Oct. 22, 2009 (PR Newswire) -- BALTIMORE, Oct. 22 /PRNewswire-FirstCall/ -- Legg Mason, Inc. (NYSE: LM) today reported its operating results for the second fiscal quarter ended September 30, 2009. The Company reported net income of $45.8 million, or $0.30 per diluted share, as compared to net income of $50.1 million, or $0.35 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 $22 million, which were partially offset by ongoing interest savings from the exchange of $15 million per quarter. Cash income, as adjusted, for the second quarter was $90.0 million, as compared to $86.8 million in the first quarter of fiscal 2010.

Assets Under Management ("AUM") were $702.7 billion, up 7% from $656.9 billion at June 30, 2009, driven by market appreciation, partly offset by reduced outflows, and down 17% from $841.9 billion at September 30, 2008.

(Amounts in millions, except per share amounts)

Quarters Ended            Six Months Ended
Sept     June        Sept       Sept      Sept
2009     2009        2008       2009      2008
----     ----        ----       ----      ----

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

(1) Net income represents net income (loss) attributable to Legg Mason,
Inc.

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

Comments on the Second Quarter of Fiscal Year 2010 Results

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 $1.1 billion - 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.

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."

Assets Under Management Increased to $703 Billion

AUM increased 7% to $702.7 billion as compared with $656.9 billion at June 30, 2009 driven by market appreciation partially offset by reduced outflows. AUM decreased 17% from $841.9 billion at September 30, 2008.

--  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

Net income was $45.8 million or $0.30 per diluted share as compared to $50.1 million or $0.35 per diluted share in the first quarter.

--  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

Net income was $45.8 million or $0.30 per diluted share, up from a net loss of $108.7 million or ($0.77) 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.

--  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

At September 30, 2009, Legg Mason's cash position was $1.6 billion. Total debt was $2.0 billion and stockholders' equity was $5.7 billion. 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 September 30, 2009 as compared to 142.5 million as of June 30, 2009.

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.D.T. today.