Legg Mason Reports Results for Third Quarter of Fiscal Year 2009



    
    - Assets Under Management of $698 Billion -

    
    BALTIMORE, Jan. 28 /CNW/ -- Legg Mason, Inc. (NYSE:   LM) today reported
its operating results for the third quarter of fiscal year 2009, which ended
December 31, 2008.  For the quarter, revenue was $720.0 million, down 39% from
$1.2 billion in the third quarter of fiscal 2008.  The Company reported a net
loss of $1.5 billion, or $10.55 per diluted share, compared to net income of
$154.6 million, or $1.07 per diluted share, in the third quarter of fiscal
2008 and compared to a net loss of $103.8 million, or $0.74 per diluted share,
in the quarter ended September 30, 2008.
    

    The third quarter net loss resulted primarily from four events:

    --  There were non-cash goodwill and intangible asset impairment charges
        (described herein as intangible impairment) in the Wealth Management
        division of $1.2 billion, representing $850.7 million net of income
        taxes, or $6.03 per diluted share. The charges resulted both from the
        impact of current market conditions on valuation metrics and from
        substantial declines in the assets managed by and earnings
contribution
        of the division.
    --  Due to the Company's continued efforts to reduce its Structured
        Investment Vehicle (SIV) exposure, it incurred a loss of $842.1
        million, representing $512.4 million net of operating expense
        reductions and income taxes, or $3.63 per diluted share, as a result
of
        the previously announced sale of the Axon Financial SIV securities in
        December 2008. The sale reduced the total exposure of the Company and
        its money market funds to all SIVs by 43%. Total exposure to SIVs
        remaining in the money market funds has declined from approximately
$10
        billion in October 2007 to $1.4 billion, through systematic reduction
        of positions.
    --  Additional support for liquidity funds in the quarter, together with
        reduced prices on previously supported SIV and other similar conduit
        securities, resulted in an aggregate charge of $243.2 million,
        representing $150.2 million net of operating expense reductions and
        income taxes, or $1.07 per diluted share.  The Company supported seven
        funds through existing Capital Support Agreements (CSAs) and two new
        CSAs and also renewed a total return swap agreement with a major bank.
    --  During the quarter, a major investment bank, which had declared
        bankruptcy, defaulted on a sublease with the company. As a result, a
        charge of $36.1 million, representing $22.0 million net of income
        taxes, or $0.16 per diluted share, was recorded to reflect the
        anticipated lost sublease income over the remainder of the lease
        period.

    
    Assets Under Management (AUM) were $698.2 billion, down 17% from $841.9
billion at September 30, 2008, reflecting net client outflows and market
declines. AUM were down 30% from $998.5 billion at December 31, 2007.
    

    Comments on the Third Quarter of Fiscal Year 2009

    
    Mark R. Fetting, Chairman and Chief Executive Officer, said, "In the
December quarter, we experienced erosion in our AUM base, as did most other
asset managers, due to the severity of the global recession. There were other
exceptional events- including the impact of our SIV reductions and an
intangible write-down in our Wealth Management division - which significantly
hurt our bottom line. Overall, these are bitter results reflecting necessary
actions to move us forward.
    

    
    "We believe, however, that cash income, as adjusted, is the best measure
of our earnings power.  Although we had a cash loss, as adjusted, for the
quarter, it was solely the result of the loss on the sale of Axon Financial,
an important step toward reducing our SIV exposure, and getting this problem
behind us once and for all.
    

    
    "Our balance sheet remains strong, so that we have optionality to resolve
the SIV situation and to help protect against potential further deterioration
in the global markets. The Company will have $2.2 billion in available cash to
cover the full $1.8 billion off-balance sheet SIV exposure, if needed, after
receipt of an expected tax benefit in June and excluding subsidiary working
capital of $600 million.
    

    
    "We have taken actions to aggressively cut operating costs to reflect the
realities of lower revenue and profit levels, and we are ahead of schedule in
achieving our target of $120 million in cost reductions.  Through the end of
December, we have achieved run-rate savings of over $100 million and we expect
to realize sustainable savings of $135 million by March 31, 2009.
    

    
    "We are clear-eyed about what we have to do: generate sustainable
investment performance, resolve our SIV exposure, effectively manage our
costs, navigate through market uncertainty and position the Legg Mason
franchise for growth and long-term success."
    

    Business Developments

    
    Mr. Fetting commented, "As 2008 came to an end - the most tumultuous year
in modern financial history - all of Legg Mason was honored by the news that
our own Charlie Dreifus, Principal of Royce & Associates, was named
Morningstar Domestic Stock Manager of the Year for his stewardship of the
Royce Special Equity Fund.  Hersh Cohen, Chief Investment Officer of
ClearBridge Advisors, and his partner, Scott Glasser, were among five other
finalists for the same award, the most prestigious in our industry. Despite
all our challenges, the work of Charlie, Hersh and Scott, among many others
across our affiliates, are proof points of true investment excellence within
Legg Mason and demonstrate why clients continue to work with us."
    

    
    In honoring Mr. Dreifus, Morningstar called him "a balance sheet skeptic"
and described his fund as an "oasis of calm" in turbulent markets: "Charlie
Dreifus made it a lot easier for investors to get back into the black than
many of his peers." Morningstar continued, "The Royce Special Equity Fund held
up brilliantly in the bear market of 2000-2 and it did so once again in 2008."
    

    
    SmartMoney recognized two Legg Mason funds as part of the "100 Great
Funds" for 2009, given to mutual funds that have posted the highest returns
since the 1987 market crash. Hersh Cohen and Scott Glasser were honored for
their management of the Legg Mason Partners Appreciation Fund and Mr. Glasser,
along with Peter Hable and Peter Vanderlee, took honors for the Legg Mason
Partners Dividend Strategy Fund.  SmartMoney criteria include fund returns in
the top fifth of their categories for the past 5 and 10 years, resilience in
bear markets and managers with long-term experience in running the fund.
    

    
    The Company announced an innovation initiative to develop a new suite of
investment products and services focused on long-term client needs, including
retirement and asset allocation solutions and other offerings which complement
existing high-performance strategies.  The first two new products will be:
    

    --  a municipal term trust closed-end fund managed by Western Asset, which
        will invest primarily in investment grade municipal securities selling
        at historically discounted prices and with high relative tax-exempt
        yields;

    --  a fund managed by Permal which will tactically allocate assets among
        other Legg Mason managers and other investments.

    
    The Company also announced plans for a major reorganization of its U.S.
mutual fund portfolio. The Company will examine merging or liquidating certain
products and will enhance the structure of its fund families to align with
client needs and channel opportunities and to leverage the full power of the
Legg Mason multi-manager model.
    

    Assets Under Management Decreased to $698 Billion
    
    AUM decreased to $698.2 billion at December 31, 2008, down $300.3
billion, or 30%, from December 31, 2007 and down $143.7 billion, or 17%, from
$841.9 billion at September 30, 2008. In the third quarter of fiscal 2009, net
client cash outflows were $77.0 billion. Equity outflows were approximately
$17 billion, fixed income outflows were approximately $42 billion and
liquidity outflows were approximately $18 billion in the quarter, the latter
primarily driven by a partial redemption by a sovereign wealth fund with
operating needs.
    

    
    Average AUM during the quarter were $745.1 billion, compared to $898.4
billion in the second quarter of fiscal 2009 and $1,013.7 billion in the third
quarter of fiscal 2008.  At December 31, 2008, equity products represented 21%
of AUM, fixed income represented 56% and liquidity represented 23%. By
business division, 54% of total AUM were in Institutional, 41% in Managed
Investments and 5% in Wealth Management. Assets managed for non-U.S. domiciled
clients represented 35% of total AUM at December 31, 2008.
    

    Comparison to the Third Quarter of Fiscal Year 2008
    
    Revenue decreased 39% from the prior year quarter, reflecting a decline
in fees earned on lower average assets under management, a higher proportion
of fixed income and liquidity assets under management, and lower performance
fees. Operating expenses increased by 112% from the prior year quarter, due to
intangible impairment charges and to increased occupancy, resulting from a
sublease charge of $36.1 million, partially offset by lower compensation and
benefits and distribution and servicing costs.  Other non-operating expenses
in the third quarter of fiscal 2009 were $1.2 billion, including $1.1 billion
of losses related to the Company's money market fund support (including the
sale of the Axon Financial SIV).
    

    
    For the quarter, the Company incurred a net loss of $1.5 billion, or
$10.55 per diluted share, down from net income of $154.6 million, or $1.07 per
diluted share.  Net charges in the quarter included: money market fund support
(including the sale of the Axon Financial SIV) of $662.6 million, or $4.70 per
diluted share; intangible impairment of $850.7 million, or $6.03 per diluted
share; and a sublease charge of $22.0 million, or $0.16 per diluted share.
These events contributed to a cash loss in the quarter of $1.8 billion, or
$12.88 per diluted share, compared to cash income of $205.1 million, or $1.42
per diluted share, in the third quarter of fiscal 2008. There was a cash loss,
as adjusted, of $759.7 million, or $5.39 per diluted share, compared to cash
income, as adjusted, of $227.9 million, or $1.58 per diluted share, in the
third quarter of fiscal 2008.
    

    Consolidated Results for the Fiscal Year to Date 2009
    
    Total revenue for the first nine months of fiscal 2009 was $2.7 billion,
down from $3.6 billion during the prior period ended December 31, 2007,
reflecting a decrease of 14% in average AUM, as well as decreases in
investment advisory fees and distribution and servicing fees resulting from a
higher proportion of fixed income and liquidity assets under management.
Operating expenses increased to $3.4 billion from $2.7 billion, primarily due
to intangible impairment charges. Compensation and benefits and distribution
and servicing expenses declined due to lower revenue and average AUM, and, in
the case of compensation, from continuing focus on cost reduction. Other
non-operating expenses were $1.8 billion, including $1.7 billion of losses
related to the Company's money market fund support.  The Company reported a
net loss of $1.6 billion, or $11.54 per diluted share, a decrease from net
income of $523.1 million, or $3.62 per diluted share, for the prior year
period.  The cash loss was $1.9 billion, or $13.24 per diluted share, compared
to cash income of $675.8 million, or $4.68 per diluted share, in the prior
year period.  There was a cash loss, as adjusted, of $459.1 million, or $3.26
per diluted share, compared to cash income, as adjusted, of $698.5 million, or
$4.84 per diluted share, for the prior year period.
    

    Comparison to the Second Quarter of Fiscal Year 2009
    
    Revenue of $720.0 million decreased 25% from $966.1 million in the
quarter ended September 30, 2008.  Operating expenses increased to $1.8
billion compared to $745.9 million in the prior quarter, due to intangible
impairment and higher occupancy charges. Compensation and benefits expenses
linked to revenue sharing agreements decreased by $69.5 million in the
quarter, reflecting the variable aspect of our multi-manager business model.
Declines in the corporate cost base of approximately $50 million reflected the
impact of on-going cost reduction initiatives. The net loss of $1.5 billion in
the quarter, or $10.55 per diluted share, compared to a net loss of $103.8
million, or $0.74 per diluted share, in the prior quarter, reflecting the
impact of the intangible impairment charges and the money market fund support
(including the sale of the Axon Financial SIV).
    

    
    There was a cash loss of $1.8 billion, or $12.88 per diluted share,
compared to a cash loss of $54.0 million, or $0.38 per diluted share, in the
second quarter of fiscal 2009.  There was a cash loss, as adjusted, of $759.7
million, or $5.39 per diluted share, compared to cash income, as adjusted, of
$137.2 million, or $0.97 per diluted share, in the second quarter of fiscal
2009.
    

    Balance Sheet
    
    At December 31, 2008, Legg Mason's cash position, including cash
equivalents and cash restricted for collateral purposes, was $2.4 billion,
total debt was $3.5 billion, including $1.2 billion of debt issued as part of
equity units, and stockholders' equity was $4.8 billion.  The ratio of total
debt to total capital (total equity plus total debt) was 42%.
    

    Use of Supplemental Data as Non-GAAP Performance Measures
    Cash Income (Loss) and Cash Income (Loss), as Adjusted

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

    
    We define "cash income" as net income (loss) plus amortization and
deferred taxes related to intangible assets and goodwill less deferred income
taxes on goodwill and intangible asset impairment.  We define "cash income, as
adjusted" as cash income plus net money market fund support losses and
impairment charges less net realized losses on the sale of the underlying SIV
securities.
    

    
    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 or significant acquisitions, including any related
goodwill or intangible asset impairments.
    

    
    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.
    

    
    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. In calculating cash income, as adjusted, we add net money market
fund support losses less net realized losses on the sale of the underlying SIV
securities and impairment charges to cash income to reflect that these
non-recurring 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.
    

    
    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.
    

    
    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.
    

    
    A reconciliation of net income (loss) to non-GAAP cash income (loss) and
cash income (loss), as adjusted, is presented below.
    

    
    Pre-Tax Profit Margin, As Adjusted for Distribution and Servicing
Expense, Money Market Fund Support Losses and Impairment Charges
    

    
    Legg Mason believes that pre-tax profit margin adjusted for distribution
and servicing expense, money market fund support losses and impairment charges
is a useful measure of our performance because it indicates what our margins
would have been without the distribution revenue that are passed through to
third parties as a direct cost of selling our products, money market fund
support losses and impairment charges that we do not consider part of our core
business metrics, and thus it shows the effects of these items on our margins.
This measure is provided in addition to the Company's 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. A reconciliation
of consolidated pre-tax profit margin, as adjusted, to pre-tax profit margin
under GAAP, is presented below.
    

    Conference Call to Discuss Results

    
    A conference call to discuss the Company's results, hosted by Mr.
Fetting, will be held at 8:30 a.m., E.S.T. today. The call will be open to the
general public. Interested participants should access the call by dialing
1-866-802-4364 (or for international calls 1-703-639-1325) at least 10 minutes
prior to the scheduled start to ensure connection.
    

    
    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
1326276, after completion of the call.  Please note that the replay will be
available beginning at 2:00 p.m., E.S.T. on Wednesday, January 28, 2009 and
ending on February 11, 2009.
    

    About Legg Mason
    
    Legg Mason is a global asset management firm, with $698 billion in assets
under management at December 31, 2008.  The Company provides active asset
management in many major investment centers throughout the world. Legg Mason
is headquartered in Baltimore, Maryland, and its common stock is listed on the
New York Stock Exchange (symbol: LM).
    

    
    This release contains forward-looking statements subject to risks,
uncertainties and other factors that may cause actual results to differ
materially. For a discussion of these risks and uncertainties, see "Risk
Factors" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in Legg Mason's Annual Report on Form 10-K for the
fiscal year ended March 31, 2008 and it subsequent Reports on Form 10-Q.
    



    

    
                      LEGG MASON, INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF OPERATIONS
               (Amounts in thousands, except per share amounts)
                             (Unaudited)
    

    
                                     Quarters Ended            %Change
                           -----------------------------   -------------------
                                                          December    December
                                                            2008        2008
                                                          Compared    Compared
                                                             to          to
                           December  September  December  September   December
                              2008      2008       2007      2008        2007
                           --------- ----------  --------  --------   --------
    Operating Revenues:
      Investment
       advisory
       fees:
        Separate
         accounts             $225,156   $283,116   $365,735  (20.5)%  (38.4)%
        Funds                  389,367    540,829    593,375  (28.0)   (34.4)
        Performance
         fees                    2,910      3,437     50,848  (15.3)   (94.3)
      Distribution and
       service fees             99,990    135,796    172,637  (26.4)   (42.1)
      Other                      2,565      2,959      4,049  (13.3)   (36.7)
                                 -----      -----      -----
          Total operating
           revenues            719,988    966,137  1,186,644  (25.5)   (39.3)
                               -------    -------  ---------
    

    
    Operating Expenses:
      Compensation and
       benefits                195,238    322,183    366,377  (39.4)   (46.7)
      Distribution and
       servicing               202,502    278,969    326,698  (27.4)   (38.0)
      Communications and
       technology               45,140     49,085     45,400   (8.0)    (0.6)
      Occupancy                 70,656     33,755     34,303  109.3    106.0
      Amortization of
       intangible
       assets                    9,252      9,599     14,155   (3.6)   (34.6)
      Impairment charges     1,225,100          -          -    n/m      n/m
      Other                     45,105     52,333     57,720  (13.8)   (21.9)
                                ------     ------     ------
          Total
           operating
           expenses          1,792,993    745,924    844,653  140.4    112.3
                             ---------    -------    -------
    

    
                            ----------    -------    -------
    Operating Income
     (Loss)                 (1,073,005)   220,213    341,991    n/m      n/m
                            ----------    -------    -------
    

    
    Other Income
    (Expense)
      Interest income            8,468     21,025     19,356  (59.7)   (56.3)
      Interest expense         (37,485)   (37,768)   (20,837)  (0.7)    79.9
      Fund support          (1,085,296)  (324,640)   (90,489)   n/m      n/m
      Other                    (75,604)   (38,648)    (3,029)  95.6      n/m
                               -------    -------     ------
          Total other
          income expense)   (1,189,917)  (380,031)   (94,999)   n/m      n/m
                            ----------   --------    -------
    

    
    Income (Loss)
     from Operations
     before Income Tax
     Provision (Benefit)
     and Minority
     Interests             (2,262,922)  (159,818)    246,992    n/m      n/m
    

    
      Income tax
       provision
       (benefit)             (774,951)   (55,813)     92,319    n/m      n/m
                              --------    -------     ------
    

    
    Income (Loss)
     from Operations
     before Minority
     Interests              (1,487,971)  (104,005)   154,673    n/m      n/m
    

    
      Minority
       interests,
       net of tax                   148        254       (91)   n/m      n/m
                                    ---        ---       ---
    

    
    Net Income
    (Loss)                  $(1,487,823) $(103,751) $154,582    n/m      n/m
                            ===========  =========  ========
    


    
    n/m - not meaningful
    



    
                        LEGG MASON, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  (Amounts in thousands, except per share amounts)
                                  (Unaudited)
                                  (continued)
    

    
                                         Quarters Ended
                              --------------------------------------
                           December 2008  September 2008 December 2007
    

    
    Net Income (Loss)
    per share:
      Basic                  $(10.55)        $(0.74)        $1.09
                              =======         ======        =====
    

    
      Diluted                $(10.55)        $(0.74)        $1.07
                              =======        ======         =====
    

    
    Weighted average number
     of shares
     outstanding:
          Basic              141,019        140,900       142,297
          Diluted (1)        141,019        140,900       144,018
    



    
    (1)  Diluted shares are the same as basic shares for periods with a loss
    



    
                       LEGG MASON, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
               (Amounts in thousands, except per share amounts)
                                  (Unaudited)
    

    
                                        For the Nine Months Ended
                                     ----------------------------
                                December 2008  December 2007  % Change
                                -------------  -------------  ---------
    Operating Revenues:
      Investment advisory fees:
        Separate
         accounts                    $824,947     $1,122,715     (26.5)%
        Funds                       1,499,754      1,761,406     (14.9)
        Performance
         fees                          16,492        129,482     (87.3)
      Distribution and service
       fees                           389,285        533,556     (27.0)
      Other                             9,678         17,804     (45.6)
                                        -----         ------
          Total operating
           revenues                 2,740,156      3,564,963     (23.1)
                                    ---------      ---------
    

    
    Operating Expenses:
      Compensation and benefits       895,089      1,242,618     (28.0)
      Distribution and
       servicing                      789,344        969,312     (18.6)
      Communications and
       technology                     144,511        140,495       2.9
      Occupancy                       138,555         96,529      43.5
      Amortization of
       intangible assets               28,475         43,585     (34.7)
      Impairment charges            1,225,100              -       n/m
      Other                           142,927        159,852     (10.6)
                                      -------        -------
          Total operating
           expenses                 3,364,001      2,652,391      26.8
                                    ---------      ---------
    

    
                                    ---------      ---------
    Operating Income (Loss)          (623,845)       912,572    (168.4)
                                     --------        -------
    

    
    Other Income (Expense)
      Interest income                  52,761         54,001      (2.3)
      Interest expense               (111,864)       (54,608)    104.8
      Fund support                 (1,676,810)       (90,489)      n/m
      Other                          (112,944)        15,283       n/m
                                     --------         ------
          Total other income
           (expense)               (1,848,857)       (75,813)      n/m
                                   ----------        -------
    

    
    Income (Loss) from Operations
     before Income Tax Provision
       (Benefit) and Minority
        Interests                  (2,472,702)       836,759       n/m
    

    
      Income tax provision
       (benefit)                     (849,499)       313,483       n/m
                                     --------        -------
    

    
    Income (Loss) from Operations
      before Minority Interests    (1,623,203)       523,276       n/m
    

    
      Minority interests, net
       of tax                             356           (215)      n/m
                                          ---           ----
    

    
    Net Income (Loss)             $(1,622,847)      $523,061       n/m
                                  ===========       ========
    


    
    n/m - not meaningful
    




    
                     LEGG MASON, INC. AND SUBSIDIARIES
                   CONSOLIDATED STATEMENTS OF OPERATIONS
               (Amounts in thousands, except per share amounts)
                              (Unaudited)
                              (continued)
    


    
                                    For the Nine Months Ended
                                    -------------------------
                                  December 2008    December 2007
                                  -------------    -------------
    Net Income (Loss) per share:
      Basic                            $(11.54)         $3.68
                                       =======          =====
    

    
      Diluted                          $(11.54)         $3.62
                                       =======          =====
    

    
    Weighted average number of shares
      outstanding:
        Basic                          140,652        142,258
        Diluted (1)                    140,652        144,351
    


    
    (1)  Diluted shares are the same as basic shares for periods with a loss
    



    
                     LEGG MASON, INC. AND SUBSIDIARIES
                            SUPPLEMENTAL DATA
    

    
          RECONCILIATION OF NET INCOME (LOSS) TO CASH INCOME (LOSS),
                     AND CASH INCOME (LOSS), AS ADJUSTED
              (Amounts in thousands, except per share amounts)
                              (Unaudited)
    

    
                                          Quarters Ended
                                          --------------
    

    
                                  December    September    December
                                   2008         2008         2007
                                ----------  -----------  -----------
    

    
    Net Income (Loss)          $(1,487,823)   $(103,751)    $154,582
    

    
      Plus:
        Amortization of
         intangible assets           9,252        9,599       14,155
        Deferred income taxes
         on intangible
         assets                     37,260       40,201       36,385
        Deferred income taxes
         on impairment
         charges                  (374,353)           -            -
    

    
                                ----------      -------      -------
    Cash Income (Loss)          (1,815,664)     (53,951)     205,122
                                ----------      -------      -------
    

    
      Plus:
        Net money market fund
         support (1)               662,577      191,109       22,771
        Impairment charges       1,225,100            -            -
      Less:
        Net realized loss on
         sale of SIV
         securities (1)           (831,699)           -            -
    

    
                                 ---------     --------     --------
    Cash Income (Loss), as
     adjusted                    $(759,686)    $137,158     $227,893
                                 ---------     --------     --------
    



    
    Net Income (Loss) per
     Diluted Share                 $(10.55)      $(0.74)       $1.07
    

    
      Plus:
        Amortization of
         intangible assets            0.07         0.07         0.10
        Deferred income taxes
         on intangible
         assets                       0.26         0.29         0.25
        Deferred income taxes
         on impairment
         charges                     (2.66)           -            -
    

    
                                    ------        -----         ----
    Cash Income (Loss) per
     Diluted Share                  (12.88)       (0.38)        1.42
                                    ------        -----         ----
    

    
      Plus:
        Net money market fund
         support (1)                  4.70         1.35         0.16
        Impairment charges            8.69            -            -
      Less:
        Net realized loss on
         sale of SIV
         securities (1)              (5.90)           -            -
    

    
                                    ------        -----        -----
    Cash Income (Loss) per
     Diluted Share, as
     adjusted                       $(5.39)       $0.97        $1.58
                                    ------        -----        -----
    


    
    (1) Includes related adjustments to operating expenses and income tax
        benefits
    



    
                    LEGG MASON, INC. AND SUBSIDIARIES
                           SUPPLEMENTAL DATA
         RECONCILIATION OF NET INCOME (LOSS) TO CASH INCOME(LOSS),
                    AND CASH INCOME (LOSS), AS ADJUSTED
             (Amounts in thousands, except per share amounts)
                             (Unaudited)
    

    
                                  For the Nine Months Ended
                                  -------------------------
                                December 2008    December 2007
                                -------------    -------------
    

    
    Net Income (Loss)            $(1,622,847)      $523,061
    

    
      Plus:
        Amortization of
         intangible assets            28,475         43,585
        Deferred income taxes
         on intangible assets        107,115        109,125
        Deferred income taxes
         on impairment charges      (374,353)             -
    

    
                                  ----------        -------
    Cash Income (Loss)            (1,861,610)       675,771
                                  ----------        -------
    

    
      Plus:
        Net money market fund
         support (1)               1,009,130         22,771
        Impairment charges         1,225,100              -
      Less:
        Net realized loss on
         sale of SIV
         securities (1)             (831,699)             -
    

    
                                   ---------       --------
    Cash Income (Loss), as
     adjusted                      $(459,079)      $698,542
                                   ---------       --------
    



    
    Net Income (Loss) per
     Diluted Share                   $(11.54)         $3.62
    

    
      Plus:
        Amortization of
         intangible assets              0.20           0.30
        Deferred income taxes
         on intangible assets           0.76           0.76
        Deferred income taxes
         on impairment charges         (2.66)             -
    

    
                                      ------           ----
    Cash Income (Loss) per
     Diluted Share                    (13.24)          4.68
                                      ------           ----
    

    
      Plus:
        Net money market fund
         support (1)                    7.17           0.16
        Impairment charges              8.71              -
      Less:
        Net realized loss on
         sale of SIV
         securities (1)                (5.90)             -
    

    
                                      ------          -----
    Cash Income (Loss) per
     Diluted Share, as
     adjusted                         $(3.26)         $4.84
                                      ------          -----
    


    
    (1) Includes related adjustments to operating expenses
        and income tax benefits
    



    
                         LEGG MASON, INC. AND SUBSIDIARIES
                                 SUPPLEMENTAL DATA
    

    
                 PRE-TAX PROFIT MARGIN ADJUSTED FOR DISTRIBUTION
          AND SERVICING EXPENSE, MONEY MARKET FUND SUPPORT AND IMPAIRMENT
                              (Amounts in thousands)
                                    (Unaudited)
    

    
                                  Quarters Ended               %Change
                          ---------------------------    ---------------------
    

    
                                                          December    December
                                                           2008        2008
                                                          Compared    Compared
                                                             to          to
                           December September  December  September    December
                             2008      2008      2007       2008        2007
                          --------- ---------  --------  ----------  ---------
    

    
    Operating Revenues,
     GAAP basis            $719,988   $966,137  $1,186,644   (25.5)%   (39.3)%
    

    
      Less:
        Distribution
         and servicing
         expense            202,502    278,969     326,698   (27.4)    (38.0)
                            -------    -------     -------
    

    
    Operating
     Revenues, as
     adjusted              $517,486   $687,168    $859,946   (24.7)    (39.8)
                           --------   --------    --------
    

    
    Income (Loss) from
    Operations
     before Income
      Tax Provision
       (Benefit)
       and Minority
       Interests,
       GAAP Basis       $(2,262,922) $(159,818)   $246,992     n/m      n/m
                        -----------  ---------    --------
    

    
      Plus:
        Net money
         market fund
         support (1)      1,070,296    309,639      36,433     n/m      n/m
        Impairment
         charges          1,225,100          -           -     n/m      n/m
                          ---------   ---------    --------
    

    
    Income from
     Operations
     before Income
      Tax Provision and
       Minority Interests,
       as adjusted          $32,474   $149,821    $283,425     n/m      n/m
                            -------   --------    --------
    


    
    Pre-tax profit margin,
     GAAP basis             (314.3)%    (16.5)%      20.8%
    Pre-tax profit
     margin, as adjusted        6.3       21.8        33.0
    


    
    (1) Includes related adjustments to operating expenses
    

    
    n/m - not meaningful
    



    
                      LEGG MASON, INC. AND SUBSIDIARIES
                              SUPPLEMENTAL DATA
    

    
                       PRE-TAX PROFIT MARGIN ADJUSTED
      FOR DISTRIBUTION AND SERVICING EXPENSE, MONEY MARKET FUND SUPPORT
                                AND IMPAIRMENT
                           (Amounts in thousands)
                                 (Unaudited)
    


    
                              For the Nine Months Ended
                              -------------------------
                           December 2008     December 2007    % Change
                           -------------     -------------    --------
    

    
    Operating Revenues,
     GAAP basis               $2,740,156      $3,564,963       (23.1)%
    

    
      Less:
        Distribution and
         servicing expense       789,344         969,312       (18.6)
                                 -------         -------
    

    
    Operating Revenues,
     as adjusted              $1,950,812      $2,595,651       (24.8)
                              ----------      ----------
    

    
    Income (Loss) from
    Operations before
     Income
      Tax Provision
       (Benefit) and
       Minority
       Interests,
       GAAP Basis            $(2,472,702)       $836,759         n/m
                             -----------        --------
    

    
      Plus:
        Net money market
         fund support (1)      1,631,787          36,433         n/m
        Impairment charges     1,225,100               -         n/m
                               ---------         -------
    

    
    Income from
      Operations before
      Income
       Tax Provision and
        Minority Interests,
        as adjusted             $384,185        $873,192       (56.0)
                                --------        --------
    


    
    Pre-tax profit
     margin, GAAP basis            (90.2)%          23.5%
    Pre-tax profit
     margin, as adjusted            19.7            33.6
    

    
    (1) Includes related adjustments to operating expenses
    

    
    n/m - not meaningful
    



    
                     LEGG MASON, INC. AND SUBSIDIARIES
                          ASSETS UNDER MANAGEMENT
                           (Amounts in billions)
                                (Unaudited)
    

    
                                           Quarters Ended
                                           --------------
                             December  September   June   March  December
                               2008      2008      2008    2008    2007
                             --------  --------   -----   ------ --------
    By asset class:
      Equity                   $148.4   $214.8   $253.4   $271.6   $320.8
      Fixed Income              392.1    451.8    493.4    508.2    514.5
      Liquidity                 157.7    175.3    176.0    170.3    163.2
                                -----    -----    -----    -----    -----
        Total                  $698.2   $841.9   $922.8   $950.1   $998.5
                               ======   ======   ======   ======   ======
    

    
    By asset class
     (average):
      Equity                   $169.6   $239.9   $270.9   $292.5   $335.6
      Fixed Income              408.3    476.7    502.9    514.4    512.9
      Liquidity                 167.2    181.8    174.7    168.4    165.2
                                -----    -----    -----    -----    -----
        Total                  $745.1   $898.4   $948.5   $975.3 $1,013.7
                               ======   ======   ======   ====== ========
    

    
    By client domicile:
      US                       $454.1   $549.1   $604.6   $622.7   $661.0
      Non-US                    244.1    292.8    318.2    327.4    337.5
                                -----    -----    -----    -----    -----
        Total                  $698.2   $841.9   $922.8   $950.1   $998.5
                               ======   ======   ======   ======   ======
    

    
    By division:
      Managed Investments      $284.5   $346.4   $371.6   $376.6   $398.8
      Institutional             378.0    443.3    492.6    511.4    532.4
      Wealth Management          35.7     52.2     58.6     62.1     67.3
                                 ----     ----     ----     ----     ----
        Total                  $698.2   $841.9   $922.8   $950.1   $998.5
                               ======   ======  ======    ======   ======
    



    
                         LEGG MASON, INC. AND SUBSIDIARIES
                   COMPONENT CHANGES IN ASSETS UNDER MANAGEMENT
                               (Amounts in billions)
                                    (Unaudited)
    

    
                                              Quarters Ended
                                              --------------
                               December   September   June   March   December
                                 2008       2008      2008    2008     2007
      Beginning of period       $841.9    $922.8   $950.1   $998.5   $1,011.6
      Net client cash flows      (77.0)    (20.0)   (18.4)   (19.2)      (9.1)
      Market performance
       and other                 (66.7)    (60.9)    (8.4)   (28.5)      (4.0)
      Acquisitions
       (Dispositions), net           -         -     (0.5)    (0.7)         -
                                 -----     -----    -----    -----     ------
      End of period             $698.2    $841.9   $922.8   $950.1     $998.5
                                ======    ======   ======   ======     ======
    


    
      BY DIVISION
                                              Quarters Ended
                                              --------------
      Managed                 December   September   June   March    December
       Investments              2008       2008      2008    2008      2007
                             ---------  ----------   -----  ------   --------
        Beginning of period     $346.4    $371.6   $376.6   $398.8     $411.4
        Net client cash
         flows                   (27.7)     (5.1)    (3.1)    (5.1)      (6.1)
        Market performance
         and other               (34.2)    (20.1)    (1.4)   (16.4)      (6.5)
        Acquisitions
         (Dispositions), net         -         -     (0.5)    (0.7)         -
                                 -----     -----    -----    -----     ------
        End of period           $284.5    $346.4   $371.6   $376.6     $398.8
                                ======    ======   ======   ======     ======
    

    
      Institutional
        Beginning of period     $443.3    $492.6   $511.4   $532.4     $530.3
        Net client cash flows    (40.4)    (12.9)   (12.7)   (11.7)      (0.2)
        Market performance
         and other               (24.9)    (36.4)    (6.1)    (9.3)       2.3
        Acquisitions
         (Dispositions), net         -         -        -        -          -
                                 -----     -----    -----    -----     ------
        End of period           $378.0    $443.3   $492.6   $511.4     $532.4
                                ======     ======  ======   ======     ======
    

    
      Wealth Management
        Beginning of period       $52.2     $58.6   $62.1    $67.3       69.9
        Net client cash flows      (8.9)     (2.0)   (2.6)    (2.4)      (2.8)
        Market performance
         and other                 (7.6)     (4.4)   (0.9)    (2.8)       0.2
        Acquisitions
         (Dispositions),
         net                         -         -        -        -          -
                                 -----     -----    -----    -----      -----
        End of period            $35.7     $52.2    $58.6    $62.1      $67.3
                                 =====     =====    =====    =====      =====
    

    
      Note:  Immaterial differences may result from the rounding of quarterly
             amounts.
    



    
                       LEGG MASON, INC. AND SUBSIDIARIES
                  COMPONENT CHANGES IN ASSETS UNDER MANAGEMENT
                             (Amounts in billions)
                                  (Unaudited)
    


    
                                     For the Nine        For the Twelve
                                     Months Ended          Months Ended
                                    -------------        --------------
                                 December   December  December    December
                                    2008       2007      2008       2007
                                 ---------  --------  ---------   --------
      Beginning of period           $950.1    $968.5     $998.5     $944.8
      Net client cash flows         (115.4)     (7.2)    (134.6)       6.5
      Market performance and
       other                        (136.0)     38.5     (164.5)      48.8
      Acquisitions
       (Dispositions), net            (0.5)     (1.3)      (1.2)      (1.6)
                                      ----      ----       ----       ----
      End of period                 $698.2    $998.5     $698.2     $998.5
                                    ======    ======     ======     ======
    


    
      BY DIVISION
                                     For the Nine         For the Twelve
                                     Months Ended          Months Ended
                                    -------------        --------------
                                  December   December  December   December
      Managed Investments           2008       2007      2008       2007
                                  --------   --------  ---------  ---------
        Beginning of period         $376.6    $403.2     $398.8     $384.8
        Net client cash flows        (35.9)    (18.2)     (41.0)      (7.9)
        Market performance and
         other                       (55.7)     13.8      (72.1)      21.9
        Acquisitions
         (Dispositions), net          (0.5)        -       (1.2)         -
                                     -----     -----      -----      -----
        End of period               $284.5    $398.8     $284.5     $398.8
                                    ======    ======     ======     ======
    

    
      Institutional
        Beginning of period         $511.4    $496.3     $532.4     $492.1
        Net client cash flows        (65.9)     14.2      (77.7)      16.9
        Market performance and
         other                       (67.5)     21.9      (76.7)      23.4
        Acquisitions
         (Dispositions), net             -         -          -          -
                                     -----     -----      -----      -----
        End of period               $378.0    $532.4     $378.0     $532.4
                                    ======    ======     ======     ======
    

    
      Wealth Management
        Beginning of period          $62.1     $69.0      $67.3      $67.9
        Net client cash flows        (13.6)     (3.2)     (15.9)      (2.5)
        Market performance and
         other                       (12.8)      2.8      (15.7)       3.5
        Acquisitions
         (Dispositions), net             -      (1.3)         -       (1.6)
                                      -----     -----      -----      -----
        End of period                $35.7     $67.3      $35.7      $67.3
                                     =====     =====      =====      =====
    

    
      Note:  Immaterial differences may result from the rounding of
              quarterly amounts.







    




For further information:

For further information: Investor Relations; F. Barry Bilson,
+1-410-539-0000, or Media; Mary Athridge, +1-410-454-4421, both of Legg Mason,
Inc. Web Site: http://www.leggmason.com

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LEGG MASON, INC.

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