LEGG MASON : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (form 10-K)

EXECUTIVE OVERVIEW
Legg Mason, Inc. is a global asset management firm that primarily operates
through nine independent asset management subsidiaries (collectively with its
subsidiaries, "Legg Mason"). We help investors globally to pursue better
financial outcomes by expanding choice across investment strategies, vehicles
and investor access through independent asset managers with diverse expertise in
equity, fixed income, alternative and liquidity investments. Acting through our
independent investment managers, which we often refer to as our affiliates, we
deliver our investment capabilities through varied products and vehicles and via
multiple points of access, including directly and through various financial
intermediaries. Our investment advisory services include discretionary and
non-discretionary management of separate investment accounts in numerous
investment styles for institutional and individual investors. Our investment
products include proprietary mutual funds ranging from money market and other
liquidity products to fixed income, equity and alternative funds managed in a
wide variety of investment styles. We also offer other domestic and offshore
funds to both retail and institutional investors, privately placed real estate
funds, hedge funds and funds-of-hedge funds. Our centralized global distribution
group, Legg Mason Global Distribution, markets, distributes and supports our
investment products. Our operations are principally in the U.S. and the U.K. and
we also have offices in Australia, Brazil, Canada, Chile, China, Dubai, France,
Germany, Ireland, Italy, Japan, Singapore, Spain, Switzerland and Taiwan. For
further information see Item 1. Business, included herein.

All references to fiscal 2020, 2019 or 2018, refer to our fiscal year ended March 31 of that year. Terms such as "we," "us," "our," and "Company" refer to Legg Mason.

Global markets experienced extreme volatility beginning in the second half of
February 2020 in reaction to the novel coronavirus ("COVID-19") pandemic as
social containment measures dramatically restricted business activity despite
efforts by governments across the globe to support and stimulate economies. As a
result, significant market uncertainty exists, including recessionary fear,
which may have a significant impact on our business.

Merger Agreement for Acquisition by Franklin Resources, Inc.
On February 17, 2020, we entered into an Agreement and Plan of Merger (the
"Merger Agreement") with Franklin Resources, Inc. ("Franklin Templeton") and
Alpha Sub, Inc. ("Merger Sub"), a wholly owned subsidiary of Franklin Templeton,
pursuant to which Legg Mason, Inc. (the "Company") will be merged into Merger
Sub (the "Merger"), with the Company continuing as the surviving corporation and
a wholly owned subsidiary of Franklin Templeton.

Pursuant to the Merger Agreement, each outstanding share of common stock of the
Company will be converted into the right to receive from Franklin Templeton
$50.00 in cash. The transaction is expected to close by the end of the third
calendar quarter of 2020, subject to the satisfaction of customary closing
conditions for both parties, including among others, the approval of the Merger
Agreement by the holders of a majority of Legg Mason's outstanding common shares
and the receipt of required regulatory approvals.

Refer to the definitive joint proxy statement of the Company and Franklin Templeton, as filed by the Company with the U.S. Securities and Exchange Commission on April 16, 2020, for additional information on the Merger.

Business Overview
The financial services business in which we are engaged is extremely
competitive. Our competition includes numerous global, national, regional and
local asset management firms, commercial banks, insurance companies, and other
financial services companies. The industry continues to experience disruption
and challenges, including a shift to lower-fee passively managed products, which
contributes to increasing fee pressure, the increased role of technology in
asset management services, the introduction of new financial products and
services, and the consolidation of financial services firms through mergers and
acquisitions, such as our pending acquisition by Franklin Templeton, as
discussed above. The asset management industry is also subject to extensive and
evolving regulation under federal, state, and foreign laws. Like most firms, we
have been and will continue to be impacted by regulatory and legislative
changes. Responding to these changes and keeping abreast of regulatory
developments, has required, and will continue to require, us to incur costs that
impact our profitability.

Our financial position and results of operations are materially affected by the
overall trends and conditions in the global financial markets, such as the
extreme market conditions experienced at the end of our fiscal year due to the
COVID-19 pandemic. Results of any individual period should not be considered
representative of future results.

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Our operating revenues primarily consist of investment advisory fees from funds
and separate accounts, and distribution and service fees. Investment advisory
fees are generally calculated as a percentage of the assets of the investment
portfolios that we manage. In addition, performance fees may be earned under
certain investment advisory contracts for exceeding performance benchmarks or
hurdle rates. The largest portion of our performance fees is earned based on
12-month performance periods that end in differing quarters during the year,
with a portion based on quarterly performance periods. We also earn performance
fees on alternative products that lock at the end of varying investment periods
or in multiple-year intervals. Per the terms of certain more recent
acquisitions, performance fees earned on pre-close assets under management
("AUM") of the acquired entities are fully passed through as compensation
expense and therefore have no impact on Net Income (Loss) Attributable to Legg
Mason, Inc. Distribution and service fees are received for distributing
investment products and services, for providing other support services to
investment portfolios, or for providing non-discretionary advisory services for
assets under advisement ("AUA"), and are generally calculated as a percentage of
the assets in an investment portfolio or as a percentage of new assets added to
an investment portfolio. Our revenues, therefore, are dependent upon the level
of our AUM and AUA and the related fee rates, and thus are affected by factors
such as securities market conditions, our ability to attract and maintain AUM
and key investment personnel, and investment performance. Our AUM changes from
period to period primarily due to inflows and outflows of client assets and
market performance as well as changes in foreign exchange rates. Client
decisions to increase or decrease their assets under our management, and
decisions by potential clients to utilize our services, may be based on one or
more of a number of factors. These factors include our reputation in the
marketplace, the investment performance (both absolute and relative to
benchmarks or competitive products) of our products and services, the fees we
charge for our investment services, the client or potential client's situation,
including investment objectives, liquidity needs, investment horizon and amount
of assets managed, our relationships with distributors and the external economic
environment, including market conditions, which were extremely challenged during
the last six weeks of our fiscal year due to the global COVID-19 pandemic.

The fees that we charge for our investment services vary based upon factors such
as the type of underlying investment product, the amount of AUM, the asset
management affiliate that provides the services, and the type of services (and
investment objectives) that are provided. In general, fees earned for asset
management services are highest for alternative assets, followed by equity
assets, fixed income assets and liquidity assets. Accordingly, our revenues and
average operating revenue yields will be affected by the composition of our AUM,
with changes in the relative level of alternative and equity assets typically
more significantly impacting our revenues and average operating revenue yields.
Average operating revenue yields are calculated as the ratio of total operating
revenue, less performance fees, to average AUM. In addition, in the ordinary
course of our business, we may reduce or waive investment management fees or
total expenses, on certain products or services for particular time periods to
limit fund expenses, or for other reasons, and to help retain or increase
managed assets. Our industry continues to be impacted by disruption and
challenges, with continued migration from higher fee to lower fee products,
vehicles and share classes, which continues to put pressure on the fees we
charge for our products.

We have revenue sharing arrangements in place with certain of our asset
management affiliates, under which specified percentages of the affiliates'
revenues are required to be distributed to us and the balance of the revenues is
retained by the affiliates to pay their operating expenses, including
compensation expenses, but excluding certain expenses and income taxes. Under
these revenue-sharing arrangements, our asset management affiliates retain
different percentages of revenues to cover their costs. Other affiliates operate
under budget processes with varying margin targets. As such, our Net Income
(Loss) Attributable to Legg Mason, Inc., operating margin and compensation as a
percentage of operating revenues are impacted based on which affiliates and
products generate our AUM, and a change in AUM at one affiliate or with respect
to one product or class of products can have a different effect on our revenues
and earnings than an equal change at another affiliate or in another product or
class of products. In addition, from time to time, we may agree to changes in
revenue sharing and other arrangements with our asset management personnel,
which may impact our compensation expenses and profitability.

Our most significant operating expenses are employee compensation and benefits,
of which a majority is variable in nature and includes incentive compensation, a
portion of which is based upon revenue levels, non-compensation related
operating expense levels at revenue share-based affiliates, performance fees
passed through as compensation expense, and our overall profitability, and
distribution and servicing expenses, which consist primarily of fees paid to
third-party distributors for selling our asset management products and services.
Certain other operating costs, such as occupancy, depreciation and amortization,
and fixed contract commitments for market data, communication and technology
services, are typically consistent from period to period and usually do not
decline with reduced levels of business activity or, conversely, usually do not
rise proportionately with increased business activity, in the absence of unusual
events.


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Because our revenues and net income are derived primarily from AUM and fees
associated with our investment products, changes in global financial markets,
the composition and level of AUM, net new business inflows (or outflows) and
changes in the mix of investment products between asset classes and geographies
may materially affect our results of operations. Our profitability is sensitive
to a variety of factors, including the amount and composition of our AUM, and
the volatility and general level of securities prices, interest rates, and
changes in currency exchange rates, among other things. Periods of unfavorable
market conditions are likely to have an adverse effect on our profitability. In
addition, the diversification of services, vehicles, and products offered,
investment performance, access to distribution channels, reputation in the
market, attraction and retention of key employees and client relations are
significant factors in determining whether we are successful in attracting and
retaining clients. In the last few years, the industry has seen flows into
products for which we do not currently garner significant market share,
including, in particular, passive products, and corresponding flows out of
products in which we do have market share. For a further discussion of factors
that may affect our results of operations, refer to the discussion in Item 1A.
Risk Factors, included herein.

Our Strategy
Our strategy is to expand client choice through the diversification of our
business across investment strategies, vehicles and access. We focus our
strategic priorities on the four primary areas listed below.  Management
considers these strategic priorities when evaluating our operating performance
and financial condition.  Consistent with this approach, we have also presented
in the table below initiatives on which management currently focuses in
evaluating our performance and financial condition. This strategy was developed
based on the assumption that we continue as an independent company. If the
Merger is completed, we will be a subsidiary of Franklin Templeton.
   Strategic Priorities                             Initiatives
 - Products               - Create an innovative portfolio of investment products and
                            promote revenue growth by developing new products and
                            leveraging the capabilities of our affiliates
                          - Identify and execute strategic acquisitions to strengthen
                            our affiliates and increase product offerings

 - Performance            - Identify and implement opportunities to improve growth
                            through collaboration with and across affiliates, and work
                            with affiliates to improve efficiency across Legg Mason by
                            combining efforts, outsourcing or working differently

 - Distribution           - Continue to maintain and enhance our top tier distribution
                            function with the capability to offer solutions to relevant
                            investment challenges and grow market share worldwide
                          - Develop alternative and innovative distribution approaches
                            for expanded client access

 - Productivity           - Implement our strategic restructuring plan
                          - Continue to develop and execute upon our diversity and
                            inclusion strategy; develop business unit strategies to
                            support the future state of work; drive digital
                            transformation and continue to develop the enterprise data
                            management program

When evaluating our progress on these strategic priorities, and considering initiatives to support them, we prioritize four key drivers of value creation: • leveraging our centralized retail distribution to drive growth;

• capitalizing on our investments to provide investors with greater choice;

• more effectively controlling our costs to improve profitability; and

• thoughtfully managing our balance sheet and capital allocation.

The strategic priorities and key drivers discussed above are designed to increase shareholder value through improvements in our net flows, earnings, cash flows, AUM and other key metrics, including operating margin, which are discussed in our annual results discussion below. The pending Merger with Franklin Templeton reflects our overall priority of increasing shareholder value.

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Strategic Restructuring
During the fourth quarter of fiscal 2019, we initiated a strategic restructuring
to reduce costs, which includes corporate and distribution functions, as well as
efficiency initiatives at certain smaller affiliates that operate outside of
revenue-sharing arrangements. We expect to incur aggregate strategic
restructuring costs in the range of $100 million to $105 million, which will be
incurred through March 2021. We expect the strategic restructuring will result
in future annual cost savings of $100 million or more, achieved on an annual run
rate basis by the end of fiscal 2021. During the years ended March 31, 2020 and
2019, we incurred $71.0 million, or $0.57 per diluted share, and $9.4 million or
$0.08 per diluted share, respectively, of costs related to the strategic
restructuring. See Note 18 of Notes to Consolidated Financial Statements for
additional information. We achieved $68 million of savings from the strategic
restructuring during the year ended March 31, 2020, for cumulative achieved
savings of $72 million since January 1, 2019. We do not expect the Merger to
have an impact on the costs or savings associated with our strategic
restructuring.

In addition, during the year ended March 31, 2020, we incurred $19.5 million, or
$0.16 per diluted share, of restructuring costs for other corporate matters,
including costs associated with the pending merger with Franklin Templeton, and
during the year ended March 31, 2019, we incurred $14.3 million, or $0.12 per
diluted share, of costs associated with our previous corporate restructuring
plans. We do not attribute or include these other corporate restructuring costs
in our strategic restructuring.

The following discussion and analysis provides additional information regarding our financial condition and results of operations.

BUSINESS ENVIRONMENT
The fiscal year ended March 31, 2020 was extremely volatile for U.S. equity
markets. Strong returns in the first three quarters of fiscal 2020 were more
than offset by an extreme downturn in the fourth fiscal quarter, due to the
rapid spread of COVID-19 (which was deemed a global pandemic), widespread
economic declines and continued global uncertainty. U.S. equity markets suffered
significant losses despite unprecedented legislative support from the U.S.
government in an effort to secure and stimulate the economy.

After strong returns in the first three quarters of fiscal 2020, both developed
and emerging international equity markets declined significantly in the fourth
fiscal quarter in response to the COVID-19 pandemic. Strong demand for U.S.
treasuries and cash negatively impacted emerging equity markets. In Europe and
the U.K., governments initiated historic stimulus spending in an effort to
instill consumer confidence and combat the negative economic effects of travel
and business restrictions. All sectors in the Emerging Markets Index suffered
losses with the energy sector seeing the largest drop at 40% amid plunging oil
prices.

Global bond markets also saw steep declines in the fourth quarter of fiscal
2020, with the exception of U.S. treasuries. Demand for long-term U.S.
treasuries increased amid the global pandemic as investors sought traditionally
safer assets, and as a result the 10-year U.S. treasury yield fell to record
lows. Investment-grade and high yield corporate bonds, as well as municipal
bonds, also suffered losses due to the risk-adverse environment.

The Federal Reserve Board decreased the target federal funds rate five times
during the year ended March 31, 2020, from 2.50% to 0.25%, with the most
significant reductions made in March 2020 in an effort to increase financial
market liquidity.


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The following table summarizes the returns for various major market indices:
                                                            % Change for the year ended March 31:
Indices(1)                                                   2020              2019            2018
Dow Jones Industrial Average(2)                              (15.5 )%           7.6  %          16.7 %
S&P 500(2)                                                    (8.8 )%           7.3  %          11.8 %
NASDAQ Composite Index(2)                                     (0.4 )%           9.4  %          19.5 %
Barclays Capital U.S. Aggregate Bond Index                     8.9  %           4.5  %           1.2 %
Barclays Capital Global Aggregate Bond Index                   4.2  %          (0.4 )%           7.0 %

(1) Indices are trademarks of Dow Jones & Company, McGraw-Hill Companies, Inc.,

Nasdaq Stock Market, Inc., and Barclays Capital, respectively, which are not

affiliated with Legg Mason.

(2) Excludes the impact of the reinvestment of dividends and stock splits.

The impact of the COVID-19 pandemic on U.S. and international financial markets
may have a significantly negative impact on our AUM and results of operations in
fiscal 2021, particularly in the near term. Given continued uncertainty and
volatility, we cannot reasonably estimate the impact market conditions will have
on our future results of operations, cash flows, or financial condition.

In addition, our industry continues to be impacted by migration from active to
passive strategies. Together with continuing regulatory changes, these factors
put pressure on fees, contributing to the consolidation of products and managers
on distribution platforms. These factors also continue to create significant
flow challenges for active managers like ourselves.

ASSETS UNDER MANAGEMENT
Our AUM is primarily managed across the following asset classes and strategies:
Equity                       Fixed Income                      Alternative   Liquidity

                              - U.S. Intermediate            - Real Estate    - U.S. Managed Cash
 - Large Cap Growth             Investment Grade
 - Equity Income              - U.S. Long Duration           - Hedge Funds    - U.S. Municipal Cash
 - All Cap Growth             - U.S. Credit Aggregate
 - Large Cap Value            - Global Opportunistic
 - International Equity       - Global Fixed Income
 - Large Cap Core             - U.S. Municipal
 - Small Cap Core             - Global Sovereign
 - All Cap Value              - Non-Traditional Bond
 - Small Cap Growth           - Global Government
 - Emerging Markets Equity    - Intermediate
 - Small Cap Value            - Short Duration
 - Mid Cap Core               - High Yield
 - Small/Mid Cap              - Liability Driven
 - Small Cap International
 - Mid Cap Growth
 - Global Equity




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The components of the changes in our AUM (in billions) for the years ended March
31, were as follows:
                                                       2020        2019        2018
Beginning of period                                  $ 758.0     $ 754.1     $ 728.4
Net client cash flows:
Investment funds, excluding liquidity products:(1)
Subscriptions                                           72.4        56.2    

65.2

Redemptions                                            (64.9 )     (64.8 )     (56.5 )
Long-term separate account flows, net                  (20.4 )      (1.7 )      (7.0 )
Total long-term flows, net                             (12.9 )     (10.3 )       1.7
Total liquidity flows, net                               6.5         2.3       (24.3 )
Total net client cash flows                             (6.4 )      (8.0 )     (22.6 )
Realizations(2)                                         (1.4 )      (1.0 )      (2.6 )
Market performance and other (3)                       (12.8 )      21.3    

45.7

Impact of foreign exchange                              (7.4 )      (8.4 )  

5.4

Acquisitions (dispositions), net                         0.8           -        (0.2 )
End of period                                        $ 730.8     $ 758.0     $ 754.1

(1) Subscriptions and redemptions reflect the gross activity in the funds and

include assets transferred between funds and between share classes.

(2) Realizations represent investment manager-driven distributions primarily

related to the sale of assets. Realizations are specific to our alternative

managers and do not include client-driven distributions (e.g. client

requested redemptions, liquidations or asset transfers).

(3) For the years ended March 31, 2020 and 2019, other primarily includes the

reinvestment of dividends. For the year ended March 31, 2018, other includes

the reclassification, effective April 1, 2017, of $16.0 billion of certain

assets which were previously included in AUA to AUM. For the year ended March

31, 2018, other also includes the reinvestment of dividends and a $(3.7)

billion reconciliation to previously reported amounts.

AUM at March 31, 2020 was $730.8 billion, a decrease of $27.2 billion, or 4%,
compared to March 31, 2019.  Total net client outflows for the year ended March
31, 2020 were $6.4 billion, comprised of $12.9 billion of net client outflows
from long-term asset classes, offset in part by $6.5 billion of net client
inflows into the liquidity asset class. Long-term asset net outflows were
comprised of equity net outflows of $16.5 billion and fixed income net outflows
of $3.4 billion, offset in part by alternative net inflows of $7.0 billion.
Equity net outflows were primarily from products managed by ClearBridge
Investments ("ClearBridge"), Brandywine Global Investment Management
("Brandywine"), Royce Investment Partners ("Royce"), and QS Investors. Fixed
Income net outflows were primarily from products managed by Brandywine and
Western Asset Management Company ("Western Asset"). Alternative net inflows were
into products managed by Clarion Partners, EnTrust Global and RARE
Infrastructure. We generally earn higher fees and profits on alternative and
equity AUM, and outflows in those asset classes will more negatively impact our
revenues and Net Income Attributable to Legg Mason, Inc. than would outflows in
the fixed income or liquidity asset classes. The negative impact of market
performance and other was $12.8 billion, reflecting global market declines at
the end of fiscal 2020 due to the COVID-19 pandemic. The negative impact of
foreign currency exchange rate fluctuations was $7.4 billion.

AUM at March 31, 2019 was $758.0 billion, an increase of $3.9 billion, or 1%,
compared to March 31, 2018.  Total net client outflows were $8.0 billion,
comprised of $10.3 billion of net client outflows from long-term asset classes,
offset in part by $2.3 billion of net client inflows into the liquidity asset
class. Long-term asset net outflows were comprised of equity net outflows of
$7.5 billion and fixed income net outflows of $4.3 billion, offset in part by
alternative net inflows of $1.5 billion. Equity net outflows were primarily from
products managed by Royce, ClearBridge, Brandywine, QS Investors, and Martin
Currie. Fixed Income net outflows were primarily from products managed by
Western Asset, offset in part by net inflows into products managed by
Brandywine. Alternative net inflows were primarily into products managed by
Clarion Partners, offset in part by net outflows from products managed by
EnTrust Global and RARE Infrastructure. Market performance and other was $21.3
billion. The negative impact of foreign currency exchange rate fluctuations was
$8.4 billion.

Our investment advisory and administrative contracts are generally terminable at
will or upon relatively short notice, and investors in the mutual funds and
other vehicles that we manage may redeem their investments in the funds or
vehicles at any time without prior notice.  Institutional and individual clients
can terminate their relationships with us, reduce the aggregate amount of assets
under management, or shift their funds to other types of accounts with different
rate structures for any number of reasons, including investment performance,
changes in prevailing interest rates, changes in our reputation in the
marketplace, changes in management or control of clients or third-party
distributors with whom we have relationships, loss of key investment management
personnel or financial market performance.

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AUM by Asset Class
AUM by asset class (in billions) was as follows:
                                                                                                     % Change
                                 % of                  % of                 % of                              2019 Compared to

As of March 31, 2020 Total 2019 Total 2018 Total 2020 Compared to 2019 2018

 Equity            $ 161.2         22 %   $ 202.0       27 %   $ 203.0       27 %             (20 )%                    -  %
Fixed Income         420.2         58       419.6       55       422.3       56                 -                      (1 )
Alternative           74.3         10        68.6        9        66.1        9                 8                       4
Total long-term
assets               655.7         90       690.2       91       691.4       92                (5 )                     -
Liquidity             75.1         10        67.8        9        62.7        8                11                       8
Total              $ 730.8        100 %   $ 758.0      100 %   $ 754.1      100 %              (4 )                     1

Average AUM by asset class (in billions) was as follows:

                                                                                                     % Change
Years Ended                      % of                  % of                 % of    2020 Compared to
March 31,            2020       Total       2019      Total      2018      Total          2019          2019 Compared to 2018
 Equity            $ 201.3         26 %   $ 203.1       27 %   $ 200.5       26 %            (1 )%                 1  %
Fixed Income         439.8         57       412.9       55       412.0       55               7                    -
Alternative           72.3          9        66.5        9        66.3        9               9                    -
Total long-term
assets               713.4         92       682.5       91       678.8       90               5                    1
Liquidity             64.6          8        65.5        9        75.6       10              (1 )                (13 )
Total              $ 778.0        100 %   $ 748.0      100 %   $ 754.4      100 %             4                   (1 )




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The component changes in our AUM by asset class (in billions) were as follows:
                                               Fixed                        Total
                                  Equity      Income      Alternative     Long-Term      Liquidity      Total
March 31, 2017                   $ 179.8     $ 394.3     $      67.9     $    642.0     $    86.4     $ 728.4
Investment funds, excluding
liquidity funds:(1)
Subscriptions                       22.6        36.3             6.3           65.2             -        65.2
Redemptions                        (27.2 )     (23.5 )          (5.8 )        (56.5 )           -       (56.5 )
Long-term separate account
flows, net                          (2.1 )      (3.4 )          (1.5 )         (7.0 )           -        (7.0 )
Liquidity flows, net                   -           -               -              -         (24.3 )     (24.3 )
Net client cash flows               (6.7 )       9.4            (1.0 )          1.7         (24.3 )     (22.6 )
Realizations (2)                       -           -            (2.6 )         (2.6 )           -        (2.6 )
Market performance and other
(3)                                 28.9        14.5             1.5           44.9           0.8        45.7
Impact of foreign exchange           1.3         4.1             0.2            5.6          (0.2 )       5.4
Acquisitions (dispositions),
net                                 (0.3 )         -             0.1           (0.2 )           -        (0.2 )
March 31, 2018                     203.0       422.3            66.1          691.4          62.7       754.1
Investment funds, excluding
liquidity funds:(1)
Subscriptions                       21.1        29.5             5.6           56.2             -        56.2
Redemptions                        (26.1 )     (33.9 )          (4.8 )        (64.8 )           -       (64.8 )
Long-term separate account
flows, net                          (2.5 )       0.1             0.7           (1.7 )           -        (1.7 )
Liquidity flows, net                   -           -               -              -           2.3         2.3
Net client cash flows               (7.5 )      (4.3 )           1.5          (10.3 )         2.3        (8.0 )
Realizations (2)                       -           -            (1.0 )         (1.0 )           -        (1.0 )
Market performance and other
(3)                                  7.9         7.7             2.4           18.0           3.3        21.3

Impact of foreign exchange (1.4 ) (6.1 ) (0.4 )

    (7.9 )        (0.5 )      (8.4 )
March 31, 2019                     202.0       419.6            68.6          690.2          67.8       758.0
Investment funds, excluding
liquidity funds:(1)
Subscriptions                       23.9        39.6             8.9           72.4             -        72.4
Redemptions                        (29.3 )     (32.2 )          (3.4 )        (64.9 )           -       (64.9 )
Long-term separate account
flows, net                         (11.1 )     (10.8 )           1.5          (20.4 )           -       (20.4 )
Liquidity flows, net                   -           -               -              -           6.5         6.5
Net client cash flows              (16.5 )      (3.4 )           7.0          (12.9 )         6.5        (6.4 )
Realizations (2)                       -           -            (1.4 )         (1.4 )           -        (1.4 )
Market performance and other
(3)                                (23.7 )       9.8            (0.1 )        (14.0 )         1.2       (12.8 )
Impact of foreign exchange          (0.8 )      (5.8 )          (0.4 )         (7.0 )        (0.4 )      (7.4 )
Acquisition                          0.2           -             0.6            0.8             -         0.8
March 31, 2020                   $ 161.2     $ 420.2     $      74.3     $    655.7     $    75.1     $ 730.8

(1) Subscriptions and redemptions reflect the gross activity in the funds and

include assets transferred between funds and between share classes.

(2) Realizations represent investment manager-driven distributions primarily

related to the sale of assets. Realizations are specific to our alternative

managers and do not include client-driven distributions (e.g. client

requested redemptions, liquidations or asset transfers).

(3) For the years ended March 31, 2020 and 2019, other primarily includes the

reinvestment of dividends. For the year ended March 31, 2018, other includes

the reclassification, effective April 1, 2017, of $12.1 billion and $3.9

billion of certain equity and fixed income assets, respectively, which were

previously included in AUA to AUM. For the year ended March 31, 2018, other

    also includes the reinvestment of dividends and a $(3.7) billion
    reconciliation to previously reported amounts.



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AUM by Distribution Channel
We have two principal distribution channels, Global Distribution and
Affiliate/Other, through which we sell a variety of investment products and
services. Global Distribution, which consists of our centralized global
distribution operations, principally sells U.S. and international mutual funds
and other commingled vehicles, retail separately managed account programs, and
sub-advisory accounts for insurance companies and similar clients.
Affiliate/Other consists of the distribution operations within our asset
managers, which principally sell institutional separate account management,
liquidity (money market) funds, real estate and other privately placed
investment funds, and funds-of-hedge funds.

The component changes in our AUM by distribution channel (in billions):

                                    Global Distribution      Affiliate/Other      Total
March 31, 2017                     $            285.6       $         442.8     $ 728.4
Net client cash flows:
Long-term flows, net                             15.8                 (14.1 )       1.7
Liquidity flows, net                                -                 (24.3 )     (24.3 )
Total net client cash flows                      15.8                 (38.4 )     (22.6 )
Realizations (1)                                    -                  (2.6 )      (2.6 )
Market performance and other (2)                 29.4                  16.3 

45.7

Impact of foreign exchange                        2.7                   2.7 

5.4

Acquisitions (dispositions), net                    -                  (0.2 )      (0.2 )
March 31, 2018                                  333.5                 420.6       754.1
Net client cash flows:
Long-term flows, net                             (5.2 )                (5.1 )     (10.3 )
Liquidity flows, net                                -                   2.3         2.3
Total net client cash flows                      (5.2 )                (2.8 )      (8.0 )
Realizations (1)                                    -                  (1.0 )      (1.0 )
Market performance and other (2)                 14.3                   7.0        21.3
Impact of foreign exchange                       (3.3 )                (5.1 )      (8.4 )
March 31, 2019                                  339.3                 418.7       758.0
Net client cash flows:
Long-term flows, net                              2.4                 (15.3 )     (12.9 )
Liquidity flows, net                                -                   6.5         6.5
Total net client cash flows                       2.4                  (8.8 )      (6.4 )
Realizations (1)                                    -                  (1.4 )      (1.4 )
Market performance and other (2)                (21.3 )                 8.5       (12.8 )
Impact of foreign exchange                       (2.5 )                (4.9 )      (7.4 )
Acquisition                                         -                   0.8         0.8
March 31, 2020                     $            317.9       $         412.9     $ 730.8

(1) Realizations represent investment manager-driven distributions primarily

related to the sale of assets. Realizations are specific to our alternative

managers and do not include client-driven distributions (e.g. client

requested redemptions, liquidations or asset transfers).

(2) For the years ended March 31, 2020 and 2019, other primarily includes the

reinvestment of dividends. For the year ended March 31, 2018, other includes

the reclassification, effective April 1, 2017, of $16.0 billion of certain

assets which were previously included in AUA to AUM due to a change in our

policy on classification of AUA and AUM. For the year ended March 31, 2018,

    other also includes the reinvestment of dividends and a $(3.7) billion
    reconciliation to previously reported amounts.












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Operating Revenue Yield
We calculate operating revenue yields as the ratio of total operating revenues,
less performance fees, to average AUM. Our overall operating revenue yield, less
performance fees, across all asset classes and distribution channels was 36
basis points ("bps"), 38 bps and 39 bps for the years ended March 31, 2020, 2019
and 2018, respectively. Our operating revenue yields by asset class and
distribution channel were as follows:
                        Years Ended March 31,
                       2020      2019     2018
Asset Class:
Equity                57 bps    59 bps   63 bps
Fixed Income          26 bps    27 bps   27 bps
Alternative           59 bps    61 bps   65 bps
Liquidity             14 bps    13 bps   13 bps
Total                 36 bps    38 bps   39 bps

Distribution Channel:
Global Distribution   41 bps    42 bps   45 bps
Affiliate/Other       33 bps    34 bps   34 bps



Our total operating revenue yield decreased over the last two fiscal years
primarily due to asset mix, the shift to lower fee vehicles and share classes
and specific fee reductions. The operating revenue yield for managing equity
assets declined over the last seven years and for managing alternative assets
declined over the last five years primarily due to a shift in the mix of assets,
from higher fee to lower fee vehicles and share classes and from higher fee to
lower fee earning affiliates.

Equity assets are primarily managed by ClearBridge, Royce, Brandywine, QS Investors, and Martin Currie; alternative assets are managed by Clarion Partners, EnTrust Global, and RARE Infrastructure; fixed income assets are primarily managed by Western Asset and Brandywine; and liquidity assets are managed by Western Asset. Assets distributed through Legg Mason Global Distribution are predominately retail in nature.

Investment Performance

For a discussion of market conditions during the year ended March 31, 2020, see "Business Environment".

The following table presents a summary of the percentages of our AUM by strategy(1) that outpaced their respective benchmarks for the trailing 1-year, 3-year, 5-year, and 10-year periods:

                               As of March 31, 2020                         As of March 31, 2019                         As of March 31, 2018
                    1-year     3-year     5-year     10-year     1-year     3-year     5-year     10-year     1-year     3-year     5-year     10-year
Total (includes
liquidity)              33 %       34 %       71 %        88 %       57 %       82 %       79 %        86 %       77 %       78 %       80 %        87 %
Equity:
Large cap               21 %       21 %       56 %        48 %       57 %       44 %       38 %        49 %       22 %       33 %       43 %        77 %
Small cap               77 %       64 %       69 %        45 %       56 %       47 %       38 %        20 %       67 %       69 %       29 %        36 %
Total equity
(includes other
equity)                 68 %       58 %       65 %        64 %       47 %       45 %       45 %        35 %       29 %       43 %       44 %        73 %
Fixed income:
U.S. taxable             6 %        9 %       90 %        99 %       63 %      100 %       95 %        99 %       98 %       92 %       92 %        92 %
U.S. tax-exempt          0 %        0 %        0 %       100 %        0 %      100 %      100 %       100 %      100 %      100 %      100 %       100 %
Global taxable          30 %       33 %       35 %        98 %       19 %       92 %       85 %        98 %       95 %       89 %       93 %        99 %
Total fixed
income                  13 %       15 %       69 %        99 %       47 %       97 %       92 %        99 %       97 %       91 %       93 %        94 %
Alternative             93 %       93 %       90 %        99 %       98 %       83 %       97 %       100 %       68 %       65 %       92 %        61 %





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The following table presents a summary of the percentages of our U.S. mutual
fund assets(2) that outpaced their Lipper category averages for the trailing
1-year, 3-year, 5-year, and 10-year periods:
                               As of March 31, 2020                         As of March 31, 2019                         As of March 31, 2018
                    1-year     3-year     5-year     10-year     1-year     3-year     5-year     10-year     1-year     3-year     5-year     10-year
Total (excludes
liquidity)              60 %       61 %       73 %        71 %       48 %       63 %       72 %        61 %       57 %       64 %       63 %        57 %
Equity:
Large cap               40 %       41 %       75 %        70 %       68 %       51 %       65 %        33 %       19 %       48 %       44 %        35 %
Small cap               70 %       65 %       71 %        50 %       65 %       80 %       57 %        49 %       67 %       79 %       50 %        43 %
Total equity
(includes other
equity)                 47 %       47 %       72 %        64 %       67 %       54 %       63 %        36 %       32 %       56 %       48 %        38 %
Fixed income:
U.S. taxable            86 %       88 %       92 %        91 %       34 %       93 %       91 %        92 %       97 %       90 %       89 %        86 %
U.S. tax-exempt         10 %        6 %        5 %         4 %        8 %       25 %       64 %        55 %       38 %       19 %       37 %        59 %
Global taxable          45 %       42 %       38 %        80 %       29 %       34 %       56 %        86 %       72 %       67 %       81 %        79 %
Total fixed
income                  70 %       71 %       73 %        76 %       29 %       73 %       81 %        84 %       82 %       72 %       77 %        78 %
Alternative
(includes only
three funds)            58 %      100 %      n/a         n/a         32 %        0 %        0 %       n/a         10 %        0 %       93 %       n/a


n/a - not applicable

(1) For purposes of investment performance comparisons, strategies are an

aggregation of portfolios (separate accounts, investment funds, and other

    products) into a single group that represents a particular investment
    objective. In the case of separate accounts, the investment performance of
    the account is based upon the performance of the strategy to which the

account has been assigned. Each of our asset managers has its own specific

guidelines for including portfolios in their strategies. For those managers

which manage both separate accounts and investment funds in the same

strategy, the performance comparison for all of the assets is based upon the

performance of the separate account.

As of March 31, 2020, 2019 and 2018, 88%, 88% and 87%, respectively, of total
AUM is included in strategy AUM, although not all strategies have 3, 5, and
10-year histories.  Total strategy AUM includes liquidity assets. Certain assets
are not included in reported performance comparisons. These include accounts
that are not managed in accordance with the guidelines outlined above; accounts
in strategies not marketed to potential clients; accounts that have not yet been
assigned to a strategy; and certain smaller products at some of our affiliates.

Past performance is not indicative of future results. For AUM included in
institutional and retail separate accounts and investment funds included in the
same strategy as separate accounts, performance comparisons are based on
gross-of-fee performance. For investment funds which are not managed in a
separate account format, performance comparisons are based on net-of-fee
performance. Funds-of-hedge funds generally do not have specified benchmarks.
For purposes of this comparison, performance of those products is net of fees,
and is compared to the relevant HFRX Index. These performance comparisons do not
reflect the actual performance of any specific separate account or investment
fund; individual separate account and investment fund performance may differ.

Effective July 1, 2019, comparative benchmarks for certain strategies were added
to measure relative performance where a stated benchmark was not previously
provided.  For comparative purposes, prior periods have been updated to reflect
the relative returns using these comparative benchmarks, where applicable.

(2) Source: Lipper Inc. includes open-end, closed-end, and variable annuity

funds. Effective April 1, 2018, Lipper Investment Management ("LIM") is being

used for comparative performance reporting, replacing Lipper Analytical New

Applications ("LANA") which was discontinued by Lipper Inc, which resulted in

changes to the composition of the comparative categories. For comparison

purposes, prior periods reflect the categories as reported in LIM. The U.S.

long-term mutual fund assets represented in the data accounted for 18% of our

total AUM as of each March 31, 2020, 2019 and 2018. The performance of our

U.S. long-term mutual fund assets is included in the strategies.




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RESULTS OF OPERATIONS
In accordance with financial accounting standards on consolidation, we
consolidate and separately identify amounts relating to certain sponsored
investment products. The consolidation of these investment products has no
impact on Net Income (Loss) Attributable to Legg Mason, Inc. and does not have a
material impact on our consolidated operating results. To the extent we have an
investment in a consolidated investment product, the related gains and losses
will impact Net Income (Loss) Attributable to Legg Mason, Inc. See Notes 1 and
20 of Notes to Consolidated Financial Statements for additional information
regarding the consolidation of investment products.

Operating Revenues
The components of Total Operating Revenues (in millions), and the dollar and
percentage changes between periods were as follows:
                                Years Ended March 31,               2020 Compared to 2019          2019 Compared to 2018
                          2020          2019          2018          $ Change      % Change          $ Change      % Change
Investment advisory
fees:
Separate accounts      $ 1,052.0     $ 1,029.3     $ 1,020.8     $      22.7           2  %     $         8.5          1  %
Funds                    1,495.0       1,480.0       1,564.8            15.0           1        $       (84.8 )       (5 )
Performance fees            99.0          84.9         227.8            14.1          17        $      (142.9 )      (63 )
Distribution and
service fees               270.4         303.0         321.9           (32.6 )       (11 )      $       (18.9 )       (6 )
Other                        5.7           6.1           5.0            (0.4 )        (7 )      $         1.1         22
Total Operating
Revenues               $ 2,922.1     $ 2,903.3     $ 3,140.3     $      18.8           1        $      (237.0 )       (8 )



Total Operating Revenues for the year ended March 31, 2020, increased 1% to
$2.92 billion, as compared to $2.90 billion for the year ended March 31, 2019,
primarily due to an increase in investment advisory fees from separate accounts
and funds, reflecting higher average AUM, and an increase of $21.2 million in
performance fees that were not passed through as compensation expense. These
increases were offset in part by a $32.6 million decrease in distribution and
servicing fees, reflecting a shift to lower fee earning mutual fund share
classes and lower average fund AUM earning distribution fees, and a $7.1 million
decrease in performance fees that were passed through as compensation expense.

Total Operating Revenues for the year ended March 31, 2019, were $2.90 billion,
a decrease of 8% from $3.14 billion for the year ended March 31, 2018. The
decrease was primarily due to a $142.9 million decrease in performance fees,
$83.2 million of which was in performance fees that are not passed through as
compensation expense, as further discussed below. A decrease in our operating
revenue yield to 38 basis points for the year ended March 31, 2019, from 39
basis points for the year ended March 31, 2018, also contributed to the
decrease.

Investment Advisory Fees from Separate Accounts
For the year ended March 31, 2020, Investment advisory fees from separate
accounts increased 2% to $1.05 billion, as compared to $1.03 billion for the
year ended March 31, 2019. Fees earned on fixed income and equity assets
increased $20.4 million and $5.8 million, respectively, reflecting an increase
in average fixed income and equity AUM, offset in part by a reduction in the
average fee rates earned on fixed income assets. These increases were offset in
part by a $4.3 million decrease in fees earned on alternative assets, driven by
lower average fee rates earned on alternative assets, offset in part by an
increase in average alternative AUM.

For the year ended March 31, 2019, Investment advisory fees from separate
accounts increased $8.5 million, to $1.03 billion, as compared to $1.02 billion
for the year ended March 31, 2018, as an increase of $19.9 million, primarily
due to higher average equity assets managed at ClearBridge, was substantially
offset by a decrease of $12.8 million, primarily due to a reduction in the
average fee rate earned on fixed income assets managed at Brandywine, and a
decrease of $7.1 million, primarily due to lower average alternative assets
managed at EnTrust Global and RARE Infrastructure.


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Investment Advisory Fees from Funds
For the year ended March 31, 2020, Investment advisory fees from funds increased
$15.0 million, or 1%, to $1.50 billion, as compared to $1.48 billion for the
year ended March 31, 2019. Fees earned on alternative assets increased $25.3
million, driven by higher average alternative AUM, offset in part by lower
average fee rates earned on alternative assets, and fees earned on fixed income
assets increased $19.0 million due to higher average fixed income AUM, offset in
part by lower average fee rates earned on fixed income assets. These increases
were offset in part by a $28.5 million decrease in fees earned on equity assets,
driven by lower average equity AUM and lower average fee rates earned on equity
assets.

For the year ended March 31, 2019, Investment advisory fees from funds decreased
$84.8 million, or 5%, to $1.48 billion, as compared to $1.56 billion for the
year ended March 31, 2018. Of this decrease, $56.7 million was primarily due to
lower average equity assets managed at Martin Currie, Royce, and Clearbridge,
$39.3 million was primarily due to lower average alternative assets managed at
EnTrust Global, and $16.7 million was due to lower average liquidity assets
managed at Western Asset. These decreases were partially offset in part by an
increase of $26.4 million primarily due to higher average alternative assets
managed by Clarion Partners.

Investment Advisory Performance Fees
As of March 31, 2020, 2019, and 2018, approximately 11%, 12%, and 11%,
respectively, of our long-term AUM was in accounts that were eligible to earn
performance fees at some point during the respective fiscal year. Performance
fees earned by Clarion Partners on assets invested with them prior to the
acquisition closing in April 2016 are fully passed through to the Clarion
Partners management team, per the terms of the acquisition agreement, and
recorded as compensation expense, and therefore have no impact on Net Income
(Loss) Attributable to Legg Mason, Inc. We expect the pass through of
performance fees at Clarion Partners to be largely phased out by fiscal 2022.
Excluding AUM eligible to earn pass through performance fees, approximately 7%,
8%, and 7% of our long-term AUM was in accounts that were eligible to earn
performance fees at some point during the years ended March 31, 2020, 2019, and
2018, respectively.

For the year ended March 31, 2020, Investment advisory performance fees were
$99.0 million, with $42.0 million earned by Clarion Partners and passed through
as compensation expense, and $35.1 million, $16.3 million and $5.6 million
earned on alternative, fixed income and equity assets, respectively. For the
year ended March 31, 2019, Investment advisory performance fees were $84.9
million, with $49.0 million earned by Clarion Partners and passed through as
compensation expense, and $20.5 million, $9.6 million, and $5.8 million earned
on fixed income, alternative and equity assets, respectively; and, for the year
ended March 31, 2018, Investment advisory performance fees were $227.8 million,
with $108.8 million earned by Clarion Partners and passed through as
compensation expense, and $59.6 million, $32.5 million, and $26.9 million earned
on fixed income, equity, and alternative assets, respectively.

The increase in performance fees that were not passed through as compensation
expense for the year ended March 31, 2020, was primarily due to an aggregate
$21.2 million increase in performance fees earned primarily on assets managed by
EnTrust Global, Clarion Partners, Western Asset and RARE Infrastructure, offset
in part by a decrease in performance fees earned on assets managed by
Brandywine. The decrease in performance fees that were not passed through as
compensation expense for the year ended March 31, 2019, was primarily due to an
aggregate $83.2 million decrease in performance fees earned on assets managed by
Martin Currie, Western Asset, EnTrust Global and Brandywine.

Distribution and Service Fees
For the year ended March 31, 2020, Distribution and service fees decreased $32.6
million, or 11%, to $270.4 million, as compared to $303.0 million for the year
ended March 31, 2019, reflecting a reduction in average mutual fund AUM subject
to distribution and service fees and a shift in average AUM subject to
distribution and service fees to lower fee share classes, as previously
discussed.

For the year ended March 31, 2019, Distribution and service fees decreased $18.9
million, or 6%, to $303.0 million, as compared to $321.9 million for the year
ended March 31, 2018, primarily due to a reduction in average mutual fund AUM
subject to distribution and service fees.


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Operating Expenses
The components of Total Operating Expenses (in millions), and the dollar and
percentage changes between periods were as follows:
                                    Years Ended March 31,              2020 Compared to 2019        2019 Compared to 2018
                                                                            $                            $
                              2020          2019          2018            Change      % Change         Change      % Change
Compensation and
benefits                   $ 1,436.9     $ 1,399.0     $ 1,508.8     $        37.9         3  %   $      (109.8 )      (7 )%
Distribution and
servicing                      413.2         439.3         489.3             (26.1 )      (6 )            (50.0 )     (10 )
Communications and
technology                     225.4         228.1         212.8              (2.7 )      (1 )             15.3         7
Occupancy                      110.4         105.3         100.8               5.1         5                4.5         4
Amortization of
intangible assets               22.5          24.4          24.6              (1.9 )      (8 )             (0.2 )      (1 )
Impairment of intangible
assets                             -         365.2         229.0            (365.2 )     n/m              136.2        59
Contingent consideration
fair value adjustments          (0.9 )         0.6         (31.3 )            (1.5 )     n/m               31.9       n/m
Other                          209.5         238.3         282.3             (28.8 )     (12 )            (44.0 )     (16 )
Total Operating Expenses   $ 2,417.0     $ 2,800.2     $ 2,816.3     $      (383.2 )     (14 )    $       (16.1 )      (1 )


n/m - not meaningful

Total Operating Expenses for the year ended March 31, 2020, decreased $383.2
million, or 14%, to $2.42 billion, as compared to $2.80 billion for the year
ended March 31, 2019; and, for the year ended March 31, 2019, decreased $16.1
million, or 1%, to $2.80 billion, as compared to $2.82 billion for the year
ended March 31, 2018. As further discussed below, Total Operating Expenses for
the years ended March 31, 2019, and 2018, included $365.2 million and $229.0
million, respectively, of charges for impairments of intangible assets. The year
ended March 31, 2018, also included a $67.0 million charge for the regulatory
matter discussed in Note 9 of Notes to Consolidated Financial Statements.

Operating expenses incurred at the investment management affiliate level
comprised approximately 70%, 70%, and 65% for the years ended March 31, 2020,
2019, and 2018, respectively, of total operating expenses, excluding impairment
charges, if any. The remaining operating expenses are corporate costs, including
costs of our global distribution operations.


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Compensation and Benefits
The components of Total Compensation and Benefits (in millions), and the dollar
and percentage changes between periods
were as follows:
                                      Years Ended March 31,              2020 Compared to 2019        2019 Compared to 2018
                                                                             $
                                2020          2019          2018           Change      % Change         $ Change     % Change
Salaries, incentives and
benefits                     $ 1,345.9     $ 1,329.4     $ 1,381.9     $      16.5         1  %     $       (52.5 )      (4 )%
Strategic restructuring           57.2             -             -            57.2       n/m                    -       n/m
Affiliate charges                  2.4           9.3             -            (6.9 )     (74 )                9.3       n/m
Acquisition and
transition-related costs             -           0.9           5.8            (0.9 )     n/m                 (4.9 )     (84 )
Performance fee pass
through                           42.0          49.0         108.8            (7.0 )     (14 )              (59.8 )     (55 )
Gains (losses) on deferred
compensation and seed
capital investments              (10.6 )        10.4          12.3           (21.0 )     n/m                 (1.9 )     (15 )
Compensation and benefits    $ 1,436.9     $ 1,399.0     $ 1,508.8     $      37.9         3        $      (109.8 )      (7 )


n/m - not meaningful

Compensation and benefits for the year ended March 31, 2020, increased 3% to
$1.44 billion, as compared to $1.40 billion for the year ended March 31, 2019;
and for the year ended March 31, 2019, decreased 7% to $1.40 billion, as
compared to $1.51 billion for the year ended March 31, 2018:

• Salaries, incentives, and benefits increased $16.5 million, to $1.35

billion for the year ended March 31, 2020, as compared to $1.33 billion

for the year ended March 31, 2019, driven by a $23.7 million increase in

salary and incentive compensation related to corporate and distribution

personnel, including increased sales commissions, and a $21.6 million

increase in net compensation at investment affiliates, driven by an

increase in operating revenues at certain affiliates. Increases in

operating revenues at revenue-share based affiliates typically create a

corresponding increase in compensation per the applicable revenue share

agreements. A $7.5 million increase in deferred compensation expense due

to higher annual acceleration of awards for retirement eligible employees

also contributed to the increase. These increases were offset in part by

$34.7 million in savings from our strategic restructuring.

Salaries, incentives, and benefits decreased $52.5 million, to $1.33 billion for
the year ended March 31, 2019, as compared to $1.38 billion for the year ended
March 31, 2018, driven by a $47.9 million decrease in net compensation and
benefits at investment affiliates, which was primarily driven by the impact of
the previously discussed decrease in performance fees that are not passed
through as compensation expense.

• Strategic restructuring costs of $57.2 million for the year ended March

31, 2020, were primarily comprised of employee termination benefit costs,

including severance and the acceleration of deferred compensation awards.

See Note 18 of Notes to Consolidated Financial Statements for additional

       information.

• Affiliate charges of $2.4 million for the year ended March 31, 2020, were

       comprised of severance costs associated with restructuring plans at
       certain affiliates.



Affiliate charges of $9.3 million for the year ended March 31, 2019, were
comprised of $6.9 million of severance costs associated with restructuring plans
at certain affiliates and $2.4 million of management equity plan charges
associated with an additional grant of equity units under the Royce management
equity plan. See Note 12 of Notes to Consolidated Financial Statement for
additional information regarding management equity plans.

• Acquisition and transition-related costs for the years ended March 31,

2019 and 2018, were comprised of employee termination benefit costs,

including severance and the acceleration of deferred compensation awards,

related to the restructuring of Permal for the combination with EnTrust,

which was completed in June 2018.

For the year ended March 31, 2020, compensation as a percentage of operating
revenues increased to 49.2%, as compared to 48.2% for the year ended March 31,
2019, primarily due to costs incurred in connection with our strategic
restructuring in the current year.

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For the year ended March 31, 2019, compensation as a percentage of operating
revenues remained relatively flat at 48.2%, as compared to 48.0% for the year
ended March 31, 2018, as the impact of increased compensation expense for
corporate and distribution personnel, which is not directly tied to revenues,
was substantially offset by the impact of decreased performance fees earned by
Clarion Partners that were passed through as compensation expense.

Distribution and Servicing
For the year ended March 31, 2020, Distribution and servicing expenses decreased
6% to $413.2 million, as compared to$439.3 million for the year ended March 31,
2019, primarily due to lower average AUM in certain products for which we pay
fees to third-party distributors and a shift in average AUM subject to
distribution and service fees to lower fee share classes, as previously
discussed.

For the year ended March 31, 2019, Distribution and servicing expenses decreased
10% to $439.3 million, as compared to $489.3 million for the year ended March
31, 2018, primarily due to the impact of lower average fee rates paid on certain
products for which we pay fees to third-party distributors.

Communications and Technology
For the year ended March 31, 2020, Communications and technology expense
decreased 1% to $225.4 million, as compared to $228.1 million for the year ended
March 31, 2019, primarily due to savings associated with our strategic
restructuring.

For the year ended March 31, 2019, Communications and technology expense increased 7% to $228.1 million, as compared to $212.8 million for the year ended March 31, 2018, primarily due to an $11.2 million increase in technology consulting and maintenance costs related to ongoing investments in our technology capabilities.

Occupancy

For the year ended March 31, 2020, Occupancy expense increased 5% to $110.4 million, as compared to $105.3 million for the year ended March 31, 2019, primarily due to strategic restructuring costs, largely related to space vacated in our corporate headquarters.

For the year ended March 31, 2019, Occupancy expense increased 4% to $105.3
million, as compared to $100.8 million for the year ended March 31, 2018,
primarily due to real estate related charges recognized in the current year of
$5.3 million associated with vacated and subleased office space, principally in
our corporate headquarters.

Impairment of Intangible Assets
Impairment of intangible assets was $365.2 million, and $229.0 million for the
years ended March 31, 2019 and 2018, respectively.

The impairment charges recognized during the year ended March 31, 2019 were
comprised of $274.6 million and $18.2 million related to the EnTrust Global
indefinite-life fund management contracts asset and trade name asset,
respectively, and $65.0 million, $6.4 million, and $1.0 million related to the
RARE Infrastructure indefinite-life fund management contracts asset, amortizable
fund management contracts asset, and trade name asset, respectively. The
impairments to the EnTrust Global assets were primarily the result of continued
net client outflows from legacy high net worth fund products leading to reduced
growth expectations in both management fees and performance fees, a declining
margin, and a higher discount rate. The impairments to the RARE Infrastructure
indefinite-life fund management contracts and trade name assets were primarily
the result of lower than expected net client inflows and performance fees,
leading to a lower margin, and a higher discount rate. The impairment to the
RARE Infrastructure amortizable asset resulted from losses of separate account
AUM and the related decline in projected revenues. A revised estimate of the
remaining useful life of the RARE Infrastructure separate account contracts
intangible asset also contributed to the impairment of that asset.

The impairment charges recognized during the year ended March 31, 2018, were
comprised of $195.0 million related to the EnTrust Global indefinite-life fund
management contracts asset, $32.0 million related to the RARE Infrastructure
amortizable management contracts asset and $2.0 million related to the RARE
Infrastructure trade name asset. The impairment to the EnTrust Global
indefinite-life fund management contracts asset was primarily the result of net
client outflows from legacy high net worth fund products, including transfers of
client funds from such products into EnTrust Global separate accounts, and the
related decline in revenues. The impairments to the RARE Infrastructure assets
resulted from losses of separate account AUM and other factors at RARE
Infrastructure, and the related decline in projected revenues. A revised
estimate

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of the remaining useful life of the RARE Infrastructure separate account contracts intangible asset also contributed to the impairment of that asset.

See Critical Accounting Policies and Note 5 of Notes to Consolidated Financial Statements for further discussion of these impairment charges.

Contingent Consideration Fair Value Adjustments
Contingent consideration fair value adjustments for the years ended March 31,
2020, 2019 and 2018 included a credit of $0.9 million, an expense of $0.6
million, and credits aggregating $31.3 million, respectively. The credits in
fiscal 2018 were comprised of $32.0 million which reduced the contingent
consideration liabilities related to the acquisitions of RARE Infrastructure,
Martin Currie, and QS Investors, offset in part by an expense of $0.7 million,
which increased the contingent consideration liability related to the
acquisition of PK Investments.

Other

For the year ended March 31, 2020, Other expenses decreased $28.8 million, or
12%, to $209.5 million, as compared to $238.3 million for the year ended March
31, 2019, primarily due to $24.5 million of savings associated with our
strategic restructuring and a $4.2 million charge recognized in the prior year
period for a regulatory matter.

For the year ended March 31, 2019, Other expenses decreased $44.0 million, or
16%, to $238.3 million, as compared to $282.3 million for the year ended March
31, 2018, primarily due to a decrease of $62.8 million in charges related to the
regulatory matter further discussed in Note 9 of Notes to Consolidated Financial
Statements, with $4.2 million of charges recognized in fiscal 2019 and $67.0 of
charges recognized in fiscal 2018. This decrease was offset in part by a $17.2
million increase in professional fees, largely related to the strategic
restructuring and other corporate restructuring.

Non-Operating Income (Expense)
The components of Total Non-Operating Income (Expense) (in millions), and the
dollar and percentage changes between periods were as follows:
                                     Years Ended March 31,           2019

Compared to 2018 2018 Compared to 2017

                                 2020        2019        2018         $ Change      % Change       $ Change     % Change
Interest income                $  12.3     $  12.2     $   7.1     $        0.1          1  %   $       5.1        72  %
Interest expense                (109.9 )    (117.3 )    (117.9 )            7.4         (6 )            0.6        (1 )
Other income (expense), net      (13.3 )      31.1        10.8            (44.4 )      n/m             20.3       n/m
Non-operating income
(expense) of consolidated
investment vehicles, net          16.3        (0.6 )       9.8             16.9        n/m            (10.4 )     n/m
Total Non-Operating Income
(Expense)                      $ (94.6 )   $ (74.6 )   $ (90.2 )   $      (20.0 )       27      $      15.6       (17 )


n/m - not meaningful

Interest Income
For the year ended March 31, 2020, Interest income remained relatively flat at
$12.3 million, as compared to $12.2 million for the year ended March 31, 2019.

For the year ended March 31, 2019, Interest income increased $5.1 million to
$12.2 million, as compared to $7.1 million for the year ended March 31, 2018,
driven by higher yields earned on higher average interest-bearing investment
balances.

Interest Expense
For the year ended March 31, 2020, Interest expense decreased $7.4 million, to
$109.9 million, as compared to $117.3 million for the year ended March 31, 2019,
primarily due to the repayment of $125.5 million of outstanding borrowings under
our Credit Agreement in September 2018 and the repayment of our $250 million
2.7% Senior Notes in July 2019.

For the year ended March 31, 2019, Interest expense remained relatively flat at $117.3 million, as compared to $117.9 million for the year ended March 31, 2018.

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Other Income (Expense), Net
For the years ended March 31, 2020 and 2019, Other income (expense), net,
totaled expense of $13.3 million and income $31.1 million, respectively. The
year ended March 31, 2020, included $10.6 million of net market losses on seed
capital investments and assets invested for deferred compensation plans, which
were offset by a corresponding decrease in compensation expense, and $6.2
million in losses on corporate investments. These losses were offset in part by
$3.5 million of net market gains on investments of consolidated sponsored
investment products that are not designated as CIVs, which have no impact on Net
Income Attributable to Legg Mason, Inc., as the gains are fully attributable to
noncontrolling interests. The year ended March 31, 2019, included $14.1 million
of gains on corporate investments, $10.4 million of net market gains on seed
capital investments and assets invested for deferred compensation plans, which
were offset by a corresponding increase in compensation expense, and an $8.4
million distribution from an investment holding.

For the year ended March 31, 2019, Other income (expense), net, was income of
$31.1 million, as compared to income of $10.8 million for the year ended March
31, 2018. The year ended March 31, 2018, included $12.3 million of net market
gains on seed capital investments and assets invested for deferred compensation
plans, which were offset by a corresponding increase in compensation expense,
offset in part by $1.8 million of net market losses on corporate investments.

Non-Operating Income (Expense) of Consolidated Investment Vehicles, Net For the year ended March 31, 2020, Non-operating income (expense) of consolidated investment vehicles, net, totaled income of $16.3 million, as compared to expense of $0.6 million in the year ended March 31, 2019.

For the year ended March 31, 2019, Non-operating income (expense) of consolidated investment vehicles, net, totaled expense of $0.6 million, as compared to income of $9.8 million in the year ended March 31, 2018.

See Notes 1 and 20 of Notes to Consolidated Financial Statements for additional
information regarding the consolidation of sponsored investment vehicles and net
market gains on investments of certain CIVs.

Income Tax Provision (Benefit)
For the years ended March 31, 2020 and 2019, the income tax provision was $106.0
million and $20.6 million, respectively, and for the year ended March 31, 2018,
the income tax benefit was $102.5 million. The effective tax rate was 25.8% and
72.2% for the years ended March 31, 2020 and 2019, respectively, and the
effective benefit rate was 43.8% for the year ended March 31, 2018. The
effective tax rate for the year ended March 31, 2019, reflects final adjustments
related to the impact of the Tax Cuts and Jobs Act of 2017 (the "Tax Law"),
which was enacted on December 22, 2017, while the effective benefit rate for the
year ended March 31, 2018, reflects the impact of the Tax Law recognized upon
enactment.
The effective tax rate for the year ended March 31, 2020 reflects net discrete
tax expense of $2.4 million, primarily related to the revaluation of certain
existing deferred tax assets and liabilities, a reduction in net operating loss
due to audit settlements, and discrete tax expense recognized for vested stock
awards with a grant date exercise price higher than the vesting date stock
prices, which were offset in part by a discrete tax benefit resulting from the
settlement of prior year state audits and statute expirations. The net impact of
all discrete tax items increased the effective income tax rate by 0.6 percentage
points for the year ended March 31, 2020.
For the year ended March 31, 2019, discrete tax expense of $14.1 million related
to uncertain tax positions for federal, state and local taxes (including those
relating to recent legislative changes) was recognized. In addition, discrete
tax benefits totaling $2.8 million related to the completion of a prior year tax
audit and other discrete tax benefits of $1.3 million were recognized. Together,
the net impact of all discrete tax items increased the effective tax rate by
35.1 percentage points for the year ended March 31, 2019.
As previously discussed, on December 22, 2017, the Tax Law was enacted. The
reduction in the U.S. corporate tax rate, as well as other aspects of the Tax
Law, resulted in a one-time, non-cash provisional tax benefit of $220.9 million,
primarily due to the remeasurement of certain existing deferred tax assets and
liabilities at the new 21% income tax rate. In addition, a non-cash tax charge
of $7.3 million was provisionally provided for the deemed repatriation of
unremitted foreign earnings as provided under the Tax Law. Any tax provision
associated with the repatriations was adjusted to reflect the impact of the Tax
Law. As further discussed in Note 7 of Notes to Consolidated Financial
Statements, our accounting for the tax on unremitted foreign earnings was
completed during fiscal 2019 and an adjustment in the amount of $2.2 million of
additional expense was recorded in that period.

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Also, during the year ended March 31, 2018, the effective benefit rate was
impacted by 9.7 percentage points for the non-deductibility of the charge for
the regulatory matter discussed in Note 9 of Notes to the Consolidated Financial
Statements. In addition, for fiscal 2018, changes in state apportionment and
state laws, audit settlements, and other discrete changes impacting state
deferred tax liabilities resulted in additional net tax expense of $3.3 million,
which reduced the effective benefit rate by 1.1 percentage points for the year
ended March 31, 2018. Further, a $0.8 million discrete tax expense was
recognized with respect to equity-based compensation, which reduced the
effective benefit rate by 0.3 percentage points.
CIVs and other consolidated sponsored investment products reduced the effective
tax rate by 0.8 percentage points and 2.0 percentage points for the years ended
March 31, 2020 and 2019, respectively, and increased the effective benefit rate
by 1.3 percentage points for the year ended March 31, 2018.
Net Income (Loss) Attributable to Legg Mason, Inc. and Operating Margin
Net Income Attributable to Legg Mason, Inc. for the year ended March 31, 2020,
totaled $251.4 million, or $2.79 per diluted share, as compared to Net Loss
Attributable to Legg Mason, Inc. of $28.5 million, or $0.38 per diluted share,
for the year ended March 31, 2019.  The increase in Net Income (Loss)
Attributable to Legg Mason, Inc. was primarily driven by non-cash impairment
charges totaling $365.2 million, or $3.12 per diluted share, recognized in the
prior year, as well as higher operating revenues in the current year, reflecting
an increase in investment advisory fees driven by higher average AUM and an
increase in performance fees that were not passed through as compensation
expense, as well as the impact of savings from the strategic restructuring.
These increases were offset in part by higher strategic restructuring and
corporate restructuring costs in the current year, the previously discussed
increase in compensation expense for corporate and distribution personnel,
including increased sales commissions, and net market losses recognized on
corporate investments as compared to gains recognized in the prior year.
Operating margin was 17.3% for the year ended March 31, 2020, as compared to
3.6% for the year ended March 31, 2019, reflecting the non-cash impairment
charges recognized in the year ended March 31, 2019.

Net Loss Attributable to Legg Mason, Inc. for the year ended March 31, 2019,
totaled $28.5 million, or $0.38 per diluted share, as compared to Net Income
Attributable to Legg Mason, Inc. of $285.1 million, or $3.01 per diluted share,
for the year ended March 31, 2018. Net Loss Attributable to Legg Mason, Inc. for
the year ended March 31, 2019 included non-cash impairment charges totaling
$365.2 million, or $3.12 per diluted share, strategic restructuring and other
corporate restructuring costs of $18.5 million, or $0.15 per diluted share,
affiliate charges of $9.2 million, or $0.06 per diluted share, including Royce
management equity plan costs of $2.4 million, discrete net tax expenses and
other tax items of $7.7 million, or $0.09 per diluted share, and a $4.2 million,
or $0.05 per diluted share, charge associated with the regulatory matter
discussed in Note 9 of Notes to Consolidated Financial Statements. Net Income
Attributable to Legg Mason, Inc. for the year ended March 31, 2018 included a
one-time, net non-cash provisional tax benefit of $213.7 million, or $2.26 per
diluted share, related to the Tax Law. This benefit was offset in part by
non-cash impairment charges related to intangible assets of $229.0 million, or
$1.96 per diluted share, and a $67.0 million, or $0.71 per diluted share, charge
related to the regulatory matter discussed above. The year ended March 31, 2018
also included adjustments to decrease the fair value of contingent consideration
liabilities by $31.3 million, or $0.33 per diluted share. Operating margin was
3.6% for the year ended March 31, 2019, as compared to 10.3% for the year ended
March 31, 2018, reflecting the impact of the non-cash impairment charges and the
charges related to the regulatory matter recognized in both the years ended
March 31, 2019 and 2018, as discussed above.

Supplemental Non-GAAP Financial Information
As supplemental information, we are providing performance measures for "Adjusted
Net Income", "Adjusted Earnings Per Diluted Share" ("Adjusted EPS") and
"Adjusted Operating Margin", along with a liquidity measure for "Adjusted
EBITDA", each of which is based on methodologies other than generally accepted
accounting principles ("non-GAAP"). Effective with the quarter ended June 30,
2019, we began disclosing Adjusted Operating Margin, which revises our prior
disclosure of Operating Margin, as Adjusted, to include adjustments for
restructuring costs and acquisition expenses and transition-related costs for
integration activities, each of which is further described below.
Our management uses the performance measures as benchmarks to evaluate and
compare our period-to-period operating performance. We believe that these
performance measures provide useful information about the operating results of
our core asset management business and facilitate comparison of our results to
other asset management firms and period-to-period results. We are also providing
a non-GAAP liquidity measure for Adjusted EBITDA, which our management uses as a
benchmark in evaluating and comparing our period-to-period liquidity. We believe
that this measure is useful to investors as it provides additional information
with regard to our ability to meet working capital requirements, service our
debt, and return capital to our stockholders.

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Adjusted Net Income and Adjusted Earnings per Diluted Share
Adjusted Net Income and Adjusted EPS only include adjustments for certain items
that relate to operating performance, and therefore, are most readily
reconcilable to Net Income (Loss) Attributable to Legg Mason, Inc. and Net
Income (Loss) per Diluted Share Attributable to Legg Mason, Inc. Shareholders,
determined under generally accepted accounting principles ("GAAP"),
respectively.
We define Adjusted Net Income as Net Income (Loss) Attributable to Legg Mason,
Inc. adjusted to exclude the following:
• Restructuring costs, including:


•            Corporate charges related to the ongoing strategic 

restructuring and

             other cost saving and business initiatives, including severance,
             lease and other costs and certain transaction-related costs; and


•            Affiliate charges, including affiliate restructuring and severance
             costs, and certain one-time charges arising from the issuance of
             management equity plan awards

• Amortization of intangible assets

•      Gains and losses on seed and other investments that are not offset by
       compensation or hedges


•      Acquisition expenses and transition-related costs for integration
       activities, including certain related professional fees and costs

associated with the transition and acquisition of acquired businesses

• Impairments of intangible assets

• Contingent consideration fair value adjustments

• Charges related to significant litigation or regulatory matters

• Income tax expense (benefit) adjustments to provide an effective non-GAAP

       tax rate commensurate with our expected annual pre-tax Adjusted Net
       Income, including:


•            The impact on income tax expense (benefit) of the above non-GAAP
             adjustments; and


•            Other tax items, including deferred tax asset and liability
             adjustments associated with statutory rate changes, the impact of
             other aspects of recent U.S. tax reform, and shortfalls (and
             windfalls) associated with stock-based compensation



Adjustments for restructuring costs, gains and losses on seed and other
investments that are not offset by compensation or hedges, and the income tax
expense (benefit) items described above are included in the calculation because
these items are not reflective of our core asset management business of
providing investment management and related products and services. We adjust for
acquisition-related items, including amortization of intangible assets,
impairments of intangible assets, and contingent consideration fair value
adjustments, to make it easier to identify trends affecting our underlying
business that are not related to acquisitions to facilitate comparison of our
operating results with the results of other asset management firms that have not
engaged in significant acquisitions. We adjust for charges (credits) related to
significant litigation or regulatory matters, net of any insurance proceeds and
revenue share adjustments, because these matters do not reflect the underlying
operations and performance of our business.
In calculating Adjusted EPS, we adjust Net Income (Loss) per Diluted Share
Attributable to Legg Mason, Inc. Shareholders determined under GAAP for the per
share impact of each adjustment (net of taxes) included in the calculation of
Adjusted Net Income.
These measures are provided in addition to Net Income (Loss) Attributable to
Legg Mason, Inc., and Net Income (Loss) per Diluted Share Attributable to Legg
Mason, Inc. Shareholders, and are not substitutes for these measures. These
non-GAAP measures should not be considered in isolation and may not be
comparable to non-GAAP performance measures, including measures of adjusted
earnings or adjusted income, and adjusted earnings per share, of other
companies, respectively. Further, Adjusted Net Income and Adjusted EPS are not
liquidity measures and should not be used in place of cash flow measures
determined under GAAP.

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The calculations of Adjusted Net Income and Adjusted EPS are as follows (dollars in thousands, except per share amounts):

                                                           Years Ended 

March 31,

                                                     2020           2019    

2018

Net Income (Loss) Attributable to Legg Mason,
Inc.                                             $  251,367     $  (28,508 )   $  285,075
Plus (less):
Restructuring costs:
Strategic restructuring and other corporate
initiatives(1)                                       90,519         23,655  

5,054

Affiliate charges(2)                                  2,414          7,526              -
Amortization of intangible assets                    22,539         24,404  

24,604

Gains and losses on seed and other investments
not offset by compensation or hedges                  1,256        (17,777 )         (728 )
Acquisition and transition-related costs                  -          2,466  

7,049

Impairments of intangible assets                          -        365,200  

229,000

Contingent consideration fair value
adjustments                                            (915 )          571        (31,329 )
Charges related to significant regulatory
matters                                                   -          4,151  

67,000

Income tax adjustments:(3)
Impacts of non-GAAP adjustments                     (31,285 )     (103,049 )      (54,324 )
Other tax items                                       3,097          9,980       (208,993 )
Adjusted Net Income                              $  338,992     $  288,619     $  322,408

Net Income (Loss) Per Diluted Share
Attributable to Legg Mason, Inc. Shareholders    $     2.79     $    (0.38 )   $     3.01
Plus (less), net of tax impacts:
Restructuring costs:
Strategic restructuring and other corporate
initiatives                                            0.73           0.20  

0.04

Affiliate charges                                      0.02           0.06              -
Amortization of intangible assets                      0.18           0.21  

0.18

Gains and losses on seed and other investments
not offset by compensation or hedges                   0.01          (0.15 )            -
Acquisition and transition-related costs                  -           0.02  

0.05

Impairments of intangible assets                          -           3.12  

1.96

Contingent consideration fair value
adjustments                                               -           0.01          (0.33 )
Charges related to significant regulatory
matters                                                   -           0.05  

0.71

Other tax items                                        0.03           0.12          (2.21 )
Adjusted Earnings per Diluted Share              $     3.76     $     3.26

$ 3.41

(1) See Note 18 of Notes to Consolidated Financial Statements for additional

information regarding our strategic restructuring initiatives.

(2) See "Results of Operations" above for additional information regarding

affiliate charges.

(3) The non-GAAP effective tax rates for the years ended March 31, 2020, 2019 and

2018, were 26.1%, 26.0% and 30.1%, respectively.

Adjusted Net Income was $339.0 million, or $3.76 per diluted share, for the year
ended March 31, 2020, as compared to $288.6 million, or $3.26 per diluted share,
for the year ended March 31, 2019. The increase was driven by higher operating
revenues, reflecting an increase in investment advisory fees from funds and
separate accounts driven by higher average AUM and an increase in performance
fees that were not passed through as compensation expense, as well as the impact
of savings from the strategic restructuring.

Adjusted Net Income was $288.6 million, or $3.26 per diluted share, for the year
ended March 31, 2019, as compared to $322.4 million, or $3.41 per diluted share,
for the year ended March 31, 2018. Adjusted Net Income decreased primarily due
to lower operating revenues.


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Adjusted Operating Margin
We calculate Adjusted Operating Margin, by dividing "Adjusted Operating Income",
by "Adjusted Operating Revenues", each of which is further discussed below.
These measures only include adjustments for certain items that relate to
operating performance, and therefore, are most readily reconcilable to Operating
Margin, Operating Income (Loss) and Total Operating Revenues determined under
GAAP, respectively.
We define Adjusted Operating Revenues as Operating Revenues, adjusted to:
• Include:


•            Net investment advisory fees eliminated upon consolidation of
             investment vehicles


• Exclude:


•            Distribution and servicing fees and a portion of Investment advisory
             fees used to pay distribution and servicing costs to third party
             intermediaries based on contractual relationships the

third-party

             intermediaries have with the ultimate clients. The amount of
             Distribution and servicing fees and the portion of Investment
             advisory fees excluded approximate the direct costs of selling and
             servicing our products that are paid to third-party

intermediaries,

             based on contractual percentages of the value of the related AUM


•            Performance fees that are passed through as compensation expense or
             net income (loss) attributable to noncontrolling interests

These adjustments do not relate to items that impact Net income (Loss) Attributable to Legg Mason, Inc. and they are included in one of the ways our management views and evaluates our business results.

We define Adjusted Operating Income, as Operating Income (Loss), adjusted to
exclude the following:
• Restructuring costs, including:


•            Corporate charges related to the ongoing strategic 

restructuring and

             other cost saving and business initiatives, including severance,
             lease and other costs and other transaction costs; and


•            Affiliate charges, including affiliate restructuring and severance
             costs, and certain one-time charges arising from the issuance of
             management equity plan awards

• Amortization of intangible assets

• The impact on compensation expense of:

• Gains and losses on investments made to fund deferred compensation plans

•            Gains and losses on seed capital investments by our 

affiliates under

             revenue sharing arrangements


•      Acquisition expenses and transition-related costs for integration
       activities, including certain related professional fees and costs

associated with the transition and acquisition of acquired businesses

• Impairments of intangible assets

• Contingent consideration fair value adjustments

• Charges related to significant regulatory matters

• Income (loss) of consolidated investment vehicles

In calculating Adjusted Operating Income, we adjust for restructuring costs
because these items are not reflective of our core asset management business of
providing investment management and related products and services. We adjust for
the impact on compensation expense of gains and losses on investments made to
fund deferred compensation plans and on seed capital investments by our
affiliates under revenue sharing arrangements because they are offset by an
equal amount in Non-operating income (expense), net, and thus have no impact on
Net Income Attributable to Legg Mason, Inc. We adjust for acquisition-related
items, including amortization of intangible assets, impairments of intangible
assets, and contingent consideration fair value adjustments, to make it easier
to identify trends affecting our underlying business that are not related to
acquisitions to facilitate comparison of our operating results with the results
of other asset management firms that have not engaged in significant
acquisitions. We adjust for charges (credits) related to significant litigation
or regulatory matters, net of any insurance proceeds and revenue share
adjustments, because these matters do not reflect the underlying operations and
performance of our business. We adjust for income (loss) of consolidated
investment vehicles because the consolidation of these investment vehicles does
not have an impact on Net Income (Loss) Attributable to Legg Mason, Inc.
These measures are provided in addition to and are not substitutes for our
Operating Margin, Operating Revenues, and Operating Income (Loss) calculated
under GAAP. These non-GAAP measures should not be considered in isolation and
may not be comparable to non-GAAP performance measures, including measures of
adjusted margins, adjusted operating revenues, and adjusted operating income, of
other companies. Further, Adjusted Operating Margin, Adjusted Operating Revenues
and Adjusted Operating Income are not liquidity measures and should not be used
in place of cash flow measures determined under GAAP.

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The calculations of Operating Margin and Adjusted Operating Margin, are as follows (dollars in thousands):

                                                             Years Ended 

March 31,

                                                     2020            2019   

2018

Operating Revenues, GAAP basis                   $ 2,922,125     $ 2,903,259     $ 3,140,322
Plus (less):
Pass through performance fees                        (41,983 )       (49,048 )      (108,757 )
Operating revenues eliminated upon
consolidation of investment vehicles                     402             599             578
Distribution and servicing fees                     (270,398 )      (302,967 )      (321,936 )
Investment advisory fees                            (141,838 )      (136,177 )      (167,374 )
Adjusted Operating Revenues                      $ 2,468,308     $ 2,415,666     $ 2,710,207
Operating Income (Loss), GAAP basis              $   505,160     $   103,102     $   324,001
Plus (less):
Restructuring costs:
Strategic restructuring and other corporate
initiatives                                           90,519          23,655           5,054
Affiliate charges                                      2,414           9,289               -
Impairment of intangible assets                            -         365,200         229,000
Amortization of intangible assets                     22,539          24,404          24,604
Gains (losses) on deferred compensation and
seed investments, net                                (10,594 )        10,416          12,345
Acquisition and transition-related costs                   -           2,685           7,049
Contingent consideration fair value
adjustments                                             (915 )           571         (31,329 )
Charges related to significant regulatory
matters                                                    -           4,151          67,000
Operating loss of consolidated investment
vehicles, net                                          1,894           1,588             877
Adjusted Operating Income                        $   611,017     $   545,061     $   638,601

Operating Margin, GAAP basis                            17.3 %           3.6 %          10.3 %
Adjusted Operating Margin                               24.8            22.6            23.6


Adjusted EBITDA
We define Adjusted EBITDA as cash provided by (used in) operating activities
plus (minus):
•      Interest expense, net of accretion and amortization of debt discounts and

premiums

• Current income tax expense (benefit)

• Net change in assets and liabilities, which aligns with the Consolidated

Statements of Cash Flows

• Net (income) loss attributable to noncontrolling interests

• Net gains (losses) and earnings on investments

• Net gains (losses) on consolidated investment vehicles

• Other



Adjusted EBITDA is not reduced by equity-based compensation expense, including
management equity plan non-cash issuance-related charges. Most management equity
plan units may be put to or called by Legg Mason for cash payment, although
their terms do not require this to occur.
This liquidity measure is provided in addition to Cash provided by operating
activities and may not be comparable to non-GAAP performance measures or
liquidity measures of other companies, including their measures of EBITDA or
Adjusted EBITDA. Further, this measure is not to be confused with Net Income
(Loss), Cash provided by operating activities, or other measures of earnings or
cash flows under GAAP, and is provided as a supplement to, and not in
replacement of, GAAP measures.

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The calculations of Adjusted EBITDA are as follows (dollars in thousands):

                                                            Years ended 

March 31,

                                                      2020           2019   

2018

Cash provided by operating activities, GAAP
basis                                             $  560,556     $  560,866     $  489,368
Plus (less):
Interest expense, net of accretion and
amortization of debt discounts and premiums          108,526        115,284 

115,056

Current tax expense                                    8,997         26,716 

38,983

Net change in assets and liabilities                  (5,382 )      (52,518 )      (31,125 )
Net change in assets and liabilities of
consolidated investment vehicles                     (19,395 )      (17,667 )       67,792
Net income attributable to noncontrolling
interests                                            (53,119 )      (36,442 )      (51,275 )
Net gains (losses) and earnings on investments        29,290         27,705           (305 )
Net gains (losses) on consolidated investment
vehicles                                              16,262           (565 )        9,781
Other                                                   (732 )       (1,155 )       (1,047 )
Adjusted EBITDA                                   $  645,003     $  622,224     $  637,228



Adjusted EBITDA for the years ended March 31, 2020, 2019, and 2018, was $645.0
million, $622.2 million, and $637.2 million, respectively. The increase in
Adjusted EBITDA for the year ended March 31, 2020, as compared to the year ended
March 31, 2019, was primarily due to an increase in net income, adjusted for
non-cash items. The decrease in Adjusted EBITDA for the year ended March 31,
2019, as compared to the year ended March 31, 2018, was primarily due to a
decrease in Net Income, adjusted for non-cash items.

LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2020, we had approximately $745 million in cash and cash
equivalents in excess of our working capital and regulatory requirements. The
primary objective of our capital structure is to provide needed liquidity at all
times, including maintaining required capital in certain subsidiaries. Liquidity
and the access to liquidity are important to the success of our ongoing
operations. We review our overall funding needs and capital base on an ongoing
basis to determine if the capital base meets the expected needs of our
businesses. During this period of heightened uncertainty in the economic
environment we remain focused on the preservation of capital to help us build
and maintain liquidity.

As previously discussed, on February 17, 2020, we entered into a Merger Agreement with Franklin Templeton. The Merger Agreement limits our ability to take certain actions including, among other things, acquiring businesses, incurring capital expenditures above specified thresholds, and incurring additional debt.

The consolidation of variable interest entities discussed above does not impact
our liquidity and capital resources. However, we have executed total return swap
arrangements with investors in certain exchange traded funds ("ETFs"), and as a
result we receive the investors' related investment gains and losses on the ETFs
and may be required to consolidate ETFs with open total return swap agreements.
At March 31, 2020, the total return swap notional values aggregated $14.2
million. If the total return swap counterparties were to terminate their
positions, Legg Mason may invest to support the ETF products. Otherwise, we have
no rights to the benefits from, nor do we bear the risks associated with, the
assets and liabilities of the CIVs and other consolidated sponsored investment
products beyond our investments in and investment advisory fees generated from
these products, which are eliminated in consolidation. Additionally, creditors
of the CIVs and other consolidated sponsored investment products have no
recourse to our general credit beyond the level of our investment, if any, so we
do not consider these liabilities to be our obligations.

Our assets consist primarily of intangible assets, goodwill, cash and cash
equivalents, investment securities, and investment advisory and related fee
receivables. Our operations have been principally funded by equity capital,
long-term debt and retained earnings. At March 31, 2020, cash and cash
equivalents, total assets, long-term debt, net, and stockholders' equity were
$1.0 billion, $8.0 billion, $2.0 billion and $3.8 billion, respectively. Total
assets include amounts related to CIVs and other consolidated sponsored
investment products of $0.2 billion.


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Cash and cash equivalents are primarily invested in liquid domestic and
non-domestic money market funds that hold principally domestic and non-domestic
government and agency securities, bank deposits, and corporate commercial paper,
and short-term treasury bills. We have not recognized any losses on these
investments. Our monitoring of cash and cash equivalents partially mitigates the
potential that material risks may be associated with these balances.

The following table summarizes our Consolidated Statements of Cash Flows for the years ended March 31 (in millions):

                                                    2020         2019       

2018

Cash flows provided by operating activities $ 560.6 $ 560.9 $ 489.4 Cash flows used in investing activities

              (45.4 )     (36.5 )     (19.5 )
Cash flows used in financing activities             (409.0 )    (331.5 )    (462.3 )
Effect of exchange rate changes                       (7.3 )     (15.9 )    

11.9

Net change in cash and cash equivalents               98.9       177.0      

19.5

Cash and cash equivalents, beginning of period 950.8 773.8

754.3

Cash and cash equivalents, end of period $ 1,049.7 $ 950.8 $ 773.8

Cash inflows provided by operating activities during fiscal 2020 were $560.6
million, primarily related to Net Income, adjusted for non-cash items. Cash
inflows provided by operating activities during fiscal 2019 were $560.9 million,
primarily related to Net Income, adjusted for non-cash items, including
impairment charges totaling $365.2 million. Cash inflows provided by operating
activities during fiscal 2018 were $489.4 million, primarily related to Net
Income, adjusted for non-cash items, including the $229.0 million of impairment
charges and the $213.7 million tax benefit recognized in connection with the
enactment of the Tax Law, offset in part by net activity of CIVs

Cash outflows used in investing activities during fiscal 2020 were $45.4
million, primarily related to payments for fixed assets, a minority investment
in a U.K. retirement solutions provider, and the acquisition of Gramercy Europe
(Jersey) Limited ("Gramercy"), further discussed below, offset in part by
returns of capital received on certain investments in partnerships and limited
liability companies. Cash outflows used in investing activities during fiscal
2019 were $36.5 million, primarily related to payments made for fixed assets,
offset in part by returns of capital received on certain investments in
partnerships and limited liability companies. Cash outflows used in investing
activities during fiscal 2018 were $19.5 billion, primarily related to payments
made for fixed assets, offset in part by returns of capital received on certain
investments in partnerships and limited liability companies.

Cash outflows used in financing activities during fiscal 2020 were $409.0
million, primarily related to the repayment of our $250 million 2.7% Senior
Notes in July 2019, dividends paid of $138.0 million, distributions to
noncontrolling interest holders of $37.8 million, and employee tax withholdings
by settlement of net share transactions of $15.4 million, offset in part by
issuances of common stock for stock-based compensation of $44.1 million. Cash
outflows used in financing activities during fiscal 2019 were $331.5 million,
primarily related to the repayment of $125.5 million of outstanding borrowings
under our unsecured revolving credit agreement (as amended from time to time the
"Credit Agreement"), dividends paid of $114.8 million, distributions to
noncontrolling interest holders of $38.6 million and net redemptions
attributable to noncontrolling interests in CIVs and other consolidated
investment products of $22.2 million. Cash outflows used in financing activities
during fiscal 2018 were $462.3 million, primarily related to the purchase of 6.6
million shares of our common stock for $253.6 million through open market
purchases, the purchase of 5.6 million shares of our common stock from Shanda
Asset Management Investment Limited ("Shanda") for $225.5 million, as further
discussed below, and dividends paid of $102.2 million, offset in part by $125.5
million of net borrowings under our Credit Agreement to fund the purchase of our
shares from Shanda.

On April 3, 2020, we borrowed $250 million under the Credit Agreement to provide
additional liquidity amid heightened uncertainty due to the COVID-19 pandemic.
We do not currently foresee any need to utilize this cash, but it was drawn as a
precaution in the event the economic environment worsens significantly. Based on
our current level of operations, we expect that cash generated from our
operating activities, together with available cash on hand, excluding the
proceeds of the Credit Agreement drawing, will be adequate to support our
working capital needs for at least the next 12 months. Should the economic
environment worsen significantly and our projections prove incorrect, we would
have the Credit Agreement drawdown proceeds available for use. Subject to the
limitations contained in the Merger Agreement, we currently intend to utilize
our available resources for activities including, but not limited to, strategic
restructuring, acquisitions, seed capital investments in new and existing
products, and payment of dividends. In addition to our ordinary operating cash
needs, we

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anticipate other cash needs during the next 12 months, including the payment of
certain severance and retention incentives in connection with the Merger, as
further discussed below.

Financing Transactions
The table below reflects our primary sources of financing (in thousands):
                                             Amount Outstanding at
                                                   March 31,
                                                                            Interest
Type                                          2020             2019           Rate          Maturity
3.95% Senior Notes due July 2024        $    250,000        $ 250,000        3.95%         July 2024
4.75% Senior Notes due March 2026            450,000          450,000        4.75%         March 2026
5.625% Senior Notes due January 2044         550,000          550,000        5.625%       January 2044
6.375% Junior Subordinated Notes due         250,000          250,000        6.375%        March 2056
March 2056
5.45% Junior Subordinated Notes due          500,000          500,000        5.45%       September 2056
September 2056
2.7% Senior Notes due July 2019                    -          250,000        2.70%         July 2019
Revolving credit agreement(1)                      -                -     Eurocurrency   December 2020
                                                                          Rate + 1.25%
                                                                            + 0.175%
                                                                             annual
                                                                           commitment
                                                                              fee

(1) $500,000 available as of March 31, 2020, subject to the terms of the Merger Agreement, however $250 million of this amount was drawn in April 2020.

Long-term Debt
On July 15, 2019, we repaid the $250 million of 2.7% Senior Notes due July 2019,
using existing cash resources.

Revolving Credit Agreement
We maintain an unsecured Credit Agreement which provides for a $500 million
multi-currency revolving credit facility. The revolving credit facility may be
increased by an aggregate amount of up to $500 million, to $1.0 billion, subject
to the approval of the lenders, expires in December 2020, and can be repaid at
any time. This revolving credit facility is available to fund working capital
needs and for general corporate purposes. There were no borrowings outstanding
under the Credit Agreement as of March 31, 2020. Under the terms of the Merger
Agreement, we may not borrow more than $30 million under the revolving credit
facility and borrowings must be made in the ordinary course of business
consistent with past practice. As previously discussed, with the approval of
Franklin Templeton, on April 3, 2020, we borrowed $250 million under the Credit
Agreement to provide additional liquidity as a precaution.

The financial covenants under the Credit Agreement include: maximum net debt to
EBITDA ratio of 3.0 to 1; and a minimum EBITDA to interest ratio of 4.0 to 1.
Debt is defined to include all obligations for borrowed money, excluding
non-recourse debt of CIVs and capital leases. Under these net debt covenants,
our debt is reduced by the amount of our unrestricted cash in excess of the
greater of subsidiary cash or $300 million, by the lesser of 50% of the
aggregate amount of our seed capital investments or $125 million, and an amount
equal to 50% of our hybrid capital securities. EBITDA is defined as consolidated
net income (loss) plus/minus tax expense (benefit), interest expense,
depreciation and amortization, amortization of intangibles, any extraordinary
expense or losses, any non-cash charges, and certain transition-related costs,
as defined in the agreements. As of March 31, 2020, our net debt to EBITDA ratio
was 1.9 to 1 and EBITDA to interest expense ratio was 6.1 to 1, and therefore,
we have maintained compliance with the applicable covenants. After giving effect
to the April 3, 2020 drawdown under the Credit Agreement, our net debt to EBITDA
ratio was 2.2 to 1 and our EBITDA to interest expense ratio was 5.7 to 1.

If our net income significantly declines, or if we spend our available cash, it
may impact our ability to maintain compliance with the financial covenants under
our Credit Agreement. If we determine that our compliance with these covenants
may be under pressure at a time when we have outstanding borrowings under this
facility, want to utilize available borrowings, or otherwise desire to keep
borrowings available, subject to the terms of the Merger Agreement, we may elect
to take a number of actions, including reducing our expenses in order to
increase our EBITDA, using available cash to repay all or a portion of our
outstanding debt or seeking to negotiate with our lenders to modify the terms or
to restructure our debt. Using available cash to repay indebtedness would make
the cash unavailable for other uses and might affect the liquidity discussions

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and conclusions. Entering into any modification or restructuring of our debt
would likely result in additional fees or interest payments.
Our Credit Agreement is currently impacted by the ratings of two rating
agencies. The interest rate and annual commitment fee on our revolving line of
credit are based on the higher credit rating of the two rating agencies. One
rating agency gives us a lower credit rating than the other. Should the other
agency downgrade our rating, absent an upgrade from the former agency, and if
there are borrowings outstanding under the revolving credit facility, our
interest costs will rise modestly.

Other

Certain of our asset management affiliates maintain various credit facilities
for general operating purposes. Certain affiliates are subject to the capital
requirements of various regulatory agencies. All such affiliates met their
respective capital adequacy requirements during the periods presented.

See Note 6 of Notes to Consolidated Financial Statements for additional information regarding our debt.

Other Transactions

Acquisitions and Contingent Consideration
On April 10, 2019, Clarion Partners acquired a majority stake in Gramercy, a
European real estate business specializing in pan-European logistics and
industrial assets. The transaction required an initial cash payment of $10.2
million, net of cash acquired, which was paid using existing cash resources, and
a potential contingent consideration payment, further discussed below.

On May 2, 2016, we closed the transaction to combine Permal and EnTrust, to
create EnTrustPermal (which was renamed EnTrust Global in March 2019), of which
we own 65%. In connection with the combination, we incurred restructuring and
transition-related costs totaling approximately $94 million through completion
of the plan in June 2018, approximately 15% of which were non-cash charges.

Contingent Consideration
The Clarion Partners acquisition of Gramercy provides for a potential contingent
consideration payment of up to $3.7 million (using the foreign exchange rate as
of April 10, 2019, for the €3.3 million potential payment), due on the fifth
anniversary of closing. As of March 31, 2020, the related contingent
consideration liability was $3.3 million.

Effective May 31, 2014, we completed the acquisition of QS Investors. In December 2018, we paid $4.3 million for the final installment of contingent consideration using existing cash resources.

On December 31, 2015, Martin Currie acquired certain assets of PK Investments. In December 2017, contingent consideration of $3.2 million was paid using existing cash resources.

See Notes 2 and 9 of Notes to Consolidated Financial Statements for additional information regarding acquisitions and contingent consideration, respectively.

Noncontrolling Interests
As further described below, we may be obligated to settle noncontrolling
interests related to certain affiliates. The following table presents a summary
of our affiliate redeemable noncontrolling interests carrying values (in
millions), excluding amounts related to management equity plans. These carrying
values reflect the estimated settlement values, except when such settlement
values are less than the issuance price, the carrying value reflects the
issuance price. The ultimate timing and amounts of noncontrolling interest
settlements are too uncertain to project with any accuracy.
                                                                      

Clarion

                                                EnTrust Global       Partners        Other       Total
Affiliate noncontrolling interests as of
March 31, 2020                                $          379.1     $     133.6     $  12.7     $ 525.4



Noncontrolling interests of 35% of the outstanding equity of EnTrust Global and
18% of the outstanding equity of Clarion Partners are subject to put and call
provisions that may result in future cash outlays, generally starting in fiscal
2022 for both EnTrust Global and Clarion Partners, but subject to earlier
effectiveness in certain circumstances.

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On May 10, 2019, we purchased the 15% equity interest in RARE Infrastructure
held by the firm's management team for total consideration of $22.0 million. The
initial cash payment of $12.0 million, including $1.8 million of dividends in
arrears, was made on May 10, 2019, using existing cash resources. Half of the
deferred consideration was paid in May 2020 and the remaining half will be due,
subject to certain conditions, two years after closing.

On July 2, 2018, the corporate minority owner of RARE Infrastructure exercised
the put option for its 10% ownership interest. The settlement value of $15.5
million, along with $1.0 million of dividends in arrears, was paid in October
2018.

See Note 16 of Notes to Consolidated Financial Statements for additional information.

Affiliate Management Equity Plans
In conjunction with the acquisition of Clarion Partners in April 2016, we
implemented an affiliate management equity plan that entitles certain key
employees of Clarion Partners to participate in 15% of the future growth, if
any, of the enterprise value (subject to appropriate discounts) subsequent to
the date of the grant. In March 2016, we implemented an affiliate management
equity plan with the management of Royce. Under this management equity plan, as
of March 31, 2020, noncontrolling interests equivalent to 24.5% in the Royce
entity have been issued to its management team. In addition, we implemented an
affiliate management equity plan in March 2014, that entitles certain key
employees of ClearBridge to participate in 15% of the future growth, if any, of
the enterprise value (subject to appropriate discounts).

As of March 31, 2020, the estimated redemption fair value for units under
management equity plans aggregated $84.7 million. Repurchases of units granted
under the plans may impact future liquidity requirements, however, the amounts
and timing of repurchases are too uncertain to project with any accuracy. See
Note 12 of Notes to Consolidated Financial Statements for additional information
regarding affiliate management equity plans.

Share Repurchases
In January 2015, our Board of Directors authorized $1.0 billion for purchases of
our common stock. In December 2017, our Board of Directors approved the purchase
of 5.6 million shares of our common stock for $225.5 million from Shanda,
utilizing the remaining $169.0 million of common stock available for repurchase
as authorized in January 2015, and authorizing the purchase of an additional
$56.5 million of common stock to complete the transaction. The aggregate
purchases of $225.5 million was effectively an acceleration of our share
repurchase program. We did not repurchase any shares of our common stock during
the years ended March 31, 2020 and 2019, and as of March 31, 2020, further
purchases of our common stock have not been authorized and, without Franklin
Templeton's consent, are prohibited by the Merger Agreement while the Merger is
pending.

Future Outlook
As previously discussed, we currently intend to utilize our available cash
resources to fund various activities, however, during this period of heightened
uncertainty in the economic environment and with the Merger pending, we will
remain focused on the preservation of capital to help us build and maintain
liquidity. As of March 31, 2020, the $745 million of cash and cash equivalents
in excess of our working capital and regulatory requirements includes amounts
expected to be used to fund accrued compensation payments, primarily in the
first quarter of fiscal 2021.

Strategic Restructuring
As previously discussed, we have initiated a strategic restructuring to reduce
costs. We expect to incur aggregate restructuring costs in the range of $100
million to $105 million in connection with the strategic restructuring, which
will be incurred through March 2021. The majority of the restructuring costs
will be paid in cash. We have incurred $80 million of strategic restructuring
costs through March 31, 2020, and approximately $43 million of these costs have
been paid to date. We expect to incur approximately $20 million to $25 million
of costs in fiscal 2021. See Note 18 of Notes to Consolidated Financial
Statements for additional information. We expect that the strategic
restructuring will result in future annual cost savings of $100 million or more,
substantially all of which will be cash savings. We expect to achieve these
savings on a run rate basis by the end of fiscal 2021. As of March 31, 2020, we
have realized cumulative savings of approximately $72 million. We do not expect
the Merger to have an impact on the costs or savings associated with our
strategic restructuring.

Short-term Borrowings and Long-term Debt
As previously discussed, on April 3, 2020, we borrowed $250 million under the
Credit Agreement to provide additional liquidity amid heightened uncertainty due
to the COVID-19 pandemic. Exclusive of these borrowings, we do not currently

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expect to raise additional incremental debt or equity financing over the next
12 months. Going forward, there can be no assurances of these expectations, as
our projections could prove to be incorrect, market conditions might
significantly worsen, affecting our results of operations and generation of
available cash, or events may occur that require additional liquidity in excess
of the remaining amounts available under our Credit Agreement, such as an
opportunity to refinance indebtedness, or complete an acquisition. If these
events result in our operations and available cash being insufficient to fund
liquidity needs, we may seek to manage our available resources by taking actions
such as reducing operating expenses, reducing our expected expenditures on
investments, selling assets (such as investment securities), repatriating
earnings from foreign subsidiaries, reducing our dividend, or modifying
arrangements with our affiliates and/or employees. Should these types of actions
prove insufficient, or should an acquisition or refinancing opportunity arise,
we would likely utilize borrowing capacity under our Credit Agreement or seek to
raise additional equity or debt.

Liquid Assets
Our liquid assets include cash, cash equivalents, and certain current investment
securities. As of March 31, 2020, our total liquid assets of approximately $1.1
billion, included $334 million of cash, cash equivalents, and investments held
by foreign subsidiaries. Other net working capital amounts of foreign
subsidiaries were not significant. In order to supplement cash available in the
U.S. for general corporate purposes, we plan to utilize up to approximately $13
million of foreign cash annually over the next several years, and anticipate
that all of this amount will be provided by debt service payments by foreign
affiliates. No further repatriation of foreign earnings is currently planned.

Other

In conjunction with the acquisition of Clarion Partners, we committed to provide $100 million of seed capital to Clarion Partners products.

In January 2016, we acquired a minority equity position in Precidian
Investments, LLC ("Precidian"). Under the terms of the transaction, we acquired
series B preferred units of Precidian that entitle us to approximately 20% of
the voting and economic interests of Precidian, along with customary preferred
equity protections. Precidian has executed license arrangements with various
financial institutions to use the ActiveShares® product. On January 21, 2020, we
provided notice of our intent to convert our preferred units to 75% of the
common equity of Precidian on a fully diluted basis, subject to satisfaction of
certain closing conditions within the nine months following our notice. We plan
to use cash on hand for the related $25 million payment.

Credit and Liquidity Risk
Cash and cash equivalent deposits involve certain credit and liquidity risks. We
maintain our cash and cash equivalents with a number of high quality financial
institutions, funds, and our affiliates and from time to time may have
concentrations with one or more of these institutions. The balances with these
financial institutions or funds and their credit quality are monitored on an
ongoing basis.

Off-Balance Sheet Arrangements
Off-balance sheet arrangements, as defined by the SEC, include certain
contractual arrangements pursuant to which a company has an obligation, such as
certain contingent obligations, certain guarantee contracts, retained or
contingent interest in assets transferred to an unconsolidated entity, certain
derivative instruments, or material variable interests in unconsolidated
entities that provide financing, liquidity, market risk or credit risk support.
Disclosure is required for any off-balance sheet arrangements that have, or are
reasonably likely to have, a material current or future effect on our financial
condition, results of operations, liquidity or capital resources. We generally
do not enter into off-balance sheet arrangements, as defined, other than those
described in the Contractual Obligations section that follows, Consolidation
discussed in Critical Accounting Policies and Notes 1 and 20 of Notes to
Consolidated Financial Statements, and Derivatives and Hedging discussed in
Notes 1 and 17 of Notes to Consolidated Financial Statements.



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CONTRACTUAL AND CONTINGENT OBLIGATIONS
We have contractual obligations to make future payments, principally in
connection with our long-term debt, non-cancelable lease agreements and service
agreements. See Notes 6, 8, and 9 of Notes to Consolidated Financial Statements
for additional disclosures related to our commitments.

The following table sets forth these contractual obligations (in millions) by
fiscal year, and excludes contractual obligations of CIVs and other consolidated
sponsored investment products, as we are not responsible or liable for these
obligations:
                               2021        2022        2023        2024        2025        Thereafter        Total
Contractual Obligations
Long-term borrowings by
contract maturity            $     -     $     -     $     -     $     -     $ 250.0     $    1,750.0     $ 2,000.0
Interest on long-term
borrowings and credit
facility commitment fees       106.1       105.4       105.4       105.4       100.4          1,961.6       2,484.3
Minimum rental and service
commitments                    135.7       110.5        93.9        77.9        31.2             29.0         478.2
Contributions to pension
plan(1)                          2.9         2.9         2.9         2.9         4.6                -          16.2
Total contractual
obligations(2)                 244.7       218.8       202.2       186.2       386.2          3,740.6       4,978.7
Contingent payment related
to business acquisition            -           -           -           -         3.7                -           3.7
Total Contractual and
Contingent
Obligations(3)(4)(5)         $ 244.7     $ 218.8     $ 202.2     $ 186.2     $ 389.9     $    3,740.6     $ 4,982.4

(1) Represents contributions to be made by Martin Currie to its legacy pension

plan on an annual basis through May 2024, with a final payment due November

2024 (using the exchange rate as of March 31, 2020 for the £2.3 million

annual committed contribution amount and the £1.5 million final payment

amount).

(2) See Note 21 of Notes to Consolidated Financial Statements for information

regarding $250 million borrowed under our Credit Agreement on April 3, 2020.

(3) The table above does not include approximately $16.4 million in capital

commitments to investment partnerships in which we are a limited partner,

which will be outstanding, or funded as required, through the end of the

commitment periods running through fiscal 2029 or $100 million of

co-investment commitment associated with the Clarion Partners acquisition.

(4) The table above does not include amounts for uncertain tax positions of $55.5

million (net of the federal benefit for state tax liabilities), because the

timing of any related cash outflows cannot be reliably estimated.

(5) The table above does not include redeemable noncontrolling interests related

to minority equity interests in our affiliates and affiliate management

equity plans with key employees of Clarion Partners and ClearBridge totaling

$597.3 million as of March 31, 2020, because the timing and amount of any

related cash outflows cannot be reliably estimated. Redeemable noncontrolling

interests of CIVs of $117.1 million as of March 31, 2020, are also excluded

from the table above because we have no obligations in relation to these

amounts. Potential obligations arising from the ultimate settlement of awards

under the affiliate management equity plan with key employees of Royce are

also excluded due to the uncertainty of the timing and amounts ultimately

    payable. See Note 12 of Notes to Consolidated Financial Statements for
    additional information regarding affiliate management equity plans.



MARKET RISK
We maintain an enterprise risk management program to oversee and coordinate risk
management activities of Legg Mason and its subsidiaries. Under the program,
certain risk activities are managed at the subsidiary level. The following
describes certain aspects of our business that are sensitive to market risk.

Revenues and Net Income
The majority of our revenue is calculated from the market value of our AUM.
Accordingly, a decline in the value of the underlying securities will cause our
AUM, and thus our revenues, to decrease. In addition, our fixed income and
liquidity AUM are subject to the impact of interest rate fluctuations, as rising
interest rates may tend to reduce the market value of bonds held in various
mutual fund portfolios or separately managed accounts. In the ordinary course of
our business, we may also reduce or waive investment management fees, or limit
total expenses, on certain products or services for particular time periods to
manage fund expenses, or for other reasons, and to help retain or increase
managed assets. Market conditions, such as low interest rate environments, may
lead us to take such actions. Performance fees may be earned on certain
investment advisory contracts for exceeding performance benchmarks, and strong
markets tend to increase these fees. Declines in market values of AUM will
result in reduced fee revenues and net income. We generally earn higher fees on
alternative assets and equity assets than fees charged for fixed income and
liquidity assets. Declines in market values of AUM in these asset classes will
have a greater impact on our revenues. In addition, under revenue sharing
arrangements or other arrangements, certain of our affiliates retain different
percentages of revenues to cover their costs, including

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compensation, and our affiliates operate at different levels of margins. Our net
income, profit margin and compensation as a percentage of operating revenues are
impacted based on which affiliates generate our revenues, and a change in AUM at
one subsidiary can have a dramatically different effect on our revenues and
earnings than an equal change at another subsidiary.

Investments

Our investments are comprised of investment securities, including seed capital
in sponsored mutual funds and investment products, limited partnerships, limited
liability companies and certain other investment products.

Current investments, excluding CIVs, subject to risk of security price fluctuations are summarized in the table below (in thousands):

                                                                 2020       

2019

Investment securities, excluding CIVs: Investments relating to long-term incentive compensation plans

$  210,891     $  211,802
Seed capital investments                                        108,733     

132,515

Equity method investments relating to long-term incentive compensation plans

                                                5,287     

11,184

  Other current investments                                      13,983     

21,628

Total current investments, excluding CIVs                    $  338,894

$ 377,129

Current investments of $216.2 million and $223.0 million at March 31, 2020 and
2019, respectively, relate to long-term incentive plans which will have
offsetting liabilities at the end of the respective vesting periods, but for
which the related liabilities may not completely offset at the end of each
reporting period due to vesting provisions. Therefore, fluctuations in the
market value of these trading investments will impact our compensation expense,
non-operating income (expense) and, dependent on the vesting provisions of the
plan, our net income.

Approximately $108.7 million and $132.5 million of current investments at
March 31, 2020 and 2019, respectively, are seed capital investments in sponsored
mutual funds and other investment products and vehicles, for which fluctuations
in market value will impact our non-operating income (expense). Of these
amounts, the fluctuations in market value related to approximately $11.6 million
and $27.2 million of seed capital investments as of March 31, 2020 and 2019,
respectively, have offsetting compensation expense under revenue share
arrangements. The fluctuations in market value related to approximately $54.5
million and $89.6 million in seed capital investments as of March 31, 2020 and
2019, respectively, are substantially offset by gains (losses) on market hedges
and therefore do not materially impact Net Income (Loss) Attributable to Legg
Mason, Inc. Seed capital investments are not liquidated before the related fund
establishes a track record, has other investors, or a decision is made to no
longer pursue the strategy.

Approximately $6.1 million and $8.4 million of other current investments at
March 31, 2020 and 2019, respectively, represent noncontrolling interests
associated with consolidated seed capital investments products. Fluctuations in
the market value of these investments will not impact Net Income (Loss)
Attributable to Legg Mason, Inc. However, they may have an impact on
non-operating income (expense) with a corresponding offset in Net income
attributable to noncontrolling interests. Fluctuations in the market value of
$7.3 million and $12.8 million of the remaining other current investments in
each respective period have offsetting compensation expense under revenue share
arrangements.

Noncurrent investments, excluding CIVs, subject to risk of security price fluctuations are summarized in the table below (in thousands):

                                                 2020        2019
Noncurrent investments, excluding CIVs:
Equity method investments                      $ 64,049    $ 62,998
Adjusted cost investments                        19,729      12,245

Total noncurrent investments, excluding CIVs $ 83,778 $ 75,243

Investment securities of CIVs totaled $118.8 million and $138.0 million as of
March 31, 2020 and 2019, respectively. Fluctuations in the market value of
investments of CIVs in excess of our equity investment will not impact Net
Income (Loss) Attributable to Legg Mason, Inc. However, it may have an impact on
non-operating income (expense) of CIVs with

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a corresponding offset in Net income attributable to noncontrolling interests.
As of March 31, 2020 and 2019, we held equity investments in the CIVs of $28.4
and $43.7 million, respectively. As of March 31, 2020 and 2019, fluctuations in
the market value of approximately $26.7 million and $32.0 million, respectively,
of these equity investments in CIVs are substantially offset by gains (losses)
on market hedges and therefore do not materially impact Net Income (Loss)
Attributable to Legg Mason, Inc. Fluctuations in the market value of the
remaining $1.7 million and $11.7 million in each respective period of equity
investments in CIVs will impact our non-operating income (expense).

Valuation of investments is described below within Critical Accounting Policies
under the heading "Valuation of Financial Instruments." See Notes 1 and 17 of
Notes to Consolidated Financial Statements for further discussion of
derivatives.

The following is a summary of the effect of a 10% increase or decrease in the
market values of our financial instruments subject to market valuation risks at
March 31, 2020 (in thousands):
                                                               Fair Value          Fair Value
                                                               Assuming a          Assuming a
                                         Carrying Value       10% Increase        10% Decrease
Current investments, excluding CIVs:
Investments relating to long-term
incentive compensation plans           $        210,891     $       231,980     $       189,802
Seed capital investments                        108,733             119,606              97,860
Equity method investments relating
to long-term incentive compensation
plans                                             5,287               5,816               4,758
Other investments                                13,983              15,381              12,585
Total current investments, excluding
CIVs                                            338,894             372,783             305,005
Investments in CIVs                              28,397              31,237              25,557
Non-current investments, excluding
CIVs:
Equity method investments                        64,049              70,454              57,644
Adjusted cost investments                        19,729              21,702              17,756
Total investments subject to market
risk                                   $        451,069     $       496,176     $       405,962



Gains and losses related to investments in deferred compensation plans are
directly offset over the full vesting period by a corresponding adjustment to
compensation expense and related liability. In addition, investments in
proprietary fund products and investments in CIVs totaling approximately $81.2
million have been economically hedged to limit market risk. As a result, a 10%
increase or decrease in the unrealized market value of our financial instruments
subject to market valuation risks in the table above would result in a $12.3
million increase or decrease in pre-tax earnings attributable to Legg Mason,
Inc. as of March 31, 2020.

In addition, we have entered into various total return swap arrangements with
respect to certain ETFs that we sponsor with notional amounts totaling $14.2
million as of March 31, 2020. Under the terms of each total return swap, we
receive the related gains and losses on the investors' underlying shares of the
ETFs, however, we have executed futures contracts with notional amounts totaling
$6.1 million to limit market risk related to the total return swaps. As a
result, a 10% increase or decrease in the underlying shares of the ETFs would
result in an additional $0.8 million increase or decrease in pre-tax earnings
attributable to Legg Mason, Inc. as of March 31, 2020.

Also, as of March 31, 2020 and 2019, cash and cash equivalents included $594.5 million and $556.2 million, respectively, of money market funds.

Foreign Exchange Sensitivity
We operate primarily in the U.S., but provide services, earn revenues and incur
expenses outside the U.S. Accordingly, fluctuations in foreign exchange rates
for currencies, principally in Australia, the U.K., Brazil, Singapore, Japan,
and those denominated in the euro may impact our AUM, revenues, expenses,
comprehensive income and net income. We and certain of our affiliates have
entered into forward contracts to manage a portion of the impact of fluctuations
in foreign exchange rates on their results of operations. We do not expect
foreign currency fluctuations to have a material impact on our net income or
liquidity.


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Interest Rate Risk Our exposure to interest rate changes is substantially mitigated as our outstanding long-term debt is at fixed interest rates.

See Note 6 of Notes to Consolidated Financial Statements for additional discussion of debt.

Effects of Inflation
The rate of inflation can directly affect various expenses, including employee
compensation, communications and technology and occupancy, which may not be
readily recoverable in charges for services provided by us. Further, to the
extent inflation adversely affects the securities markets, it may impact
revenues and recorded intangible asset and goodwill values. See discussion of
"Market Risk - Revenues and Net Income (Loss)" and "Critical Accounting
Policies - Intangible Assets and Goodwill" previously discussed.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Accounting policies are an integral part of the preparation of our financial
statements in accordance with accounting principles generally accepted in the
United States of America. Understanding these policies, therefore, is a key
factor in understanding our reported results of operations and financial
position. See Note 1 of Notes to Consolidated Financial Statements for a
discussion of our significant accounting policies and other information. Certain
critical accounting policies require us to make estimates and assumptions that
affect the amounts of assets, liabilities, revenues and expenses reported in the
financial statements. Due to their nature, estimates involve judgment based upon
available information. Therefore, actual results or amounts could differ from
estimates and the difference could have a material impact on the consolidated
financial statements.

We consider the following to be our critical accounting policies that involve significant estimates or judgments.

Consolidation

In the normal course of our business, we sponsor and manage various types of
investment products. For our services, we are entitled to receive management
fees and may be eligible, under certain circumstances, to receive additional
subordinate management fees or other incentive fees. Our exposure to risk in
these entities is generally limited to any equity investment we have made or are
required to make, and any earned but uncollected management fees, except those
for which total return swap arrangements have been executed, for which
additional risks are discussed below. Uncollected management fees from managed
investment products were not material as of March 31, 2020, we have not issued
any investment performance guarantees to these investment products or their
investors, and we did not sell or transfer assets to any of these investment
products. In accordance with financial accounting standards, we consolidate
certain sponsored investment products, some of which are designated as CIVs. The
financial information of certain consolidated CIVs is included in our
Consolidated Financial Statements on a three-month lag based upon the
availability of the investment product's financial information.

Certain investment products we sponsor and manage are considered to be variable
interest entities ("VIEs") (further described below) while others are considered
to be voting rights entities ("VREs") subject to traditional consolidation
concepts based on ownership rights. We may fund the initial cash investment in
certain VRE investment products to generate an investment performance track
record in order to attract third-party investors in the product. Our initial
investment in a new product typically represents 100% of the ownership in that
product. As further discussed below, these "seed capital investments" are
consolidated as long as we maintain a controlling financial interest in the
product, but they are not designated as CIVs unless the investment is
longer-term.

A VIE is an entity which does not have adequate equity to finance its activities
without additional subordinated financial support; or the equity investors, as a
group, do not have the normal characteristics of equity investors for a
potential controlling financial interest. We must consolidate any VIE for which
we are deemed to be the primary beneficiary.

Under consolidation accounting guidance, if limited partners or similar equity
holders in a sponsored investment vehicle structured as a limited partnership or
a similar entity do not have either substantive investor rights to replace the
manager (kick-out rights) or substantive participation rights over the general
partner, the entities are VIEs. As a sponsor and manager of an investment
vehicle, we may be deemed a decision maker under the accounting guidance. If the
fees paid to a decision maker are market-based, such fees are not considered
variable interests in a VIE. Market-based fees are those fees which are both
customary and commensurate with the level of effort required for the services
provided. Additionally, if employee interests in a sponsored investment vehicle
are not made to circumvent the consolidation guidance and are not financed by
the sponsor, they are not included in the variable interests assessment, and are
not included in the primary beneficiary determination.

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A decision maker is deemed to be a primary beneficiary of a VIE if it has the
power to direct activities that most significantly impact the economic
performance of the VIE and the obligation to absorb losses or receive benefits
from variable interests that could be significant to the VIE. In determining
whether we are the primary beneficiary of a VIE, we consider both qualitative
and quantitative factors such as the voting rights of the equity holders,
guarantees, and implied relationships. If a fee paid to a decision maker is not
market-based, it will be included in the primary beneficiary determination.

We have entered into various total return swap arrangements with financial
intermediaries with respect to certain Legg Mason sponsored ETFs. Under the
terms of the total return swaps, we absorb all of the related gains and losses
on the underlying ETF investments of these financial intermediaries, and
therefore have variable interests in the related funds and, if significant, may
be deemed the primary beneficiary. Accordingly, we consolidate ETF's with
significant open total return swap arrangements.

See Notes 1 and 20 of Notes to Consolidated Financial Statements for additional discussion of CIVs and other VIEs.

Revenue Recognition
Effective April 1, 2018, we adopted updated accounting guidance on revenue
recognition on a modified retrospective basis for any contracts that were not
complete as of the April 1, 2018 adoption date. The updated guidance provides a
single, comprehensive revenue recognition model for all contracts with
customers, improves comparability and removes inconsistencies in revenue
recognition practices across entities, industries, jurisdictions, and capital
markets. The guidance also specifies the accounting for certain costs to obtain
or fulfill a contract with a customer and revises the criteria for determining
if an entity is acting as a principal or agent in certain arrangements. The
adoption of the updated guidance did not result in significant changes to our
prior revenue recognition practices, except for the timing of the recognition of
certain performance and incentive fees, the capitalization and amortization of
certain sales commissions for separate accounts, and the net presentation of
certain fund expense reimbursements which were previously presented on a gross
basis. Each of these changes to our previous revenue recognition practices is
further discussed below.
We primarily earn revenues by providing investment management services and
distribution and shareholder services for our customers, which are generally
investment funds or the underlying investors in separately managed accounts. As
further discussed below, revenues calculated based on the value of the
investments under management determine the transaction price recognized when
obligations under the terms of contracts with customers are satisfied, which is
generally over time as the services are rendered.

Valuation of AUM
We have responsibility for the valuation of AUM, substantially all of which is
based on observable market data from independent pricing services, fund
accounting agents, custodians or brokers. The underlying securities within the
portfolios we manage, which are not reflected within our consolidated financial
statements, are generally valued as follows: (i) with respect to securities for
which market quotations are readily available, the market value of such
securities; and (ii) with respect to other securities and assets, fair value as
determined in good faith.

As of March 31, 2020, equity, fixed income, alternative and liquidity AUM values
aggregated $161 billion, $420 billion, $75 billion, and $75 billion,
respectively. As the majority of our AUM is valued by independent pricing
services based on observable market prices or inputs, we believe market risk is
the most significant risk underlying the value of our AUM. Economic events and
financial market turmoil have increased market price volatility; however, as
further discussed below, the valuation of the vast majority of the securities
held by our funds and in separate accounts continues to be derived from readily
available market price quotations. As of March 31, 2020, approximately 9% of
total AUM is valued based on unobservable inputs, the majority of which is
related to our real estate funds discussed below.

For most of our mutual funds and other pooled products, their boards of
directors or similar bodies are responsible for establishing policies and
procedures related to the pricing of securities. Each board of directors
generally delegates the execution of the various functions related to pricing to
a fund valuation committee which, in turn, may rely on information from various
parties in pricing securities such as independent pricing services, the fund
accounting agent, the fund manager, broker-dealers, and others (or a combination
thereof). The funds have controls reasonably designed to ensure that the prices
assigned to securities they hold are accurate. Management has established
policies to ensure consistency in the application of revenue recognition.


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As manager and advisor for separate accounts, we are generally responsible for
the pricing of securities held in client accounts (or may share this
responsibility with others) and have established policies to govern valuation
processes similar to those discussed above for mutual funds that are reasonably
designed to ensure consistency in the application of revenue recognition.
Management relies extensively on the data provided by independent pricing
services and the custodians in the pricing of separate account AUM. Separate
account customers typically select the custodian.

Valuation processes for AUM are dependent on the nature of the assets and any
contractual provisions with our clients. Equity securities under management for
which market quotations are available are usually valued at the last reported
sales price or official closing price on the primary market or exchange on which
they trade. Debt securities under management are usually valued at bid, or the
mean between the last quoted bid and asked prices, provided by independent
pricing services that are based on transactions in debt obligations, quotations
from bond dealers, market transactions in comparable securities and various
other relationships between securities. Short-term debt obligations are
generally valued at amortized cost, which approximates fair value. The majority
of our AUM is valued based on data from third parties such as independent
pricing services, fund accounting agents, custodians and brokers. This varies
slightly from time to time based upon the underlying composition of the asset
class (equity, fixed income, alternative, and liquidity) as well as the actual
underlying securities in the portfolio within each asset class. Regardless of
the valuation process or pricing source, we have established controls reasonably
designed to assess the reasonableness of the prices provided.

Where market prices are not readily available, or are determined not to reflect
fair value, value may be determined in accordance with established valuation
procedures based on, among other things, unobservable inputs. The most
significant portion of our AUM for which the fair value is determined based on
unobservable inputs are certain of our real estate funds. The values of real
estate investments are prepared giving consideration to the income, cost and
sales comparison approaches of estimating property value. The income approach
estimates an income stream for a property and discounts this income plus a
reversion (presumed sale) into a present value at a risk adjusted rate. Yield
rates and growth assumptions utilized in this approach are derived from market
transactions as well as other financial and industry data. The discount rate and
the exit capitalization rate are significant inputs to these valuations. These
rates are based on the location, type and nature of each property, and current
and anticipated market conditions. The cost approach estimates the replacement
cost of the building less physical depreciation plus the land value. The sales
comparison approach compares recent transactions to the appraised property.
Adjustments are made for dissimilarities which typically provide a range of
value. Many factors are also considered in the determination of fair value
including, but not limited to, the operating cash flows and financial
performance of the properties, property types and geographic locations, the
physical condition of the asset, prevailing market capitalization rates,
prevailing market discount rates, general economic conditions, economic
conditions specific to the market in which the assets are located, and any
specific rights or terms associated with the investment. Because of the inherent
uncertainties of valuation, the values may materially differ from the values
that would be determined by negotiations held between parties in a sale
transaction.

Investment Advisory Fees
We earn investment advisory fees on assets in separately managed accounts,
investment funds, and other products managed for our clients. Generally,
investment management services are a single performance obligation, as they
include a series of distinct services that are substantially the same and are
transferred to the customer over time using the same time-based measure of
progress. Investment management services are satisfied over time as the customer
simultaneously receives and consumes the benefits as the advisory services are
performed.

Separate Account and Funds Advisory Fees
Separate account and funds advisory fees are variable consideration which is
primarily based on predetermined percentages of the daily, monthly or quarterly
average market value of the AUM, as defined in the investment management
agreements. The average market value of AUM is subject to change based on
fluctuations and volatility in financial markets, and as such, separate account
and funds advisory fees are constrained until the end of the month or quarter
when the actual average market value of the AUM is known and a significant
revenue reversal is no longer probable. Therefore, separate account and fund
advisory fees are included in the transaction price and allocated to the
investment management services performance obligation at the end of each monthly
or quarterly reporting period, as specified in the investment management
contract. Payment for services under investment management contracts is due once
the variable consideration is allocated to the transaction price, and generally
within 30 days. Recognition of separate account and funds advisory fee revenue
under the updated guidance is consistent with our prior revenue recognition
process.


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Performance and Incentive Fees
Performance and incentive fees are variable consideration that may be earned on
certain investment management contracts for exceeding performance benchmarks on
a relative or absolute basis or for exceeding contractual return thresholds.
Performance and incentive fees are estimated at the inception of a contract
however, a range of outcomes is possible due to factors outside the control of
the investment manager, particularly market conditions. Performance and
incentive fees are therefore excluded from the transaction price until it
becomes probable that a significant reversal in the cumulative amount of revenue
recognized will not occur. A portion of performance and incentive fees are
earned based on 12-month performance periods that end in differing quarters
during the year, with a portion also based on quarterly performance periods. We
also earn performance and incentive fees on alternative and certain other
products that lock at the earlier of the investor's termination date or the
liquidation of the fund or contract, in multiple-year intervals, or specific
events, such as the sale of assets. For certain of these products, performance
and incentive fees may be recognized as revenue earlier under the updated
guidance than under prior revenue recognition practices, which deferred
recognition until all contingencies were resolved. Any such performance and
incentive fees recognized prior to the resolution of all contingencies are
recorded as a contract asset in Other current assets or Other non-current assets
in the Consolidated Balance Sheet.

Fee Waivers and Fund Expense Reimbursements
We may waive certain fees for investors or may reimburse our investment funds
for certain operating expenses when such expenses exceed a certain threshold.
Fee waivers continue to be reported as a reduction in advisory fee revenue under
the updated guidance. Under prior accounting guidance, fund expense
reimbursements in excess of recognized revenue were recorded as Other expense in
the Consolidated Statements of Income. Under the updated accounting guidance,
these fund expense reimbursements that exceed the recognized revenue represent a
change in the transaction price and are therefore reported as a reduction of
Investment advisory fees - Funds in the Consolidated Statements of Income.

Distribution and Service Fees Revenue and Expense
Distribution and service fees are fees earned from funds to reimburse the
distributor for the costs of marketing and selling fund shares and are generally
determined as a percentage of client assets. Reported amounts also include fees
earned from providing client or shareholder servicing, including record keeping
or administrative services to proprietary funds, and non-discretionary advisory
services for assets under advisement. Distribution and service fees earned on
company-sponsored investment funds are reported as revenue. Distribution
services and marketing services are considered a single performance obligation
as the success of selling the underlying shares is highly dependent upon the
sales and marketing efforts. Ongoing shareholder servicing is a separate
performance obligation as these services are not highly interrelated and
interdependent on the sale of the shares. Fees earned related to distribution
and shareholder serving are considered variable consideration because they are
calculated based on the average market value of the fund. The average market
value of the fund is subject to change based on fluctuations and volatility in
financial markets, and as such, distribution and shareholder service fees are
generally constrained until the end of the month or quarter when the actual
market value of the fund is known, and the related revenue is no longer subject
to a significant reversal. Therefore, distribution and service fees are
generally included in the transaction price at the end of each monthly or
quarterly reporting period and are allocated to the two performance obligations
based on the amount specified in each agreement. While distribution services are
largely satisfied at the inception of an investment, the ultimate amounts of
revenue are subject to the variable consideration constraint. Accordingly, a
portion of distribution and service revenue will be recognized in periods
subsequent to the satisfaction of the performance obligation.

Certain fund share classes only charge for distribution services at the
inception of the investment based on a fixed percentage of the share price. This
fixed price is allocated to the performance obligation, which is substantially
satisfied at the time of the initial investment.

Recognition of distribution and service fee revenue under the updated guidance is consistent with our prior revenue recognition process.

When we enter into arrangements with broker-dealers or other third parties to
sell or market proprietary fund shares, distribution and servicing expense is
accrued for the amounts owed to third parties, including finders' fees and
referral fees paid to unaffiliated broker-dealers or introducing parties and is
recorded as Distribution and servicing expense in the Consolidated Statements of
Income. Distribution and servicing expense also includes payments to third
parties for certain shareholder administrative services and sub-advisory fees
paid to unaffiliated asset managers.


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Contract Costs and Deferred Sales Commissions
We incur ordinary costs to obtain investment management contracts and for
services provided to customers in accordance with investment management
agreements. These costs include commissions paid to wholesalers, employees and
third-party broker dealers and administration and placement fees. Depending on
the type of services provided, these fees may be paid at the time the contract
is obtained or on an ongoing basis. Under the updated guidance, costs to obtain
a contract should be capitalized if the costs are incremental and would not have
been incurred if the contract had not been obtained, and costs to fulfill the
contract should be capitalized if they relate directly to a contract, the costs
will generate or enhance resources of the entity that will be used in satisfying
performance obligations in the future, and the costs are expected to be
recovered. Consistent with prior accounting procedures, fund launch costs,
including organizational and underwriting costs, placement fees and commissions
paid to employees, wholesalers and broker-dealers for sales of fund shares are
expensed as incurred, as these costs would be incurred regardless of the
investor. However, commissions paid to employees and retail wholesalers in
connection with the sale of retail separate accounts are considered incremental,
as these fees relate to obtaining a specific contract, are calculated based on
specific rates and are recoverable through the management fees earned and are
therefore capitalized under the updated accounting guidance. Such commissions
were expensed as incurred under our prior accounting practices. Capitalized
sales commissions are amortized based on the transfer of services to which the
assets relate, which averages four years.

Commissions we pay to financial intermediaries in connection with sales of
certain classes of company-sponsored mutual funds are capitalized as deferred
sales commissions. The asset is amortized over periods not exceeding six years,
which represent the periods during which commissions are generally recovered
from distribution and service fee revenues and from contingent deferred sales
charges ("CDSC") received from shareholders of those funds upon redemption of
their shares. CDSC consideration is generally variable and is based on the
timing of when investors redeem their investment. Therefore, the variable
consideration is included in the transaction price once the investors redeem
their shares and is satisfied at a point in time. CDSC receipts are recorded as
distribution and service fee revenue when received and a reduction of the
unamortized balance of deferred sales commissions, with a corresponding expense.
Under the updated accounting guidance, Legg Mason has elected to expense sales
commissions related to certain share classes with amortization periods of one
year or less as incurred.

Valuation of Financial Instruments
Substantially all financial instruments are reflected in the financial
statements at fair value or amounts that approximate fair value. Equity
investments, investment securities and derivative assets and liabilities
included in the Consolidated Balance Sheets include forms of financial
instruments. Unrealized gains and losses related to these financial instruments
are reflected in Net Income (Loss) or Other Comprehensive Income (Loss),
depending on the underlying purpose of the instrument. Effective April 1, 2018,
we adopted updated accounting guidance on a prospective basis which requires
equity investments to be measured at fair value, with changes recognized in
earnings. This guidance does not apply to investments accounted for under the
equity method. The adoption of the updated guidance did not have a material
impact on our consolidated financial statements.

For equity investments where we do not control the investee, and where we are
not the primary beneficiary of a VIE, but can exert significant influence over
the financial and operating policies of the investee, we follow the equity
method of accounting. The evaluation of whether we exert control or significant
influence over the financial and operational policies of an investee requires
significant judgment based on the facts and circumstances surrounding each
individual investment. Factors considered in these evaluations may include
investor voting or other rights, any influence we may have on the governing
board of the investee, the legal rights of other investors in the entity
pursuant to the fund's operating documents and the relationship between us and
other investors in the entity. Our equity method investees that are investment
companies record their underlying investments at fair value. Therefore, under
the equity method of accounting, our share of the investee's underlying net
income or loss predominantly represents fair value adjustments in the
investments held by the equity method investee. Our share of the investee's net
income or loss is based on the most current information available and is
recorded as a net gain (loss) on investments within non-operating income
(expense). We evaluate our equity method investments for impairment when events
or changes in circumstances indicate that the carrying value of the investment
exceeds its fair value, and the decline in fair value is other than temporary.

For investment securities, we value equity and fixed income securities using
closing market prices for listed instruments or broker or dealer price
quotations, when available. Fixed income securities may also be valued using
valuation models and estimates based on spreads to actively traded benchmark
debt instruments with readily available market prices.

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For investments in illiquid or privately-held securities for which market prices
or quotations are not readily available, the determination of fair value
requires us to estimate the value of the securities using a variety of methods
and resources, including the most current available financial information for
the investment and the industry. As of March 31, 2020 and 2019, we owned $64.0
million and $63.0 million, respectively, of investments in partnerships and
limited liability companies which were accounted for under the equity method and
were included in Other noncurrent assets on the Consolidated Balance Sheets, and
$5.3 million and $11.2 million, respectively, of equity method investments that
are included in Investment securities on the Consolidated Balance Sheets. Of
these amounts, $43.1 million and $42.1 million, respectively, were valued based
on our assumptions and estimates and unobservable inputs. The remainder was
valued using net asset value ("NAV") as a practical expedient, as further
discussed below.

The updated accounting guidance adopted as of April 1, 2018, provides entities
the option to elect to measure equity investments that do not have readily
determinable fair values and do not qualify for the NAV practical expedient at
"adjusted cost." Under this adjusted cost method, investments are initially
recorded at cost, and subsequently adjusted (increased or decreased) when there
is an observable transaction involving the same investments, or similar
investments from the same issuer. Adjusted cost investment carrying values are
also reviewed and adjusted for impairment, if any. As of March 31, 2020 and
2019, approximately $19.7 million and $12.2 million, respectively, of
investments in partnerships and limited liability companies were accounted for
using the adjusted cost method.

The accounting guidance for fair value measurements and disclosures defines fair
value and establishes a framework for measuring fair value. The accounting
guidance 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. 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 non-performance.

The accounting guidance for fair value measurements 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.

Our 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 us, 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 us, this
category includes fixed income securities, certain proprietary fund and other
investment products, and certain long-term debt.

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 investments in partnerships, limited liability companies,
private equity funds, and real estate funds. This category also includes certain
proprietary fund and other investment products with redemption restrictions and
contingent consideration liabilities, if any.

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.

Certain proprietary fund products and certain investments held by CIVs are
valued at NAV determined by the fund administrator. These funds are typically
invested in exchange traded investments with observable market prices. Their
valuations may be classified as Level 1, Level 2, Level 3, or NAV practical
expedient, based on whether the fund is exchange traded, the frequency of the
related NAV determinations and the impact of redemption restrictions. For
investments in illiquid and privately-held securities (private equity funds,
real estate funds and investment partnerships) for which market prices or
quotations may not be readily available, including certain investments held by
CIVs, management must estimate the value of the securities using a variety of
methods and resources, including the most current available financial
information

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for the investment and the industry to which it applies in order to determine
fair value. These valuation processes for illiquid and privately-held securities
inherently require management's judgment and are therefore classified in
Level 3.

Futures contracts are valued at the last settlement price at the end of each day on the exchange upon which they are traded and are classified as Level 1.

As a practical expedient, we rely on the NAVs of certain investments in
partnerships and limited liability companies as their fair value. The NAVs that
have been provided by investees are derived from the fair values of the
underlying investments as of the reporting date. Investments for which the fair
value is measured using NAV as a practical expedient are not required to be
categorized within the fair value hierarchy.

Our Consolidated Balance Sheet as of March 31, 2020, includes approximately 1%
of total assets (9% of financial assets measured at fair value) and less than 1%
of total liabilities (19% of financial liabilities measured at fair value) that
meet the definition of Level 3.

Any transfers between categories are measured at the beginning of the period.

See Note 3 and 20 of Notes to Consolidated Financial Statements for additional information.

Intangible Assets and Goodwill Balances as of March 31, 2020, are as follows (in thousands): Amortizable intangible asset management contracts and other $ 109,211 Indefinite-life intangible assets

                               3,198,388
Trade names                                                        48,091
Goodwill                                                        1,847,766
                                                              $ 5,203,456



Our identifiable intangible assets consist primarily of asset management
contracts, contracts to manage proprietary mutual funds, hedge funds or
funds-of-hedge funds, and trade names resulting from acquisitions. Asset
management contracts are amortizable intangible assets that are capitalized at
acquisition and amortized over the expected life of the contract. Contracts to
manage proprietary mutual funds, hedge funds or funds-of-hedge funds are
indefinite-life intangible assets because we assume that there is no foreseeable
limit on the contract period due to the likelihood of continued renewal at
little or no cost. Similarly, trade names are considered indefinite-life
intangible assets because they are expected to generate cash flows indefinitely.


In allocating the purchase price of an acquisition to intangible assets, we must
determine the fair value of the assets acquired. We determine fair values of
intangible assets acquired based upon projected future cash flows, which take
into consideration estimates and assumptions including profit margins, growth
and/or attrition rates for acquired contracts based upon historical experience
and other factors, estimated contract lives, discount rates, projected net
client flows and market performance. The determination of estimated contract
lives requires judgment based upon historical client turnover and attrition
rates and the probability that contracts with termination provisions will be
renewed. The discount rate employed is a weighted-average cost of capital that
takes into consideration a premium representing the degree of risk inherent in
the asset, as more fully described below.

Goodwill represents the residual amount of acquisition cost in excess of identified tangible and intangible assets and assumed liabilities.

Given the relative significance of our intangible assets and goodwill to our
consolidated financial statements, on a quarterly basis we consider if
triggering events have occurred that may indicate a significant change in fair
values. Triggering events may include significant adverse changes in our
business or the legal or regulatory environment, loss of key personnel,
significant business dispositions, or other events, including changes in
economic arrangements with our affiliates that will impact future operating
results. If a triggering event has occurred, we perform quantitative tests,
which include critical reviews of all significant assumptions, to determine if
any intangible assets or goodwill are impaired. If we

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have not qualitatively concluded that it is more likely than not that the respective fair values exceed the related carrying values, we perform these tests for indefinite-life intangible assets and goodwill annually.

Details of our intangible assets and goodwill and the related impairment tests follow.

We performed our annual impairment testing of goodwill and indefinite-life intangible assets as of October 31, 2019, and determined that there was no impairment in the value of these assets. We also reviewed more critical valuation inputs as of December 31, 2019 to determine that no further quantitative analyses were warranted. In addition, we performed our periodic impairment review of amortizable intangible assets as of March 31, 2020.

Given the level of market disruption associated with COVID-19, we assessed
whether a triggering event had occurred for each of our identifiable
indefinite-life intangible assets and goodwill as of March 31, 2020. Certain
indefinite-life intangible assets were determined to have had triggering events
due to a combination of significant market volatility and uncertainty ensuing
from the COVID-19 pandemic and limited excess fair value over the related
carrying values as of our most recent quantitative analyses as of October 31,
2019. We updated the quantitative analyses for these indefinite-life intangible
assets as of March 31, 2020 and determined that there was no impairment in the
value of these assets, as further discussed below.

Amortizable Intangible Assets
Intangible assets subject to amortization are considered for impairment at each
reporting period using an undiscounted cash flow analysis. Significant
assumptions used in assessing the recoverability of management contract
intangible assets include projected cash flows generated by the contracts and
the remaining economic lives of the contracts. Projected cash flows are based on
fees generated by current AUM for the applicable contracts. Contracts are
generally assumed to turnover evenly throughout the life of the intangible
asset. The remaining life of the asset is based upon factors such as average
client retention and client turnover rates. If the amortization periods are no
longer appropriate, the expected lives are adjusted and the impact on the fair
value is assessed. Actual cash flows in any one period may vary from the
projected cash flows without resulting in an impairment charge because a
variance in any one period must be considered in conjunction with other
assumptions that impact projected cash flows.

There were no impairments in the values of amortizable intangible assets recognized during the year ended March 31, 2020, as our estimates of the related future cash flows exceeded the asset carrying values.

As of March 31, 2020, the EnTrust Global separate account contracts amortizable
asset net carrying value of $33 million represented approximately 30% of our
total amortizable intangible asset management contracts and other aggregate
carrying value. The cumulative undiscounted cash flows related to this asset
exceeded the carrying value by approximately 3% as of March 31, 2020. Despite
the excess of fair value over the related carrying value, future decreases in
our cash flow projections, resulting from actual results, or changes in
assumptions due to client attrition and the related reduction in revenues,
investment performance, market conditions, or other factors, may result in
impairment of this asset. There can be no assurance that continued client
attrition, asset outflows, market uncertainty, or other factors, will not
produce an additional impairment in this asset.

As of March 31, 2020, the Clarion Partners separate account contracts
amortizable asset net carrying value of $60 million represented approximately
55% of our total amortizable intangible asset management contracts and other
aggregate carrying value. As of March 31, 2020, the cumulative undiscounted cash
flows related to this separate account contracts amortizable asset exceeded the
carrying value by a material amount.

The estimated remaining useful lives of amortizable intangible assets currently
range from one to eight years with a weighted-average life of approximately 5.4
years.

Indefinite-Life Intangible Assets
For intangible assets with lives that are indeterminable or indefinite, fair
value is determined from a market participant's perspective based on projected
discounted cash flows, taking into account the values market participants would
pay in a taxable transaction to acquire the respective assets. We have two
primary types of indefinite-life intangible assets: proprietary fund contracts
and, to a lesser extent, trade names.

We determine the fair value of our intangible assets based upon discounted
projected cash flows, which take into consideration estimates of future fees,
profit margins, growth rates, taxes, and discount rates. The determination of
the fair values of our

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indefinite-life intangible assets is highly dependent on these estimates and
changes in these inputs could result in a material impairment of the related
carrying values. An asset is determined to be impaired if the current fair value
is less than the recorded carrying value of the asset. If an asset is impaired,
the difference between the current fair value and the carrying value of the
asset reflected on the financial statements is recognized as an operating
expense in the period in which the impairment is determined to exist.

Contracts that are managed and operated as a single unit, such as contracts
within the same family of funds, are reviewed in aggregate and are considered
interchangeable if investors can transfer between funds with limited
restrictions. Similarly, cash flows generated by new funds added to the fund
group are included when determining the fair value of the intangible asset.

Projected cash flows are based on annualized cash flows for the applicable
contracts projected forward 40 years, assuming annual cash flow growth from
estimated net client flows and projected market performance. To estimate the
projected cash flows, projected growth rates by affiliate are used to project
their AUM. Cash flow growth rates consider estimates of both AUM flows and
market expectations by asset class (equity, fixed income, alternative, and
liquidity) and by investment manager based upon, among other things, historical
experience and expectations of future market and investment performance from
internal and external sources. Our market growth assumptions for our most recent
annual impairment testing were 4.5% for equity, 2% for fixed income, 3% for
alternative, and 0% for liquidity products, with a general assumption of 2%
organic growth for all products, subject to exceptions based on recent trends
for organic growth (contraction), generally in years one through five.

The starting point for these assumptions is our corporate planning process that
includes three-year AUM projections from the management of each operating
affiliate that consider the specific business circumstances of each affiliate,
with assumptions for certain affiliates adjusted, as appropriate, to reflect a
market participant view. Beyond year three, the estimates move towards our
general organic growth assumption of 2%, as appropriate for each affiliate and
asset class, through year 20. The resulting cash flow growth rate for year 20 is
held constant and used to further project cash flows through year 40. Based on
projected AUM by affiliate and asset class, affiliate advisory fee rates are
applied to determine projected revenues. The domestic mutual fund contracts
projected revenues are applied to a weighted-average margin for the applicable
affiliates that manage the AUM. Margins are based on arrangements currently in
place at each affiliate. Projected operating income is further reduced by an
appropriate tax rate to calculate the projected cash flows.

We believe our growth assumptions are reasonable given our consideration of
multiple inputs, including internal and external sources, although our
assumptions are subject to change based on fluctuations in our actual results
and market conditions. Our assumptions are also subject to change due to, among
other factors, poor investment performance by one or more of our operating
affiliates, the withdrawal of AUM by clients, changes in business climate,
adverse regulatory actions, or loss of key personnel. We consider these risks in
the development of our growth assumptions and discount rates, discussed further
below. Further, actual cash flows in any one period may vary from the projected
cash flows without resulting in an impairment charge because a variance in any
one period must be considered in conjunction with other assumptions that impact
projected cash flows.

Our process includes comparison of actual results to prior growth projections.
However, differences between actual results and our prior projections are not
necessarily indicative of a need to reassess our estimates given that our
discounted projected cash flow analyses include projections well beyond three
years and variances in the near-years may be offset in subsequent years; fair
value assessments are point-in-time, and the consistency of a fair value
assessment with other indicators of value that reflect expectations of market
participants at that point-in-time is critical evidence of the soundness of the
estimate of value. In subsequent periods, we consider the differences in actual
results from our prior projections in considering the reasonableness of the
growth assumptions used in our current impairment testing.

Discount rates are based on appropriately weighted estimated costs of debt and
equity capital using a market participant perspective. We estimate the cost of
debt based on published debt rates. We estimate the cost of equity capital based
on the Capital Asset Pricing Model, which considers the risk-free interest rate,
peer-group betas, and company and equity risk premiums. The equity risk is
further adjusted to consider the relative risk associated with each of our
indefinite-life intangible asset and our reporting unit. The discount rates are
also calibrated based on an assessment of relevant market values.

Consistent with standard valuation practices for taxable transactions, the projected discounted cash flow analysis also factors in a tax benefit value, as appropriate. This tax benefit represents the discounted tax savings a third party that purchased an

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asset on a given valuation date would receive from future tax deductions for the amortization of the purchase price over 15 years.

The domestic mutual fund contracts acquired in the Citigroup Asset Management
("CAM") transaction of $2.1 billion, account for approximately 65% of our
indefinite-life intangible assets. As of October 31, 2019, approximately $163
billion of AUM, primarily managed by Western Asset and ClearBridge, was
associated with this asset, with approximately 38% in equity AUM, 48% in fixed
income AUM and 14% in liquidity AUM. Previously disclosed uncertainties
regarding market conditions and asset flows and risks related to potential
regulatory changes in the liquidity business, are reflected in our projected
discounted cash flow analyses. Despite relevant recent market activity, given
the level of excess of fair value over the related carrying value in our most
recent impairment testing, the domestic mutual fund contracts asset was not
deemed to have had a triggering event as of March 31, 2020.

As of October 31, 2019, the Clarion Partners fund management contracts asset of
$505 million accounted for approximately 16% of our indefinite-life intangible
assets. Based on our projected discounted cash flow analyses, the related fair
value exceeded its carrying value by a material amount. Despite relevant recent
market activity, given the level of excess of fair value over the related
carrying value in our most recent impairment testing, the Clarion Partners fund
management contracts asset was not deemed to have had a triggering event as of
March 31, 2020.

As of October 31, 2019, the combined EnTrust Global fund management contracts
asset of $127 million accounted for approximately 4% of our indefinite-life
intangible assets and is supported by the combined EnTrust Global fund
management business. Based on our projected discounted cash flow analyses, the
related fair value exceeded its carrying value by 10% as of October 31, 2019.
For our impairment test, base revenues related to EnTrust Global fund management
contracts were assumed to have long-term annual growth rates averaging 6%.
Projected near-year cash flows reflected AUM outflows in years one and two, and
trend to modest AUM inflows of 2% by year five. The projected cash flows from
the EnTrust Global fund management contracts were discounted at 15.5%.

Given recent uncertain markets and the relatively limited excess fair value as
of our most recent impairment test, the EnTrust Global fund management contracts
asset was deemed to have had a triggering event as of March 31, 2020. We
expanded our most recent analysis of this asset to consider several different
outcomes on a probability-weighted basis, with each scenario reflecting reduced
revenue growth rates and lower operating margins, particularly in the near term.
Based on this probability-weighted analysis, the related fair value exceeded its
carrying value by approximately 1% as of March 31, 2020.

As of October 31, 2019, the RARE Infrastructure fund management contracts asset
of $55 million accounted for approximately 2% of our indefinite-life intangible
assets. Based on our projected discounted cash flow analyses, the related fair
value exceeded its carrying value by a material amount. For our impairment test,
cash flows from the RARE Infrastructure fund management contracts were assumed
to have long-term annual growth rates averaging 10%. Given current experience,
projected near-year cash flows reflect reduced AUM inflows throughout the
projection period and modest performance fees. The projected cash flows from the
RARE Infrastructure fund management contracts were discounted at 15.0%. Despite
relevant recent market activity, given the level of the excess of fair value
over the related carrying value in our most recent impairment testing, the RARE
Infrastructure fund management contracts asset was not deemed to have had a
triggering event as of March 31, 2020.

Future decreases in our cash flow projections or increases in the discount rate,
resulting from actual results, or changes in assumptions resulting from flow and
AUM levels, investment performance, market conditions, or other factors, may
result in impairment of this asset. There can be no assurance that asset flows,
market uncertainty, or other factors will not produce an impairment in this
asset, which could be significant.

As of October 31, 2019, trade names accounted for 1% of indefinite-life
intangible assets and are primarily related to Clarion Partners and EnTrust
Global, which had carrying values of $23 million and $10 million, respectively.
We tested these intangible assets using a relief from royalty approach and
discounted cash flow methods similar to those described above for
indefinite-life contracts. As of October 31, 2019, the resulting fair value of
the EnTrust Global trade name exceeded the carrying value by 6% and the
resulting fair values of our other trade name assets significantly exceeded the
related carrying amounts.

Given recent uncertain markets and the relatively limited excess fair value as of our most recent impairment test, the EnTrust Global trade name asset was deemed to have had a triggering event and was tested using the relief from royalty approach

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as of March 31, 2020. The resulting fair value of the EnTrust Global trade name asset exceeded the carrying value of $10 million by approximately 3%.

Goodwill

Goodwill is evaluated at the reporting unit level and is considered for
impairment when the carrying amount of the reporting unit exceeds the implied
fair value of the reporting unit. In estimating the implied fair value of the
reporting unit, we use valuation techniques based on discounted projected cash
flows and EBITDA multiples, similar to techniques employed in analyzing the
purchase price of an acquisition. We continue to be managed as one Global Asset
Management operating segment. Internal management reporting of discrete
financial information regularly received by the chief operating decision maker,
our Chief Executive Officer, is at the consolidated Global Asset Management
business level. As a result, goodwill is recorded and evaluated at one Global
Asset Management reporting unit level. Our Global Asset Management reporting
unit consists of the operating businesses of our asset management affiliates and
our centralized global distribution operations. In our impairment testing
process, all consolidated assets (except for certain tax benefits) and
liabilities are allocated to our single Global Asset Management reporting unit.
Similarly, the projected operating results of the reporting unit include our
holding company corporate costs and overhead, including interest expense and
costs associated with executive management, finance, human resources, legal and
compliance, internal audit and other central corporate functions.

Goodwill principally originated from the acquisitions of CAM, Permal, Royce,
Martin Currie, RARE Infrastructure, Clarion Partners, and EnTrust. The value of
the reporting unit is based in part, on projected consolidated net cash flows,
including all cash flows of assets managed in our mutual funds, closed-end funds
and other proprietary funds, in addition to separate account assets of our
managers.

Significant assumptions used in assessing the implied fair value of the
reporting unit under the discounted cash flow method are consistent with the
methodology discussed above for indefinite-life intangible assets. Also, at the
reporting unit level, future corporate costs are estimated and consolidated with
the projected operating results of all our affiliates.

Actual cash flows in any one period may vary from the projected cash flows
without resulting in an impairment charge because a variance in any one period
must be considered in conjunction with other assumptions that impact projected
cash flows.

Discount rates are based on appropriately weighted estimated costs of debt using
a market participant perspective, also consistent with the methodology discussed
above for indefinite-life intangible assets.

We also perform a market-based valuation of our reporting unit value, which
applies an average of EBITDA multiples paid in change of control transactions
for peer companies to our EBITDA. The results of our two estimates of value for
the reporting unit (the discounted cash flow and EBITDA multiple analyses) are
compared and significant differences, if any, are assessed to determine the
reasonableness of each value and whether any adjustment to either result is
warranted. Once the values are accepted, the appropriately weighted average of
the two reporting unit valuations (the discounted cash flow and EBITDA multiple
analyses) is used as the implied fair value of our Global Asset Management
reporting unit, which at October 31, 2019, exceeded the carrying value by 22%.
Considering the relative merits of the details involved in each valuation
process, we used an equal weighting of the two values for the 2019 testing. The
significant assumptions used in the cash flow analysis included projected
average annual cash flow growth rates of 7% and the projected cash flows were
discounted at 16.0%. Changes in the assumptions underlying projected cash flows
from the reporting unit or its EBITDA multiple, resulting from market
conditions, reduced AUM or other factors, could result in an impairment of
goodwill, and such an impairment could potentially have a material impact on our
results of operations and financial condition.

We further assess the accuracy of the reporting unit value determined from these
valuation methods by comparing their results to our market capitalization to
determine an implied control premium. The reasonableness of this implied control
premium is considered by comparing it to control premiums that have been paid in
relevant actual change of control transactions. This assessment provides
evidence that our underlying assumptions in our analyses of our reporting unit
fair value are reasonable.

In calculating our market capitalization for these purposes, market volatility
can have a significant impact on our capitalization, and if appropriate, we may
consider the average market prices of our stock for a period of one or two
months before the test date to determine market capitalization. A control
premium arises from the fact that in an acquisition, there is typically a
premium paid over current market prices of publicly traded companies that
relates to the ability to control the

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operations of an acquired company. Further, assessments of control premiums in
the asset management industry are difficult because many acquisitions involve
privately held companies, or involve only portions of a public company, such
that no control premium can be calculated.

Recent market evidence regarding control premiums suggest values of up to 173%,
with an average of 24%. Based on our analysis and consideration, we believe the
implied control premium of 37% determined by our reporting unit value estimation
at October 31, 2019, is reasonable in relation to the observed relevant market
control premium values.

We determined a triggering event had not occurred for our goodwill as of March
31, 2020. We note that our share price and reporting unit fair value have not
been significantly impacted by COVID-19 as a result of the Merger Agreement with
Franklin Templeton. Per the terms of the Merger Agreement, Franklin Templeton
will acquire all of our outstanding common stock for $50 per share in cash,
valuing the total transaction at approximately $4.5 billion, which approximates
the fair value of the reporting unit determined in our most recent impairment
testing, and has been reflected in the trading value Legg Mason common stock.

Stock-Based Compensation
Our stock-based compensation plans include restricted stock units, stock
options, an employee stock purchase plan ("ESPP"), market and performance-based
performance shares payable in common stock, affiliate management equity plans
and deferred compensation payable in stock. Under our stock compensation plans,
we have issued equity awards to directors, officers, and key employees. Under
the terms of the Merger Agreement, we may not grant any new awards or amend or
modify the terms of any outstanding awards under any of our stock-based
compensation plans. Due to this limitation, in fiscal 2021, directors, officers
and key employees will be issued deferred cash units, which will be subject to
accelerated vesting and payment upon closing of the transaction, in lieu of
equity awards. In addition, the purchase of shares under the ESPP ceased in
February 2020 and the ESPP will terminate immediately prior to the closing date
of the Merger.

In accordance with applicable accounting guidance, compensation expense for the
years ended March 31, 2020, 2019, and 2018, includes compensation cost for all
non-vested share-based awards at their grant date fair value amortized over the
respective vesting periods, which may be reduced for retirement-eligible
recipients, on the straight-line method. The Merger Agreement provides for the
settlement of all outstanding equity awards (vested and unvested), contingent
upon the Merger closing. The settlement of unvested awards accommodates Franklin
Templeton's acquisition of Legg Mason, therefore, we do not incur any related
accelerated compensation expense.

Excess tax benefits and deficiencies associated with stock-based compensation
are recognized as discrete items in the Income tax provision (benefit) in the
Consolidated Statements of Income (Loss) in the reporting period in which they
occur, which may increase the volatility of the Income tax provision (benefit)
as a result of fluctuations in our stock price. We account for forfeitures as
they occur. Also, cash flows related to income tax deductions in excess of or
less than the related stock-based compensation expense are classified as Cash
Flows from Operating Activities in the Consolidated Statements of Cash Flows.

We granted 0.4 million stock options in fiscal 2018. No stock options were
granted in fiscal 2020 or fiscal 2019. We determine the fair value of each
option grant using the Black-Scholes option-pricing model, which requires
management to develop estimates regarding certain input variables. The inputs
for the Black-Scholes model include: stock price on the date of grant, exercise
price of the option, dividend yield, volatility, expected life and the risk-free
interest rate, all of which, with the exception of the grant date stock price
and the exercise price, require estimates or assumptions. We calculate the
dividend yield based upon the average of the historical quarterly dividend
payments over a term equal to the expected life of the options. We estimate
volatility equally weighted between the historical prices of our stock over a
period equal to the expected life of the option and the implied volatility of
market listed options at the date of grant. The expected life is the estimated
length of time an option will be held before it is either exercised or canceled,
based upon our historical option exercise experience. The risk-free interest
rate is the rate available for zero-coupon U.S. Government issues with a
remaining term equal to the expected life of the options being valued. If we
used different methods to estimate our variables for the Black-Scholes model, or
if we used a different type of option-pricing model, the fair value of our
option grants might be different.

During fiscal 2017, we implemented an affiliate equity management plan that
entitles certain key employees of Clarion Partners to participate in 15% of the
future growth, if any, of the affiliate's enterprise value (subject to
appropriate discounts) subsequent to the date of the grant. During fiscal 2016,
we implemented an affiliate management equity plan with Royce which resulted in
the issuance of minority equity interests in the affiliate to its management
team in fiscal 2019, 2017, and

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2016. These Royce interests allow the holders to receive quarterly distributions
of the affiliate's net revenues in amounts equal to the percentage of ownership
represented by the equity they hold, subordinate to the maintenance of operating
expenses and our equity interests. During fiscal 2014, we also implemented a
management equity plan for ClearBridge and granted units to certain of their
employees that entitle them to participate in 15% of the future growth of the
respective affiliate's enterprise value (subject to appropriate discounts).

We determine the fair value of option-like affiliate management equity plan
grants using the Black-Scholes option-pricing model, subject to any post-vesting
illiquidity discounts, which requires management to develop estimates regarding
certain input variables. The inputs for the Black-Scholes model include:
baseline value, dividend yield, volatility, expected term and the risk-free
interest rate, all of which require estimates or assumptions. We calculate the
dividend yield based upon the average of the historical quarterly dividend
payments over a term equal to the expected life of the options. We estimate
volatility equally weighted between the historical prices of our stock over a
period equal to the expected life of the grant and the implied volatility of
market listed options at the date of grant. The expected life is the estimated
length of time an option will be held before it is either exercised or canceled,
based upon our historical option exercise experience. The risk-free interest
rate is the rate available for zero-coupon U.S. Government issues with a
remaining term equal to the expected life of the options being valued. If we
used different methods to estimate our variables for the Black-Scholes model, or
if we used a different type of option-pricing model, the fair value of our
option grants might be different. However, because our affiliates are private
companies without quoted stock prices, we utilize discounted cash flow analyses
and market-based valuations, similar to those discussed above under the heading
"Intangible Assets and Goodwill", to determine the respective business
enterprise values, subject to appropriate discounts for lack of control and
marketability.

For additional information on stock-based compensation, see Notes 1 and 12 of Notes to Consolidated Financial Statements.

Noncontrolling Interests
Noncontrolling interests include affiliate minority interests, third-party
investor equity in consolidated sponsored investment products, and vested
affiliate management equity plan interests. Noncontrolling interests where the
holder may be able to request settlement are classified as redeemable
noncontrolling interests, and are reported at their estimated settlement values,
except when such settlement values are less than the issuance value, the
reported amount is the issuance value. When settlement is not expected to occur
until a future date, changes in the expected settlement values are recognized
over the settlement period as adjustments to retained earnings. Nonredeemable
noncontrolling interests do not permit the holder to request settlement, and are
reported at their issuance value, together with undistributed net income (loss)
allocated to noncontrolling interests.

We estimate the settlement value of noncontrolling interests as their fair
value. Amounts for affiliate minority interests and affiliate management equity
plan interests, if reported at fair value, reflect the related total business
enterprise value, after appropriate discounts for lack of marketability and
control. There may also be features of these equity interests, such as dividend
subordination, that are contemplated in their valuations. The fair value of
option-like management equity plan interests also relies on Black-Scholes option
pricing model calculations, as noted above. For affiliate noncontrolling
interests, subsequent to acquisition, business enterprise values are derived
using various methods, including discounted cash flows, guideline public company
and guideline public transaction methods. We may engage third-party valuation
experts to perform independent determinations of fair value or to review
internally prepared valuations, as appropriate, based on the relative
significance of the related amounts and related contractual provisions and
changes in valuation inputs. For consolidated sponsored investment products,
where the investor may request withdrawal at any time, fair value is based on
market quotes of the underlying securities held by the investment vehicles.

Income Taxes
We are subject to the income tax laws of the federal, state and local
jurisdictions of the U.S. and numerous foreign jurisdictions in which we
operate. We file income tax returns representing our filing positions with each
relevant jurisdiction. Due to the inherent complexities arising from conducting
business and being taxed in a substantial number of jurisdictions, we must make
certain estimates and judgments in determining our income tax provision
(benefit) for financial statement purposes.
Substantially all of our deferred tax assets relate to U.S. (federal and state),
and U.K. taxing jurisdictions. As of March 31, 2020, U.S. federal deferred tax
assets aggregated $627 million, realization of which is expected to require $3.2
billion of U.S. earnings over the next eight years, of which approximately $349
million must be foreign sourced earnings. Deferred tax assets generated in U.S.
jurisdictions resulting from net operating losses generally expire 20 years
after they are generated and those resulting from foreign tax credits generally
expire 10 years after they are generated. Based on estimates of future

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taxable income, using assumptions similar to those used in our goodwill
impairment testing, it is more likely than not that substantially all of the
current federal tax benefits relating to net operating losses will be realized.
With respect to those resulting from foreign tax credit carryforwards, it is
more likely than not that tax benefits relating to the utilization of
approximately $2.4 million of foreign taxes as credits will not be realized and
a valuation allowance has been established. Further, our estimates and
assumptions do not contemplate changes in the ownership of Legg Mason stock,
which could, under certain circumstances, limit our utilization of net operating
loss and foreign tax credit benefits. Any such limitation would impact the
timing or amount of net operating loss or foreign tax credit benefits ultimately
realized before they expire.
As of March 31, 2020, U.S. state deferred tax assets aggregated $238 million,
offset by a valuation allowance of $92 million, and were primarily related to
state net operating loss benefits generated in certain jurisdictions in cases
where it is more likely that these benefits will not ultimately be realized. Due
to the variability of future state apportionment factors and future effective
state tax rates, the value of state net operating loss benefits ultimately
realized may vary.
For foreign jurisdictions, the net decrease in valuation allowances of $3.8
million in fiscal 2020 was primarily related to current year increases in
carried forward U.K. interest deductions offset in part by unrealized
gains/losses on pension liabilities.
To the extent our analysis of the realization of deferred tax assets relies on
deferred tax liabilities, we have considered the timing, nature and jurisdiction
of reversals, as well as, available planning strategies to value and measure the
realizability of our deferred tax assets. In the event we determine all or any
portion of our deferred tax assets that are not already subject to a valuation
allowance are not realizable, we will be required to establish a valuation
allowance by a charge to the income tax provision in the period in which that
determination is made. The values of our deferred tax assets are based on
enacted corporate tax rates for the future period in which the tax attributes
are anticipated to be realized. Legislative changes to these rates would require
a re-measurement of our deferred tax assets in the period of enactment.
Depending on the facts and circumstances, the charge could be material to our
earnings.
The calculation of our tax liabilities involves uncertainties in the application
of complex tax regulations. We recognize liabilities for anticipated tax
uncertainties in the U.S. and other tax jurisdictions based on our estimate of
whether, and the extent to which, additional taxes will be due.
RECENT ACCOUNTING DEVELOPMENTS
See discussion of Recent Accounting Developments in Note 1 of Notes to
Consolidated Financial Statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Market Risk" for disclosures about market risk.

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