8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported) October 27, 2011

LEGG MASON, INC.

(Exact name of registrant as specified in its charter)

Maryland	1-8529	52-1200960
(State or Other Jurisdiction of Incorporation)	(Commission File No.)	(IRS Employer  Identification No.)

100 International Drive, Baltimore, Maryland	21202
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code: (410) 539-0000

Not Applicable 

(Former name or former address if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02	Results of Operations and Financial Condition.
	On October 27, 2011, Legg Mason, Inc. announced its results of operations for the quarter and six months ended September 30, 2011. A copy of the related press release is attached hereto as Exhibit 99.
	The information in this Section 2.02 and Exhibit 99 attached hereto shall not be deemed "filed" for purposes of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.
Item 9.01	Financial Statements and Exhibits.
(d)	Exhibits
	Exhibit No.	Subject Matter
	99	Press Release of Legg Mason, Inc. dated October 27, 2011

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	LEGG MASON, INC.
	(Registrant)
Date:  October 27, 2011	By:	/s/ Thomas P. Lemke
		Thomas P. Lemke
		Executive Vice President and General Counsel

LEGG MASON, INC.

EXHIBIT INDEX

Exhibit No.	Subject Matter
99	Press Release of Legg Mason, Inc. dated October 27, 2011

EX-99

FOR IMMEDIATE RELEASE

Investor Relations:	Media:
Alan Magleby	Mary Athridge
410-454-5246	212-805-6035
amagleby@leggmason.com	mkathridge@leggmason.com

LEGG MASON REPORTS RESULTS FOR SECOND FISCAL QUARTER 2012

-- Second Quarter Net Income of $57 Million, or $0.39 per Diluted Share --

-- Second Quarter Adjusted Income of $88 Million, or $0.61 per Diluted Share --

-- Share Repurchases of $200 Million and Dividend Declared of $0.08 per share --

-- Assets Under Management of $612 Billion --

Baltimore, Maryland - October 27, 2011 - Legg Mason, Inc. (NYSE: LM) today reported its operating results for the second fiscal quarter ended September 30, 2011. The Company reported net income¹ of $56.7 million, or $0.39per diluted share, as compared with $60.0 million, or $0.40 per diluted share, in the previous quarter and $75.3 million, or $0.50 per diluted share, in the second quarter of fiscal 2011. Included in this quarter's results was a special U.K. tax benefit of $18.3 million, or $0.13 per diluted share compared with a similar tax benefit of $8.9 million, or $0.06 per diluted share in the prior year quarter, as well as losses oncorporate investments, not offset in compensation, of $19.7 million compared with gains of $8.0 million in the prior quarter. Also included in this quarter's results were $15.1 million, or $0.07 per diluted share, in transition-related costs as compared to $13.7 million, or $0.06 per diluted share, of such costs in the previous quarter, and $11.6 million, or $0.05 per diluted share, in the second quarter of fiscal 2011. Adjusted income² for the second quarter was $87.6 million, or $0.61 per diluted share, as compared to $109.1 million, or $0.73 per diluted share, in the first quarter of fiscal 2012 and $115.0 million, or $0.76 per diluted share, in the second quarter of fiscal 2011. For the second quarter, operating revenues were $669.9 million, down 7% from $717.1 million in the prior quarter and down 1% from $674.8 million in the prior year quarter. Operating expenses of $563.0million were down 9% from $616.7 million in the first quarter of fiscal 2012 and down 4% from $586.9 million in the prior year quarter.

Assets Under Management (“AUM”) were $611.8 billion, down 8% as compared with $662.5 billion as of June 30, 2011 and down 9% from $673.5 billion as of September 30, 2010.

Legg Mason also announced today that its Board of Directors has declared a quarterly cash dividend on its common stock in the amount of $0.08 per share.

(Amounts in millions, except per share amounts)
	Quarters Ended						Six Months Ended
	Sep		Jun		Sep		Sep		Sep
	2011		2011		2010		2011		2010
Total Operating Revenues	$	669.9	$	717.1	$	674.8	$	1,387.0	$	1,349.0
Total Operating Expenses	563.0		616.7		586.9		1,179.8		1,158.3
Operating Income	106.9		100.4		87.9		207.2		190.7
Net Income1	56.7		60.0		75.3		116.6		123.3
Adjusted Income2	87.6		109.1		115.0		196.7		211.3
Net Income Per Share - Diluted1	0.39		0.40		0.50		0.80		0.79
Adjusted Income Per Share - Diluted2	0.61		0.73		0.76		1.34		1.35
(1) Net income represents Net income attributable to Legg Mason, Inc.
(2) See Supplemental Data below for non-GAAP performance measures.

Comments on the Second Quarter of Fiscal Year 2012 Results

Mark R. Fetting, Chairman and CEO of Legg Mason said, “The quarter was marked by extreme market volatility and continued economic uncertainty that led to many investors moving to, or staying on, the sidelines. That said, Legg Mason's asset mix helped to mitigate a more significant decline in AUM that affected the industry as a whole.  In this environment, we will continue to maintain a tight focus on client service and performance, to preserve our balance sheet strength, complete the streamlining initiatives we began last year and prudently deploy capital for the benefit of shareholders.  Ultimately, these steps will position Legg Mason for long term success as we continue to expand and build our brand globally.”

Assets Under Management Decreased to $611.8Billion

AUM decreased to $611.8 billion compared with $662.5 billion at June 30, 2011 primarily driven by $32.9 billion in market depreciation, including foreign exchange, as well as client outflows of $17.6 billion. AUM was down 9% from $673.5 billion as of September 30, 2010.

• Fixed income, equity and liquidity outflows were $8.8 billion, $5.7 billion and $3.1billion, respectively, for the quarter ended September 30^th.

• At September 30, 2011, fixed income represented 58% of AUM, while equity represented 24% and liquidity represented18% of AUM.

• By client domicile, 63% of AUM was United States and 37% of AUM was non-U.S.

• Average AUM during the quarter was $643.3 billion compared to $670.8 billion in the first quarter of fiscal year 2012 and $658.6billion in the second quarter of fiscal year 2011.

Comparison to the First Quarter of Fiscal Year 2012

Net income was $56.7 million, or $0.39 per diluted share, as compared with $60.0 million, or $0.40 per diluted share, in the first quarter of fiscal year 2012. This quarter's results included a United Kingdom tax benefit of $18.3 million, or $0.13 per diluted share.

• Revenues of $669.9 million were down 7% from $717.1 million in the prior quarter, primarily due to a 4% decline in average AUM, a less favorable asset mix and a decline in performance fees.

• Operating expenses of $563.0 million were down 9% from $616.7 million in the first quarter of fiscal 2012 driven by lower revenues and an increase in savings resulting from the previously announced streamlining effort. The current quarter's expenses also included a $14.2 million decrease in the market value of deferred compensation and seed investments which are recorded as a reduction in compensation and benefits with an offset in other non-operating income, compared to a decrease of $2.4 million in the prior quarter. Last quarter's results also included $11.4 million of costs related to the launch of a closed-end fund.

• Other non-operating expense was $51.1 million as compared to $10.8 million of expense in the first quarter of fiscal 2012. Losses oncorporate investments, not offset in compensation, were $19.7 million compared with gains of $8.0 million in the prior quarter. The current quarter also included losses on funded deferred compensation plan and seed investments as described above. In addition, the current quarter included $1.5 million in gains associated with consolidated investment vehicles compared to $2.8 million in gains in the prior quarter. The consolidation of investment vehicles has no impact on net income as the effects of consolidation are fully attributable to noncontrolling interests.

• Operating margin was 16.0%, as compared to 14.0% in the first quarter of fiscal year 2012. Operating margin, as adjusted² was 21.3%, as compared with 21.0% in the prior quarter.

• Adjusted income was $87.6 million, or $0.61 per diluted share, compared to adjusted income of $109.1 million, or $0.73 per diluted share, in the prior quarter.

Comparison to the Second Quarter of Fiscal Year 2011

Net income was $56.7 million, or $0.39 per diluted share, as compared with $75.3 million, or $0.50 per diluted share, in the second quarter of fiscal year 2011. This quarter's results included a United Kingdom tax benefit of $18.3 million, or $0.13 per diluted share, while the prior year's second quarter included a similar $8.9 million, or $0.06 per diluted share benefit.

• Operating revenues of $669.9 million decreased 1% from revenues of $674.8 million in the prior year quarter reflecting a 2% decrease in average AUM and lower performance fees, which more than offset the increased advisory fee yield resulting from a more favorable asset mix.

• Operating expenses of $563.0 million were down 4% from operating expenses of $586.9 million in the prior year quarter due in part to lower revenues, and $26.0 million in quarterly savings related to the company's streamlining program which were partially offset by the $18.3 million Western reimbursement step-down, that was discussed in prior quarters.

• Other non-operating expense was $51.1 millionas compared to $15.4 million of income in the prior year quarter. Losses on corporate investments, not offset in compensation were $19.7 million compared with $12.9 million of gains in the prior year quarter. In addition, the current quarter's expenses also included a $14.2 million decrease in the market value of deferred compensation and seed investments which are recorded as a reduction in compensation and benefits with an offset in other non-operating income, compared to an increase of $22.1 million in the prior year quarter. The current quarter also included $1.5 million in gains associated with consolidated investment vehicles as compared to $2.7 million in gains in the prior year quarter, which are attributable to noncontrolling interests and therefore do not impact net income.

• Operating margin was 16.0% as compared to 13.0% in the prior year quarter. Operating margin, as adjusted, was 21.3%, as compared with 24.1% in the same period a year ago.

• Adjusted income was $87.6 million, or $0.61 per diluted share, compared to adjusted income of $115.0million, or $0.76 per diluted share, for the prior year quarter.

Performance

At September 30, 2011:

• Of Legg Mason's long-term U.S. mutual fund assets, 67% were beating their Lipper category averages for the 1-year period; 80% for the 3-year period; 76% for the 5-year period and 74% for the 10-year period.

• Of Legg Mason's long-term U.S. mutual funds assets, 58% were rated 4 or 5 stars by Morningstar, including 85% of all funds managed by Royce and 56% of all funds managed by Western.

• Four of the 8 funds in the Western Asset institutional fund family outperformed their benchmarks for the 1-year period; 7 out of 8 outperformed their benchmarks for the 3-year period; 2 out of 8 outperformed for the 5-year period and 4 out of 6 funds outperformed for the 10-year period.

• Nine out of 25 funds managed by Royce outperformed their benchmarks for the 1-year period; 18 out of 22 for the 3-year period; 14 out of 17 for the 5-year period; and all 11 outperformed for the 10-year period.

• None of the funds managed by Legg Mason Capital Management outperformed their benchmarks for the 1-year, 5-year and 10-year periods; and 1 out of 5 funds outperformed for the 3-year period.

• Three out of 11 funds managed by ClearBridge Advisors outperformed for the 1-year period; 5 out of 11 for the 3-year period; 5 out of 11 for the 5-year period; and 4 out of 11 outperformed for the 10-year period.

Balance Sheet

At September 30, 2011, Legg Mason's cash position was $1.1 billion. Total debt was $1.4 billion and stockholders' equity was $5.6billion. The ratio of total debt to total capital (total equity plus total debt excluding consolidated investment vehicles) was 20%. During the quarter, the Company completed additional open market purchases of 7.6million shares, which reduced weighted average shares by 3.7 million. This brings the number of shares repurchased under the $1 billion Board authorization to 13.6 million shares in fiscal year 2012 and 28.2 million shares in total.

The Board of Directors has declared a quarterly cash dividend on its common stock in the amount of $0.08 per share. The dividend is payable January 9, 2012 to shareholders of record at the close of business on December 14, 2011.

Conference Call to Discuss Results

A conference call to discuss the Company's results, hosted by Mr. Fetting, will be held at 8:30 am EDT today. The call will be open to the general public. Interested participants should access the call by dialing 1-877-269-7756 (or for international calls 1-201-689-7817) at least 10 minutes prior to the scheduled start to ensure connection.

The presentation slides that will be reviewed during the conference call will be available on the Investor Relations section of the Legg Mason website (http://ir.leggmason.com/CorporateProfile.aspx?iid=102761) shortly after the release of the financial results.

A replay or transcript of the live broadcast will be available on the Legg Mason website, in the investor relations section, or by dialing 1-877-660-6853 (or for international calls 1-201-612-7415), enter account number 369 followed by conference number 379780 when prompted. Please note that the replay will be available beginning at 4:00 p.m. EDT on Thursday, October 27, 2011 and ending on November 10, 2011.

About Legg Mason

Legg Mason is a global asset management firm, with $612 billion in assets under management as of September 30, 2011. 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, 2011 and in the Company's quarterly reports on Form 10-Q.

LEGG MASON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share amounts)
(Unaudited)
				Quarters Ended									For the Six Months Ended
				September			June			September			September			September
				2011			2011			2010			2011			2010
Operating Revenues:
	Investment advisory fees:
		Separate accounts		$	196,019		$	204,793		$	204,214		$	400,812		$	405,186
		Funds		376,835			400,144			357,491			776,979			710,190
		Performance fees		9,984			18,614			19,505			28,598			42,279
	Distribution and service fees			85,774			92,064			92,314			177,838			188,628
	Other			1,285			1,493			1,270			2,778			2,676
			Total operating revenues	669,897			717,108			674,794			1,387,005			1,348,959
Operating Expenses(1):
	Compensation and benefits			257,651			300,352			284,909			558,003			550,983
	Transition-related compensation			12,346			11,395			10,974			23,741			13,687
		Total compensation and benefits		269,997			311,747			295,883			581,744			564,670
	Distribution and servicing			160,391			180,756			165,832			341,147			350,534
	Communications and technology			41,571			40,501			39,314			82,072			79,290
	Occupancy			35,700			33,238			33,492			68,938			67,167
	Amortization of intangible assets			5,504			5,578			5,749			11,082			11,477
	Other			49,882			44,922			46,625			94,804			85,145
			Total operating expenses	563,045			616,742			586,895			1,179,787			1,158,283
Operating Income				106,852			100,366			87,899			207,218			190,676
Other Non-Operating Income (Expense)
	Interest income			2,982			3,055			2,170			6,037			3,985
	Interest expense			(21,636		)	(22,361		)	(24,449		)	(43,997		)	(47,250		)
	Other income (expense)			(35,502		)	3,403			33,189			(32,099		)	25,898
	Other non-operating income (expense) of
		consolidated investment vehicles		3,081			5,102			4,499			8,183			2,106
			Total other non-operating income (expense)	(51,075		)	(10,801		)	15,409			(61,876		)	(15,261		)
Income Before Income Tax Provision				55,777			89,565			103,308			145,342			175,415
	Income tax (benefit) provision			(1,606		)	27,867			26,720			26,261			53,784
Net Income				57,383			61,698			76,588			119,081			121,631
	Less: Net income (loss) attributable
		to noncontrolling interests		719			1,746			1,253			2,465			(1,635		)
Net Income Attributable to
	Legg Mason, Inc.			$	56,664		$	59,952		$	75,335		$	116,616		$	123,266
Net Income per share
	Attributable to Legg Mason, Inc.
	Common Shareholders:
	Basic			$	0.39		$	0.40		$	0.50		$	0.80		$	0.79
	Diluted			$	0.39		$	0.40		$	0.50		$	0.80		$	0.79
Weighted Average Number of Shares
	Outstanding:
			Basic	143,877			149,210			151,416			146,529			155,746
			Diluted	143,931			149,347			151,940			146,625			156,327
(1) Operating expenses include transition costs related to streamlining our business model.
	See Supplemental Data - Operating margin, as adjusted for additional details.

LEGG MASON, INC. AND SUBSIDIARIES
SUPPLEMENTAL DATA
RECONCILIATION OF NET INCOME ATTRIBUTABLE TO LEGG MASON, INC.
TO ADJUSTED INCOME (1)
(Amounts in thousands, except per share amounts)
(Unaudited)
				Quarters Ended								For the Six Months Ended
				September			June		September			September			September
				2011			2011		2010			2011			2010
Net Income Attributable to Legg Mason, Inc.				$	56,664		$	59,952	$	75,335		$	116,616		$	123,266
	Plus (Less):
		Amortization of intangible assets		5,504			5,578		5,749			11,082			11,477
		Deferred income taxes on intangible assets:
			Tax amortization benefit	33,955			34,038		33,681			67,993			67,368
			UK tax rate adjustment	(18,268		)	—		(8,878		)	(18,268		)	(8,878		)
		Imputed interest on convertible debt		9,741			9,489		9,146			19,230			18,055
Adjusted Income				$	87,596		$	109,057	$	115,033		$	196,653		$	211,288
Net Income per Diluted Share Attributable
to Legg Mason, Inc. Common Shareholders				$	0.39		$	0.40	$	0.50		$	0.80		$	0.79
	Plus (Less):
		Amortization of intangible assets		0.04			0.04		0.04			0.07			0.07
		Deferred income taxes on intangible assets:
			Tax amortization benefit	0.24			0.23		0.22			0.46			0.43
			UK tax rate adjustment	(0.13		)	—		(0.06		)	(0.12		)	(0.06		)
		Imputed interest on convertible debt		0.07			0.06		0.06			0.13			0.12
Adjusted Income per Diluted Share				$	0.61		$	0.73	$	0.76		$	1.34		$	1.35
(1) See explanations for Use of Supplemental Data as Non-GAAP Performance Measures.

LEGG MASON, INC. AND SUBSIDIARIES
SUPPLEMENTAL DATA
RECONCILIATION OF OPERATING MARGIN, AS ADJUSTED(1)
(Amounts in thousands)
(Unaudited)
				Quarters Ended												For the Six Months Ended
				September				June				September				September				September
				2011				2011				2010				2011				2010
Operating Revenues, GAAP basis				$	669,897			$	717,108			$	674,794			$	1,387,005			$	1,348,959
	Plus (Less):
		Operating revenues eliminated upon
			consolidation of investment vehicles	625				1,052				959				1,677				1,738
		Distribution and servicing expense excluding
			consolidated investment vehicles	(160,379		)		(180,743		)		(165,845		)		(341,122		)		(350,534		)
Operating Revenues, as Adjusted				$	510,143			$	537,417			$	509,908			$	1,047,560			$	1,000,163
Operating Income, GAAP basis				$	106,852			$	100,366			$	87,899			$	207,218			$	190,676
	Plus (Less):
		Gains (losses) on deferred compensation
			and seed investments	(14,243		)		(2,366		)		22,122				(16,609		)		17,501
		Transition-related costs(2)		15,138				13,720				11,587				28,858				14,742
		Operating income and expenses of
			consolidated investment vehicles	885				1,162				1,461				2,047				2,704
Operating Income, as Adjusted				$	108,632			$	112,882			$	123,069			$	221,514			$	225,623
Operating margin, GAAP basis				16.0			%	14.0			%	13.0			%	14.9			%	14.1			%
Operating margin, as adjusted				21.3				21.0				24.1				21.1				22.6
(1) See explanations for Use of Supplemental Data as Non-GAAP Performance Measures.
(2) Transition-related costs:
			Compensation	$	12,346			$	11,395			$	10,974			$	23,741			$	13,687
			Communications and technology	2,577				2,106				472				4,683				472
			Occupancy	209				217				63				425				63
			Other	6				2				78				9				520
			Total	$	15,138			$	13,720			$	11,587			$	28,858			$	14,742

LEGG MASON, INC. AND SUBSIDIARIES
(Amounts in billions)
(Unaudited)
Assets Under Management
			Quarters Ended
			September 2011			June 2011			March 2011			December 2010			September 2010
By asset class:
	Equity		$	144.9		$	181.5		$	189.6		$	184.2		$	169.6
	Fixed Income		355.5			365.4			356.6			355.8			371.6
		Long-Term Assets	500.4			546.9			546.2			540.0			541.2
	Liquidity		111.4			115.6			131.4			131.8			132.3
		Total	$	611.8		$	662.5		$	677.6		$	671.8		$	673.5
By asset class (average):
	Equity		$	166.3		$	187.5		$	187.0		$	175.7		$	162.0
	Fixed Income		364.7			363.1			354.7			364.9			365.0
		Long-Term Assets	531.0			550.6			541.7			540.6			527.0
	Liquidity		112.3			120.2			131.8			131.8			131.6
		Total	$	643.3		$	670.8		$	673.5		$	672.4		$	658.6
Component Changes in Assets Under Management
			Quarters Ended
			September 2011			June 2011			March 2011			December 2010			September 2010
Beginning of period			$	662.5		$	677.6		$	671.8		$	673.5		$	645.4
Net client cash flows			(17.6		)	(3.7		)	(8.7		)	(16.7		)	(12.7		)
Market performance and other			(32.9		)	8.0			16.6			15.0			40.8
Acquisitions (Dispositions), net			(0.2		)	(19.4		)	(2.1		)	—			—
End of period			$	611.8		$	662.5		$	677.6		$	671.8		$	673.5
	Note: Due to rounding of quarterly results, total amounts for fiscal year may differ immaterially from the annual results.

LEGG MASON, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP BASIS CONSOLIDATED STATEMENTS OF INCOME
TO NON-GAAP BASIS CONSOLIDATED STATEMENTS OF INCOME EXCLUDING INVESTMENT VEHICLES (1)
(Amounts in thousands, except per share amounts)
(Unaudited)
			Quarter Ended September 30, 2011									Quarter Ended June 30, 2011									Quarter Ended September 30, 2010
			GAAP Basis			Consolidated Investment Vehicles			Non-GAAP Basis - Excluding Investment Vehicles			GAAP Basis			Consolidated Investment Vehicles			Non-GAAP Basis - Excluding Investment Vehicles			GAAP Basis			Consolidated Investment Vehicles			Non-GAAP Basis - Excluding Investment Vehicles
Operating Revenues:
	Investment advisory fees		$	582,838		$	608		$	583,446		$	623,551		$	1,035		$	624,586		$	581,210		$	914		$	582,124
	Distribution and service fees		85,774			17			85,791			92,064			17			92,081			92,314			45			92,359
	Other		1,285			—			1,285			1,493			—			1,493			1,270			—			1,270
		Total operating revenues	669,897			625			670,522			717,108			1,052			718,160			674,794			959			675,753
Operating Expenses:
	Compensation and benefits		269,997			—			269,997			311,747			—			311,747			295,883			—			295,883
	Distribution and servicing		160,391			(12		)	160,379			180,756			(13		)	180,743			165,832			13			165,845
	Other		132,657			(248		)	132,409			124,239			(97		)	124,142			125,180			(515		)	124,665
		Total operating expenses	563,045			(260		)	562,785			616,742			(110		)	616,632			586,895			(502		)	586,393
Operating Income			106,852			885			107,737			100,366			1,162			101,528			87,899			1,461			89,360
Other Non-Operating Income (Expense)
	Net interest income (expense)		(18,654		)	—			(18,654		)	(19,306		)	—			(19,306		)	(22,279		)	—			(22,279		)
	Other income (expense)		(32,421		)	(1,522		)	(33,943		)	8,505			(2,831		)	5,674			37,688			(2,663		)	35,025
		Other non-operating income (expense)	(51,075		)	(1,522		)	(52,597		)	(10,801		)	(2,831		)	(13,632		)	15,409			(2,663		)	12,746
Income (Loss) Before Income Tax Provision			55,777			(637		)	55,140			89,565			(1,669		)	87,896			103,308			(1,202		)	102,106
	Income tax (benefit) provision		(1,606		)	—			(1,606		)	27,867			—			27,867			26,720			—			26,720
Net Income (Loss)			57,383			(637		)	56,746			61,698			(1,669		)	60,029			76,588			(1,202		)	75,386
	Less: Net income (loss) attributable
		to noncontrolling interests	719			(637		)	82			1,746			(1,669		)	77			1,253			(1,202		)	51
Net Income Attributable to Legg Mason, Inc.			$	56,664		$	—		$	56,664		$	59,952		$	—		$	59,952		$	75,335		$	—		$	75,335
Effective Income Tax Rate			(2.9		)%							31.1		%							25.9		%
Effective Income Tax Rate Excluding
	Consolidated Investment Vehicles								(2.9		)%							31.7		%							26.2		%
(1) See explanations for Use of Supplemental Data as Non-GAAP Performance Measures.

LEGG MASON, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP BASIS CONSOLIDATED STATEMENTS OF INCOME
TO NON-GAAP BASIS CONSOLIDATED STATEMENTS OF INCOME EXCLUDING INVESTMENT VEHICLES (1)
(Amounts in thousands, except per share amounts)
(Unaudited)
			Six Months Ended September 30, 2011									Six Months Ended September 30, 2010
			GAAP Basis			Consolidated Investment Vehicles			Non-GAAP Basis - Excluding Investment Vehicles			GAAP Basis			Consolidated Investment Vehicles			Non-GAAP Basis - Excluding Investment Vehicles
Operating Revenues:
	Investment advisory fees		$	1,206,389		$	1,643		$	1,208,032		$	1,157,655		$	1,681		$	1,159,336
	Distribution and service fees		177,838			34			177,872			188,628			57			188,685
	Other		2,778			—			2,778			2,676			—			2,676
		Total operating revenues	1,387,005			1,677			1,388,682			1,348,959			1,738			1,350,697
Operating Expenses:
	Compensation and benefits		581,744			—			581,744			564,670			—			564,670
	Distribution and servicing		341,147			(25		)	341,122			350,534			—			350,534
	Other		256,896			(345		)	256,551			243,079			(966		)	242,113
		Total operating expenses	1,179,787			(370		)	1,179,417			1,158,283			(966		)	1,157,317
Operating Income			207,218			2,047			209,265			190,676			2,704			193,380
Other Non-Operating Income (Expense)
	Net interest income (expense)		(37,960		)	—			(37,960		)	(43,265		)	—			(43,265		)
	Other income (expense)		(23,916		)	(4,353		)	(28,269		)	28,004			(964		)	27,040
		Other non-operating income (expense)	(61,876		)	(4,353		)	(66,229		)	(15,261		)	(964		)	(16,225		)
Income (Loss) Before Income Tax Provision			145,342			(2,306		)	143,036			175,415			1,740			177,155
	Income tax provision		26,261			—			26,261			53,784			—			53,784
Net Income (Loss)			119,081			(2,306		)	116,775			121,631			1,740			123,371
	Less: Net income (loss) attributable
		to noncontrolling interests	2,465			(2,306		)	159			(1,635		)	1,740			105
Net Income Attributable to Legg Mason, Inc.			$	116,616		$	—		$	116,616		$	123,266		$	—		$	123,266
Effective Income Tax Rate			18.1		%							30.7		%
Effective Income Tax Rate Excluding
	Consolidated Investment Vehicles								18.4		%							30.4		%
(1) See explanations for Use of Supplemental Data as Non-GAAP Performance Measures.

Use of Supplemental Data as Non-GAAP Performance Measures

As supplemental information, we are providing performance measures that are based on methodologies other than generally accepted accounting principles (“non-GAAP”) for “Adjusted Income", “Consolidated Statements of Income, Excluding Consolidated Investment Vehicles”, and “Operating Margin, As Adjusted” that management uses as benchmarks in evaluating and comparing the period-to-period operating performance of Legg Mason, Inc. and its subsidiaries.

Adjusted Income

We define “Adjusted Income” as Net Income (Loss) Attributable to Legg Mason, Inc. plus amortization and deferred taxes related to intangible assets and goodwill, and imputed interest and tax benefits on contingent convertible debt less deferred income taxes on goodwill and indefinite-life intangible asset impairment, if any. We also adjust for non-core items that are not reflective of our economic performance, such as impairment charges and the impact of tax rate adjustments on certain deferred tax liabilities related to indefinite-life intangible assets and goodwill, and net money market fund support losses (gains).

We believe that Adjusted Income provides a good representation of our operating performance adjusted for non-cash acquisition related items and other items that facilitate comparison of our results to the results of other asset management firms that have not issued contingent convertible debt, made significant acquisitions, or engaged in money market fund support transactions. We also believe that Adjusted Income is an important metric in estimating the value of an asset management business.

Adjusted Income only considers adjustments for certain items that relate to operating performance and comparability, and therefore, is most readily reconcilable to Net Income Attributable to Legg Mason, Inc. determined under GAAP. This measure is provided in addition to Net Income, but is not a substitute for Net Income and may not be comparable to non-GAAP performance measures, including measures of adjusted earnings or Adjusted Income, of other companies. Further, Adjusted Income is not a liquidity measure and should not be used in place of cash flow measures determined under GAAP. Legg Mason considers Adjusted Income to be useful to investors because it is an important metric in measuring the economic performance of asset management companies, as an indicator of value, and because it facilitates comparison of Legg Mason's operating results with the results of other asset management firms that have not engaged in significant acquisitions, issued contingent convertible debt, or engaged in money market fund support transactions.

In calculating Adjusted Income, we add the impact of the amortization of intangible assets from acquisitions, such as management contracts, to Net Income Attributable to Legg Mason, Inc. 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 include actual tax benefits from amortization deductions that are not realized under GAAP absent an impairment charge or the disposition of the related business.  Because we fully expect to realize the economic benefit of the current period tax amortization, we add this benefit to net income in the calculation of Adjusted Income.  However, because of our net operating loss carry forward, we will receive the benefit of the current tax amortization over time. Conversely, we subtract the non-cash income tax benefits on goodwill and indefinite-life intangible asset impairment charges and United Kingdom tax rate adjustments on excess book basis on certain acquired indefinite-life intangible assets, if applicable, that have been recognized under GAAP. We also add back imputed interest on contingent convertible debt, which is a non-cash expense, as well as the actual tax benefits on the related contingent convertible debt that are not realized under GAAP. We also add (subtract) other non-core items, such as net money market fund support losses (gains) (net of losses on the sale of the underlying SIV securities, if applicable). These adjustments reflect that these items 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, impairment charge or other non-core item occur, its impact on Adjusted Income may distort actual changes in the operating performance or value of our firm. Also, realized losses on money market fund support transactions are reflective of changes in the operating performance and value of our firm. Accordingly, we monitor these items and their related impact, including taxes, on Adjusted Income to ensure that appropriate adjustments and explanations accompany such disclosures.

Although depreciation and amortization of fixed assets are non-cash expenses, we do not add these charges in calculating Adjusted Income because these charges are related to assets that will ultimately require replacement.

Consolidated Statements of Income, Excluding Consolidated Investment Vehicles

In accordance with financial accounting standards on consolidation, Legg Mason consolidates and separately identifies certain sponsored investment vehicles, the most significant of which is a collateralized loan obligation entity. In presenting our “Consolidated Statements of Income, Excluding Consolidated Investment Vehicles”, we add back the investment advisory and distribution and servicing fees that are eliminated upon the consolidation of investment vehicles and exclude the operating expenses and the impact on non-operating income (expense) and noncontrolling interests of consolidated investment vehicles.

We believe it is important to provide the Consolidated Statements of Income, Excluding Consolidated Investment Vehicles to present the underlying economic performance of our core asset management operations, which does not include the results of the investment funds that we manage but may not own all of the equity invested. By deconsolidating the consolidated investment vehicles from the Consolidated Statements of Income, the investment advisory and distribution fees earned by Legg Mason from consolidated investment vehicles are added back to reflect our actual revenues. Similarly the operating expenses and the impact on non-operating income (expense) and noncontrolling interests of consolidated investment vehicles are removed from the GAAP basis Statements of Income since this activity does not actually belong to Legg Mason. The deconsolidation of the investment vehicles does not have any impact on Net Income Attributable to Legg Mason, Inc. in any period presented. The Consolidated Statements of Income, Excluding Consolidated Investment Vehicles are presented in addition to our GAAP basis Consolidated Statements of Income, but are not substitutes for the GAAP basis Consolidated Statements of Income and may not be comparable to Statements of Income presented on a non-GAAP basis of other companies.

Operating Margin, As Adjusted

We  calculate “Operating Margin, As Adjusted,” by dividing (i) Operating Income, adjusted to exclude the impact on compensation expense of gains or losses on investments made to fund deferred compensation plans, the impact on compensation expense of gains or losses on seed capital investments by our affiliates under revenue sharing agreements, transition-related costs of streamlining our business model, income (loss) of consolidated investment vehicles and, impairment charges by (ii) our operating revenues, adjusted to add back net investment advisory fees eliminated upon consolidation of investment vehicles, less distribution and servicing expenses which we use as an approximate measure of revenues that are passed through to third parties, which we refer to as “adjusted operating revenues”.  The compensation items, other than transition-related costs, are removed from Operating Income in the calculation because they are offset by an equal amount in Other non-operating income (expense), and thus have no impact on Net Income Attributable to Legg Mason, Inc.  Transition-related costs and income (loss) of consolidated investment vehicles are removed from Operating Income in the calculation because these items are not reflective of our core asset management operations. We use adjusted operating revenues in the calculation to show the operating margin without distribution and servicing expenses, which we use to approximate our distribution revenues that are passed through to third parties as a direct cost of selling our products, although distribution and servicing expenses may include commissions paid in connection with the launching of closed-end funds for which there is no corresponding revenue in the period. Adjusted operating revenues also include our advisory revenues we receive from consolidated investment vehicles that are eliminated in consolidation under GAAP.  Legg Mason believes that Operating Margin, As Adjusted, is a useful measure of our performance because it provides a measure of our core business activities excluding items that have no impact on Net Income and because it indicates what Legg Mason's operating margin would have been without the distribution revenues that are passed through to third parties as a direct cost of selling our products, transition-related costs, and the impact of the consolidation of certain investment vehicles described above. The consolidation of these investment vehicles does not have an impact on Net income Attributable to Legg Mason, Inc.  This measure is provided in addition to the Company's operating margin calculated under GAAP, but is not a substitute for calculations of margins under GAAP and may not be comparable to non-GAAP performance measures, including measures of adjusted margins of other companies.