1.0.0.3 false Significant Accounting Policies false 1 $ false false Shares Standard http://www.xbrl.org/2003/instance shares xbrli 0 USD Standard http://www.xbrl.org/2003/iso4217 USD iso4217 0 USDPerShare Divide http://www.xbrl.org/2003/iso4217 USD iso4217 http://www.xbrl.org/2003/instance shares xbrli 0 2 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 0 lm_NotesToConsolidatedFinancialStatementsAbstract lm false na duration string No definition available. false false false false false true false false false 1 false false 0 0 false false No definition available. false 3 Significant Accounting Policies 1 us-gaap_SignificantAccountingPoliciesTextBlock us-gaap true na duration string No definition available. false false false false false false false false false 1 false false 0 0 <!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.0 Transitional//EN"> <HTML><HEAD> <META http-equiv=Content-Type content="text/html; charset=utf-8"> <META content="MSHTML 6.00.2900.3492" name=GENERATOR></HEAD> <BODY> 2. Significant Accounting Policies Retroactive Accounting Policies Adopted Certain prior year amounts have been retroactively revised as a result of the adoption of Statement of Financial Accounting Standards (SFAS) No. 160, Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51 and Financial Accounting Standards Board (FASB) Staff Position (FSP) APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).   SFAS 160 has both retroactive and prospective provisions that change the accounting and reporting for minority interests.  Under its retroactive provisions, minority interests have been recharacterized as noncontrolling interests and classified as a component of equity, if permanent.  Also, net income (loss) is no longer affected by minority interests, but under SFAS 160, both net income (loss) and comprehensive income (loss) are attributed to noncontrolling and parent interests.  Further, EITF Topic No. D-98, Classification and Measurement of Redeemable Securities, requires temporary equity classification for instruments that are currently redeemable or convertible for cash or other assets at the option of the holder.  For Legg Mason, minority interests of $31,020 related to consolidated sponsored investment funds that are redeemable for cash or other assets have been recharacterized and classified as Redeemable noncontrolling interests on the Consolidated Balance Sheets as of March 31, 2009.  During the quarter ended June 30, 2009, net income attributable to noncontrolling interests was $2,270 and net subscriptions received were $3,336 resulting in a balance as of June 30, 2009 of $36,626.  Redeemable noncontrolling interests and related activity for the quarter ended June 30, 2008 were not material.  The prospective provisions of SFAS 160 do not have a material impact on Legg Masons consolidated financial statements. FSP APB 14-1 requires that issuers of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) should separately account for the liability and equity (conversion feature) components of the instruments. As a result, interest expense should be imputed and recognized based upon the entitys nonconvertible debt borrowing rate at the date of issuance, which results in lower net income. The 2.5% convertible senior notes issued by Legg Mason in January 2008 are subject to FSP APB 14-1. Prior to FSP APB 14-1, Accounting Principles Board Opinion No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants (APB 14), provided that no portion of the proceeds from the issuance of the instrument should be attributable to the conversion feature.  Upon retroactive application of FSP APB 14-1, the effects on Net loss and Net loss per share for the quarter ended June 30, 2008, and on Long-term debt, Retained earnings, Additional paid-in capital and Deferred income tax assets as of March 31, 2009 were as follows: <TABLE style="FONT-SIZE: 10pt" cellSpacing=0 align=center> <TBODY> <TR> <TD width=285></TD> <TD width=123></TD></TR> <TR> <TD vAlign=bottom width=380>  </TD> <TD vAlign=bottom width=164> Three Months Ended</TD></TR> <TR> <TD vAlign=bottom width=380>  </TD> <TD vAlign=bottom width=164> June 30, 2008</TD></TR> <TR> <TD style="BORDER-TOP: #000000 0.5pt solid" vAlign=top width=380> Net loss, as previously reported</TD> <TD style="BORDER-TOP: #000000 0.5pt solid" vAlign=bottom width=164> $(31,273)</TD></TR> <TR> <TD style="BORDER-BOTTOM: #000000 0.5pt solid" vAlign=top width=380>  Additional interest expense pursuant to FSP APB 14-1, net of income taxes</TD> <TD style="BORDER-BOTTOM: #000000 0.5pt solid" vAlign=bottom width=164> (4,854)</TD></TR> <TR> <TD style="BORDER-BOTTOM: #000000 0.5pt solid" vAlign=top width=380> Net loss attributable to Legg Mason, Inc., as currently reported</TD> <TD style="BORDER-BOTTOM: #000000 0.5pt solid" vAlign=bottom width=164> $(36,127)</TD></TR> <TR> <TD vAlign=top width=380>  </TD> <TD vAlign=bottom width=164>  </TD></TR> <TR> <TD style="BORDER-BOTTOM: #000000 0.5pt solid" vAlign=top width=544 colSpan=2> Net loss per share attributable to Legg Mason, Inc. common shareholders:</TD></TR> <TR> <TD vAlign=bottom width=380> Basic, as previously reported</TD> <TD vAlign=bottom width=164> $    (0.22)</TD></TR> <TR> <TD style="BORDER-BOTTOM: #000000 0.5pt solid" vAlign=top width=380> Additional interest expense pursuant to FSP APB  14-1, net of income taxes</TD> <TD style="BORDER-BOTTOM: #000000 0.5pt solid" vAlign=bottom width=164> (0.04)</TD></TR> <TR> <TD style="BORDER-BOTTOM: #000000 0.5pt solid" vAlign=top width=380> Basic, as currently reported</TD> <TD style="BORDER-BOTTOM: #000000 0.5pt solid" vAlign=bottom width=164> $    (0.26)</TD></TR> <TR> <TD vAlign=bottom width=380> Diluted, as previously reported</TD> <TD vAlign=bottom width=164> $    (0.22)</TD></TR> <TR> <TD style="BORDER-BOTTOM: #000000 0.5pt solid" vAlign=top width=380> Additional interest expense pursuant to FSP APB 14-1, net of income taxes</TD> <TD style="BORDER-BOTTOM: #000000 0.5pt solid" vAlign=bottom width=164> (0.04)</TD></TR> <TR> <TD style="BORDER-BOTTOM: #000000 0.5pt solid" vAlign=top width=380> Diluted, as currently reported</TD> <TD style="BORDER-BOTTOM: #000000 0.5pt solid" vAlign=bottom width=164> $    (0.26)</TD></TR> <TR> <TD vAlign=bottom width=380>  </TD> <TD vAlign=bottom width=164>  </TD></TR> <TR> <TD style="BORDER-BOTTOM: #000000 0.5pt solid" vAlign=bottom width=380>  </TD> <TD style="BORDER-BOTTOM: #000000 0.5pt solid" vAlign=bottom width=164>  March 31, 2009</TD></TR> <TR> <TD vAlign=bottom width=380> Long-term debt, as previously reported</TD> <TD vAlign=bottom width=164> $ 2,965,204</TD></TR> <TR> <TD style="BORDER-BOTTOM: #000000 0.5pt solid" vAlign=top width=380> Impact of FSP APB 14-1</TD> <TD style="BORDER-BOTTOM: #000000 0.5pt solid" vAlign=bottom width=164> (233,202)</TD></TR> <TR> <TD style="BORDER-BOTTOM: #000000 0.5pt solid" vAlign=top width=380> Long-term debt, as currently reported</TD> <TD style="BORDER-BOTTOM: #000000 0.5pt solid" vAlign=bottom width=164> $ 2,732,002</TD></TR> <TR> <TD vAlign=bottom width=380>  </TD> <TD vAlign=bottom width=164>  </TD></TR> <TR> <TD vAlign=bottom width=380> Retained earnings, as previously reported</TD> <TD vAlign=bottom width=164> $ 1,155,660</TD></TR> <TR> <TD style="BORDER-BOTTOM: #000000 0.5pt solid" vAlign=top width=380> Impact of FSP APB 14-1</TD> <TD style="BORDER-BOTTOM: #000000 0.5pt solid" vAlign=bottom width=164> (24,035)</TD></TR> <TR> <TD style="BORDER-BOTTOM: #000000 0.5pt solid" vAlign=top width=380> Retained earnings, as currently reported</TD> <TD style="BORDER-BOTTOM: #000000 0.5pt solid" vAlign=bottom width=164> $ 1,131,625</TD></TR> <TR> <TD vAlign=bottom width=380>  </TD> <TD vAlign=bottom width=164>  </TD></TR> <TR> <TD vAlign=bottom width=380> Additional paid-in capital, as previously reported</TD> <TD vAlign=bottom width=164> $ 3,284,347</TD></TR> <TR> <TD style="BORDER-BOTTOM: #000000 0.5pt solid" vAlign=top width=380> Impact of FSP APB 14-1</TD> <TD style="BORDER-BOTTOM: #000000 0.5pt solid" vAlign=bottom width=164> 168,183</TD></TR> <TR> <TD style="BORDER-BOTTOM: #000000 0.5pt solid" vAlign=top width=380> Additional paid-in capital, as currently reported</TD> <TD style="BORDER-BOTTOM: #000000 0.5pt solid" vAlign=bottom width=164> $ 3,452,530</TD></TR> <TR> <TD vAlign=bottom width=380>  </TD> <TD vAlign=bottom width=164>  </TD></TR> <TR> <TD vAlign=bottom width=380> Deferred income tax assets, as previously reported</TD> <TD vAlign=bottom width=164> $    848,488</TD></TR> <TR> <TD style="BORDER-BOTTOM: #000000 0.5pt solid" vAlign=top width=380> Impact of FSP APB 14-1</TD> <TD style="BORDER-BOTTOM: #000000 0.5pt solid" vAlign=bottom width=164> (89,055)</TD></TR> <TR> <TD style="BORDER-BOTTOM: #000000 0.5pt solid" vAlign=top width=380> Deferred income tax assets, as currently reported</TD> <TD style="BORDER-BOTTOM: #000000 0.5pt solid" vAlign=bottom width=164> $    759,433</TD></TR></TBODY></TABLE> Additional disclosures required under FSP APB 14-1 are addressed in Note 6. Fair Value Measurements FASB Statement No. 157, Fair Value Measurements (SFAS 157), defines fair value as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Under SFAS 157, a fair value measurement should reflect all of the assumptions that market participants would use in pricing the asset or liability, including assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset, and the risk of nonperformance.     SFAS 157 establishes a hierarchy that prioritizes the inputs for valuation techniques used to measure fair value.  The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. Legg Masons financial instruments measured and reported at fair value are classified and disclosed in one of the following categories: Level 1 - Financial instruments for which prices are quoted in active markets, which for Legg Mason, include investments in publicly traded mutual funds with quoted market prices and equities listed in active markets. Level 2 Financial instruments for which: prices are quoted for similar assets and liabilities in active markets; prices are quoted for identical or similar assets in inactive markets; or prices are based on observable inputs, other than quoted prices, such as models or other valuation methodologies. For Legg Mason, this category may include repurchase agreements, fixed income securities, and certain proprietary fund products. Level 3 Financial instruments for which values are based on unobservable inputs, including those for which there is little or no market activity.  This category includes derivative assets and liabilities related to fund support arrangements on non-structured investment vehicle (SIV) related securities, investments in partnerships, limited liability companies, and private equity funds.  Previously, this category included derivative assets related to fund support agreements and certain owned securities issued by SIVs.  This category may also include certain proprietary fund products with redemption restrictions. The valuation of an asset or liability may involve inputs from more than one level of the hierarchy.  The level in the fair value hierarchy within which a fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Any transfers between categories are measured at the beginning of the period. See Note 3 for additional information regarding fair value measurements. Recent Accounting Developments The following relevant accounting pronouncement was recently issued. In June 2009, the FASB issued Statement No. 167, Amendments to FASB Interpretation No. 46(R) (SFAS 167), which will be effective for Legg Mason for fiscal 2011.  SFAS 167 amendments include a new approach for determining who should consolidate a variable interest entity (VIE), changes to when it is necessary to reassess who should consolidate a VIE and changes in the assessment of which entities are VIEs.  The new approach for determining who should consolidate a VIE requires an analysis of whether a variable interest gives an enterprise a controlling financial interest in a VIE through both the power to direct the activities that most significantly impact the VIEs economic performance and the obligation to absorb losses or the right to benefits that could potentially be significant to the VIE.  SFAS 167 eliminates the quantitative approach previously required to determine whether a VIE should be consolidated.  It also requires that for kick-out rights to be effective, they must be vested with one investor, rather than a simple majority of investors, as under prior guidance.  Legg Mason is continuing to evaluate the impact of SFAS 167 and currently expects that it will require the consolidation of certain sponsored funds that will be material to its balance sheet, revenues and expenses, but have no impact on net income attributable to Legg Mason, Inc.    </BODY></HTML> 2. 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