Legg Mason Reports Results for Third Quarter of Fiscal Year 2010


    
    - Net Income of $44.9 Million, or $0.28 per Diluted Share -

    - Real Estate Lease Losses Reduced Diluted EPS by $0.11 per Share -

    - Cash Income, As Adjusted, of $93.2 Million -

    - Debt Reduced by $550 Million in January 2010 -








    
</pre>
<p><location>BALTIMORE</location>, <chron>Jan. 21</chron> /CNW/ -- Legg Mason, Inc. (NYSE:   LM) today reported its operating results for the third fiscal quarter ended <chron>December 31, 2009</chron>.</p>
<p/>
<p>The Company reported net income of <money>$44.9 million</money>, or <money>$0.28</money> per diluted share including <money>$0.11</money> per diluted share in real estate lease losses, as compared with <money>$45.8 million</money> or <money>$0.30</money> per share in the previous quarter.  The second quarter included <money>$22.0 million</money>, or <money>$0.09</money> per diluted share in transaction costs related to the exchange of equity units.  Cash income, as adjusted, for the third quarter was <money>$93.2 million</money>, as compared to <money>$90.0 million</money> in the second quarter of fiscal 2010.</p>
<p/>
<p>Assets Under Management ("AUM") were <money>$681.6 billion</money>, down 3% from <money>$702.7 billion</money> at <chron>September 30, 2009</chron>, driven by outflows, and were down 2% from <chron>December 31, 2008</chron> AUM of <money>$698.2 billion</money>.</p>
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    (Amounts in millions, except per share amounts)
    
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<p> </p>
<p> </p>
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                                  Quarters Ended      Nine Months Ended
                                    Dec   Sept     Dec       Dec      Dec
                                    2009   2009      2008      2009     2008
                                    ----   ----      ----      ----     ----
    
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<p> </p>
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    Operating Revenues            $690.5 $659.9    $720.0  $1,963.5 $2,740.2
    Operating Expenses             611.3  582.0   1,793.0   1,748.1  3,364.0
    Operating Income (Loss)         79.2   77.9  (1,073.0)    215.4   (623.8)
    Net Income (Loss)(1)            44.9   45.8  (1,492.8)    140.8 (1,637.7)
    Cash Income (Loss),  as
     adjusted(2)                    93.2   90.0    (756.6)    270.0   (449.9)
    Net Income (Loss) Per Share -
     Diluted(1)                     0.28   0.30    (10.59)     0.92   (11.64)
    
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<p> </p>
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    Cash Income (Loss) Per Share,
     as adjusted(2)                 0.57   0.59     (5.37)     1.76    (3.20)
    
</pre>
<p> </p>
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    (1) Net income represents net income (loss) attributable to Legg
    Mason, Inc.
    
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<p> </p>
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    (2) Please see Supplemental Data below for non-GAAP performance measures.





    Comments on the Results of the Third Quarter of Fiscal Year 2010
    
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<p>Mark R. Fetting, Chairman and CEO, said, "Overall, we are pleased with the continued progress achieved in the quarter, particularly, the significant improvement of performance at many of our investment managers over the same period a year ago.  While outflows increased this quarter, stronger performance at Western Asset and Permal led to substantially higher performance fees.  Operating margins, as adjusted have improved over the past three quarters and net income and cash income, as adjusted, excluding real estate lease losses this quarter, continued to trend in the right direction.  We have reduced our overall debt significantly, leaving us with <money>$1 billion</money> in corporate cash to reinvest in our business.</p>
<p/>
<p>However, we can pick up the pace in restoring growth and improving margins. We are cognizant of the fact that it takes some time for flows to follow performance and we are working hard in conjunction with our distribution teams to position ourselves to capture assets as improved performance continues to reflect in our medium and longer term numbers. We will also increase our vigilance on cost and efficiencies."</p>
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    Assets Under Management Decreased to $682 Billion
    
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<p>AUM decreased 3% to <money>$681.6 billion</money> as compared with <money>$702.7 billion</money> at <chron>September 30, 2009</chron>.  AUM decreased 2% from <money>$698.2 billion</money> at <chron>December 31, 2008</chron>.</p>
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    --  Total outflows were approximately $33 billion for the quarter ended
        December 31.  Fixed income, equity and liquidity outflows were $24
        billion, $4 billion and $5 billion, respectively.
    --  At December 31, 2009, fixed income represented 54% of total AUM,
equity
        25% and liquidity 21%.
    --  AUM for U.S. domiciled clients was 65% of total AUM and, for non-US
        clients, 35%.  By business division, 69% of AUM was in the Americas
        Division and 31% of AUM was in the International Division.
    --  Average AUM during the quarter was $693.3 billion as compared to
$684.0
        billion in the second quarter of fiscal 2010 and $745.1 billion in the
        third quarter of fiscal 2009.

    Comparison to the Second Quarter of Fiscal Year 2010
    
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<p>Net income was <money>$44.9 million</money> or <money>$0.28</money> per diluted share as compared to <money>$45.8 million</money> or <money>$0.30</money> per diluted share in the second quarter.  The current quarter included charges of <money>$28.3 million</money> pre-tax or <money>$0.11</money> per diluted share related to sublease agreements entered into during the quarter.  The prior quarter included <money>$22.0 million</money>, or <money>$0.09</money> per diluted share in costs related to the exchange of equity units.</p>
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    --  Revenues of $690.5 million were up 5% from $659.9 million in the
        quarter ended September 30, 2009.  This reflects an increase in
        performance fees earned in the quarter and higher average AUM.
    --  Operating expenses of $611.3 million increased 5% from $582.0 million
        in the second quarter of fiscal 2010.  The increase was primarily
        attributable to the $28.3 million in real estate lease losses and $5.4
        million related to a closed-end fund launch.  Excluding these charges
        operating expenses were essentially flat compared to the prior
quarter.
    --  Operating margin was 11.5% as compared to 11.8% in second quarter of
        fiscal 2010.  Operating margin, as adjusted(1), was 17.9% as compared
        to 21.0% in the second fiscal quarter. The impact of the real estate
        lease losses on the operating margin, as adjusted, was 5.5%.
    --  Other non-operating income (expense) was ($6.9) million, as compared
to
        ($2.9) million in the second quarter of fiscal 2010, which included
        $22.0 million in transaction costs from the exchange of equity units. 
        In addition, gains on funded deferred compensation plan and seed
        investments that are offset in compensation and benefits were $12.6
        million in the current quarter as compared to $24.1 million in the
        second quarter.  Gains on corporate investments, primarily seed
        investments, were $7.5 million as compared with $16.2 million in the
        previous quarter.
    --  Cash income, as adjusted, was $93.2 million, or $0.57 per diluted
        share, as compared to cash income, as adjusted, of $90.0 million or
        $0.59 per diluted share in the second quarter.
    --  Pre-tax profit margin decreased to 10.5% from 11.4% in the second
        quarter.  Pre-tax profit margin, as adjusted, was 14.1%, compared to
        14.3% in the second quarter of 2010.


    Comparison to the Third Quarter of Fiscal Year 2009
    
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<p>Net income was <money>$44.9 million</money> or <money>$0.28</money> per diluted share, up from a net loss of  <money>$1.5 billion</money> or <money>$10.59</money> per diluted share, in the third quarter of fiscal 2009 as the prior year's third quarter results included significant money market fund support and impairment charges.</p>
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    --  Revenues of $690.5 million decreased 4% from the prior year quarter,
        driven by a decline in fees earned due to lower average AUM.
    --  Operating expenses decreased by 66% from the prior year quarter. This
        was primarily due to impairment charges incurred in the December 2008
        quarter of $1.2 billion.
    --  Operating margin was 11.5% as compared to a loss in the prior year
        quarter.  Operating margin, as adjusted, was 17.9% as compared with
        20.9% for the prior year quarter.
    --  Other non-operating income (expense) in the third quarter was ($6.9)
        million as compared to ($1.2) billion in the prior year quarter,
        primarily due to $1.1 billion in money market fund support charges in
        the prior year period.
    --  Cash income, as adjusted, was $93.2 million, or $0.57 per diluted
        share, as compared to a cash loss, as adjusted, of $756.6 million for
        the quarter ended December 31, 2008, or $5.37 per diluted share.
    --  Pre-tax profit margin increased to 10.5% from a loss in the third
        fiscal quarter of 2009.  The pre-tax profit margin, as adjusted, was
        14.1%, as compared with 4.7% in the prior year quarter.


    Quarterly Business Developments

    Product

    --  Legg Mason raised $315.8 million, assuming full exercise of the
        underwriters' over allotment option, in the Western Asset Global
        Corporate Defined Opportunity Fund, their third and largest closed-end
        fund offering during 2009.
    --  ClearBridge Advisors was selected by Pax World and Morningstar to
serve
        as a subadvisor in their new SRI Asset Allocation offering in four
        strategies: Aggressive Growth, Growth, Moderate and Conservative.
    --  The Legg Mason Permal Global Absolute fund, a Dublin domiciled fund
was
        launched in October and registered in the UK.


    Performance
    --  At December 31, 2009, 69% of Legg Mason's long-term U.S. fund assets
        were beating their Lipper category averages for the 1-year period; 69%
        for the 3-year period; 67% for the 5-year period and 81% for the
        10-year period.
    --  52% of Legg Mason's U.S. Mutual fund assets were rated 4 or 5 stars by
        Morningstar, including 92% of Royce's fund assets, at December 31,
        2009.
    --  At December 31, 2009, all nine Western Asset Funds outperformed their
        benchmarks for the quarter-to-date period and eight of nine
        outperformed their benchmarks for the 1-year period, while longer term
        performance versus benchmarks continue to improve.
    --  At December 31, 2009, eight of 13 funds managed by ClearBridge
        outperformed their benchmarks for the 1-year period, seven of 13
        outperformed for the 3-year period and 11 of 13 outperformed for the
        10-year period.
    --  At December 31, 2009, 14 of 25 funds managed by Royce & Associates
        outperformed their benchmarks for the quarter-to-date period, 17 of 22
        outperformed for the 1-year period, and 18 of 20 outperformed for the
        3-year period.
    --  At December 31, 2009, all six funds managed by LM Capital Management
        outperformed their benchmarks for the 1-year period, although longer
        term performance remains challenged.

    Balance Sheet
    
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<p>At <chron>December 31, 2009</chron>, Legg Mason's cash position was <money>$1.4 billion</money>.  Total debt was <money>$2.0 billion</money> and stockholders' equity was <money>$5.8 billion</money>.  The ratio of total debt to total capital (total equity plus total debt) was 25%.  In <chron>January 2010</chron>, the Company received a tax refund of <money>$459 million</money> and subsequently paid down a <money>$550 million</money> term loan, bringing the ratio of total debt to total capital to 20%.</p>
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    Conference Call to Discuss Results
    
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<p>A conference call to discuss the Company's results, hosted by <person>Mr. Fetting</person>, will be held at <chron>8:30 a.m.</chron> E.S.T. today. The call will be open to the general public. Interested participants should access the call by dialing 1-866-814-8470 (or for international calls 1-703-639-1369) at least 10 minutes prior to the scheduled start to ensure connection.</p>
<p/>
<p>The presentation slides that will be reviewed during the conference call will be available on the Investor Relations section of the Legg Mason website (<a href="http://www.leggmason.com/investor_relations.aspx">www.leggmason.com/investor_relations.aspx</a>) shortly after the release of the quarter ended <chron>December 31, 2009</chron> financial results.</p>
<p/>
<p>A replay 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 1426214 after the completion of the call.  Please note that the replay will be available beginning at <chron>2:00 p.m.</chron>, E.S.T. on <chron>Thursday, January 21, 2010</chron> and ending on <chron>February 4, 2010</chron>.</p>
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    About Legg Mason
    
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<p>Legg Mason is a global asset management firm, with <money>$681.6 billion</money> in assets under management as of <chron>December 31, 2009</chron>.  The Company provides active asset management in many major investment centers throughout the world. Legg Mason is headquartered in <location>Baltimore</location>, Maryland, and its common stock is listed on the New York Stock Exchange (symbol: LM).</p>
<p/>
<p>This release contains forward-looking statements subject to risks, uncertainties and other factors that may cause actual results to differ materially. For a discussion of these risks and uncertainties, see "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Legg Mason's Annual Report on Form 10-K for the fiscal year ended <chron>March 31, 2009</chron> and in the Company's quarterly reports on Form 10-Q.</p>
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    Cash Income (Loss) and Cash Income (Loss), as Adjusted

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

    
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<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 and, impairment charges by (ii) our operating revenues less distribution and servicing expenses that are passed through to third-party distributors, which we refer to as "adjusted operating revenues".  The compensation items are removed from operating income in the calculation because they are offset by an equal amount in Other non-operating income (expense), and thus have no impact on Net Income.  We use adjusted operating revenues in the calculation to show the operating margin without distribution revenues that are passed through to third parties as a direct cost of selling our products.  Legg Mason believes that operating margin, as adjusted, is a useful measure of our performance because it provides a measure of our core business activities excluding items that have no impact on net income and because it indicates what Legg Mason's operating margin would have been without the distribution revenues that are passed through to third parties as a direct cost of selling our products.  This measure is provided in addition to the Company's operating margin calculated under GAAP, but is not a substitute for calculations of margins under GAAP and may not be comparable to non-GAAP performance measures, including measures of adjusted margins, of other companies.</p>
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    Pre-tax Profit Margin, as Adjusted
    
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<p>We calculate "pre-tax margin, as adjusted," by dividing income (loss) from operations before income tax provision adjusted to exclude the impact of net money market fund support gains and losses, and impairment charges by adjusted operating revenues. Legg Mason believes that pre-tax profit margin adjusted for distribution and servicing expense, money market fund support gains and losses, and impairment charges is a useful measure of our performance because it indicates what Legg Mason's pre-tax profit margin would have been without the distribution revenues that are passed through to third parties as a direct cost of selling our products, money market fund support gains and losses, and impairment charges that we do not consider part of our core business metrics, and thus shows the effect of these items on our pre-tax profit margin. This measure is provided in addition to the pre-tax profit margin calculated under GAAP, but is not a substitute for calculations of margin under GAAP and may not be comparable to non-GAAP performance measures, including measures of adjusted margins, of other companies.</p>
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    (1) Please see supplemental data below






    
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<p> </p>
<p> </p>
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                          LEGG MASON, INC. AND SUBSIDIARIES
                         CONSOLIDATED STATEMENTS OF OPERATIONS
                   (Amounts in thousands, except per share amounts)
                                      (Unaudited)
    
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<p> </p>
<p> </p>
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                                                                  For the
                                     Quarters                   Nine Months
                                       Ended                        Ended
                                     --------                   ------------
    
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<p> </p>
<p> </p>
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                        December  September    December    December   December
                           2009      2009         2008        2009     2008
                        --------  ----------   ---------   --------- ---------
    Operating Revenues:
      Investment
       advisory fees:
       Separate
        accounts     $208,860    $206,972     $225,156   $606,720     $824,947
       Funds          350,767     347,371      389,367  1,026,162    1,499,754
       Performance
        fees           31,546       9,566        2,910     46,796       16,492
      Distribution and
       service fees    97,900      94,619       99,990    279,220      389,285
      Other             1,406       1,368        2,565      4,561        9,678
                        -----       -----        -----      -----        -----
          Total
           operating
           revenues   690,479     659,896      719,988  1,963,459    2,740,156
                      -------     -------      -------  ---------    ---------
    
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<p> </p>
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    Operating
     Expenses:
      Compensation and
       benefits       287,657     287,559      195,238    844,028      895,089
      Distribution and
       servicing      177,660     174,388      202,502    524,512      789,344
      Communications
       and technology  39,845      40,538       45,140    120,873      144,511
      Occupancy        63,225      35,689       70,656    131,498      138,555
      Amortization of
       intangible
       assets           5,746       5,664        9,252     17,038       28,475
      Impairment
       charges              -           -    1,225,100          -    1,225,100
      Other            37,198      38,174       45,105    110,163      142,927
                       ------      ------       ------    -------      -------
          Total
           operating
           expenses   611,331     582,012    1,792,993  1,748,112    3,364,001
                      -------     -------    ---------  ---------    ---------
    
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<p> </p>
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    Operating Income
     (Loss)           79,148      77,884   (1,073,005)   215,347     (623,845)
                      ------      ------   ----------    -------     --------
    
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<p> </p>
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    Other Non-
     Operating Income
     (Expense)
      Interest income  2,225       1,737        8,468      5,783        52,761
      Interest
      expense        (29,241)    (28,565)     (45,588)  (101,196)    (135,883)
      Fund support         -       5,613   (1,085,296)    23,171   (1,676,810)
      Other income
       (expense)      20,107      18,324      (75,606)    84,831     (112,945)
        Total other
         non-
         operating
           income     ------      ------   ----------     ------   ----------
           (expense)  (6,909)     (2,891)  (1,198,022)    12,589   (1,872,877)
                      ------      ------   ----------     ------   ----------
    
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<p> </p>
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    Income (Loss)
     before Income
      Tax Provision
       (Benefit)      72,239      74,993   (2,271,027)   227,936   (2,496,722)
    
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<p> </p>
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      Income tax
       provision
       (benefit)      26,006      27,671     (778,047)    82,057     (858,672)
                      ------      ------     --------     ------     --------
    
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<p> </p>
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    Net Income
     (Loss)           46,233      47,322   (1,492,980)   145,879   (1,638,050)
      Less: Net income
      (loss)
      attributable
      to noncontrolling
      interests        1,311       1,548         (148)     5,129         (356)
                       -----       -----         ----      -----         ----
    
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<p> </p>
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    Net Income
     (Loss)
     attributable to
     Legg
     Mason, Inc.     $44,922     $45,774  $(1,492,832)  $140,750  $(1,637,694)
                     =======     =======  ===========   ========  ===========
    
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<p> </p>
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    Net income
     (loss) per
     share
     attributable to
     Legg Mason, Inc.
     common
     shareholders:
      Basic            $0.28       $0.30      $(10.59)     $0.93      $(11.64)
                       =====       =====      =======      =====      =======
    
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<p> </p>
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      Diluted          $0.28       $0.30      $(10.59)     $0.92      $(11.64)
                       =====       =====      =======      =====      =======
    
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<p> </p>
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    Weighted
     average
     number of
     shares
     outstanding:
          Basic      160,815     151,267      141,019    151,417      140,652
          Diluted
           (1)       162,949     153,224      141,019    153,559      140,652
    
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<p> </p>
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    (1)  Diluted shares are the same as basic shares for periods with a loss











    
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<p> </p>
<p> </p>
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                           LEGG MASON, INC. AND SUBSIDIARIES
                                   SUPPLEMENTAL DATA
    
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<p> </p>
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         RECONCILIATION OF NET INCOME (LOSS) ATTRIBUTABLE TO LEGG MASON, INC.
                TO CASH INCOME (LOSS), AND CASH INCOME, AS ADJUSTED (1)
                    (Amounts in thousands, except per share amounts)
                                      (Unaudited)
    
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<p> </p>
<p> </p>
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                                                                 For the
                                      Quarters                Nine Months
                                        Ended                    Ended
                                      --------                -------------
    
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<p> </p>
<p> </p>
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                             Dec.    Sept.      Dec.        Dec.       Dec.
                             2009   2009       2008        2009        2008
                            ------  ------     -----      ------      ------
    
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<p> </p>
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    Net Income (Loss)
     attributable
     to Legg Mason, Inc.  $44,922 $45,774  $(1,492,832) $140,750  $(1,637,694)
    
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<p> </p>
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      Plus:
        Amortization of
         intangible
         assets             5,746   5,664        9,252    17,038       28,475
        Deferred income taxes
         on
         intangible assets 33,855  34,023       37,260   103,175      107,115
        Deferred income taxes
         on
         impairment charges     -       -     (374,353)        -     (374,353)
        Imputed interest on
         convertible
         debt (2)           8,632   8,587        8,105    25,583       24,020
    
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<p> </p>
<pre>
    
                           ------  ------   ----------   -------   ----------
    Cash Income (Loss)     93,155  94,048   (1,812,568)  286,546   (1,852,437)
                          ------  ------   ----------   -------   ----------
    
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<p> </p>
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      Plus
       (Less):
        Net money market fund
         support
         (gains) losses (3)     -  (4,041)     662,577   (16,565)   1,009,130
        Impairment charges      -       -    1,225,100         -    1,225,100
      Less:
        Net loss on sale of
         SIV
         securities (3)         -       -     (831,699)        -     (831,699)
    
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<p> </p>
<pre>
    
                          ------- -------    ---------  --------    ---------
    Cash Income (Loss),
     as adjusted          $93,155 $90,007    $(756,590) $269,981    $(449,906)
                          ------- -------    ---------  --------    ---------
    
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<p> </p>
<p> </p>
<p> </p>
<pre>
    
    Net Income (Loss) per
     Diluted Share attributable
     to Legg Mason, Inc.
     common
     shareholders           $0.28   $0.30      $(10.59)    $0.92      $(11.64)
    
</pre>
<p> </p>
<pre>
    
      Plus:
        Amortization of
         intangible
         assets              0.03    0.04         0.07      0.11         0.20
        Deferred income taxes
         on intangible
         assets              0.21    0.22         0.26      0.67         0.75
        Deferred income taxes
         on impairment
         charges                -       -        (2.65)        -        (2.65)
        Imputed interest on
         convertible
         debt (2)            0.05    0.05         0.06      0.17         0.17
    
</pre>
<p> </p>
<pre>
    
                            ----    ----       ------      ----       ------
    Cash Income (Loss) per
     Diluted Share           0.57    0.61       (12.85)     1.87       (13.17)
                              ----    ----       ------      ----       ------
    
</pre>
<p> </p>
<pre>
    
      Plus
       (Less):
        Net money market fund
         support
         (gains) losses (3)     -   (0.02)        4.70     (0.11)        7.17
        Impairment charges      -       -         8.68         -         8.71
      Less:
        Net loss on sale of
         SIV
         securities (3)         -       -        (5.90)        -        (5.91)
    
</pre>
<p> </p>
<pre>
    
                            -----   -----       ------     -----       ------
    Cash Income (loss)
     per Diluted
     Share, as adjusted     $0.57   $0.59       $(5.37)    $1.76       $(3.20)
                            -----   -----       ------     -----       ------
    
</pre>
<p> </p>
<p> </p>
<p> </p>
<pre>
    
    (1) See explanations for Use of Supplemental Data as Non-GAAP Performance
        Measures
    (2) Effective April 1, 2009, Legg Mason was required to retroactively
        impute (non-cash) interest expense on convertible debt using an
        effective interest rate that would have been attributable to
        nonconvertible debt at the original date of issuance.  This adjustment
        also includes the actual tax benefits relating to the convertible debt
        that are not recognized for GAAP purposes.
    (3) Includes related adjustments to operating expenses, if applicable,
        and income tax provision (benefit).








    
</pre>
<p> </p>
<p> </p>
<p> </p>
<pre>
    
                             LEGG MASON, INC. AND SUBSIDIARIES
                                     SUPPLEMENTAL DATA
    
</pre>
<p> </p>
<pre>
    
                    RECONCILIATION OF OPERATING MARGIN, AS ADJUSTED AND
                          PRE-TAX PROFIT MARGIN, AS ADJUSTED (1)
                                   (Amounts in thousands)
                                        (Unaudited)
    
</pre>
<p> </p>
<p> </p>
<pre>
    
                                                             For the
                                  Quarters                  Nine Months
                                  Ended                        Ended
                               ---------                    ------------
    
</pre>
<p> </p>
<p> </p>
<pre>
    
                   Dec. 2009 Sept. 2009   Dec. 2008     Dec. 2009   Dec. 2008
                   --------- ----------   ---------     ---------   ---------
    
</pre>
<p> </p>
<pre>
    
    Operating
     Revenues,
     GAAP basis   $690,479   $659,896     $719,988   $1,963,459   $2,740,156
    
</pre>
<p> </p>
<pre>
    
      Less:
       Distribution
       and servicing
         expense   177,660    174,388      202,502      524,512      789,344
                   -------    -------      -------      -------      -------
    
</pre>
<p> </p>
<pre>
    
    Operating
     Revenues,
     as adjusted  $512,819   $485,508     $517,486   $1,438,947    $1,950,812
                   --------   --------     --------   ----------   ----------
    
</pre>
<p> </p>
<p> </p>
<p> </p>
<pre>
    
    Operating Income
     (Loss)       $79,148    $77,884  $(1,073,005)    $215,347     $(623,845)
    
</pre>
<p> </p>
<pre>
    
      Add (Less):
      Gains (losses) on
      deferred compensation
      and seed
      investments  12,615     24,133      (43,981)      68,134       (69,051)
      Impairment
       charges          -          -    1,225,100            -     1,225,100
                        -          -    ---------            -    ---------
    
</pre>
<p> </p>
<pre>
    
    Operating Income,
     as adjusted   $91,763   $102,017     $108,114     $283,481     $532,204
                   -------   --------     --------     --------     --------
    
</pre>
<p> </p>
<pre>
    
    Operating margin,
     GAAP basis       11.5       11.8 %     (149.0)%       11.0 %      (22.8)%
    Operating margin,
     as adjusted      17.9       21.0         20.9         19.7         27.3
    
</pre>
<p> </p>
<p> </p>
<p> </p>
<pre>
    
    Income (Loss)
     before Income
      Tax Provision
       (Benefit), GAAP
       Basis       $72,239    $74,993  $(2,271,027)    $227,936  $(2,496,722)
                    -------    -------  -----------     --------  -----------
    
</pre>
<p> </p>
<pre>
    
      Add (Less):
        Net money market
         fund
         support (gains)
         losses (2)      -     (5,613)   1,070,296      (23,171)   1,631,810
        Impairment
         charges         -          -    1,225,100            -    1,225,100
                         -          -    ---------            -    ---------
    
</pre>
<p> </p>
<pre>
    
    Income (Loss)
     before Income
      Tax Provision
       (Benefit), as
       adjusted    $72,239    $69,380      $24,369     $204,765     $360,188
                   -------    -------      -------     --------     --------
    
</pre>
<p> </p>
<pre>
    
    Pre-tax profit
     margin,
     GAAP basis       10.5 %     11.4 %     (315.4)%       11.6 %      (91.1)%
    Pre-tax profit
     margin, as
     adjusted         14.1       14.3          4.7         14.2         18.5
    
</pre>
<p> </p>
<p> </p>
<pre>
    
    (1) See explanations for Use of Supplemental Data as Non-GAAP Performance
        Measures
    (2) Includes related adjustments to operating expenses, if applicable






    
</pre>
<p> </p>
<p> </p>
<pre>
    
                         LEGG MASON, INC. AND SUBSIDIARIES
                               (Amounts in billions)
                                    (Unaudited)
    
</pre>
<p> </p>
<pre>
    
    Assets Under
    Management
                                            Quarters Ended
                                            --------------
                       Dec. 2009  Sept. 2009  June 2009  March 2009  Dec. 2008
                       ---------  ----------  ---------  ----------  ---------
    By asset class:
      Equity             $168.7      $165.6     $143.6      $126.9     $148.4
      Fixed Income        365.8       385.7      366.6       357.6      392.1
      Liquidity           147.1       151.4      146.7       147.9      157.7
                          -----       -----      -----       -----      -----
        Total            $681.6      $702.7     $656.9      $632.4     $698.2
                         ======      ======     ======      ======     ======
    
</pre>
<p> </p>
<pre>
    
    By asset
    class (average):
      Equity             $164.6      $155.7     $138.0      $134.2     $169.6
      Fixed Income        378.8       377.5      362.3       370.0      408.3
      Liquidity           149.9       150.8      146.9       153.2      167.2
                          -----       -----      -----       -----      -----
        Total            $693.3      $684.0     $647.2      $657.4     $745.1
                         ======      ======     ======      ======     ======
    
</pre>
<p> </p>
<pre>
    
    By division:
      Americas           $472.9      $484.3     $457.1      $446.7     $490.6
      International       208.7       218.4      199.8       185.7      207.6
                          -----       -----      -----       -----      -----
        Total            $681.6      $702.7     $656.9      $632.4     $698.2
                         ======      ======     ======      ======     ======
    
</pre>
<p> </p>
<pre>
    
    Component Changes
     in Assets Under
     Management
                                            Quarters Ended
                                            --------------
                       Dec. 2009  Sept. 2009  June 2009  March 2009  Dec. 2008
                       ---------  ----------  ---------  ----------  ---------
    Beginning of
     period              $702.7      $656.9     $632.4      $698.2     $841.9
    Net client cash
     flows                (32.7)       (8.1)     (30.3)      (43.5)     (77.0)
    Market
     performance
    and other              11.6        53.9       54.8       (21.7)     (66.7)
    Acquisitions
     (Dispositions),
      net                     -           -          -        (0.6)         -
                            ---         ---        ---        ----        ---
    End of period        $681.6      $702.7     $656.9      $632.4     $698.2
                         ======      ======     ======      ======     ======
    
</pre>
<p> </p>
<p>By Division</p>
<p> </p>
<pre>
    
    Americas
      Beginning of
       period            $484.3      $457.1     $446.7      $490.6     $591.5
      Net client cash
       flows              (21.4)      (11.8)     (27.0)      (28.4)     (47.4)
      Market
       performance and
       other               10.0        39.0       37.4       (14.9)     (53.5)
      Acquisitions
       (Dispositions),
        net                   -           -          -        (0.6)         -
                            ---         ---        ---        ----        ---
      End of period      $472.9      $484.3     $457.1      $446.7     $490.6
                         ======      ======     ======      ======     ======
    
</pre>
<p> </p>
<pre>
    
    International
      Beginning of
       period            $218.4      $199.8     $185.7      $207.6     $250.4
      Net client cash
       flows              (11.3)        3.7       (3.3)      (15.1)     (29.6)
      Market
       performance and
       other                1.6        14.9       17.4        (6.8)     (13.2)
      Acquisitions
       (Dispositions),
        net                   -           -          -           -          -
                            ---         ---        ---         ---        ---
      End of period      $208.7      $218.4     $199.8      $185.7     $207.6
                         ======      ======     ======      ======     ======








    
</pre>
<p> </p>
<p> </p>
<p> </p>
<pre>
    
                     LEGG MASON, INC. AND SUBSIDIARIES
              COMPONENT CHANGES IN ASSETS UNDER MANAGEMENT
                          (Amounts in billions)
                               (Unaudited)
    
</pre>
<p> </p>
<pre>
    
                               For the                For the
                             Nine Months           Twelve Months
                                 Ended                 Ended
                             ------------         ---------------
    
</pre>
<p> </p>
<pre>
    
                         ---------  ---------  ---------  ---------
                         Dec. 2009  Dec. 2008  Dec. 2009  Dec. 2008
                         ---------  ---------  ---------  ---------
    Beginning of period     $632.4     $950.1     $698.2     $998.5
    Net client cash
     flows                   (71.1)    (115.4)    (114.6)    (134.6)
    Market performance
     and other               120.3     (136.0)      98.6     (164.5)
    Acquisitions
     (Dispositions), net         -       (0.5)      (0.6)      (1.2)
                               ---       ----       ----       ----
    End of period           $681.6     $698.2     $681.6     $698.2
                            ======     ======     ======     ======
    
</pre>
<p> </p>
<p>By Division</p>
<p> </p>
<pre>
    
                               For the               For the
                              Nine Months          Twelve Months
                                 Ended                 Ended
                              -----------          -------------
    Americas
      Beginning of
       period               $446.7     $672.2     $490.6     $713.0
      Net client cash
       flows                 (60.2)     (81.7)     (88.6)     (90.5)
      Market
       performance and
       other                  86.4      (99.4)      71.5     (131.4)
      Acquisitions
       (Dispositions),
       net                       -       (0.5)      (0.6)      (0.5)
                               ---       ----       ----       ----
      End of period         $472.9     $490.6     $472.9     $490.6
                            ======     ======     ======     ======
    
</pre>
<p> </p>
<pre>
    
    International
      Beginning of
       period               $185.7     $277.9     $207.6     $285.5
      Net client cash
       flows                 (10.9)     (33.7)     (26.0)     (44.1)
      Market
       performance and
       other                  33.9      (36.6)      27.1      (33.1)
      Acquisitions
       (Dispositions),
       net                       -          -          -       (0.7)
                               ---        ---        ---       ----
      End of period         $208.7     $207.6     $208.7     $207.6
                            ======     ======     ======     ======

    Use of Supplemental Data as Non-GAAP Performance Measures

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

    --  Cash income
    --  Cash income, as adjusted
    --  Operating margin, as adjusted
    --  Pre-tax profit margin, as adjusted




    

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

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