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) May 1, 2012

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 May 1, 2012, Legg Mason, Inc. announced its results of operations for the quarter and twelve months ended March 31, 2012. 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 May 1, 2012

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:  May 1, 2012	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 May 1, 2012

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 FOURTH QUARTER AND FISCAL YEAR-END RESULTS

-- Fourth Quarter Net Income of $76 Million, or $0.54 per Diluted Share --

-- Fourth Quarter Adjusted Income of $124 Million, or $0.88 per Diluted Share --

-- Assets Under Management of $643 Billion --

-- Board Increases Quarterly Dividend to $0.11 per Share --

Baltimore, Maryland - May 1, 2012 - Legg Mason, Inc. (NYSE: LM) today reported its operating results for the fourth fiscal quarter and fiscal year ended March 31, 2012. The Company reported net income¹ of $76.1 million, or $0.54 per diluted share, as compared with $28.1 million, or $0.20 per diluted share, in the previous quarter and $69.0 million, or $0.45 per diluted share, in the fourth quarter of fiscal 2011. Included in this quarter's results were $1.9 million or $0.01 per diluted share, in transition-related costs, as compared to $42.3 million, or $0.21 per diluted share, of such costs in the previous quarter, and $15.7 million, or $0.07 per diluted share, in the fourth quarter of fiscal 2011. Adjusted income² for the fourth quarter was $123.6 million or $0.88 per diluted share, as compared to $76.8 million, or $0.55 per diluted share in the third quarter of fiscal 2012 and $117.7 million, or $0.77 per diluted share, in the fourth quarter of fiscal 2011. For the fourth quarter, operating revenues were $648.6 million, up 3% from $627.0 million in the third quarter of fiscal 2012 and down 9% from $713.4 million in the prior year quarter. Operating expenses of $576.4 million were up 2% from $567.7 million in the third quarter of fiscal 2012 and were down 6% from $614.3 million in the prior year quarter.

Net income for fiscal year 2012 was $220.8 million or $1.54 per diluted share, as compared to net income of $253.9 million, or $1.63 per diluted share for fiscal year 2011. Adjusted income for the year was $397.0 million, or $2.77 per diluted share, compared to adjusted income of $439.2 million, or $2.83 per diluted share for fiscal year 2011. Total operating revenues for fiscal year 2012 were $2.7 billion, down 4% from $2.8 billion for fiscal year 2011. For the fiscal year 2012, operating expenses were $2.3 billion, down 3% from $2.4 billion in fiscal year 2011.

Assets Under Management (“AUM”) were $643.3 billion, up 3% from $627.0 billion as of December 31, 2011 and down 5% from $677.6 billion at fiscal year-end 2011.

(Amounts in millions, except per share amounts)
	Quarters Ended						Fiscal Year Ended
	Mar		Dec		Mar		Mar		Mar
	2012		2011		2011		2012		2011
Total Operating Revenues	$	648.6	$	627.0	$	713.4	$	2,662.6	$	2,784.3
Total Operating Expenses	576.4		567.7		614.3		2,323.8		2,397.5
Operating Income	72.2		59.3		99.1		338.8		386.8
Net Income1	76.1		28.1		69.0		220.8		253.9
Adjusted Income2	123.6		76.8		117.7		397.0		439.2
Net Income Per Share - Diluted1	0.54		0.20		0.45		1.54		1.63
Adjusted Income Per Share - Diluted2	0.88		0.55		0.77		2.77		2.83
(1) Net income represents Net income attributable to Legg Mason, Inc.
(2) Please see Supplemental Data below for non-GAAP Performance Measures.

Comments on the Fourth Quarter of Fiscal Year 2012 Results

Mark Fetting, Chairman and CEO said, “With the close of fiscal year 2012, Legg Mason completed its streamlining plan, generating over $140 million in annual cost savings, and returned over $440 million to shareholders through share repurchases and dividends.  Our affiliates continued to generate strong investment performance, particularly in the critical 3-year time period and provided their clients with high quality customer service.  The efforts of both our global distribution team and our affiliates have resulted in significantly reduced long-term outflows and our client facing teams are building momentum in new product categories.  Legg Mason enters fiscal year 2013 with a strong and flexible balance sheet.  This financial strength not only allows us to confidently invest in growing the business by seeding new products and filling gaps in our product set through lift-outs, bolt-ons and targeted acquisitions but affords us the opportunity to deploy capital through share repurchases and dividends.  We believe these efforts will position Legg Mason to reward shareholders over the long run.”

Assets Under Management Increased to $643.3Billion

AUM increased to $643.3 billion compared with $627.0 billion at December 31, 2011, driven by $24.4 billion in market appreciation, partially offset by net client outflows of $4.9 billion and dispositions of $3.2 billion. AUM was down 5% from $677.6 billion as of March 31, 2011.

• Fixed income and equity outflows were $2.8 billion and $4.9 billion, respectively, while liquidity inflows were $2.8 billion for the quarter ended March 31st.

• At March 31, 2012, fixed income represented 55% of AUM, while equity represented 26% and liquidity represented19% 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 $634.9 billion compared to $622.0 billion in the third quarter of fiscal year 2012 and $673.5billion in the fourth quarter of fiscal year 2011.

Comparison to the Third Quarter of Fiscal Year 2012

Net income was $76.1 million, or $0.54 per diluted share, as compared with $28.1 million, or $0.20 per diluted share, in the third quarter of fiscal year 2012. This quarter's results include tax benefits associated with the restructuring of a foreign subsidiary, partially offset by adjustments to the net value of certain deferred tax assets, totaling $4.7 million, or $0.03 per diluted share. The prior quarter's results included $42.3 million, or $0.21 per diluted share, in transition-related costs.

• Operating revenues of $648.6 million were up 3% from $627.0 million in the prior quarter, primarily due to a 2% increase in average AUM, including a more favorable average asset mix and an $8.7 million increase in performance fees.

• Operating expenses of $576.4 million were up 2% from $567.7 million in the prior quarter due to a $28.7 million gain in the market value of deferred compensation and seed investments which are recorded as an increase in compensation and benefits with an offset in other non-operating income, compared to a gain of $1.7 million in the prior quarter. Transition-related costs were $1.9 million, compared to $42.3 million in the prior quarter. The current quarter's expenses also included $9.4 million in costs related to the launch of a closed-end fund this quarter. In addition, operating expenses increased due in part to higher compensation and benefits costs as a result of increased revenues.

• Other non-operating income was $37.8 million, as compared to $11.6 million of expenses in the third quarter of fiscal 2012. The current quarter included gains on corporate investments, not offset in compensation, of $10.4million compared with losses of $1.8 million in the prior quarter.The current quarter also included gains on funded deferred compensation and seed investments, as described above. In addition, the current quarter included $1.4 million in gains associated with consolidated investment vehicles compared to $7.8 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. The quarter also included gains of $7.5 million on the sale of a small Wealth Manager and $8.6 million related to an assigned bankruptcy claim.

• Operating margin was 11.1%, as compared to 9.5% in the prior quarter. Operating margin, as adjusted,² was 21.2%, as compared with 21.7% in the prior quarter.

• Adjusted income was $123.6 million, or $0.88 per diluted share, as compared to adjusted income of $76.8 million, or $0.55 per diluted share, in the prior quarter.

Comparison to the Fourth Quarter of Fiscal Year 2011

Net income was $76.1 million, or $0.54 per diluted share, as compared with $69.0 million, or $0.45 per diluted share, in the fourth quarter of fiscal year 2011. This quarter's results included transition-related costs of $1.9 million, compared to $15.7 million of such costs in the prior year quarter.

• Operating revenues of $648.6 million decreased 9% from revenues of $713.4 million in the prior year quarter reflecting a 6% decrease in average AUM, including a less favorable average asset mix, as well as a $5.0 million reduction in performance fees from the prior year quarter.

• Operating expenses of $576.4 million were down 6% from operating expenses of $614.3 million in the prior year quarter due to lower compensation under revenue share arrangements from reduced revenues, lower distribution and servicing expenses, and $35.0 million in quarterly savings related to the company's streamlining program as compared to $8.0 million in quarterly savings in the prior year quarter. These savings were partially offset by costs related to the launch of a closed-end fund this quarter of $9.4 million, as well as the $15.9 million affiliate reimbursement step-down that was discussed in prior quarters. The current quarter's expenses also included a $28.7 million gain in the market value of deferred compensation and seed investments which are recorded as an increase in compensation and benefits with an offset in other non-operating income, compared to a gain of $10.2 million in the prior year quarter.

• Other non-operating income was $37.8 million,as compared to $3.5 million of income in the prior year quarter. Gains on corporate investments not offset in compensation were $10.4 million compared with $9.7 million of gains in the prior year quarter. The current quarter also included gains on funded deferred compensation and seed investments, as described above. In addition, the current quarter also included $1.4 million in gains associated with consolidated investment vehicles, as compared to $3.0 million in gains in the prior year quarter. The consolidation of investment vehicles has no impact on net income as the effects of consolidation are fully attributable to noncontrolling interests. The quarter also included gains of $7.5 million on the sale of a small Wealth Manager and $8.6 million related to an assigned bankruptcy claim.

• Operating margin was 11.1%, as compared to 13.9% in the prior year quarter. Operating margin, as adjusted, was 21.2%, as compared with 23.4% in the same period a year ago.

• Adjusted income was $123.6 million, or $0.88 per diluted share, compared to adjusted income of $117.7million, or $0.77 per diluted share, for the prior year quarter.

Comparison to Full Year Fiscal 2011

Net income was $220.8 million, or $1.54 per diluted share, as compared with $253.9 million, or $1.63 per diluted share, for fiscal year 2011.

• Operating revenues of $2.7 billion decreased 4% from revenues of $2.8 billion for fiscal year 2011 reflecting a 4% decrease in average AUM, as well as a $47.2 million reduction in performance fees.

• Operating expenses of $2.3 billion were down 3% from operating expenses of $2.4 billion in fiscal 2011 due to lower compensation under revenue share arrangements from reduced revenues, lower distribution and servicing expenses, and $97.0 million in savings related to the company's streamlining program as compared to $12.0 million in annual savings in the prior year. These savings were partially

offset by the $71.8 million affiliate reimbursement step-down previously discussed. Total transition-related costs for fiscal 2012 were $73.1 million compared to $54.4 million of such costs in fiscal 2011.

• Other non-operating expense was $35.7 millionas compared to $21.6 million of expense in the prior fiscal year. Losses on corporate investments not offset in compensation were $3.0 million compared with $28.7 million of gains in the prior fiscal year. The current fiscal year also included $13.6 million in gains associated with consolidated investment vehicles, as compared to $3.7 million in losses in the prior fiscal year. 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 12.7%, as compared to 13.9% for fiscal year 2011. Operating margin, as adjusted, was 21.3%, as compared with 23.2% for the prior year.

• Adjusted income was $397.0 million, or $2.77 per diluted share, compared to adjusted income of $439.2million, or $2.83 per diluted share, for fiscal 2011.

Quarterly Business Developments

Product

• Legg Mason raised approximately $459 million for the Legg Mason BW Global Income Opportunities Fund Inc. assuming full exercise of the underwriters' overallotment option.

• Institutional Investor recognized Western Asset as U.S. Fixed Income Municipal Manager of the Year for 2011 and Brandywine Global as Global Fixed Income Manager of the Year for 2011.

• Eight funds across Western, ClearBridge, Royce and Brandywine Global were named as “Category Kings” for trailing one-year performance against their Lipper category during the quarter ended March 31, 2012.

• Permal won three awards at the Hedge Fund Review's European Fund of Hedge Fund Awards: Best Performing Specialist FoHF over 10 years, Best Performing Emerging Markets FoHF, and Long Term Achievement in Hedge Funds.

• In the quarter, Legg Mason launched a Global Thought Leadership web site that leverages all of the content from investment affiliates to educate investors.

Performance

At March 31, 2012:

• Of Legg Mason's long-term U.S. mutual fund assets, 67% were beating their Lipper category averages for the 1-year period; 66% for the 3-year period; 78% for the 5-year period and 74% for the 10-year period.

• Of Legg Mason's long-term U.S. mutual funds assets, 52% were rated 4 or 5 stars by Morningstar, including 74% of all funds managed by Royce and 54% of all funds managed by Western.

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

• Seven out of 30 funds managed by Royce outperformed their benchmarks for the 1-year period; 11 out of 23 for the 3-year period; 16 out of 19 for the 5-year period; and all 11 outperformed for the 10-year period.

• Five out of 12 funds managed by ClearBridge Advisors outperformed in the 1-year period; 3 out of 11 for the 3-year period; 7 out of 11 for the 5-year period; and 4 out of 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 3 out of 5 funds outperformed for the 3-year period.

Balance Sheet

At March 31, 2012, Legg Mason's cash position was $1.4 billion. Total debt was $1.4 billion and stockholders' equity was $5.7billion. The ratio of total debt to total capital (total equity plus total debt excluding consolidated investment vehicles) was 20%.

The Board of Directors has declared a quarterly cash dividend on its common stock in the amount of $0.11 per share. The dividend is payable July 9, 2012 to shareholders of record at the close of business on June 12, 2012.

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 PIN number 391485 when prompted. Please note that the replay will be available beginning at 12:00 p.m. EDT on Tuesday, May 1, 2012 and ending at 11:59 PM on May 15, 2012.

About Legg Mason

Legg Mason is a global asset management firm, with $643 billion in assets under management as of March 31, 2012. 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 Twelve Months Ended
				March			December			March			March			March
				2012			2011			2011			2012			2011
Operating Revenues:
	Investment advisory fees:
		Separate accounts		$	187,152		$	187,570		$	204,267		$	775,534		$	815,633
		Funds		362,748			351,598			392,084			1,491,325			1,486,615
		Performance fees		14,822			6,079			19,790			49,499			96,661
	Distribution and service fees			82,419			80,709			95,011			340,966			379,161
	Other			1,450			1,022			2,278			5,250			6,247
			Total operating revenues	648,591			626,978			713,430			2,662,574			2,784,317
Operating Expenses(1):
	Compensation and benefits			297,266			254,402			298,899			1,109,671			1,140,305
	Transition-related compensation			2,079			8,818			12,604			34,638			45,048
		Total compensation and benefits		299,345			263,220			311,503			1,144,309			1,185,353
	Distribution and servicing			160,317			148,275			174,893			649,739			712,839
	Communications and technology			39,174			43,466			43,280			164,712			161,969
	Occupancy			29,477			56,401			33,435			154,816			137,861
	Amortization of intangible assets			3,623			4,869			5,660			19,574			22,913
	Other			44,443			51,424			45,519			190,671			176,574
			Total operating expenses	576,379			567,655			614,290			2,323,821			2,397,509
Operating Income				72,212			59,323			99,140			338,753			386,808
Other Non-Operating Income (Expense)
	Interest income			2,867			2,577			3,052			11,481			9,246
	Interest expense			(21,756		)	(21,831		)	(22,518		)	(87,584		)	(92,157		)
	Other income			53,941			255			14,892			22,097			59,596
	Other non-operating income of
		consolidated investment vehicles		2,729			7,424			8,060			18,336			1,704
			Total other non-operating income (expense)	37,781			(11,575		)	3,486			(35,670		)	(21,611		)
Income Before Income Tax Provision				109,993			47,748			102,626			303,083			365,197
	Income tax provision			33,184			12,607			31,858			72,052			119,434
Net Income				76,809			35,141			70,768			231,031			245,763
	Less: Net income (loss) attributable
		to noncontrolling interests		740			7,009			1,731			10,214			(8,160		)
Net Income Attributable to
	Legg Mason, Inc.			$	76,069		$	28,132		$	69,037		$	220,817		$	253,923
Net Income per share
	Attributable to Legg Mason, Inc.
	Common Shareholders:
	Basic			$	0.54		$	0.20		$	0.45		$	1.54		$	1.63
	Diluted			$	0.54		$	0.20		$	0.45		$	1.54		$	1.63
Weighted Average Number of Shares
	Outstanding:
			Basic	140,055			140,053			151,948			143,292			155,321
			Diluted	140,090			140,082			152,089			143,349			155,484
(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
RECONCILIATION OF GAAP BASIS CONSOLIDATED STATEMENTS OF INCOME
TO NON-GAAP BASIS CONSOLIDATED STATEMENTS OF INCOME EXCLUDING CONSOLIDATED INVESTMENT VEHICLES (1)
(Amounts in thousands, except per share amounts)
(Unaudited)
			Quarter Ended March 31, 2012									Quarter Ended December 31, 2011									Quarter Ended March 31, 2011
			GAAP Basis			Consolidated Investment Vehicles			Non-GAAP Basis - Excluding Consolidated Investment Vehicles			GAAP Basis			Consolidated Investment Vehicles			Non-GAAP Basis - Excluding Consolidated Investment Vehicles			GAAP Basis			Consolidated Investment Vehicles			Non-GAAP Basis - Excluding Consolidated Investment Vehicles
Operating Revenues:
	Investment advisory fees		$	564,722		$	642		$	565,364		$	545,247		$	730		$	545,977		$	616,141		$	1,219		$	617,360
	Distribution and service fees		82,419			23			82,442			80,709			23			80,732			95,011			17			95,028
	Other		1,450			(1		)	1,449			1,022			—			1,022			2,278			—			2,278
		Total operating revenues	648,591			664			649,255			626,978			753			627,731			713,430			1,236			714,666
Operating Expenses:
	Compensation and benefits		299,345			—			299,345			263,220			—			263,220			311,503			—			311,503
	Distribution and servicing		160,317			(18		)	160,299			148,275			(17		)	148,258			174,893			(59		)	174,834
	Other		116,717			(115		)	116,602			156,160			(88		)	156,072			127,894			(62		)	127,832
		Total operating expenses	576,379			(133		)	576,246			567,655			(105		)	567,550			614,290			(121		)	614,169
Operating Income			72,212			797			73,009			59,323			858			60,181			99,140			1,357			100,497
Other Non-Operating Income (Expense)
	Net interest expense		(18,889		)	—			(18,889		)	(19,254		)	—			(19,254		)	(19,466		)	—			(19,466		)
	Other income (expense)		56,670			(1,431		)	55,239			7,679			(7,782		)	(103		)	22,952			(3,015		)	19,937
		Other non-operating income (expense)	37,781			(1,431		)	36,350			(11,575		)	(7,782		)	(19,357		)	3,486			(3,015		)	471
Income (Loss) Before Income Tax Provision			109,993			(634		)	109,359			47,748			(6,924		)	40,824			102,626			(1,658		)	100,968
	Income tax provision		33,184			—			33,184			12,607			—			12,607			31,858			—			31,858
Net Income (Loss)			76,809			(634		)	76,175			35,141			(6,924		)	28,217			70,768			(1,658		)	69,110
	Less: Net income (loss) attributable
		to noncontrolling interests	740			(634		)	106			7,009			(6,924		)	85			1,731			(1,658		)	73
Net Income Attributable to Legg Mason, Inc.			$	76,069		$	—		$	76,069		$	28,132		$	—		$	28,132		$	69,037		$	—		$	69,037
Effective Income Tax Rate			30.2		%							26.4		%							31.0		%
Effective Income Tax Rate Excluding
	Consolidated Investment Vehicles								30.3		%							30.9		%							31.6		%
(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 CONSOLIDATED INVESTMENT VEHICLES (1)
(Amounts in thousands, except per share amounts)
(Unaudited)
			For the Twelve Months Ended March 31, 2012									For the Twelve Months Ended March 31, 2011
			GAAP Basis			Consolidated Investment Vehicles			Non-GAAP Basis - Excluding Consolidated Investment Vehicles			GAAP Basis			Consolidated Investment Vehicles			Non-GAAP Basis - Excluding Consolidated Investment Vehicles
Operating Revenues:
	Investment advisory fees		$	2,316,358		$	3,015		$	2,319,373		$	2,398,909		$	4,042		$	2,402,951
	Distribution and service fees		340,966			80			341,046			379,161			91			379,252
	Other		5,250			(1		)	5,249			6,247			—			6,247
		Total operating revenues	2,662,574			3,094			2,665,668			2,784,317			4,133			2,788,450
Operating Expenses:
	Compensation and benefits		1,144,309			—			1,144,309			1,185,353			—			1,185,353
	Distribution and servicing		649,739			(60		)	649,679			712,839			(60		)	712,779
	Other		529,773			(548		)	529,225			499,317			(511		)	498,806
		Total operating expenses	2,323,821			(608		)	2,323,213			2,397,509			(571		)	2,396,938
Operating Income			338,753			3,702			342,455			386,808			4,704			391,512
Other Non-Operating Income (Expense)
	Net interest expense		(76,103		)	—			(76,103		)	(82,911		)	—			(82,911		)
	Other income (expense)		40,433			(13,566		)	26,867			61,300			3,680			64,980
		Other non-operating income (expense)	(35,670		)	(13,566		)	(49,236		)	(21,611		)	3,680			(17,931		)
Income (Loss) Before Income Tax Provision			303,083			(9,864		)	293,219			365,197			8,384			373,581
	Income tax provision		72,052			—			72,052			119,434			—			119,434
Net Income (Loss)			231,031			(9,864		)	221,167			245,763			8,384			254,147
	Less: Net income (loss) attributable
		to noncontrolling interests	10,214			(9,864		)	350			(8,160		)	8,384			224
Net Income Attributable to Legg Mason, Inc.			$	220,817		$	—		$	220,817		$	253,923		$	—		$	253,923
Effective Income Tax Rate			23.8		%							32.7		%
Effective Income Tax Rate Excluding
	Consolidated Investment Vehicles								24.6		%							32.0		%
(1) See explanations for Use of Supplemental Data as Non-GAAP Performance Measures.

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 Twelve Months Ended
				March		December		March		March			March
				2012		2011		2011		2012			2011
Net Income Attributable to Legg Mason, Inc.				$	76,069	$	28,132	$	69,037	$	220,817		$	253,923
	Plus (Less):
		Amortization of intangible assets		3,623		4,869		5,660		19,574			22,913
		Deferred income taxes on intangible assets:
			Tax amortization benefit	33,876		33,961		33,542		135,830			134,602
			UK tax rate adjustment	—		—		—		(18,268		)	(8,878		)
		Imputed interest on convertible debt		10,054		9,793		9,439		39,077			36,688
Adjusted Income				$	123,622	$	76,755	$	117,678	$	397,030		$	439,248
Net Income per Diluted Share Attributable
to Legg Mason, Inc. Common Shareholders				$	0.54	0.20		$	0.45	$	1.54		$	1.63
	Plus (Less):
		Amortization of intangible assets		0.03		0.04		0.04		0.14			0.15
		Deferred income taxes on intangible assets:
			Tax amortization benefit	0.24		0.24		0.22		0.95			0.87
			UK tax rate adjustment	—		—		—		(0.13		)	(0.06		)
		Imputed interest on convertible debt		0.07		0.07		0.06		0.27			0.24
Adjusted Income per Diluted Share				$	0.88	0.55		$	0.77	$	2.77		$	2.83
(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 Twelve Months Ended
				March				December				March				March				March
				2012				2011				2011				2012				2011
Operating Revenues, GAAP basis				$	648,591			$	626,978			$	713,430			$	2,662,574			$	2,784,317
	Plus (Less):
		Operating revenues eliminated upon
			consolidation of investment vehicles	664				753				1,236				3,094				4,133
		Distribution and servicing expense excluding
			consolidated investment vehicles	(160,299		)		(148,258		)		(174,834		)		(649,679		)		(712,779		)
Operating Revenues, as Adjusted				$	488,956			$	479,473			$	539,832			$	2,015,989			$	2,075,671
Operating Income, GAAP basis				$	72,212			$	59,323			$	99,140			$	338,753			$	386,808
	Plus (Less):
		Gains (losses) on deferred compensation
			and seed investments	28,744				1,674				10,208				13,809				36,274
		Transition-related costs(2)		1,897				42,311				15,693				73,066				54,434
		Operating income and expenses of
			consolidated investment vehicles	797				858				1,357				3,702				4,704
Operating Income, as Adjusted				$	103,650			$	104,166			$	126,398			$	429,330			$	482,220
Operating margin, GAAP basis				11.1		%	%	9.5		%	%	13.9		%	%	12.7		%	%	13.9		%	%
Operating margin, as adjusted				21.2		%		21.7		%		23.4		%		21.3		%		23.2		%
(1) See explanations for Use of Supplemental Data as Non-GAAP Performance Measures.
(2) Transition-related costs:
			Compensation	$	2,079			$	8,818			$	12,604			$	34,638			$	45,048
			Communications and technology	(190		)		3,911				2,649				8,404				3,943
			Occupancy	(154		)		28,080				213				28,351				4,622
			Other	162				1,502				227				1,673				821
			Total	$	1,897			$	42,311			$	15,693			$	73,066			$	54,434

LEGG MASON, INC. AND SUBSIDIARIES
(Amounts in billions)
(Unaudited)
Assets Under Management
			Quarters Ended
			March 2012			December 2011			September 2011			June 2011			March 2011
By asset class:
	Equity		$	163.4		$	153.3		$	144.9		$	181.5		$	189.6
	Fixed Income		356.1			352.6			355.5			365.4			356.6
		Long-Term Assets	519.5			505.9			500.4			546.9			546.2
	Liquidity		123.8			121.1			111.4			115.6			131.4
		Total	$	643.3		$	627.0		$	611.8		$	662.5		$	677.6
			Quarters Ended															Twelve Months Ended
By asset class (average):			March 2012			December 2011			September 2011			June 2011			March 2011			March 2012			March 2011
	Equity		$	160.2		$	153.4		$	166.3		$	187.5		$	187.0		$	168.4		$	173.8
	Fixed Income		356.1			353.9			364.7			363.1			354.7			359.8			361.6
		Long-Term Assets	516.3			507.3			531.0			550.6			541.7			528.2			535.4
	Liquidity		118.6			114.7			112.3			120.2			131.8			116.6			133.8
		Total	$	634.9		$	622.0		$	643.3		$	670.8		$	673.5		$	644.8		$	669.2
Component Changes in Assets Under Management
			Quarters Ended															Twelve Months Ended
			March 2012			December 2011			September 2011			June 2011			March 2011			March 2012			March 2011
Beginning of period			$	627.0		$	611.8		$	662.5		$	677.6		$	671.8		$	677.6		$	684.5
Net client cash flows			(4.9		)	(1.3		)	(17.6		)	(3.7		)	(8.7		)	(27.5		)	(61.1		)
Market performance and other			24.4			17.6			(32.9		)	8.0			16.6			17.1			56.3
Acquisitions (Dispositions), net			(3.2		)	(1.1		)	(0.2		)	(19.4		)	(2.1		)	(23.9		)	(2.1		)
End of period			$	643.3		$	627.0		$	611.8		$	662.5		$	677.6		$	643.3		$	677.6
	Note: Due to effects of rounding, the sum of the quarterly results may differ immaterially from the annual results.

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 “Consolidated Statements of Income, Excluding Consolidated Investment Vehicles”, “Adjusted Income”, 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.

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 Consolidated 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.

Adjusted Income

We define “Adjusted Income” as Net Income 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 other non-core items that are not reflective of our economic performance, such as the impact of tax rate adjustments on certain deferred tax liabilities related to indefinite-life intangible assets, and net money market fund support losses (gains).

We believe that Adjusted Income provides a useful 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 Attributable to Legg Mason, Inc., but is not a substitute for Net Income Attributable to Legg Mason, Inc. 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. We consider 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 our operating results with 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.

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 our 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 Attributable to Legg Mason, Inc. 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 structured investment vehicle 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.

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 “Operating Revenues, as Adjusted”.  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 Operating Revenues, as Adjusted 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. Operating Revenues, as Adjusted also includes our advisory revenues we receive from consolidated investment vehicles that are eliminated in consolidation under GAAP. 

We believe 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 Attributable to Legg Mason, Inc. 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.