Legg Mason Reports Continuing Progress for Second Quarter of Fiscal Year 2010
- Net Income(1) of $46 Million, or $0.30 per Diluted Share -
- Cash Income, As Adjusted(2), of $90 Million -
- Assets Under Management of $703 Billion -
</pre>
<p><location>BALTIMORE</location>, <chron>Oct. 22</chron> /CNW/ -- Legg Mason, Inc. (NYSE: LM) today reported its operating results for the second fiscal quarter ended <chron>September 30, 2009</chron>. The Company reported net income of <money>$45.8 million</money>, or <money>$0.30</money> per diluted share, as compared to net income of <money>$50.1 million</money>, or <money>$0.35</money> per diluted share, in the first fiscal quarter of 2010. Included in this quarter's results were transaction costs related to the equity unit exchange of <money>$22 million</money>, which were partially offset by ongoing interest savings from the exchange of <money>$15 million</money> per quarter. Cash income, as adjusted, for the second quarter was <money>$90.0 million</money>, as compared to <money>$86.8 million</money> in the first quarter of fiscal 2010.</p>
<p/>
<p>Assets Under Management ("AUM") were <money>$702.7 billion</money>, up 7% from <money>$656.9 billion</money> at <chron>June 30, 2009</chron>, driven by market appreciation, partly offset by reduced outflows, and down 17% from <money>$841.9 billion</money> at <chron>September 30, 2008</chron>.</p>
<pre>
</pre>
<p> </p>
<p>(Amounts in millions, except per share amounts)</p>
<p> </p>
<pre>
Quarters Ended Six Months Ended
Sept June Sept Sept Sept
2009 2009 2008 2009 2008
---- ---- ---- ---- ----
</pre>
<p> </p>
<pre>
Operating Revenues $659.9 $613.1 $966.1 $1,273.0 $2,020.2
Operating Expenses 582.0 554.8 745.9 1,136.8 1,571.0
Operating Income 77.9 58.3 220.2 136.2 449.2
Net Income (Loss)(1) 45.8 50.1 (108.7) 95.8 (144.9)
Cash Income, as
adjusted(2) 90.0 86.8 140.2 176.8 306.7
Net Income (Loss) per
Diluted Share 0.30 0.35 (0.77) 0.64 (1.03)
Cash Income per
Diluted Share, as
adjusted(2) 0.59 0.61 0.99 1.19 2.16
</pre>
<p> </p>
<pre>
(1) Net income represents net income (loss) attributable to Legg Mason,
Inc.
</pre>
<p> </p>
<pre>
(2) Please see Supplemental Data below for non-GAAP performance measures.
Comments on the Second Quarter of Fiscal Year 2010 Results
</pre>
<p>Mark R. Fetting, Chairman and CEO, said, "In our second quarter, Legg Mason generated another quarter of improving cash income, as adjusted, continued to operate its business efficiently and further strengthened its balance sheet. This quarter, operating income has significantly increased over last quarter, driven by higher assets under management. Our excess cash position of <money>$1.1 billion</money> - combined with our significant cash tax benefits - puts us in a position to further reduce debt and to reinvest in our businesses. We continue to strive for improvements in our investment performance, to enhance our investment capabilities and to provide innovative solutions to our clients, all of which are significant drivers of value for our shareholders.</p>
<p/>
<p>As of the end of September, approximately 81% of Legg Mason's U.S. long-term funds were beating their respective Lipper category averages over the 10-year period, and most of our affiliates are delivering significant improvements in their performance over the one-year period and, increasingly, over longer periods as well. In both our Americas and International centralized distribution channels, stronger gross sales and moderating outflows have contributed to our improving net flows. If these trends continue, Legg Mason will be positioned to return to positive net flows."</p>
<pre>
Assets Under Management Increased to $703 Billion
</pre>
<p>AUM increased 7% to <money>$702.7 billion</money> as compared with <money>$656.9 billion</money> at <chron>June 30, 2009</chron> driven by market appreciation partially offset by reduced outflows. AUM decreased 17% from <money>$841.9 billion</money> at <chron>September 30, 2008</chron>.</p>
<pre>
-- Fixed income outflows were approximately $10 billion, equity outflows
were $2 billion, and liquidity inflows were $4 billion. Total
outflows
of $8 billion reflected a 73% improvement from the prior quarter's $30
billion.
-- At September 30, 2009, fixed income represented 55% of AUM, equity 24%
and liquidity 21%.
-- AUM for U.S. domiciled clients was 64% of total AUM and 36% for non-US
clients. By business division, 69% of AUM was in the Americas
Division
and 31% of AUM was in the International Division.
-- Average AUM during the quarter was $684.0 billion as compared to
$647.2
billion in the first quarter of fiscal 2010 and $898.4 billion in the
second quarter of fiscal 2009.
Comparison to the First Quarter of Fiscal Year 2010
</pre>
<p>Net income was <money>$45.8 million</money> or <money>$0.30</money> per diluted share as compared to <money>$50.1 million</money> or <money>$0.35</money> per diluted share in the first quarter.</p>
<pre>
-- Revenues of $659.9 million were up 8% from $613.1 million in the prior
quarter ended June 30, 2009. This reflects an increase in AUM as well
as an increase in the percentage of higher yielding equity assets and
higher performance fees.
-- Operating expenses of $582.0 million increased 5% from $554.8 million
in the first quarter of fiscal 2010. The increase was primarily
attributable to increased compensation on higher revenues, and $3.5
million in additional occupancy expenses related to the move of the
company's headquarters in September.
-- Operating margins were 12% as compared to 10% in first quarter of
fiscal 2010. Operating margins, as adjusted(2), were 21% as compared
to 20% in the first fiscal quarter.
-- Other income (expense) was ($2.9) million, as compared to $22.4
million
in the first quarter of fiscal 2010. Gains on funded deferred
compensation plan and seed capital investments that are offset in
compensation and benefits were $24.1 million in the quarter as
compared
to $31.4 million in the first quarter. Second quarter results included
$22 million in transaction costs from the exchange of 91% of our
equity
units in August, partially offset by a $14.8 million reduction in
interest expense from the exchange. In addition, gains from fund
support declined from $17.6 million in the June quarter to $5.6
million
this quarter.
-- Cash income, as adjusted, was $90.0 million, or $0.59 per diluted
share, as compared to cash income, as adjusted, of $86.8 million or
$0.61 per diluted share in the first quarter.
-- Pre-tax profit margin decreased to 11.4% from 13.2% in the first
quarter. Pre-tax profit margin, as adjusted(2), was 15.4%, down from
18.3% in the first quarter of 2010.
Comparison to the Second Quarter of Fiscal Year 2009
</pre>
<p>Net income was <money>$45.8 million</money> or <money>$0.30</money> per diluted share, up from a net loss of <money>$108.7 million</money> or (<money>$0.77</money>) per diluted share, in the second quarter of fiscal 2009 as the prior year's second quarter results included significant money market fund support charges.</p>
<pre>
-- Revenues of $659.9 decreased 32% from the prior year quarter, driven
by
a decline in fees earned due to lower average assets under management
and changes in the mix of our AUM to lower average fee assets.
-- Operating expenses decreased by 22% from the prior year quarter. This
was primarily due to lower distribution and servicing fees on a lower
asset base, decreased variable compensation, and cost saving measures
that resulted in decreases in compensation, communications and
technology and other operating expenses.
-- Operating margins were 12% as compared to 23% in the prior year
quarter. Operating margins, as adjusted, were 21% as compared with
29%
for the prior year quarter.
-- As previously discussed, other income (expense) in the second quarter
was ($2.9) million as compared to ($388.1) million in the prior year
quarter, primarily due to $324.6 million in money market fund support
charges in the prior period.
-- Cash income, as adjusted, of $90.0 million, or $0.59 per diluted
share,
as compared to cash income, as adjusted, of $140.2 million for the
quarter ended September 30, 2008, or $0.99 per diluted share.
-- Pre-tax profit margin increased to 11.4% from a loss in the second
fiscal quarter of 2009. The pre-tax profit margin, as adjusted, was
15.4%, as compared to a loss in the prior year quarter.
Quarterly Business Developments
Product
-- Permal closed a second fund focused on secondary market hedge fund
opportunities.
-- Legg Mason International Distribution launched two new funds: the Legg
Mason Capital Management Opportunity Fund and the Permal Global
Absolute Fund.
-- The Western Asset Global Corporate Defined Opportunity Fund, Legg
Mason's third closed-end offering calendar year to date, was
registered
with the SEC.
-- Legg Mason re-branded and simplified its Legg Mason branded,
retail-oriented fund families into one fund family, following the
completion of a consolidated operating platform earlier this year,
which allows investors to broadly exchange products across both fund
families and to aggregate purchases within a wider menu of funds.
Performance
-- At September 30, 2009, 81% of Legg Mason's long-term U.S. fund assets
were beating their Lipper category averages for the 1-year period; 65%
for the 3-year period; 62% for the 5-year period and 81% for the
10-year period.
-- 53% of Legg Mason's U.S. Mutual fund assets were rated 4 and 5 stars
by
Morningstar, including 91% of Royce's fund assets, at September 30,
2009.
-- Although 3- and 5- year performance remains challenged, at September
30, 2009, all 9 Western Asset Funds outperformed their benchmarks for
the 3-month period, and 8 out of 9 outperformed their benchmarks for
the calendar year-to-date and 1-year period. Over the 10-year time
horizon, 3 out of 4 Western Asset Funds outperformed their benchmarks.
-- Although longer-term performance remains challenged, at September 30,
2009, all 6 funds managed by LM Capital Management outperformed their
benchmarks and landed in the 1st quartile of their respective Lipper
categories for both the 3-month and calendar year-to-date periods.
-- At September 30, 2009, 14 out of 15 ClearBridge funds outperformed
their benchmarks for the 1-year period and 11 out of 15 for the
calendar year-to-date period. In addition, 8 out of 14 outperformed
their benchmarks for the 3-year period, 6 out of 14 for the 5-year
period, and 11 out of 14 for the 10-year period.
Balance Sheet
</pre>
<p>At <chron>September 30, 2009</chron>, Legg Mason's cash position was <money>$1.6 billion</money>. Total debt was <money>$2.0 billion</money> and stockholders' equity was <money>$5.7 billion</money>. The ratio of total debt to total capital (total equity plus total debt) was 25%. As a result of the exchange of equity units in August, the total number of shares outstanding was 161.3 million as of <chron>September 30, 2009</chron> as compared to 142.5 million as of <chron>June 30, 2009</chron>.</p>
<pre>
Conference Call to Discuss Results
</pre>
<p>A conference call to discuss the Company's results, hosted by <person>Mr. Fetting</person>, will be held at <chron>8:30 a.m.</chron> E.D.T. today. The call will be open to the general public. Interested participants should access the call by dialing 1-866-793-1306 (or for international calls 1-703-639-1308) at least 10 minutes prior to the scheduled start to ensure connection.</p>
<p/>
<p>The presentation slides that will be reviewed during the conference call will be available on the Investor Relations section of the Legg Mason website (<a href="http://www.leggmason.com/investor_relations.aspx">www.leggmason.com/investor_relations.aspx</a>) shortly after the release of the quarter ended <chron>September 30, 2009</chron> financial results.</p>
<p/>
<p>A replay or transcript of the live broadcast will be available on the Legg Mason website, in the investor relations section, or by dialing 1-888-266-2081 (or for international calls 1-703-925-2533), access Pin Number 1402845 after the completion of the call. Please note that the replay will be available beginning at <chron>2:00 p.m.</chron>, E.D.T. on <chron>Thursday, October 22, 2009</chron> and ending on <chron>November 5, 2009</chron>.</p>
<pre>
About Legg Mason
</pre>
<p>Legg Mason is a global asset management firm, with <money>$703 billion</money> in assets under management as of <chron>September 30, 2009</chron>. The Company provides active asset management in many major investment centers throughout the world. Legg Mason is headquartered in <location>Baltimore</location>, Maryland, and its common stock is listed on the New York Stock Exchange (symbol: LM).</p>
<p/>
<p>This release contains forward-looking statements subject to risks, uncertainties and other factors that may cause actual results to differ materially. For a discussion of these risks and uncertainties, see "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Legg Mason's Annual Report on Form 10-K for the fiscal year ended <chron>March 31, 2009</chron> and in the Company's quarterly reports on form 10-Q.</p>
<pre>
</pre>
<p> </p>
<p> </p>
<p> </p>
<pre>
LEGG MASON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
(Unaudited)
</pre>
<p> </p>
<pre>
For the Six Months
Quarters Ended Ended
---------------------- ------------------
</pre>
<p> </p>
<pre>
Sept. June Sept. Sept. Sept.
2009 2009 2008 2009 2008
----- ----- ------ ----- -----
Operating Revenues:
Investment
advisory fees:
Separate accounts $206,972 $190,888 $283,116 $397,860 $599,791
Funds 347,371 328,024 540,829 675,395 1,110,387
Performance fees 9,566 5,684 3,437 15,250 13,582
Distribution and
service fees 94,619 86,701 135,796 181,320 289,295
Other 1,368 1,787 2,959 3,155 7,113
----- ----- ----- ----- -----
Total operating
revenues 659,896 613,084 966,137 1,272,980 2,020,168
------- ------- ------- --------- ---------
</pre>
<p> </p>
<pre>
Operating Expenses:
Compensation and
benefits 287,559 268,812 322,183 556,371 699,851
Distribution and
servicing 174,388 172,464 278,969 346,852 586,842
Communications and
technology 40,538 40,490 49,085 81,028 99,371
Occupancy 35,689 32,584 33,755 68,273 67,899
Amortization of
intangible assets 5,664 5,628 9,599 11,292 19,223
Other 38,174 34,791 52,333 72,965 97,822
------ ------ ------ ------ ------
Total operating
expenses 582,012 554,769 745,924 1,136,781 1,571,008
------- ------- ------- --------- --------
</pre>
<p> </p>
<pre>
------ ------ ------- ------- -------
Operating Income 77,884 58,315 220,213 136,199 449,160
------ ------ ------- ------- -------
</pre>
<p> </p>
<pre>
Other Income (Expense)
Interest income 1,737 1,821 21,025 3,558 44,293
Interest expense (28,565) (43,390) (45,832) (71,955) (90,295)
Fund support 5,613 17,558 (324,640) 23,171 (591,514)
Other 18,324 46,400 (38,646) 64,724 (37,339)
------ ------ ------- ------ -------
Total other income
(expense) (2,891) 22,389 (388,093) 19,498 (674,855)
------ ------ -------- ------ ------
</pre>
<p> </p>
<pre>
Income (Loss) from
Operations before
Income Tax Provision
(Benefit) 74,993 80,704 (167,880) 155,697 (225,695)
</pre>
<p> </p>
<pre>
Income tax provision
(benefit) 27,671 28,380 (58,891) 56,051 (80,625)
------ ------ ------- ------ -------
</pre>
<p> </p>
<pre>
Net Income (Loss) 47,322 52,324 (108,989) 99,646 (145,070)
Less: Net income
attributable
to noncontrolling
interests 1,548 2,270 (254) 3,818 (208)
----- ----- ---- ----- ----
</pre>
<p> </p>
<pre>
Net Income (Loss)
attributable to
Legg Mason, Inc. $45,774 $50,054 $(108,735) $95,828 (144,862)
======= ======= ========= ======= =========
</pre>
<p> </p>
<pre>
Net income (loss)
per share
attributable to Legg
Mason, Inc.
common shareholders:
Basic $0.30 $0.35 $(0.77) $0.65 $(1.03)
===== ===== ====== ===== ======
</pre>
<p> </p>
<pre>
Diluted $0.30 $0.35 $(0.77) $0.64 $(1.03)
===== ===== ====== ===== ======
</pre>
<p> </p>
<pre>
Weighted average
number of shares
outstanding:
Basic 151,267 142,006 140,900 146,696 140,573
Diluted (1) 153,224 143,126 140,900 148,708 140,573
</pre>
<p> </p>
<p>(1) Diluted shares are the same as basic shares for periods with a loss</p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<pre>
LEGG MASON, INC. AND SUBSIDIARIES
SUPPLEMENTAL DATA
</pre>
<p> </p>
<pre>
RECONCILIATION OF NET INCOME (LOSS) ATTRIBUTABLE TO LEGG MASON, INC.
TO CASH INCOME (LOSS), AND CASH INCOME, AS ADJUSTED
(Amounts in thousands, except per share amounts)
(Unaudited)
</pre>
<p> </p>
<p> </p>
<pre>
For the Six Months
Quarters Ended Ended
----------------------- -----------------
</pre>
<p> </p>
<pre>
Sept. June Sept. Sept. Sept.
2009 2009 2008 2009 2008
------ ------ ------ ------ -------
</pre>
<p> </p>
<pre>
Net Income (Loss)
attributable
to Legg Mason, Inc. $45,774 $50,054 $(108,735) $95,828 $(144,862)
</pre>
<p> </p>
<pre>
Plus:
Amortization of
intangible assets 5,664 5,628 9,599 11,292 19,223
Deferred income
taxes on intangible
assets 34,023 35,297 40,201 69,320 69,855
Imputed interest on
convertible debt(1) 8,587 8,364 8,062 16,951 15,915
</pre>
<p> </p>
<pre>
------ ------ ------- ------- -------
Cash Income (Loss) 94,048 99,343 (50,873) 193,391 (39,869)
------ ------ ------- ------- -------
</pre>
<p> </p>
<pre>
Plus
(Less):
Net money market
fund support
(gains) losses (2) (4,041) (12,524) 191,109 (16,565) 346,555
</pre>
<p> </p>
<pre>
------- ------- -------- -------- --------
Cash Income, as
adjusted $90,007 $86,819 $140,236 $176,826 $306,686
------- ------- -------- -------- --------
</pre>
<p> </p>
<p> </p>
<p> </p>
<pre>
Net Income (Loss) per
Diluted Share
Attributable to Legg
Mason, Inc.
common shareholders $0.30 $0.35 $(0.77) $0.64 $(1.03)
</pre>
<p> </p>
<pre>
Plus:
Amortization of
intangible assets 0.04 0.04 0.07 0.08 0.14
Deferred income
Taxes on
intangible assets 0.22 0.24 0.28 0.47 0.50
Imputed interest on
convertible debt(1) 0.05 0.06 0.06 0.11 0.11
</pre>
<p> </p>
<pre>
---- ---- ----- ---- -----
Cash Income (Loss) per
Diluted Share 0.61 0.69 (0.36) 1.30 (0.28)
---- ---- ----- ---- -----
</pre>
<p> </p>
<pre>
Plus
(Less):
Net money market fund
support
(gains) losses (2) (0.02) (0.08) 1.35 (0.11) 2.44
</pre>
<p> </p>
<pre>
----- ----- ----- ----- -----
Cash Income per Diluted
Share, as adjusted $0.59 $0.61 $0.99 $1.19 $2.16
----- ----- ----- ----- -----
</pre>
<p> </p>
<p> </p>
<pre>
(1) Effective April 1, 2009, Legg Mason is required to retroactively
impute (non-cash) interest expense on convertible debt using an
effective interest rate that would have been attributable to
nonconvertible debt at the original date of issuance. This
adjustment also includes the actual tax benefits relating to
the convertible debt that are not recognized for GAAP purposes.
(2) Includes related adjustments to operating expenses, if applicable,
and income tax provision (benefit).
</pre>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<pre>
LEGG MASON, INC. AND SUBSIDIARIES
SUPPLEMENTAL DATA
</pre>
<p> </p>
<pre>
OPERATING MARGIN ADJUSTED FOR COMPENSATION RELATED INVESTMENT GAINS
(LOSSES) AND DISTRIBUTION AND SERVICING EXPENSE, AND
PRE-TAX PROFIT MARGIN ADJUSTED FOR DISTRIBUTION AND SERVICING EXPENSE
(Amounts in thousands)
(Unaudited)
</pre>
<p> </p>
<pre>
For the Six Months
Quarters Ended Ended
------------------------- ------------------
</pre>
<p> </p>
<pre>
Sept. June Sept. Sept. Sept.
2009 2009 2008 2009 2008
----- ---- ----- ----- ------
</pre>
<p> </p>
<pre>
Operating Revenues,
GAAP basis $659,896 $613,084 $966,137 $1,272,980 $2,020,168
</pre>
<p> </p>
<pre>
Less:
Distribution and
servicing
expense 174,388 172,464 278,969 346,852 586,842
------- ------- ------- ------- -------
</pre>
<p> </p>
<pre>
Operating Revenues,
as adjusted $485,508 $440,620 $687,168 $926,128 $1,433,326
-------- -------- -------- -------- ----------
</pre>
<p> </p>
<p> </p>
<p> </p>
<p>Operating Income <money>$77,884</money> <money>$58,315</money> <money>$220,213</money> <money>$136,199</money> <money>$449,160</money></p>
<p> </p>
<pre>
Add (Less):
Gains (losses)
on deferred
compensation
and seed
investments 24,133 31,386 (19,931) 55,518 (25,103)
------ ------ ------- ------ -------
</pre>
<p> </p>
<p> </p>
<pre>
Operating Income,
as adjusted $102,017 $89,701 $200,282 191,717 $424,057
-------- ------- -------- -------- --------
</pre>
<p> </p>
<pre>
Operating margin,
GAAP basis 11.8% 9.5% 22.8% 10.7% 22.2%
Operating margin,
as adjusted 21.0 20.4 29.1 20.7 29.6
</pre>
<p> </p>
<p> </p>
<p> </p>
<pre>
Income (Loss) from
Operations before
Income Tax Provision
(Benefit), GAAP
Basis $74,993 $80,704 $(167,880) $155,697 $(225,695)
------- ------- --------- -------- ---------
</pre>
<p> </p>
<p> </p>
<pre>
Pre-tax profit
margin, GAAP
basis 11.4% 13.2% (17.4)% 12.2% (11.2)%
Pre-tax profit
margin,
as adjusted 15.4 18.3 (24.4) 16.8 (15.7)
</pre>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<pre>
LEGG MASON, INC. AND SUBSIDIARIES
(Amounts in billions)
(Unaudited)
</pre>
<p> </p>
<pre>
Assets Under Management
Quarters Ended
--------------
Sept. June March December Sept.
2009 2009 2009 2008 2008
----- ----- ------ --------- ------
By asset class:
Equity $165.6 $143.6 $126.9 $148.4 $214.8
Fixed Income 385.7 366.6 357.6 392.1 451.8
Liquidity 151.4 146.7 147.9 157.7 175.3
----- ----- ----- ----- -----
Total $702.7 $656.9 $632.4 $698.2 $841.9
====== ====== ====== ====== ======
</pre>
<p> </p>
<pre>
By asset class (average):
Equity $155.7 $138.0 $134.2 $169.6 $239.9
Fixed Income 377.5 362.3 370.0 408.3 476.7
Liquidity 150.8 146.9 153.2 167.2 181.8
----- ----- ----- ----- -----
Total $684.0 $647.2 $657.4 $745.1 $898.4
====== ====== ====== ====== ======
</pre>
<p> </p>
<pre>
By division:
Americas $484.3 $457.1 $446.7 $490.6 $591.5
International 218.4 199.8 185.7 207.6 250.4
----- ----- ----- ----- -----
Total $702.7 $656.9 $632.4 $698.2 $841.9
====== ====== ====== ====== ======
</pre>
<p> </p>
<p> </p>
<p>Component Changes in Assets Under Management</p>
<p> </p>
<pre>
Quarters Ended
--------------
Sept. June March Dec. Sept.
2009 2009 2009 2008 2008
----- ----- ------ ----- -----
Beginning of period $656.9 $632.4 $698.2 $841.9 $922.8
Net client cash flows (8.1) (30.3) (43.5) (77.0) (20.0)
Market performance and
other 53.9 54.8 (21.7) (66.7) (60.9)
Acquisitions
(Dispositions), net - - (0.6) - -
- - ---- - -
End of period $702.7 $656.9 $632.4 $698.2 $841.9
====== ====== ====== ====== ======
</pre>
<p> </p>
<p>By Division</p>
<p> </p>
<pre>
Americas
Beginning of period $457.1 $446.7 $490.6 $591.5 $650.8
Net client cash flows (11.8) (27.0) (28.4) (47.4) (21.0)
Market performance and
other 39.0 37.4 (14.9) (53.5) (38.3)
Acquisitions
(Dispositions), net - - (0.6) - -
- - ---- - -
End of period $484.3 $457.1 $446.7 $490.6 $591.5
====== ====== ====== ====== ======
</pre>
<p> </p>
<pre>
International
Beginning of period $199.8 $185.7 $207.6 $250.4 $272.0
Net client cash flows 3.7 (3.3) (15.1) (29.6) 1.0
Market performance and
other 14.9 17.4 (6.8) (13.2) (22.6)
Acquisitions
(Dispositions), net - - - - -
- - - - -
End of period $218.4 $199.8 $185.7 $207.6 $250.4
====== ====== ====== ====== ======
</pre>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<pre>
LEGG MASON, INC. AND SUBSIDIARIES
COMPONENT CHANGES IN ASSETS UNDER MANAGEMENT
(Amounts in billions)
(Unaudited)
</pre>
<p> </p>
<pre>
For the Six Months For the Twelve Months
Ended Ended
--------------------- --------------------
September September September September
2009 2008 2009 2008
---------- ---------- ---------- ----------
Beginning of period $632.4 $950.1 $841.9 $1,011.6
Net client cash
flows (38.4) (38.5) (158.9) (66.7)
Market performance
and other 108.7 (69.2) 20.3 (101.8)
Acquisitions
(Dispositions), net - (0.5) (0.6) (1.2)
- ---- ---- ----
End of period $702.7 $841.9 $702.7 $841.9
====== ====== ====== ======
</pre>
<p> </p>
<p>By Division</p>
<p> </p>
<pre>
For the Six Months For the Twelve Months
Ended Ended
Americas ------------------- ---------------------
Beginning of
period $446.7 $672.2 $591.5 $731.1
Net client cash
flows (38.8) (34.4) (114.6) (51.5)
Market
performance and
other 76.4 (45.8) 8.0 (87.6)
Acquisitions
(Dispositions),
net - (0.5) (0.6) (0.5)
- ---- ---- ----
End of period $484.3 $591.5 $484.3 $591.5
====== ====== ====== ======
</pre>
<p> </p>
<pre>
International
Beginning of
period $185.7 $277.9 $250.4 $280.5
Net client cash
flows 0.4 (4.1) (44.3) (15.2)
Market
performance and
other 32.3 (23.4) 12.3 (14.2)
Acquisitions
(Dispositions),
net - - - (0.7)
- - - ----
End of period $218.4 $250.4 $218.4 $250.4
====== ====== ====== ======
Use of Supplemental Data as Non-GAAP Performance Measures
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<p>As supplemental information, we are providing the following performance measures that are based on methodologies other than generally accepted accounting principles ("non-GAAP") that management uses as benchmarks in evaluating and comparing the period-to-period operating performance of Legg Mason, Inc. and its subsidiaries:</p>
<pre>
-- Cash income
-- Cash income, as adjusted
-- Operating margin, as adjusted
-- Pre-tax profit margin, as adjusted
Cash Income (Loss) and Cash Income (Loss), as Adjusted
</pre>
<p>We define "cash income" as net income (loss) attributable to Legg Mason Inc. plus amortization and deferred taxes related to intangible assets and goodwill, and imputed interest and tax benefits on contingent convertible debt less deferred income taxes on goodwill and intangible asset impairment. We define "cash income, as adjusted" as cash income plus (less) net money market fund support losses (gains) and impairment charges less net losses on the sale of the underlying SIV securities.</p>
<p/>
<p>We believe that cash income and cash income, as adjusted, provide good representations of our operating performance adjusted for non-cash acquisition related items and other items that facilitate comparison of our results to the results of other asset management firms that have not engaged in money market fund support transactions, issued contingent convertible debt or made significant acquisitions, including any related goodwill or intangible asset impairments.</p>
<p/>
<p>We also believe that cash income and cash income, as adjusted, are important metrics in estimating the value of an asset management business. These measures are provided in addition to net income, but are not a substitute for net income and may not be comparable to non-GAAP performance measures, including measures of cash earnings or cash income, of other companies. Further, cash income and cash income, as adjusted, are not liquidity measures and should not be used in place of cash flow measures determined under GAAP. Legg Mason considers cash income and cash income, as adjusted, to be useful to investors because they are important metrics in measuring the economic performance of asset management companies, as indicators of value, and because they facilitate comparisons of Legg Mason's operating results with the results of other asset management firms that have not engaged in money market fund support transactions or significant acquisitions.</p>
<p/>
<p>In calculating cash income, we add the impact of the amortization of intangible assets from acquisitions, such as management contracts, to net income to reflect the fact that these non-cash expenses distort comparisons of Legg Mason's operating results with the results of other asset management firms that have not engaged in significant acquisitions. Deferred taxes on indefinite-life intangible assets and goodwill represent actual tax benefits that are not realized under GAAP absent an impairment charge or the disposition of the related business. Because we actually receive these tax benefits on indefinite-life intangibles and goodwill over time, we add them to net income in the calculation of cash income. Conversely, we subtract the income tax benefits on these impairment charges that have been recognized under GAAP. We also include imputed interest, which is a non-cash expense, on contingent convertible debt required by new accounting standards as well as the actual tax benefits on the related contingent convertible debt that are not realized under GAAP. In calculating cash income, as adjusted, we add (subtract) net money market fund support losses (gains) less net losses on the sale of the underlying SIV securities and impairment charges to cash income to reflect that these charges distort comparisons of Legg Mason's operating results to prior periods and the results of other asset management firms that have not engaged in money market fund support transactions or significant acquisitions, including any related impairments.</p>
<p/>
<p>Should a disposition or impairment charge for indefinite-life intangibles or goodwill occur, its impact on cash income and cash income, as adjusted, may distort actual changes in the operating performance or value of our firm. Also, realized losses on money market fund support transactions are reflective of changes in the operating performance and value of our firm. Accordingly, we monitor these items and their related impact, including taxes, on cash income and cash income, as adjusted, to ensure that appropriate adjustments and explanations accompany such disclosures.</p>
<p/>
<p>Although depreciation and amortization of fixed assets are non-cash expenses, we do not add these charges in calculating cash income or cash income, as adjusted, because these charges are related to assets that will ultimately require replacement.</p>
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Operating Margin, as Adjusted
</pre>
<p>We calculate "operating margin, as adjusted," by dividing (i) operating income, adjusted to exclude the impact on compensation expense of gains or losses on investments made to fund deferred compensation plans and the impact on compensation expense of gains or losses on seed capital investments by our affiliates under revenue sharing agreements by (ii) our operating revenues less distribution and servicing expenses that are passed through to third-party distributors, which we refer to as "adjusted operating revenues". The compensation items are removed from operating income in the calculation because they are offset by an equal amount in Other non-operating income, and thus have no impact on Net Income. We use adjusted operating revenues in the calculation to show the operating margin without distribution revenues that are passed through to third parties as a direct cost of selling our products. Legg Mason believes that operating margin, as adjusted, is a useful measure of our performance because it provides a measure of our core business activities excluding items that have no impact on net income and because it indicates what Legg Mason's operating margin would have been without the distribution revenues that are passed through to third parties as a direct cost of selling our products. This measure is provided in addition to the Company's operating margin calculated under GAAP, but is not a substitute for calculations of margins under GAAP and may not be comparable to non-GAAP performance measures, including measures of adjusted margins, of other companies.</p>
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Pre-tax Profit Margin, as Adjusted
</pre>
<p>We calculate "pre-tax margin, as adjusted," by dividing income (loss) from operations before income tax provision by adjusted operating revenues. Legg Mason believes that pre-tax profit margin adjusted for distribution and servicing expense is a useful measure of our performance because it indicates what Legg Mason's pre-tax profit margin would have been without the distribution revenues that are passed through to third parties as a direct cost of selling our products, and thus shows the effect of these revenues on our pre-tax profit margin. This measure is provided in addition to the pre-tax profit margin calculated under GAAP, but is not a substitute for calculations of margin under GAAP and may not be comparable to non-GAAP performance measures, including measures of adjusted margins, of other companies.</p>
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For further information: Investor Relations: Alan Magleby, +1-410-454-5246, [email protected], or Media: Mary Athridge, +1-212-805-6035, [email protected], both of Legg Mason Web Site: http://www.leggmason.com
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