October 7, 2010</span>.</p>
<pre>
    

    Conference Call to Discuss Results

    
</pre>
<p>A conference call to discuss the Company's results, hosted by <span class="xn-person">Mr. Fetting</span>, will be held at <span class="xn-chron">5:00 p.m.</span> E.D.T. today. The call will be open to the general public. Interested participants should access the call by dialing 1-877-269-7756 (or for international calls 1-201-689-7817) 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/about/investor_relations.aspx">www.leggmason.com/about/investor_relations.aspx</a>) shortly after the release of the 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 1-877-660-6853 (or for international calls 1-201-612-7415), enter account number 369 and replay ID number 353728 when prompted.  Please note that the replay will be available beginning at <span class="xn-chron">11:00 p.m.</span>, E.D.T. on <span class="xn-chron">July 26, 2010</span> and ending on <span class="xn-chron">August 9, 2010</span>.</p>
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    About Legg Mason
    
</pre>
<p>Legg Mason is a global asset management firm, with <span class="xn-money">$645 billion</span> in assets under management as of <span class="xn-chron">June 30, 2010</span>.  The Company provides active asset management in many major investment centers throughout the world. Legg Mason is headquartered in <span class="xn-location">Baltimore</span>, 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 <span class="xn-chron">March 31, 2010</span>.</p>
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</pre>
<p> </p>
<pre>
    
                           LEGG MASON, INC. AND SUBSIDIARIES
                           CONSOLIDATED STATEMENTS OF INCOME
                    (Amounts in thousands, except per share amounts)
                                      (Unaudited)
    
</pre>
<p> </p>
<pre>
    
                                                     Quarters Ended
                                                     --------------
    
</pre>
<p> </p>
<p> </p>
<pre>
    
                                              June       March         June
                                              2010       2010          2009
                                             -----      ------        -----
    Operating Revenues:
      Investment advisory fees:
        Separate accounts                  $200,972    $208,104     $190,888
        Funds                               352,699     341,135      328,024
        Performance fees                     22,774      24,656        5,684
      Distribution and service fees          96,314      96,113       86,701
      Other                                   1,406       1,412        1,787
                                              -----       -----        -----
          Total operating revenues          674,165     671,420      613,084
                                            -------     -------      -------
    
</pre>
<p> </p>
<pre>
    
    Operating Expenses:
      Compensation and benefits             266,074     267,270      268,812
      Transition-related compensation (1)     2,713           -            -
                                              -----         ---          ---
        Total compensation and benefits     268,787     267,270      268,812
      Distribution and servicing            184,702     167,419      172,464
      Communications and technology          39,976      42,225       40,490
      Occupancy                              33,675      25,469       32,584
      Amortization of intangible assets       5,728       5,731        5,628
      Other (1)                              38,520      57,470       34,791
                                             ------      ------       ------
          Total operating expenses          571,388     565,584      554,769
                                            -------     -------      -------
    
</pre>
<p> </p>
<pre>
    
    Operating Income                        102,777     105,836       58,315
                                            -------     -------       ------
    
</pre>
<p> </p>
<pre>
    
    Other Non-Operating Income (Expense)
      Interest income                         1,815       1,583        1,821
      Interest expense                     (22,801)     (25,095)    (43,390)
      Fund support                                -           -       17,558
      Other income (expense)                 (7,291)     14,986       41,311
      Other non-operating income (expense)
       of
        consolidated investment vehicles     (2,393)      4,410        5,089
                                             ------       -----        -----
          Total other non-operating income
           (expense)                       (30,670)      (4,116)      22,389
                                            -------      ------       ------
    
</pre>
<p> </p>
<p>Income Before Income Tax Provision       72,107     101,720       80,704</p>
<p> </p>
<pre>
    
      Income tax provision                   27,064      36,619       28,380
                                             ------      ------       ------
    
</pre>
<p> </p>
<pre>
    
    Net Income                               45,043      65,101       52,324
      Less: Net income (loss) attributable
        to noncontrolling interests          (2,888)      1,494        2,270
                                             ------       -----        -----
    
</pre>
<p> </p>
<pre>
    
    Net Income Attributable to
      Legg Mason, Inc.                      $47,931     $63,607      $50,054
                                            =======     =======      =======
    
</pre>
<p> </p>
<pre>
    
    Net income per share
      attributable to Legg Mason, Inc.
      common shareholders:
      Basic                                   $0.30       $0.40        $0.35
                                              =====       =====        =====
    
</pre>
<p> </p>
<pre>
    
      Diluted                                 $0.30       $0.39        $0.35
                                              =====       =====        =====
    
</pre>
<p> </p>
<pre>
    
    Weighted average number of shares
      outstanding:
          Basic                             160,123     160,952      142,006
          Diluted                           160,762     161,703      143,126
    
</pre>
<p> </p>
<pre>
    
    (1) Costs related to streamlining our business model.  Other
    operating expenses for June 2010 include
      transition-related costs of $442.




    
</pre>
<p> </p>
<pre>
    
                      LEGG MASON, INC. AND SUBSIDIARIES
                              SUPPLEMENTAL DATA
    
</pre>
<p> </p>
<pre>
    
        RECONCILIATION OF NET INCOME ATTRIBUTABLE TO LEGG MASON, INC.
                            TO ADJUSTED INCOME (1)
               (Amounts in thousands, except per share amounts)
                                 (Unaudited)
    
</pre>
<p> </p>
<pre>
    
                                         Quarters Ended
                                         --------------
    
</pre>
<p> </p>
<p> </p>
<pre>
    
                              June 2010    March 2010      June 2009
                              ---------    ----------      ---------
    
</pre>
<p> </p>
<pre>
    
    Net Income
     Attributable to Legg
     Mason, Inc.                 $47,931       $63,607        $50,054
    
</pre>
<p> </p>
<pre>
    
                Plus (Less):
                 Amortization
                 of
                 intangible
                 assets           5,728         5,731          5,628
                 Deferred
                 income
                 taxes on
                 intangible
                 assets        33,687      33,077       35,297
                 Imputed
                 interest on
                 convertible
                 debt             8,909         8,862          8,364
                 Net money
                 market fund
                 support
                 gains (2)            -             -        (12,524)
    
</pre>
<p> </p>
<p> </p>
<pre>
    
    Adjusted Income              $96,255      $111,277        $86,819
                                 -------      --------        -------
    
</pre>
<p> </p>
<p> </p>
<pre>
    
    Net Income per Diluted
     Share attributable
     to Legg Mason, Inc.
      common shareholders          $0.30         $0.39          $0.35
    
</pre>
<p> </p>
<pre>
    
                Plus (Less):
                 Amortization
                 of
                 intangible
                 assets            0.04          0.04           0.04
                 Deferred
                 income
                 taxes on
                 intangible
                 assets          0.21        0.20         0.24
                 Imputed
                 interest on
                 convertible
                 debt              0.05          0.06           0.06
                 Net money
                 market fund
                 support
                 gains (2)            -             -          (0.08)
    
</pre>
<p> </p>
<p> </p>
<pre>
    
    Adjusted Income per
     Diluted Share                 $0.60         $0.69          $0.61
                                   -----         -----          -----
    
</pre>
<p> </p>
<pre>
    
    (1) See explanations for Use of Supplemental Data as Non-GAAP
    Performance Measures.
    (2)  Net of income taxes.




    
</pre>
<p> </p>
<pre>
    
                       LEGG MASON, INC. AND SUBSIDIARIES
                               SUPPLEMENTAL DATA
    
</pre>
<p> </p>
<pre>
    
             RECONCILIATION OF OPERATING MARGIN, AS ADJUSTED(1)
                          (Amounts in thousands)
                                  (Unaudited)
    
</pre>
<p> </p>
<pre>
    
                                                     Quarters Ended
                                                     --------------
    
</pre>
<p> </p>
<p> </p>
<pre>
    
                                             June          March      June
                                             2010           2010      2009
                                            -----         ------     -----
    
</pre>
<p> </p>
<pre>
    
    Operating Revenues,
     GAAP basis                            $674,165       $671,420  $613,084
    
</pre>
<p> </p>
<pre>
    
                   Plus
                   (Less):
                   Operating
                   revenues
                   eliminated
                   upon
                             consolidation
                             of
                             investment
                             vehicles           779            528       784
                   Distribution
                   and
                   servicing
                   expense
                   excluding
                             consolidated
                             investment
                             vehicles      (184,689)      (167,401) (172,446)
                                           --------       --------  --------
    
</pre>
<p> </p>
<pre>
    
    Operating Revenues,
     as adjusted                           $490,255       $504,547  $441,422
                                           --------       --------  --------
    
</pre>
<p> </p>
<p> </p>
<p>Operating Income                       <span class="xn-money">$102,777</span>       <span class="xn-money">$105,836</span>   <span class="xn-money">$58,315</span></p>
<p> </p>
<pre>
    
                   Plus
                   (Less):
                   Gains
                   (losses)
                   on
                   deferred
                   compensation
                             and
                             seed
                             investments     (4,621)        11,182    31,386
                    Transition-
                   related
                   costs(2)                  3,155              -         -
                   Operating
                   income
                   and
                   expenses
                   of
                             consolidated
                             investment
                             vehicles         1,243            758       339
                                              -----            ---       ---
    
</pre>
<p> </p>
<pre>
    
    Operating Income, as
     adjusted                              $102,554       $117,776   $90,040
                                           --------       --------   -------
    
</pre>
<p> </p>
<pre>
    
    Operating margin,
     GAAP basis                                15.2%          15.8%      9.5%
    Operating margin, as
     adjusted                                  20.9           23.3      20.4
    
</pre>
<p> </p>
<p> </p>
<pre>
    
    (1) See explanations
     for Use of
     Supplemental Data as
     Non-GAAP
     Performance
     Measures.
    (2) Transition-
     related costs:
                             Compensation    $2,713
                            Other               442
                                                ---
                                 Total       $3,155
                                             ======




    
</pre>
<p> </p>
<p> </p>
<pre>
    
                               LEGG MASON, INC. AND SUBSIDIARIES
                                     (Amounts in billions)
                                          (Unaudited)
    
</pre>
<p> </p>
<p>Assets Under Management</p>
<p> </p>
<pre>
    
                                    Quarters Ended
                                    --------------
                 
                    June   March       December     September     June
                    2010    2010         2009         2009        2009
                    ----    ----         ----         ----        ----
    By asset
     class:
      Equity       $155.8  $173.8       $168.7       $165.6      $143.6
      Fixed
       Income       357.9   364.3        365.8        385.7       366.6
      Liquidity     131.7   146.4        147.1        151.4       146.7
                   ------  ------       ------       ------      ------
        Total      $645.4  $684.5       $681.6       $702.7      $656.9
                   ======  ======       ======       ======      ======
    
</pre>
<p> </p>
<pre>
    
    By asset
     class
     (average):
      Equity       $167.6  $167.4       $164.6       $155.7      $138.0
      Fixed
       Income       362.0   365.6        378.8        377.5       362.3
      Liquidity     138.7   148.2        149.9        150.8       146.9
                   ------  ------       ------       ------      ------
        Total      $668.3  $681.2       $693.3       $684.0      $647.2
                   ======  ======       ======       ======      ======
    
</pre>
<p> </p>
<pre>
    
    By
     division:
      Americas     $450.3  $475.8       $472.9       $484.3      $457.1
      International 195.1   208.7        208.7        218.4       199.8
                   ------  ------       ------       ------      ------
        Total      $645.4  $684.5       $681.6       $702.7      $656.9
                   ======  ======       ======       ======      ======


    
</pre>
<p> </p>
<p> </p>
<p>Component Changes in Assets under Management</p>
<p> </p>
<p> </p>
<pre>
    
                                    Quarters Ended
                                    --------------
                   
                          June    March     December   September   June
                          2010     2010       2009       2009      2009
                          ----     ----       ----       ----      ----
    Beginning
     of period           $684.5   $681.6     $702.7     $656.9    $632.4
    Net client
     cash
     flows                (23.1)   (10.9)     (32.7)      (8.1)    (30.3)
    Market
     performance
     and other            (16.0)    13.8       11.6       53.9      54.8
     Acquisitions
     (Dispositions),
     net                      -        -          -          -         -
                         ------   ------     ------     ------    ------
    End of
     period              $645.4   $684.5     $681.6     $702.7    $656.9
                         ======   ======     ======     ======    ======
    
</pre>
<p> </p>
<pre>
    
    BY
     DIVISION
    
</pre>
<p> </p>
<pre>
    
    Americas
      Beginning
       of period         $475.8   $472.9     $484.3     $457.1    $446.7
      Net client
       cash
       flows              (17.6)   (10.9)     (21.4)     (11.8)    (27.0)
      Market
       performance
       and other           (7.9)    13.8       10.0       39.0      37.4
       Acquisitions
       (Dispositions),
       net                    -        -          -          -         -
                         ------   ------     ------     ------    ------
     End of
       period            $450.3   $475.8     $472.9     $484.3    $457.1
                         ======   ======     ======     ======    ======
    
</pre>
<p> </p>
<pre>
    
    International
      Beginning
       of period         $208.7   $208.7     $218.4     $199.8    $185.7
      Net client
       cash
       flows               (5.5)       -      (11.3)       3.7      (3.3)
      Market
       performance
       and other           (8.1)       -        1.6       14.9      17.4
       Acquisitions
       (Dispositions),
       net                    -        -          -          -         -
                         ------   ------     ------     ------    ------
      End of
       period            $195.1   $208.7     $208.7     $218.4    $199.8
                         ======   ======     ======     ======    ======



    
</pre>
<p> </p>
<pre>
    
                   LEGG MASON, INC. AND SUBSIDIARIES
    RECONCILIATION OF GAAP BASIS CONSOLIDATED STATEMENT OF INCOME
     TO NON-GAAP BASIS CONSOLIDATED STATEMENT OF INCOME EXCLUDING
                        INVESTMENT VEHICLES (1)
           (Amounts in thousands, except per share amounts)
                              (Unaudited)
    
</pre>
<p> </p>
<pre>
    
                                       Quarter Ended June 30, 2010
                                       ---------------------------
    
</pre>
<p> </p>
<pre>
    
                              GAAP                                Non-GAAP
                              Basis        Consolidated           Basis -
                                             Investment
                             -----            Vehicles           Excluding
                                                                 Investment
                                            -----------           Vehicles
                                                                -----------
    
</pre>
<p> </p>
<pre>
    
    Operating Revenues:
      Investment advisory
       fees                 $576,445                $767            $577,212
      Distribution and
       service fees           96,314                  12              96,326
      Other                    1,406                   -               1,406
                               -----                 ---               -----
        Total operating
         revenues            674,165                 779             674,944
                             -------                 ---             -------
    
</pre>
<p> </p>
<pre>
    
    Operating Expenses:
      Compensation and
       benefits              268,787                   -             268,787
      Distribution and
       servicing             184,702                 (13)            184,689
      Other                  117,899                (451)            117,448
                             -------                ----             -------
        Total operating
         expenses            571,388                (464)            570,924
                             -------                ----             -------
    
</pre>
<p> </p>
<pre>
    
    Operating Income         102,777               1,243             104,020
                             -------               -----             -------
    
</pre>
<p> </p>
<pre>
    
    Other Non-
     Operating Income
     (Expense)
      Net interest income
       (expense)             (20,986)                  -             (20,986)
      Other income
       (expense)              (9,684)              1,699              (7,985)
                              ------               -----              ------
        Other non-
         operating income
         (expense)           (30,670)              1,699             (28,971)
                             -------               -----             -------
    
</pre>
<p> </p>
<pre>
    
    Income Before
     Income Tax
     Provision                72,107               2,942              75,049
    
</pre>
<p> </p>
<pre>
    
      Income tax
       provision              27,064                   -              27,064
                              ------                 ---              ------
    
</pre>
<p> </p>
<p>Net Income                45,043               2,942              47,985</p>
<p> </p>
<pre>
    
      Less: Net income
       (loss)
       attributable
        to noncontrolling
         interests            (2,888)              2,942                  54
                              ------               -----                 ---
    
</pre>
<p> </p>
<pre>
    
    Net Income
     Attributable to
     Legg Mason, Inc.        $47,931                  $-             $47,931
                             =======                 ===             =======
    
</pre>
<p> </p>
<pre>
    
    Effective Income
     Tax Rate                   37.5%
    
</pre>
<p> </p>
<pre>
    
    Effective Income
     Tax Rate Excluding
      Consolidated
       Investment
       Vehicles                                                         36.1%
    
</pre>
<p> </p>
<pre>
    
    (1) See explanations for Use of Supplemental Data as Non-GAAP
    Performance Measures.




    
</pre>
<p> </p>
<pre>
    
                      LEGG MASON, INC. AND SUBSIDIARIES
        RECONCILIATION OF GAAP BASIS CONSOLIDATED STATEMENT OF INCOME
         TO NON-GAAP BASIS CONSOLIDATED STATEMENT OF INCOME EXCLUDING
                            INVESTMENT VEHICLES (1)
               (Amounts in thousands, except per share amounts)
                                 (Unaudited)
    
</pre>
<p> </p>
<pre>
    
                                  Quarter Ended March 31, 2010
                                  ----------------------------
    
</pre>
<p> </p>
<pre>
    
                          GAAP                            Non-GAAP Basis
                          Basis       Consolidated               -
                                        Investment
                         -----           Vehicles           Excluding
                                                            Investment
                                       -----------           Vehicles
                                                           -----------
    
</pre>
<p> </p>
<pre>
    
    Operating
     Revenues:
      Investment
       advisory fees    $573,895               $515             $574,410
      Distribution and
       service fees       96,113                 13               96,126
      Other                1,412                  -                1,412
                           -----                ---                -----
        Total operating
         revenues        671,420                528              671,948
                         -------                ---              -------
    
</pre>
<p> </p>
<pre>
    
    Operating
     Expenses:
      Compensation and
       benefits          267,270                  -              267,270
      Distribution and
       servicing         167,419                (18)             167,401
      Other              130,895               (212)             130,683
                         -------               ----              -------
        Total operating
         expenses        565,584               (230)             565,354
                         -------               ----              -------
    
</pre>
<p> </p>
<pre>
    
    Operating Income     105,836                758              106,594
                         -------                ---              -------
    
</pre>
<p> </p>
<pre>
    
    Other Non-
     Operating
     Income
     (Expense)
      Net interest
       income
       (expense)         (23,512)                (1)             (23,513)
      Other income
       (expense)          19,396             (2,202)              17,194
                          ------             ------               ------
        Other non-
         operating
         income
         (expense)        (4,116)            (2,203)              (6,319)
                          ------             ------               ------
    
</pre>
<p> </p>
<pre>
    
    Income (Loss)
     Before Income
     Tax Provision       101,720             (1,445)             100,275
    
</pre>
<p> </p>
<pre>
    
      Income tax
       provision          36,619                  -               36,619
                          ------                ---               ------
    
</pre>
<p> </p>
<pre>
    
    Net Income
     (Loss)               65,101             (1,445)              63,656
    
</pre>
<p> </p>
<pre>
    
      Less: Net income
       (loss)
       attributable
        to
         noncontrolling
         interests         1,494             (1,445)                  49
                           -----             ------                  ---
    
</pre>
<p> </p>
<pre>
    
    Net Income
     Attributable to
     Legg Mason,
     Inc.                $63,607                 $-              $63,607
                         =======                ===              =======
    
</pre>
<p> </p>
<pre>
    
    Effective Income
     Tax Rate               36.0%
    
</pre>
<p> </p>
<pre>
    
    Effective Income
     Tax Rate
     Excluding
      Consolidated
       Investment
       Vehicles                                                     36.5%
    
</pre>
<p> </p>
<pre>
    
    (1) See explanations for Use of Supplemental Data as Non-GAAP
    Performance Measures.




    
</pre>
<p> </p>
<pre>
    
                    LEGG MASON, INC. AND SUBSIDIARIES
      RECONCILIATION OF GAAP BASIS CONSOLIDATED STATEMENT OF INCOME
       TO NON-GAAP BASIS CONSOLIDATED STATEMENT OF INCOME EXCLUDING
                          INVESTMENT VEHICLES (1)
             (Amounts in thousands, except per share amounts)
                               (Unaudited)
    
</pre>
<p> </p>
<pre>
    
                                          Quarter Ended June 30, 2009
                                          ---------------------------
    
</pre>
<p> </p>
<pre>
    
                                  GAAP                             Non-GAAP
                                 Basis       Consolidated          Basis  -
                                               Investment
                                 -----          Vehicles          Excluding
                                                                  Investment
                                              -----------          Vehicles
                                                                 -----------
    
</pre>
<p> </p>
<pre>
    
    Operating Revenues:
      Investment advisory
       fees                    $524,596               $784           $525,380
      Distribution and
       service fees              86,701                  -             86,701
      Other                       1,787                  -              1,787
                                  -----                ---              -----
        Total operating
         revenues               613,084                784            613,868
                                -------                ---            -------
    
</pre>
<p> </p>
<pre>
    
    Operating Expenses:
      Compensation and
       benefits                 268,812                  -            268,812
      Distribution and
       servicing                172,464                (18)           172,446
      Other                     113,493                463            113,956
                                -------                ---            -------
        Total operating
         expenses               554,769                445            555,214
                                -------                ---            -------
    
</pre>
<p> </p>
<pre>
    
    Operating Income             58,315                339             58,654
                                 ------                ---             ------
    
</pre>
<p> </p>
<pre>
    
    Other Non-
     Operating Income
     (Expense)
      Net Interest income
       (expense)               (41,569)                  -            (41,569)
      Fund support               17,558                  -             17,558
      Other income
       (expense)                 46,400             (2,573)            43,827
                                 ------             ------             ------
        Other non-
         operating income
         (expense)               22,389             (2,573)            19,816
                                 ------             ------             ------
    
</pre>
<p> </p>
<pre>
    
    Income (Loss)
     Before Income Tax
     Provision                   80,704             (2,234)            78,470
    
</pre>
<p> </p>
<pre>
    
      Income tax
       provision                 28,380                  -             28,380
                                 ------                ---             ------
    
</pre>
<p> </p>
<p>Net Income (Loss)            52,324             (2,234)            50,090</p>
<p> </p>
<pre>
    
      Less: Net income
       (loss)
       attributable
        to noncontrolling
         interests                2,270             (2,234)                36
                                  -----             ------                ---
    
</pre>
<p> </p>
<pre>
    
    Net Income
     Attributable to
     Legg Mason, Inc.           $50,054                 $-            $50,054
                                =======                ===            =======
    
</pre>
<p> </p>
<pre>
    
    Effective Income
     Tax Rate                      35.2%
    
</pre>
<p> </p>
<pre>
    
    Effective Income
     Tax Rate Excluding
      Consolidated
       Investment
       Vehicles                                                          36.2%
    
</pre>
<p> </p>
<pre>
    
    (1) See explanations for Use of Supplemental Data as Non-GAAP
    Performance Measures.




    Use of Supplemental Data as Non-GAAP Performance Measures

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

    Adjusted Income

    
</pre>
<p>Adjusted Income was formerly reported as "Cash Income, as Adjusted." We define "adjusted 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 also adjust for non-core items that are not reflective of our economic performance, such as impairment charges on indefinite-life intangible assets and goodwill, including the related impact on deferred income taxes, and net money market fund support losses (gains).</p>
<p/>
<p>We believe that adjusted income provides a good representation 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 issued contingent convertible debt, made significant acquisitions, including any related goodwill or intangible asset impairments, or engaged in money market fund support transactions.  We also believe that adjusted income is an important metric in estimating the value of an asset management business.</p>
<p/>
<p>Adjusted income only considers adjustments for certain items that relate to operating performance and comparability, and therefore, is most readily reconcilable to Net income determined under GAAP.  This measure is provided in addition to net income, but is not a substitute for net income and may not be comparable to non-GAAP performance measures, including measures of adjusted earnings or adjusted income, of other companies. Further, adjusted income is not a liquidity measure and should not be used in place of cash flow measures determined under GAAP.  Legg Mason considers adjusted income to be useful to investors because it is an important metric in measuring the economic performance of asset management companies, as an indicator of value, and because it facilitates comparison of Legg Mason's operating results with the results of other asset management firms that have not engaged in significant acquisitions, issued contingent convertible debt, or engaged in money market fund support transactions.</p>
<p/>
<p>In calculating adjusted 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 adjusted income.  Conversely, we subtract the income tax benefits on impairment charges that have been recognized under GAAP.  We also add back imputed interest on contingent convertible debt, which is a non-cash expense, as well as the actual tax benefits on the related contingent convertible debt that are not realized under GAAP.  We also add (subtract) non-core items, such as net money market fund support losses (gains) (net of losses on the sale of the underlying SIV securities, if applicable) and impairment charges to net 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 adjusted income 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 adjusted income 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 adjusted income because these charges are related to assets that will ultimately require replacement.</p>
<pre>
    

    Consolidated Statements of Income, Excluding Consolidated Investment
Vehicles

    
</pre>
<p>Effective with the <span class="xn-chron">April 1, 2010</span> adoption of the new financial accounting standard on consolidations, "Amendments to FASB Interpretation No. 46 (R)", Legg Mason now consolidates and separately identifies certain sponsored investment vehicles, primarily comprised of a collateralized loan obligation entity.</p>
<p/>
<p>In presenting our "Consolidated Statements of Income, Excluding Consolidated Investment Vehicles", we add back the investment advisory and distribution and servicing fees that are eliminated upon the consolidation of investment vehicles and exclude the operating expenses and the impact on non-operating income (expense) and noncontrolling interests of consolidated investment vehicles.  We believe it is important to provide the Consolidated Statements of Income, Excluding Consolidated Investment Vehicles to present the underlying performance and economics of our core asset management operations, which does not include the results of the investment funds that we manage but do not own.  By deconsolidating the consolidated investment vehicles from the Consolidated Statements of Income, the investment advisory and distribution fees earned by Legg Mason from consolidated investment vehicles are added back to reflect our actual revenues.  Similarly the operating expenses and the impact on non-operating income (expense) and noncontrolling interests of consolidated vehicles are removed from the GAAP basis Statements of Income since this activity does not actually belong to Legg Mason.  The deconsolidation of the investment vehicles does not have any impact on Net Income Attributable to Legg Mason, Inc. in any period presented.  The Consolidated Statements of Income, Excluding Consolidated Investment Vehicles are presented in addition to our GAAP basis Consolidated Statements of Income, but are not substitutes for the GAAP basis Consolidated Statements of Income and may not be comparable to Consolidated Statements of Income presented on a non-GAAP basis of other companies.</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, the impact on compensation expense of gains or losses on seed capital investments by our affiliates under revenue sharing agreements, transition-related costs of streamlining our business model, primarily termination benefits, income (loss) of consolidated investment vehicles, 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, which we refer to as "adjusted operating revenues".  The compensation items, other than transition-related costs, 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.  Transition-related costs 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 adjusted operating revenues 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.  Adjusted operating revenues also include our advisory revenues we receive from consolidated investment vehicles that are eliminated in consolidation under GAAP.  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, transition-related costs, and the impact of the consolidation of certain investment vehicles described above.  The consolidation of these investment vehicles do not have an impact to net income attributable to Legg Mason, Inc.  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>
    



    

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, Inc. Web Site: http://www.leggmason.com

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