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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~December~~June 3130, ~~2019~~2020



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the transition period from				to



Commission file number:	001-08529




LEGG MASON, INC.
(Exact name of registrant as specified in its charter)

MD						52-1200960
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

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



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



(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common stock, $0.10 par value	LM	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.



Yes	☒	No	☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).



Yes	☒	No	☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).



Yes	☐	No	☒

As of ~~February~~July 328, 2020, there were 8690,~~892~~557,~~028~~898 shares of the registrant's common stock outstanding.

Table of Contents

TABLE OF CONTENTS

		Page
	PART I
	FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	3
	CONSOLIDATED BALANCE SHEETS
	CONSOLIDATED STATEMENTS OF INCOME (LOSS)
	CONSOLIDATED STATEMENTS OF INCOME
	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
	CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
	CONSOLIDATED STATEMENTS OF CASH FLOWS
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	3833
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	7355
Item 4.	Controls and Procedures	7355
	PART II
	OTHER INFORMATION
Item 1A.	Risk Factors	74
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	56
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	75
Item 6.	Exhibits	56
Item 6.	Exhibits	75

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

LEGG MASON, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

	December 31, 2019			March 31, 2019
ASSETS
Current Assets
Cash and cash equivalents	$	823,665		$	921,071
Cash and cash equivalents of consolidated investment vehicles	7,320			4,219
Restricted cash	17,666			21,213
Receivables:
Investment advisory and related fees	461,790			425,470
Other	64,920			57,107
Investment securities	408,945			377,129
Investment securities of consolidated investment vehicles	105,810			129,627
Other	85,410			82,131
Other current assets of consolidated investment vehicles	406			1,889
Total Current Assets	1,975,932			2,019,856
Fixed assets, net	138,835			149,989
Intangible assets, net	3,377,517			3,386,759
Goodwill	1,896,097			1,883,554
Deferred income taxes	193,792			199,717
Right-of-use assets	295,665			—
Other	157,938			145,254
Other assets of consolidated investment vehicles	3,942			8,993
TOTAL ASSETS	$	8,039,718		$	7,794,122
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Current Liabilities
Accrued compensation	$	591,554		$	571,301
Accounts payable and accrued expenses	159,415			182,921
Current portion of long-term debt	—			250,301
Lease liabilities	77,377			—
Other	101,150			99,479
Other current liabilities of consolidated investment vehicles	1,363			5,742
Total Current Liabilities	930,859			1,109,744
Deferred compensation	104,819			85,548
Lease liabilities	285,911			—
Deferred income taxes	181,115			123,420
Other (including unfunded pension benefit obligation of $30,266 and $33,335, respectively)	60,971			122,044
Long-term debt, net	1,972,413			1,971,451
TOTAL LIABILITIES	3,536,088			3,412,207
Commitments and Contingencies (Note 9)
REDEEMABLE NONCONTROLLING INTERESTS	668,353			692,376
STOCKHOLDERS' EQUITY
Common stock, par value $0.10 per share; authorized 500,000,000 shares; issued 86,821,437 and 85,556,562 shares for December 31, 2019 and March 31, 2019, respectively	8,682			8,556
Additional paid-in capital	2,119,181			2,039,671
Employee stock trust	(20,108		)	(21,416		)
Deferred compensation employee stock trust	20,108			21,416
Retained earnings	1,804,251			1,742,764
Accumulated other comprehensive loss, net	(127,402		)	(131,236		)
Total stockholders' equity attributable to Legg Mason, Inc.	3,804,712			3,659,755
Nonredeemable noncontrolling interest	30,565			29,784
TOTAL STOCKHOLDERS' EQUITY	3,835,277			3,689,539
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	8,039,718		$	7,794,122

(Unaudited)



	June 30, 2020			March 31, 2020
ASSETS
Current Assets
Cash and cash equivalents	$	931,605		$	1,018,860
Cash and cash equivalents of consolidated investment vehicles	235			620
Restricted cash	20,496			28,133
Receivables:
Investment advisory and related fees	406,411			407,893
Other	66,918			47,634
Investment securities	413,310			338,894
Investment securities of consolidated investment vehicles	33,811			117,084
Other	89,344			80,030
Other current assets of consolidated investment vehicles	62			476
Total Current Assets	1,962,192			2,039,624
Fixed assets, net	126,113			134,423
Intangible assets, net	3,356,470			3,355,690
Goodwill	1,862,673			1,847,766
Deferred income taxes	165,948			161,977
Right-of-use assets	280,528			291,342
Other	162,534			152,985
Other assets of consolidated investment vehicles	979			22,313
TOTAL ASSETS	$	7,917,437		$	8,006,120
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Current Liabilities
Accrued compensation	$	261,779		$	574,430
Accounts payable and accrued expenses	165,863			156,981
Short-term borrowings	250,000			—
Lease liabilities	77,191			77,814
Other	110,404			115,788
Other current liabilities of consolidated investment vehicles	273			1,044
Total Current Liabilities	865,510			926,057
Deferred compensation	104,354			95,293
Lease liabilities	269,041			278,737
Deferred income taxes	167,828			165,038
Other	28,992			32,167
Long-term debt, net	1,973,054			1,972,733
TOTAL LIABILITIES	3,408,779			3,470,025
Commitments and Contingencies (Note 9)
REDEEMABLE NONCONTROLLING INTERESTS	613,336			714,414
STOCKHOLDERS' EQUITY
Common stock, par value $0.10 per share; authorized 500,000,000 shares; issued 90,534,943 and 87,781,705 shares for June 30, 2020 and March 31, 2020, respectively	9,053			8,778
Additional paid-in capital	2,187,177			2,158,755
Employee stock trust	(19,126		)	(19,778		)
Deferred compensation employee stock trust	19,126			19,778
Retained earnings	1,831,364			1,820,412
Accumulated other comprehensive loss, net	(161,246		)	(195,306		)
Total stockholders' equity attributable to Legg Mason, Inc.	3,866,348			3,792,639
Nonredeemable noncontrolling interest	28,974			29,042
TOTAL STOCKHOLDERS' EQUITY	3,895,322			3,821,681
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	7,917,437		$	8,006,120

See Notes to Consolidated Financial Statements

Table of Contents

LEGG MASON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME ~~(LOSS)~~

(Dollars in thousands, except per share amounts)

(Unaudited)

	Three Months Ended December 31,						Nine Months Ended December 31,
	Three Months Ended June 30,
	2019			2018			2019			2018
	2020			2019
OPERATING REVENUES
Investment advisory fees:
Separate accounts	$	~~266~~245,~~609~~459		$	~~256~~260,~~657~~441		$	~~791,488~~		$	~~778,119~~
Funds	~~378~~347,~~995~~876			~~361~~366,~~173~~812			~~1,121,572~~			~~1,128,660~~
Performance fees	3911,~~407~~414			126,~~619~~861			~~81,137~~			~~68,529~~
Distribution and service fees	6759,~~634~~859			7269,~~185~~937			~~204,635~~			~~230,449~~
Other	1,~~269~~578			1,~~688~~309			~~3,706~~			~~4,897~~
Total Operating Revenues	~~753~~666,~~914~~186			~~704~~705,~~322~~360			~~2,202,538~~			~~2,210,654~~
OPERATING EXPENSES
Compensation and benefits	~~375~~353,~~033~~208			~~316~~379,~~876~~828			~~1,132,588~~			~~1,043,329~~
Distribution and servicing	~~104~~91,~~363~~349			~~108~~103,~~842~~906			~~313,368~~			~~339,959~~
Communications and technology	5762,~~101~~358			5655,~~664~~274			~~166,328~~			~~170,893~~
Occupancy	32,~~490~~007			2425,~~077~~624			~~84,923~~			~~76,333~~
Amortization of intangible assets	65,~~004~~505			65,~~089~~457			~~16,903~~			~~18,371~~
Impairment of intangible assets	—			365,200			—			365,200
Contingent consideration fair value adjustments	—			(1,165		)
Contingent consideration fair value adjustments	—			—			(1,165		)	571
Other	54,051			52,501
Other	48,929			63,001			150,687			171,021
Total Operating Expenses	598,478			621,425
Total Operating Expenses	623,920			940,749			1,863,632			2,185,677
OPERATING INCOME	67,708			83,935
OPERATING INCOME (LOSS)	129,994			(236,427		)	338,906			24,977
NON-OPERATING INCOME (EXPENSE)
NON-OPERATING INCOME (EXPENSE)
Interest income	915			4,005
Interest income	2,882			3,126			9,539			7,992
Interest expense	(28,581		)	(28,483		)
Interest expense	(27,032		)	(28,770		)	(82,846		)	(88,547		)
Other income (expense), net	31,120			10,599
Other income (expense), net	18,009			(7,042		)	29,066			6,837
Non-operating income (expense) of consolidated investment vehicles, net	(2,158		)	9,561
Non-operating income (expense) of consolidated investment vehicles, net	814			2,369			14,904			1,954
Total Non-Operating Income (Expense)	1,296			(4,318		)
Total Non-Operating Income (Expense)	(5,327		)	(30,317		)	(29,337		)	(71,764		)
INCOME BEFORE INCOME TAX PROVISION	69,004			79,617
INCOME (LOSS) BEFORE INCOME TAX PROVISION	124,667			(266,744		)	309,569			(46,787		)
Income tax provision	13,930			18,048
Income tax provision (benefit)	33,664			(60,354		)	80,466			165
NET INCOME	55,074			61,569
NET INCOME (LOSS)	91,003			(206,390		)	229,103			(46,952		)
Less: Net income attributable to noncontrolling interests	5,652			16,219
Less: Net income attributable to noncontrolling interests	16,228			10,498			41,895			31,043
NET INCOME ATTRIBUTABLE TO LEGG MASON, INC.	$	49,422		$	45,350
NET INCOME (LOSS) ATTRIBUTABLE TO LEGG MASON, INC.	$	74,775		$	(216,888	)	$	187,208		$	(77,995	)
NET INCOME PER SHARE ATTRIBUTABLE TO LEGG MASON, INC. STOCKHOLDERS:
NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO LEGG MASON, INC. STOCKHOLDERS:
Basic	$	0.54		$	0.51
Basic	$	0.83		$	(2.55	)	$	2.09		$	(0.95	)
Diluted	0.54			0.51
Diluted	0.83			(2.55		)	2.08			(0.95		)

See Notes to Consolidated Financial Statements

Table of Contents

LEGG MASON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ~~(LOSS)~~

(Dollars in thousands)

(Unaudited)

	Three Months Ended December 31,						Nine Months Ended December 31,
	Three Months Ended June 30,
	2019			2018			2019			2018
	2020			2019
NET INCOME (LOSS)	$	91,003		$	(206,390	)	$	229,103		$	(46,952	)
NET INCOME	$	55,074		$	61,569
Other comprehensive income (loss):
Foreign currency translation adjustment	4334,~~933~~171			(149,~~012~~964		)	~~3,761~~			~~(82,032~~		)
Changes in defined benefit pension plan	(~~1,174~~111		)	~~354~~545			73			~~1,447~~
Total other comprehensive income (loss)	4234,~~759~~060			(139,~~658~~419		)	~~3,834~~			~~(80,585~~		)
COMPREHENSIVE INCOME (LOSS)	133,762			(220,048		)	232,937			(127,537		)
COMPREHENSIVE INCOME	89,134			52,150
Less: Comprehensive income attributable to noncontrolling interests	~~(16~~5,~~224~~388		)	1117,~~425~~057			~~(42,728~~		)	~~36,052~~
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO LEGG MASON, INC.	$	149,986		$	(231,473	)	$	275,665		$	(163,589	)
COMPREHENSIVE INCOME ATTRIBUTABLE TO LEGG MASON, INC.	$	83,746		$	35,093

See Notes to Consolidated Financial Statements

Table of Contents

LEGG MASON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Dollars in thousands)

(Unaudited)

	Three Months Ended December 31,						Nine Months Ended December 31,
	Three Months Ended June 30,
	2019			2018			2019			2018
	2020			2019
STOCKHOLDERS' EQUITY ATTRIBUTABLE TO LEGG MASON, INC.
COMMON STOCK
Beginning balance	$	8,~~678~~778		$	8,~~550~~556		$	~~8,556~~		$	~~8,461~~
Stock options exercised	1152			330			37			19
Deferred compensation employee stock trust	—			1			1			1
Stock-based compensation	196			118
Stock-based compensation	3			—			129			112
Employee tax withholdings by settlement of net share transactions	(73		)	(38		)
Employee tax withholdings by settlement of net share transactions	—			(1		)	(41		)	(40		)
Ending balance	9,053			8,666
Ending balance	8,682			8,553			8,682			8,553
ADDITIONAL PAID-IN CAPITAL
ADDITIONAL PAID-IN CAPITAL
Beginning balance	2,158,755			2,039,671
Beginning balance	2,103,791			2,013,541			2,039,671			1,976,364
Stock options exercised	53,105			9,406
Stock options exercised	309			583			11,612			5,814
Deferred compensation employee stock trust	180			163
Deferred compensation employee stock trust	181			166			525			468
Stock-based compensation	7,213			21,893
Stock-based compensation	15,359			14,380			55,866			49,195
Tax benefit on issuance of performance-based restricted share units related to the fiscal 2017 acquisition of Clarion Partners	4,980			—
Employee tax withholdings by settlement of net share transactions	(~~459~~37,079		)	(8412,543		)	~~(13,862~~		)	~~(15,506~~		)
Redeemable noncontrolling interest reclassification for affiliate management equity plans and affiliate noncontrolling interest	—23			—26,076			~~25,369~~			~~12,251~~
Ending balance	2,~~119~~187,~~181~~177			2,~~028~~084,~~586~~666			~~2,119,181~~			~~2,028,586~~
EMPLOYEE STOCK TRUST
Beginning balance	(2019,~~003~~778		)	(2221,~~117~~416		)	~~(21,416~~		)	~~(21,996~~		)
Shares issued to plans	(~~181~~180		)	(~~167~~163		)	~~(526~~		)	~~(469~~		)
Distributions	76832			~~901~~1,340			~~1,834~~			~~1,082~~
Ending balance	(2019,~~108~~126		)	(2120,~~383~~239		)	~~(20,108~~		)	~~(21,383~~		)
DEFERRED COMPENSATION EMPLOYEE STOCK TRUST
Beginning balance	2019,~~003~~778			2221,~~117~~416			~~21,416~~			~~21,996~~
Shares issued to plans	~~181~~180			~~167~~163			~~526~~			~~469~~
Distributions	(76832		)	(~~901~~1,340		)	~~(1,834~~		)	~~(1,082~~		)
Ending balance	2019,~~108~~126			2120,~~383~~239			~~20,108~~			~~21,383~~
RETAINED EARNINGS
Beginning balance	1,~~777~~820,~~014~~412			1,~~981~~742,~~939~~764			~~1,742,764~~			~~1,894,762~~
Net income (loss) attributable to Legg Mason, Inc.	74,775			(216,888		)	187,208			(77,995		)
Net income attributable to Legg Mason, Inc.	49,422			45,350
Dividends declared ($0.40, $0.34, $1.20, and $1.02 per share, respectively)	(36,179		)	(28,904		)	(109,968		)	(90,345		)
Dividends declared ($0.40 per share in each period)	(36,628		)	(37,627		)
Reclassification to noncontrolling interest for net increase in estimated redemption value of affiliate management equity plan and affiliate noncontrolling interests	(111,~~359~~842		)	(122,~~330~~381		)	~~(15,753~~		)	~~(14,868~~		)
Adoption of revenue recognition guidance	—			—			—			12,263
Ending balance	1,831,364			1,748,106
Ending balance	1,804,251			1,723,817			1,804,251			1,723,817
ACCUMULATED OTHER COMPREHENSIVE LOSS, NET
ACCUMULATED OTHER COMPREHENSIVE LOSS, NET
Beginning balance	(195,306		)	(131,236		)
Beginning balance	(170,161		)	(122,109		)	(131,236		)	(55,182		)
Foreign currency translation adjustment	34,171			(9,964		)
Foreign currency translation adjustment	43,933			(14,012		)	3,761			(82,032		)
Changes in defined benefit pension plan	(111		)	545
Changes in defined benefit pension plan	(1,174		)	354			73			1,447
Ending balance	(161,246		)	(140,655		)
Ending balance	(127,402		)	(135,767		)	(127,402		)	(135,767		)
TOTAL STOCKHOLDERS’ EQUITY ATTRIBUTABLE TO LEGG MASON, INC.	3,866,348			3,700,783
TOTAL STOCKHOLDERS’ EQUITY ATTRIBUTABLE TO LEGG MASON, INC.	3,804,712			3,625,189			3,804,712			3,625,189
NONREDEEMABLE NONCONTROLLING INTEREST
NONREDEEMABLE NONCONTROLLING INTEREST
Beginning balance	29,042			29,784
Beginning balance	29,803			28,074			29,784			27,731
Net income attributable to noncontrolling interests	787			2,863
Net income attributable to noncontrolling interests	1,962			1,646			5,300			6,583
Distributions	(855		)	(2,167		)
Distributions	(1,200		)	(2,226		)	(4,519		)	(6,820		)
Ending balance	28,974			30,480
Ending balance	30,565			27,494			30,565			27,494
TOTAL STOCKHOLDERS’ EQUITY	$	3,895,322		$	3,731,263
TOTAL STOCKHOLDERS’ EQUITY	$	3,835,277		$	3,652,683		$	3,835,277		$	3,652,683

See Notes to Consolidated Financial Statements

Table of Contents

LEGG MASON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

	Nine Months Ended December 31,
	Three Months Ended June 30,
	2019			2018
	2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss)	$	229,103		$	(46,952	)
Net Income	$	55,074		$	61,569
Adjustments to reconcile Net Income (Loss) to net cash provided by operations:
Adjustments to reconcile Net Income to net cash provided by operations:
Depreciation and amortization	5119,~~000~~448			5416,~~031~~496
Accretion and amortization of securities discounts and premiums, net	~~921~~427			~~1,591~~108
Stock-based compensation	577,~~949~~421			4923,~~975~~834
Net unrealized (gains) losses on investments	(2040,~~816~~022		)	40(4,~~446~~684		)
Net gains and earnings on investments	(9,739		)	(36,495		)
Net (gains) losses and earnings on investments	11,830			(6,748		)
Net (gains) losses of consolidated investment vehicles	~~(14~~2,~~904~~158		)	(19,~~954~~561		)
Deferred income taxes	719,~~648~~026			~~(19~~22,~~634~~294		)
Impairment of intangible assets	—			365,200
Contingent consideration fair value adjustments	—			(1,165		)
Tax expense for new Tax Law	—			2,164
Other	(21		)	345
Contingent consideration fair value adjustments	(1,165		)	571
Other	629			286
Decrease (increase) in assets:
Investment advisory and related fees receivable	~~(35~~2,~~807~~639		)	~~38,170~~235
Net (purchases) sales of trading and other investments	(1242,~~316~~790		)	20(4,~~375~~817		)
Other receivables	(131,~~744~~638		)	~~(16~~10,~~555~~661		)
Other assets	~~229~~(15,379		)	(65,~~282~~294		)
Assets of consolidated investment vehicles	54102,~~869~~120			~~(751~~11,400		)
Increase (decrease) in liabilities:
Accrued compensation	20(314,~~084~~376		)	51(300,~~796~~250		)
Deferred compensation	199,~~271~~061			~~(10~~12,~~464~~084		)
Accounts payable and accrued expenses	~~(25~~8,~~259~~558		)	31(10,~~130~~298		)
Other liabilities	9(24,~~510~~260		)	(835,~~376~~398		)
Other liabilities of consolidated investment vehicles	(~~4,379~~768		)	101,~~717~~612
CASH PROVIDED BY OPERATING ACTIVITIES	$	377,084		$	443,989
CASH USED IN OPERATING ACTIVITIES	$	(211,492	)	$	(187,577	)

(Continued)

Table of Contents

LEGG MASON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(Dollars in thousands)

(Unaudited)

	Nine Months Ended December 31,
	Three Months Ended June 30,
	2019			2018
	2020			2019
CASH FLOWS FROM INVESTING ACTIVITIES
Business acquisition, net of cash acquired of $992	$	(10,247	)	$	—
Payments for fixed assets	$	(5,762	)	$	(9,190	)
Payments for fixed assets	(23,209		)	(38,062		)
Returns of capital and proceeds from sales and maturities of investments	65			488
Contingent payment from prior sale of business	—			923
Business investment	(250		)	—
Business investment	(12,793		)	—
Business acquisition, net of cash acquired of $992	—			(10,247		)
Returns of capital and proceeds from sales and maturities of investments	7,170			10,211
CASH USED IN INVESTING ACTIVITIES	(5,947		)	(18,949		)
CASH USED IN INVESTING ACTIVITIES	(39,079		)	(26,928		)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term debt	(250,000		)	—
Increase in short-term borrowings	250,000			—
Dividends paid	(~~102~~36,~~044~~266		)	(8430,~~630~~131		)
Distributions to affiliate noncontrolling interests	(2713,~~906~~676		)	(3216,~~358~~230		)
Payment of contingent consideration	(250		)	(4,319		)
Net (redemptions) subscriptions attributable to noncontrolling interests	(95,228		)	(8,232		)
Purchase of affiliate noncontrolling interests	~~(10,547~~—		)	(1610,~~528~~548		)
Net (redemptions) subscriptions attributable to noncontrolling interests	(32,635		)	(36,328		)
Employee tax withholdings by settlement of net share transactions	(37,152		)	(12,581		)
Employee tax withholdings by settlement of net share transactions	(13,903		)	(15,547		)
Issuances of common stock for stock-based compensation	53,437			9,599
Issuances of common stock for stock-based compensation	12,175			6,029
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES	121,115			(68,123		)
Decrease in short-term borrowings	—			(125,500		)
EFFECT OF EXCHANGE RATES	(945		)	(2,697		)
CASH USED IN FINANCING ACTIVITIES	(425,110		)	(309,181		)
NET DECREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH	(97,269		)	(277,346		)
EFFECT OF EXCHANGE RATES	(12,871		)	(16,470		)
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH	(99,975		)	91,410
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH:
BEGINNING OF PERIOD	~~950~~1,~~795~~049,677			~~773~~950,~~765~~795
END OF PERIOD	$	~~850~~952,~~820~~408		$	~~865~~673,~~175~~449
Supplemental Disclosures
Cash paid for:
Income taxes, net of refunds of $3,736 and $251, respectively	$	14,664		$	30,542
Income taxes	$	4,587		$	4,776
Interest	6710,~~718~~947			6911,~~748~~081
	As of December 31,
	As of June 30,
Reconciliation of cash, cash equivalents and restricted cash	~~2019~~2020			~~2018~~2019
Cash and cash equivalents	$	~~823~~931,~~665~~605		$	~~835~~643,~~168~~574
Restricted cash:
Corporate restricted cash	1720,~~666~~496			22,~~336~~201
Cash and cash equivalents of consolidated investment vehicles	~~7,320~~235			34,~~528~~786
Affiliate employee benefit trust cash included in Other non-current assets	~~2,169~~72			42,~~143~~888
Total cash, cash equivalents and restricted cash per consolidated statements of cash flows	$	~~850~~952,~~820~~408		$	~~865~~673,~~175~~449

See Notes to Consolidated Financial Statements

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LEGG MASON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except per share amounts or unless otherwise noted)

~~December~~June 3130, ~~2019~~2020

(Unaudited)

1. Interim Basis of Reporting

The accompanying unaudited interim consolidated financial statements of Legg Mason, Inc. and its subsidiaries (collectively “Legg Mason”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission (the "SEC"). The interim consolidated financial statements have been prepared using the interim basis of reporting and, as such, reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the results for the periods presented. The preparation of interim consolidated financial statements requires management to make assumptions and estimates that affect the amounts reported in the interim consolidated financial statements and accompanying notes. Actual amounts could differ from those estimates and the differences could have a material impact on the interim consolidated financial statements. Terms such as “we,” “us,” “our,” and “Company” refer to Legg Mason.

The nature of Legg Mason's business is such that the results of any interim period are not necessarily indicative of the results of a full year. Certain disclosures included in the Company's annual report are not required to be included on an interim basis in the Company's Quarterly Reports on Form 10-Q. The Company has condensed or omitted these disclosures. Certain amounts in prior period financial statements have been reclassified to conform to the current period presentation.

The information contained in the interim consolidated financial statements should be read in conjunction with the consolidated financial statements contained within Legg Mason's latest Annual Report on Form 10-K filed with the SEC.

2. Significant Accounting Policies

~~Leases~~Plan of Merger with Franklin Resources, Inc.

~~Effective~~On ~~April~~February 117, ~~2019~~2020, Legg Mason ~~adopted~~entered ~~updated~~into ~~accounting~~an ~~guidance~~Agreement onand ~~leases~~Plan ~~which requires right-~~of~~-use~~ Merger (the "~~ROU~~Merger Agreement") ~~assets~~with ~~and~~Franklin ~~lease~~Resources, ~~liabilities to be recorded on the balance sheet for leases~~Inc. ~~The~~ ~~guidance~~("Franklin ~~specifies~~Templeton") ~~that~~and atAlpha ~~the inception of a contract~~Sub, ~~an entity must determine whether the contract is or contains a lease~~Inc. ~~The~~ ~~contract~~("Merger isSub"), ~~or contains~~ a ~~lease~~wholly ifowned ~~the~~subsidiary ~~contract conveys the right to control the use~~ of ~~the~~Franklin ~~property~~Templeton, ~~plant,~~pursuant ~~or equipment for a designated term in exchange for consideration. Legg Mason’s evaluation of its contracts~~ to ~~determine~~which ~~whether~~the ~~they~~Company ~~are~~will orbe ~~contain~~merged ainto ~~lease~~Merger ~~involves~~Sub ~~assessing~~(the ~~whether~~"Merger"), ~~there~~with ~~is a right to obtain substantially all of~~ the ~~economic~~Company ~~benefits~~continuing ~~from~~as the ~~use~~surviving corporation and ~~the~~a ~~right~~wholly toowned ~~direct~~subsidiary ~~the use~~ of ~~the~~Franklin ~~identified asset in the contract~~Templeton.

~~Legg~~Pursuant ~~Mason~~to ~~adopted~~ the ~~guidance~~Merger onAgreement, aeach ~~modified~~outstanding ~~retrospective~~share ~~basis as~~ of ~~April~~common 1,stock ~~2019,~~of ~~such~~the ~~that~~Company ~~related~~will ~~amounts~~be inconverted ~~prior~~into ~~periods~~the ~~have~~right ~~not been restated. Legg Mason has operating leases that primarily relate~~ to ~~real~~receive ~~property~~from ~~and~~Franklin ~~financing~~Templeton ~~leases that relate to equipment~~$50. As00 ain ~~practical expedient, Legg Mason has elected to not capitalize leases with a term of 12 months or less without a purchase option that it is likely to exercise~~cash. ~~Also~~All asconditions ~~a practical expedient for disclosure, Legg Mason has elected~~ to ~~not separate lease and non-lease components on operating and financing leases. Lease components are payment items directly attributable to~~ the ~~use~~closing of the ~~underlying~~Merger ~~asset,~~have ~~while~~been ~~non-lease~~satisfied ~~components~~and ~~are~~the ~~explicit~~closing ~~elements~~will oftake aeffect ~~contract~~at ~~not directly related to~~ the ~~use~~end of the ~~underlying~~day ~~asset,~~on ~~including~~July ~~pass~~31, ~~through~~2020, ~~operating~~the ~~expenses~~date ~~such~~this asReport ~~common~~is ~~area~~being ~~maintenance, real estate taxes and utilities~~filed.

~~ROU~~Risks ~~assets~~ and lease liabilities are recognized on the consolidated balance sheet at the present value of the future lease payments over the life of the lease term. As implicit rates for leases are not determinable, the Company uses discount rates based on incremental borrowing rates, on a collateralized basis, for the respective underlying assets, for terms similar to the respective leases. Lease costs are included as Occupancy expense in the Consolidated Statements of Income (Loss). Fixed base payments on operating leases paid directly to the lessor are recorded as lease expense on a straight-line basis. Related variable payments based on usage, changes in an index or market rate are expensed as incurred. Payments on financing leases are recorded as lease expense on a level-yield basis.Uncertainties

~~Upon~~In ~~adoption~~March on2020, ~~April~~the 1World Health Organization declared the outbreak of a novel coronavirus ("COVID-19") a global pandemic, ~~2019~~and recommended containment and mitigation measures worldwide. This contagious disease outbreak has adversely affected workforces, ~~Legg~~customers ~~Mason~~and ~~recorded~~economies. During ~~ROU~~the ~~assets~~three ofmonths ~~$342~~ended June 30,~~418~~ 2020, global financial markets began to improve due to government intervention and ~~lease~~the ~~liabilities~~gradual reopening of ~~$411~~impacted businesses. Despite the market improvements,~~115~~ uncertainty remains regarding the extent and duration of business disruptions related to COVID-19 as well as its ~~real~~impact ~~property~~on ~~operating~~the ~~leases~~global ~~and~~economy. In ~~equipment~~addition, ~~financing~~the ~~leases~~United States has seen a resurgence of COVID-19 infections after the initial growth rate was reduced, thus putting into question the ability of impacted businesses to reopen within the United States. AsTherefore, ~~further~~management ~~discussed~~is incurrently ~~Note~~unable 8,to ~~Legg~~determine ~~Mason~~the ~~has~~extent ~~subleased~~of the potential impacts to its financial condition or results of operations.

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or has vacated and is pursuing subleases for certain office space. As of March 31, 2019, the lease reserve liability for subleased space and vacated space for which subleases were being pursued of $24,063 was included in other current and non-current liabilities on the Consolidated Balance Sheet under prior accounting guidance. Upon adoption of the updated guidance, the existing lease reserve liability was reclassified as a reduction of the ROU assets. ROU assets are tested for impairment when circumstances indicate that the carrying values may not be recoverable.

The adoption of this guidance did not require a cumulative effect adjustment or have a material impact on the Consolidated Statements of Income (Loss) or Consolidated Statements of Cash Flows.

See Note 8 for additional information.

Income Taxes

During the three months ended December 31, 2018, discrete tax expenses of approximately $14,100 related to uncertain federal, state and local tax positions (including those related to the Tax Cuts and Jobs Act of 2017), along with approximately $700 of other discrete tax expenses, reduced the effective income tax rate by 5.5 percentage points for the three months ended December 31, 2018. Also, during the three months ended September 30, 2018 and June 30, 2018, tax benefits totaling $2,800 related to the completion of a prior year tax audit along with $1,100 related to other discrete expenses were recognized. Together, the net impact of these discrete tax items reduced the effective income tax rate by 27.4 percentage points for the nine months ended December 31, 2018.

Recent Accounting Developments

In January 2017, the Financial Accounting Standards Board ("FASB") updated guidance to simplify the test for goodwill impairment. The updated guidance still requires entities to perform annual goodwill impairment tests by comparing the fair value of a reporting unit with its related carrying amount, but it eliminates the requirement to potentially calculate the implied fair value of goodwill to determine the amount of impairment, if any. Under the new guidance, an entity should recognize an impairment charge if the reporting unit's carrying amount exceeds the reporting unit’s fair value, in the amount of such excess. The guidance will be effective in fiscal 2021, unless adopted earlier. Legg Mason is evaluating its adoption.

In August 2018, the FASB updated the guidance to clarify accounting for implementation costs incurred for a cloud computing arrangement that is a service contract. The update conforms the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the accounting guidance that provides for capitalization of costs incurred to develop or obtain internal-use-software. The updated guidance is effective for Legg Mason in fiscal 2021, unless adopted earlier. Legg Mason is evaluating its adoption.

In August 2018, the FASB also updated the guidance for fair value measurements. The updated guidance modifies disclosure requirements based on the revised FASB Conceptual Framework for Financial Reporting finalized in August 2018 to improve effectiveness of financial statement disclosures. The updated guidance will be effective in fiscal 2021, unless adopted earlier. Legg Mason is evaluating its adoption.

In December 2019, the FASB updated guidance to simplify the accounting for income taxes by removing certain exceptions to the general principles of income tax accounting guidance to reduce the costs and complexity of application. These exceptions relate to intraperiod allocations, deferred tax liabilities with respect to foreign subsidiaries and foreign equity method investments, and income tax benefits recognized on interim period losses. The updated guidance also amends and clarifies other areas of income tax accounting guidance to improve consistency and simplify application. The updated guidance will be effective in fiscal 2022, unless adopted earlier. Legg Mason is evaluating its adoption.

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3. Investments and Fair Value of Assets and Liabilities

The disclosures below include details of Legg Mason's financial assets and financial liabilities that are measured at fair value and net asset value ("NAV"), excluding the financial assets and financial liabilities of consolidated investment vehicles ("CIVs"). See Note 16, Variable Interest Entities and Consolidation of Investment Vehicles, for information related to the assets and liabilities of CIVs that are measured at fair value or NAV.

The fair values of financial assets and (liabilities) of the Company were determined using the following categories of inputs:

	As of December 31, 2019
	As of June 30, 2020
	Quoted prices in active markets(Level 1)			Significant other observable inputs(Level 2)			~~Significant unobservable inputs(Level 3)~~	Significant unobservable inputs(Level 3)			~~Investments measured at NAV~~	Investments measured at NAV		~~Total~~		Total
Assets:
Cash equivalents(1)	$	~~429~~326,~~557~~224		$	13259,~~098~~387		$	—$	—		$	—$	—	$	~~442,655~~	$	585,611
Equity investments:(2)
Seed capital investments	7364,~~738~~863			2927,~~352~~711			~~21,546~~	41,626			~~1,650~~	1,072		~~126,286~~		135,272
Investments related to long-term incentive plans	~~258~~260,~~040~~028			—			—	—			—	—		~~258,040~~		260,028
Other investments	147,~~965~~936			21,~~027~~518			—	—			—	—		~~16,992~~		9,454
Equity method investments:(3)
Seed capital investments(4)	—			—5,000			~~43,340~~	41,716			~~12,035~~	12,695		~~55,375~~		59,411
Investments related to long-term incentive plans(2)	—			—			—				7,625			7,625
Investments related to long-term incentive plans	—			2,500		(4	)	—				8,556		(2	)	11,056
Other investments(4)	—			—			53	141			~~9,533~~	8,333		~~9,586~~		8,474
Adjusted cost investments(4)	—			73			26,366				—			26,439
Derivative assets(5)	4,173			—				—				—				4,173
Derivative assets(5)	3,074			—			—				—			3,074
Total(6)	$	663,224		$	296,116			$	83,483			$	30,656			$	1,073,479
Total	$	779,374		$	44,550		$	91,305			$	30,843		$	946,072
Liabilities:
Liabilities:
Contingent consideration liabilities(7)	$	—		$	—			$	(3,380	)		$	—			$	(3,380	)
Contingent consideration liabilities(6)	$	—		$	—		$	(3,376	)		$	—		$	(3,376	)
Derivative liabilities(5)	(1,557		)	—				—				—				(1,557		)
Derivative liabilities(5)	(1,362		)	—			—				—			(1,362		)
Total	$	(1,557	)	$	—			$	(3,380	)		$	—			$	(4,937	)
Total	$	(1,362	)	$	—		$	(3,376	)		$	—		$	(4,738	)

1110

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	As of March 31, 2019
	As of March 31, 2020
	Quoted prices in active markets(Level 1)			Significant other observable inputs(Level 2)		Significant unobservable inputs(Level 3)			Investments measured at NAV		Total
Assets:
Cash equivalents(1)	$	~~556~~594,~~231~~514		$	2012,~~160~~521	$	—		$	—	$	~~576~~607,~~391~~035
Equity investments:(2)
Seed capital investments	9848,~~276~~940			3019,~~601~~538		138,~~455~~895			21,~~183~~360		~~132~~108,~~515~~733
Investments related to long-term incentive plans	~~211~~210,~~802~~891			—		—			—		~~211~~210,~~802~~891
Other investments	1912,~~486~~406			21,~~142~~577		—			—		2113,~~628~~983
Equity method investments:(3)
Seed capital investments(4)	—			—		4043,~~854~~059			1012,~~675~~571		5155,~~529~~630
Investments related to long-term incentive plans(2)	—			—		—			115,~~184~~287		115,~~184~~287
Other investments(4)	—			—		~~1,218~~48			108,~~251~~371		118,~~469~~419
Adjusted cost investments(4)	—			74		12,171			—		12,245
Derivative assets(5)	4,716			—		—			—		4,716
Derivative assets(5)	4,183			—		—			—		4,183
Total(6)	$	871,467		$	33,636	$	82,002		$	27,589	$	1,014,694
Total	$	889,978		$	52,977	$	55,698		$	34,293	$	1,032,946
Liabilities:
Contingent consideration liabilities(6)	$	—		$	—	$	(1,415	)	$	—	$	(1,415	)
Contingent consideration liabilities(7)	$	—		$	—	$	(3,308	)	$	—	$	(3,308	)
Derivative liabilities(5)	(713,~~579~~872		)	—		—			—		(713,~~579~~872		)
Total	$	(713,~~579~~872	)	$	—	$	(13,~~415~~308	)	$	—	$	(817,~~994~~180	)


(1)	Cash investments in actively traded money market funds are classified as Level 1. Cash investments in time deposits and other are measured at amortized cost, which approximates fair value because of the short time between purchase of the instrument and its expected realization and are classified as Level 2.


(2)	Included in Investment securities on the Consolidated Balance Sheets.

(3) Primarily investments in private equity and real estate funds. These equity method investments are investment companies that primarily record underlying investments at fair value. Therefore, the fair value of these investments is measured using Legg Mason's share of the investee's underlying net income or loss, which is predominately representative of fair value adjustments in the investments held by the equity method investee. Other equity method investments not measured at fair value on a recurring basis of $2728,~~051~~694 and $28,~~160~~373 as of ~~December~~June 3130, ~~2019~~2020 and March 31, ~~2019~~2020, respectively, are excluded from the tables above.


(4)	Included in Other noncurrent assets in the Consolidated Balance Sheets.


(5)	See Note 14.

(6) ~~See~~The ~~Note~~tables 9above exclude adjusted cost investments not measured at fair value on a recurring basis of $25,099 and $19,729 as of June 30, 2020 and March 31, 2020, respectively.

~~The net realized and unrealized gains~~ (~~losses~~7) ~~for~~See ~~investment~~Note securities classified as equity investments were $25,698 and $(34,793) for the three months ended December 31, 2019 and 2018, respectively, and $30,938 and $(25,246) for the nine months ended December 31, 2019 and 2018, respectively9.

The net realized and unrealized gains ~~(losses)~~for ~~relating~~investment tosecurities ~~equity~~classified ~~investments still held~~ as ofequity ~~the~~investments ~~reporting date~~ were $2145,~~441~~250 and $~~(38~~10,~~741)~~153 for the three months ended ~~December~~June 3130, ~~2019~~2020 and ~~2018, respectively, and $13,765 and $(51,313) for the nine months ended December 31,~~ 2019 ~~and 2018~~, respectively.

~~Seed~~The ~~capital~~net ~~investments~~unrealized ~~represent~~gains ~~investments~~relating ~~made by Legg Mason~~ to ~~fund~~equity ~~new~~investments ~~investment~~still ~~products~~held ~~and~~as ~~strategies. As~~ of ~~December~~the ~~31,~~reporting ~~2019~~date ~~and~~were ~~March 31, 2019, seed capital investments totaled~~ $~~220~~44,~~077~~554 and $~~227,756, respectively, with investments in excess of $~~1,~~000~~572 infor ~~45 funds and 52 funds, respectively, comprising over 90% of~~ the ~~total~~three atmonths ~~each~~ended ~~period~~June ~~end. Seed capital investments presented in the tables above exclude $38~~30,~~416~~ ~~and~~2020 ~~$43,712, as of December 31, 2019~~ and ~~March 31,~~ 2019, respectively~~, which is related to Legg Mason's investments in CIVs~~. ~~See Note 16 for additional information regarding Legg Mason's investments in CIVs.~~

12Seed capital investments represent investments made by Legg Mason to fund new and existing investment products and strategies. As of June 30, 2020 and March 31, 2020, seed capital investments totaled $210,980 and $192,760, respectively, with investments in excess of $1,000 in 41 funds in each period comprising over 85% of the total at each period end. Seed capital investments presented in the tables above exclude $16,297 and $28,397, as of June 30, 2020 and March 31, 2020, respectively, which is related to Legg Mason's investments in CIVs. See Note 16 for additional information regarding Legg Mason's investments in CIVs.

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The changes in financial assets and (liabilities) measured at fair value using significant unobservable inputs (Level 3) are presented in the tables below:

	Balance as of September 30, 2019			Purchases		Sales		Redemptions/ Settlements/ Other			Transfers		Realized and unrealized gains/(losses), net			Balance as of December 31, 2019
	Balance as of March 31, 2020			Purchases		Sales		Redemptions/ Settlements/ Other			Transfers		Realized and unrealized gains/(losses), net			Balance as of June 30, 2020
Assets:
Equity investments - seed capital	$	2038,~~200~~895		$	12,~~000~~655	—$	—	—$	—		—$	—	~~346~~$	76		~~21,546~~$	41,626
Equity method investments:
Seed capital investments	43,~~252~~059			~~283~~93		—		(~~2,073~~232		)	—		(1,~~878~~204		)	4341,~~340~~716
Other	~~1,297~~48			—		—		(~~1,209~~4		)	—		~~(35~~97		)	53141
Adjusted cost investments	22,869			3,497		—		—			—		—			26,366
	$	82,002		$	2,748	$	—	$	(236	)	$	—	$	(1,031	)	$	83,483
	$	87,618		$	3,780	$	—	$	(3,282	)	$	—	$	1,843		$	91,305
Liabilities:
Contingent consideration liabilities	$	(3,~~625~~308	)	$	—	n/a		$	~~250~~—		n/a		$	(172	)	$	(3,~~376~~380	)

	Balance as of September 30, 2018			Purchases			Sales		Redemptions/ Settlements/ Other			Transfers		Realized and unrealized gains/(losses), net			Balance as of December 31, 2018
	Balance as of March 31, 2019			Purchases			Sales		Redemptions/ Settlements/ Other			Transfers		Realized and unrealized gains/(losses), net			Balance as of June 30, 2019
Assets:
Equity investments - seed capital	$	1,~~394~~455		$	—		$	—	$	—(1,457	)	$	—	$	~~(128~~2	)	$	~~1,266~~—
Equity method investments:
Seed capital investments	3740,~~020~~854			51,~~516~~913			—		(~~1,880~~678		)	—		~~398~~427			4142,~~054~~516
Other	1,~~840~~218			—			—		(1913		)	—		—17			1,~~821~~222
Adjusted cost investments	10,906			1,063			—		—			—		3			11,972
	$	43,527		$	1,913		$	—	$	(2,148	)	$	—	$	446		$	43,738
	$	51,160		$	6,579		$	—	$	(1,899	)	$	—	$	273		$	56,113
Liabilities:
Contingent consideration liabilities	$	(1,~~900~~415	)	$	—(3,389	)	n/a		$	—		n/a		$	—1,179		$	(13,~~900~~625	)

13Realized and unrealized gains and losses recorded for Level 3 investments are included in Other non-operating income (expense), net, in the Consolidated Statements of Income. The change in unrealized gains for Level 3 investments and liabilities still held at the reporting date was $1,104 and $1,626, and for the three months ended June 30, 2020 and 2019, respectively.

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	Balance as of March 31, 2019			Purchases			Sales		Redemptions/ Settlements/ Other			Transfers		Realized and unrealized gains/(losses), net		Balance as of December 31, 2019
Assets:
Equity Investments - seed capital	$	1,455		$	21,200		$	—	$	(1,457	)	$	—	$	348	$	21,546
Equity method investments:
Seed capital investments	40,854			2,621			—		(3,045		)	—		2,910		43,340
Other	1,218			—			—		(1,222		)	—		57		53
Adjusted cost investments	12,171			14,318			—		(125		)	—		2		26,366
	$	55,698		$	38,139		$	—	$	(5,849	)	$	—	$	3,317	$	91,305
Liabilities:
Contingent consideration liabilities	$	(1,415	)	(3,389		)	n/a		$	250		n/a		$	1,178	$	(3,376	)

As of April 1, 2020, Legg Mason adopted updated accounting guidance which modified the disclosure requirements for fair value measurements. Under the updated guidance companies are required to disclose the range and weighted average used to develop significant unobservable inputs used in Level 3 fair value measurements, which for Legg Mason were as follows:

	Balance as of March 31, 2018			Purchases			Sales		Redemptions/ Settlements/ Other			Transfers		Realized and unrealized gains/(losses), net			Balance as of December 31, 2018
As of June 30, 2020	Fair Value			Valuation Techniques		Significant Unobservable Inputs	Range (Weighted-Average)
Assets:
Equity method investments - seed capital:
Equity Investments - seed capital	$	1,242		$	—		$	—	$	—		$	—	$	24		$	1,266
Real estate fund investments	$	22,007		Discounted cash flows		Discount rate	5.5%-11.8% (6.7%)
Equity method investments:
						Exit capitalization rate	4.3%-8.9% (5.3%)
Seed capital investments	33,725			9,483			—		(4,280		)	—		2,126			41,054
Real estate fund investments	19,709			Discounted cash flows		Discount rate	5.3%-8.8% (6.6%)
Other	—			1,650			—		(19		)	—		190			1,821
	$	41,716				Exit capitalization rate	4.3%-9.4% (5.6%)
Adjusted cost investments	6,951			5,063			—		(2		)	—		(40		)	11,972
						Credit spreads	1.4%-8.3% (2.0%)
	$	41,918		$	16,196		$	—	$	(4,301	)	$	—	$	2,300		$	56,113
						Loan to value ratio	14.8%-76.8% (46.7%)
Liabilities:
Equity investments - seed capital:
Contingent consideration liabilities	$	(5,607	)	$	—		n/a		$	4,319		n/a		$	(612	)	$	(1,900	)
Real estate fund investments and loans	$	41,626		Discounted cash flows		Discount rate	6.5%-6.5% (6.5%)
						Exit capitalization rate	6.0%-6.0% (6.0%)
						Credit spreads	9.3%-9.3% (9.3%)
						Loan to value ratio	82.9%-82.9% (82.9%)

Realized and unrealized gains and losses recorded for Level 3 investments are included in Other non-operating income (expense), net, in the Consolidated Statements of Income (Loss). The change in unrealized gains for Level 3 investments and liabilities still held at the reporting date was $1,776 and $275 for the three months ended December 31, 2019 and 2018, respectively, and $4,089 and $2,336 for the nine months ended December 31, 2019 and 2018, respectively.

Level 3 purchases for the nine months ended December 31, 2019 reflect a seed capital investment in a real estate-focused fund designed for individual investors and an adjusted cost minority investment in a U.K. retirement solutions provider. There were no significant transfers between Level 1 and Level 2 during the three or nine months ended December 31, 2019 and 2018.

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As a practical expedient, Legg Mason relies on the NAV of certain investments as their fair value. The NAVs that have been provided by the investees have been derived from the fair values of the underlying investments as of the respective reporting dates. The following table summarizes the nature of these investments and any related liquidation restrictions or other factors which may impact the ultimate value realized:

Fair Value Determined Using NAV

As of ~~December~~June 3130, ~~2019~~2020

Category of Investment

Investment Strategy

~~December~~June 3130, ~~2019~~2020

March 31, ~~2019~~2020

Unfunded Commitments

Remaining Term

Funds-of-hedge funds

Global macro, fixed income, long/short equity, natural resources, systematic, emerging market, European hedge

11,~~905~~638

(1)

911,~~910~~966

n/a

Hedge funds

Fixed income - developed market, event driven, fixed income - hedge, relative value arbitrage, European hedge

1,~~049~~383

1,~~515~~212

n/a

Private equity funds

Long/short equity

109,~~244~~057

(2)

119,~~636~~101

5,~~698~~622

Up to 109 years

Equity method investments related to long-term incentive plans

Alternatives, structured securities, short-dated fixed income

78,~~625~~556

(2)

115,~~185~~287

n/a

Other

Various

2022

4723

n/a

Various

Total

30,~~843~~656

3427,~~293~~589

5,~~698~~622

n/a - not applicable

(1) Liquidation restrictions: 146% monthly redemption, ~~1% quarterly redemption,~~ and 8594% are not subject to redemption or are not currently redeemable.


(2)	Liquidations are expected over the remaining term.

There are no current plans to sell any of these investments held as of ~~December~~June 3130, ~~2019~~2020.

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4. Acquisition

On April 10, 2019, Clarion Partners acquired a majority stake in Gramercy Europe (Jersey) Limited ("Gramercy"), a European real estate investment business specializing in pan-European logistics and industrial assets. The transaction required an initial cash payment of $10,247 (net of cash acquired), which was paid by Clarion Partners using existing cash resources, and a potential contingent consideration payment of up to approximately $3,735 (using the foreign exchange rate as of April 10, 2019, for the €3,315 potential payment), due on the fifth anniversary of closing upon the achievement of certain financial metrics.

In connection with the acquisition, Clarion Partners recognized an amortizable intangible asset management contracts asset of $5,876, with a useful life of eight years at acquisition, goodwill of $20,196, and noncontrolling interest of $11,715. The fair value of the contingent consideration at acquisition was $3,389.

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5. Fixed Assets

The following table reflects the components of fixed assets as of:

	December 31, 2019			March 31, 2019
	June 30, 2020			March 31, 2020
Software	$	~~276~~283,~~096~~216		$	~~269~~279,~~944~~038
Leasehold improvements	~~213~~196,~~439~~301			~~212~~210,~~742~~419
Equipment	~~162~~161,~~795~~932			~~159~~162,~~421~~372
Total cost	~~652~~641,~~330~~449			~~642~~651,~~107~~829
Less: accumulated depreciation and amortization	(~~513~~515,~~495~~336		)	(~~492~~517,~~118~~406		)
Fixed assets, net	$	~~138~~126,~~835~~113		$	~~149~~134,~~989~~423

Depreciation and amortization expense related to fixed assets was $1213,~~252~~945 and $11,~~799~~040, for the three months ended ~~December~~June 3130, ~~2019~~2020 and ~~2018, respectively, and $34,098 and $35,659 for the nine months ended December 31,~~ 2019 ~~and 2018~~, respectively.

6. Intangible Assets and Goodwill

The following table reflects the components of intangible assets as of:

	December 31, 2019			March 31, 2019
	June 30, 2020			March 31, 2020
Amortizable intangible asset management contracts and other
Cost	$	~~372~~370,~~808~~537		$	~~366~~369,~~930~~193
Accumulated amortization	(~~257~~266,~~410~~736		)	(~~240~~259,~~488~~982		)
Net(1)	115,398			126,442
Net	103,801			109,211
Indefinite–life intangible assets
U.S. domestic mutual fund management contracts	2,106,351			2,106,351
Clarion Partners fund management contracts	505,200			505,200
EnTrust Global fund management contracts	126,804			126,804
Other fund management contracts	~~475~~466,~~069~~036			~~473~~460,~~360~~033
Trade names	48,~~695~~278			48,~~602~~091
	3,262,119			3,260,317
	3,252,669			3,246,479
Intangible assets, net	$	3,~~377~~356,~~517~~470		$	3,~~386~~355,~~759~~690

(1) As of December 31, 2019, includes $5,305 related to the acquisition of Gramercy by Clarion Partners. See Note 4 for additional information.

Certain of Legg Mason's intangible assets are denominated in currencies other than the U.S. dollar and balances related to these assets will fluctuate with changes in the related foreign currency exchange rates.

Indefinite-life Intangible Assets and Goodwill

Legg Mason performed its 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. As a result of uncertainty regarding future market conditions and economic results, assessing the fair value of the reporting unit and intangible assets requires management to exercise significant judgment.

~~Legg Mason's goodwill impairment testing noted the assessed fair value of the Global Asset Management business reporting unit exceeded its related carrying value by 22%.~~14

The assessed fair values of the EnTrust Global indefinite-life fund management contracts and trade name assets exceeded their respective carrying values of $126,804 and $10,300 by 10% and 6%, respectively.

Should market performance, flows, and/or related assets under management ("AUM") levels decrease in the near term, or other factors change, such that cash flow projections deviate from current projections, it is reasonably possible that these assets could become impaired, and the impairment could be a material amount.

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Given the level of market disruption associated with COVID-19 during the three months ended March 31, 2020, Legg Mason ~~also~~assessed whether a triggering event had occurred for each of its identifiable indefinite-life intangible assets and goodwill as of March 31, 2020. Certain indefinite-life intangible assets were determined ~~that~~to nohave had triggering events ~~occurred~~due to a combination of significant market volatility and uncertainty and limited excess fair value over the related carrying values in our most recent annual impairment testing as of ~~December~~October 31, 2019. Legg Mason updated the quantitative analyses for these indefinite-life intangible assets as of March 31, 2020 and determined that ~~would~~there ~~require~~was ~~further~~no impairment ~~testing.~~in the value of these assets.

Legg Mason's ~~annual~~also ~~impairment testing process in the prior fiscal year~~ determined that ~~the~~no ~~carrying~~triggering ~~values~~events ofoccurred ~~the~~during ~~EnTrust Global indefinite-life fund management contracts and trade name assets, and~~ the ~~RARE~~three ~~Infrastructure~~months ~~indefinite-life~~ended ~~fund~~June ~~management contracts and trade name assets~~30, ~~exceeded~~2020 ~~their~~that ~~respective~~would ~~fair~~require ~~values,~~further ~~which resulted in~~ impairment ~~charges totaling $358,800 in the quarter ended December 31, 2018~~testing.

~~The~~As ~~impairment~~a ~~charges at EnTrust Global in the prior year were primarily the~~ result of ~~continued~~uncertainty ~~net~~regarding ~~client~~future ~~outflows~~market ~~from~~conditions ~~legacy high net worth fund-of-fund products leading to reduced growth expectations in both management fees~~ and ~~performance~~economic ~~fees~~results, aassessing ~~declining margin, and a higher discount rate. These changes resulted in a reduction of~~ the ~~projected cash flows and Legg Mason’s overall assessment of~~ fair value of the ~~assets,~~reporting ~~such~~unit ~~that~~and ~~the carrying values of the EnTrust Global fund management contracts~~ intangible ~~asset of $401,404 and trade name asset of $28,500 were impaired by $274,600 and $18,200, respectively. Management estimated the fair values of these~~ assets ~~based~~requires upon discounted cash flow analyses, as well as a relief from royalty method for the trade name asset, using unobservable market inputs, which are Level 3 measurements. The significant assumptions used in the cash flow analyses included projected revenue growth rates, discount rates, and royalty rates. Base revenues related to the EnTrust Global fund management ~~contracts were assumed~~ to ~~have~~exercise ~~annual~~significant ~~growth (contraction) rates ranging from (19~~judgment.4)% to 3.9% (average: 3.0%), and the projected cash flows from the EnTrust Global fund management contracts were discounted at 17%. Base revenues related to the EnTrust Global trade name asset were assumed to have annual growth rates ranging from 0.0% to 4.6% (average: 3.9%), a royalty rate of 1.0%, and a discount rate of 16.5%.

The ~~impairment~~assessed ~~charges~~fair atvalues ~~RARE~~of ~~Infrastructure in~~ the ~~prior~~EnTrust ~~year~~Global ~~were~~indefinite-life ~~primarily~~fund ~~the~~management ~~result~~contracts ~~of lower than expected net client inflows~~ and ~~performance~~trade ~~fees,~~name ~~leading to a lower margin, and a higher discount rate. These changes resulted in a reduction of the related projected cash flows and Legg Mason’s overall assessment of fair value of the~~ assets, ~~such~~exceeded ~~that~~their ~~the~~respective ~~RARE Infrastructure fund management contracts asset~~ carrying ~~value~~values of ~~approximately~~ $~~120~~126,~~800~~804 and ~~trade name asset carrying value of~~ $210,~~800~~300 ~~were impaired~~ by ~~$65,000~~10% and $16%,~~000,~~ respectively., ~~Management~~as ~~estimated the fair values~~ of ~~these~~October ~~assets based upon discounted cash flow analyses~~31, as2019. Given ~~well~~uncertain asmarkets aand ~~relief from royalty method for~~ the ~~trade~~relatively ~~name~~limited ~~asset,~~excess ~~using~~fair ~~unobservable~~value ~~market~~as ~~inputs,~~of ~~which are Level 3 measurements. The significant assumptions used in~~ the ~~cash~~most ~~flow~~recent ~~analyses~~impairment ~~included projected revenue growth rates~~test, ~~discount rates, and royalty rates. Base revenues related to~~ the ~~RARE~~EnTrust ~~Infrastructure~~Global fund management contracts ~~were~~asset ~~assumed~~was deemed to have ~~annual~~had ~~growth~~a ~~rates~~triggering ~~ranging~~event ~~from~~as ~~4.4%~~of toMarch ~~4.9% (average: 4.8%)~~31, 2020 and ~~the~~was ~~projected~~tested ~~cash~~for ~~flows from the RARE Infrastructure fund management contracts were discounted at 16~~impairment.~~5%.~~ The ~~Base revenues~~ related tofair ~~the~~value ~~RARE~~exceeded ~~Infrastructure~~its ~~trade~~carrying ~~name~~value ~~asset~~by ~~were~~approximately ~~assumed to have annual growth rates ranging from 0.9~~1% toas ~~4.6%~~of ~~(average:~~March ~~4.2%)~~31, ~~a royalty rate of 1~~2020.~~0%, and a discount rate of 16.5%.~~

The EnTrust Global trade name asset was also deemed to have had a triggering event and was tested for impairment as of March 31, 2020. The resulting fair value of the EnTrust Global trade name asset exceeded the carrying value by approximately 3%.

Should market performance, flows, and/or related AUM levels decrease in the near term, or other factors change, such that cash flow projections deviate from current projections, it is reasonably possible that our indefinite-life intangible assets or goodwill could become impaired, and the impairment could be a material amount.

The change in carrying value of goodwill is summarized below:

	Gross Book Value			Accumulated Impairment			Net Book Value
Balance as of March 31, 2019	$	3,045,454		$	(1,161,900	)	$	1,883,554
Balance as of March 31, 2020	$	3,009,666		$	(1,161,900	)	$	1,847,766
Impact of excess tax basis amortization	(82,~~256~~856		)	—			(82,~~256~~856		)
Changes in foreign exchange rates	~~603~~17,763			—			~~603~~17,763
Business acquisition(1)	20,196			—			20,196
Balance as of June 30, 2020	$	3,024,573		$	(1,161,900	)	$	1,862,673
Balance as of December 31, 2019	$	3,057,997		$	(1,161,900	)	$	1,896,097

(1) See Note 4 for additional information.

Amortizable Intangible Asset Management Contracts and Other

There were no impairments to amortizable management contract intangible assets during the three ~~or nine~~ months ended ~~December~~June 3130, 2020 or 2019.

~~During~~As ~~the~~of ~~three~~June ~~months ended December 31~~30, ~~2018~~2020, ~~projected~~amortizable ~~revenues~~intangible ~~related~~asset tomanagement ~~the RARE Infrastructure separate account~~ contracts ~~asset declined due to losses of separate account clients~~ and ~~AUM.~~other ~~Based~~are onbeing ~~revised~~amortized ~~attrition~~over ~~estimates,~~a ~~the~~weighted-average remaining ~~useful~~ life ~~was~~of ~~decreased~~5.2 ~~from three and one-half to two~~ years ~~at December 31, 2018~~. ~~As a result of the decline in projected~~

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revenues and the revised estimate of useful life, the amortized carrying value of approximately $6,900 as of December 31, 2018 was determined to exceed its fair value and an impairment charge of $6,400 was recorded during the three months ended December 31, 2018. Management estimated the fair value of this asset as of December 31, 2018, based on a discounted cash flow analysis using unobservable market inputs, which are Level 3 measurements. In addition to the useful life, other significant assumptions used in the cash flow analysis included projected revenue growth rates of 7% and a discount rate of 16.5%.

As of December 31, 2019, amortizable intangible asset management contracts and other are being amortized over a weighted-average remaining life of 5.6 years.

Estimated amortization expense for each of the next five fiscal years and thereafter is as follows:

Remaining fiscal 2020	$	5,640
Remaining fiscal 2021	$	16,265
2021	21,834
2022	21,415
2022	21,485
2023	20,655
2023	20,725
2024	19,825
2024	19,896
2025	12,050
Thereafter	2513,~~818~~591
Total	$	~~115~~103,~~398~~801

~~7. Long-Term Debt~~ 15

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7. Short-Term Borrowings and Long-Term Debt

Short-term borrowings

Legg Mason maintains an unsecured credit agreement (as amended from time to time the "Credit Agreement") which provides for a $500,000 multi-currency revolving credit facility. Under the terms of the Merger Agreement, Legg Mason may not borrow more than $30,000 under the revolving credit facility, without the prior consent of Franklin Templeton.

On April 3, 2020, Legg Mason borrowed $250,000 under the Credit Agreement, with Franklin Templeton's consent, as a precautionary measure to provide additional liquidity for general corporate purposes amid heightened uncertainty due to the COVID-19 pandemic. These borrowings were repaid in full on July 21, 2020 using existing cash resources. There were no borrowings outstanding under the Credit Agreement as of March 31, 2020. As of June 30, 2020, the effective interest rate on the outstanding borrowings was 2.6%.

Long-term debt

Long-term debt, net, consists of the following:

	December 31, 2019									March 31, 2019
	June 30, 2020									March 31, 2020
	Carrying Value		Unamortized Discount (Premium)			Unamortized Debt Issuance Costs		Maturity Amount		Carrying Value
3.95% Senior Notes due July 2024	$	~~248~~249,~~917~~035	$	~~206~~184		$	~~877~~781	$	250,000	$	248,~~738~~976
4.75% Senior Notes due March 2026	447,~~786~~963		—			2,~~214~~037		450,000		447,~~521~~875
5.625% Senior Notes due January 2044	548,~~079~~119		(2,~~938~~877		)	4,~~859~~758		550,000		548,~~020~~099
6.375% Junior Notes due March 2056	242,~~614~~716		—			7,~~386~~284		250,000		242,~~461~~665
5.45% Junior Notes due September 2056	485,~~017~~221		—			14,~~983~~779		500,000		~~484~~485,~~711~~118
2.7% Senior Notes due July 2019	—		—			—		—		250,301
Total	$	1,973,054	$	(2,693	)	$	29,639	$	2,000,000	$	1,972,733
Subtotal	1,972,413		(2,732		)	30,319		2,000,000		2,221,752
Less: Current portion	—		—			—		—		(250,301		)
Total	$	1,972,413	$	(2,732	)	$	30,319	$	2,000,000	$	1,971,451

OnAs ~~July~~of 15June 30, ~~2019~~2020, ~~Legg Mason repaid the~~ $250,000 of ~~2.7%~~Legg ~~Senior~~Mason's ~~Notes~~long-term ~~due~~debt ~~July~~matures ~~2019,~~in ~~using~~fiscal ~~existing~~2025 ~~cash~~and ~~resources. The remaining~~ $21,~~000~~750,000 ~~of long-term debt outstanding as of December 31, 2019~~ matures after fiscal ~~2024~~2025.

As of ~~December~~June 3130, ~~2019~~2020, the estimated fair value of long-term debt was $2,~~170~~203,~~660~~929. The fair value of debt was estimated using publicly quoted market prices and was classified as Level 2 in the fair value hierarchy.

8. Leases

Legg Mason leases over 1,~~500~~357 square feet of office space with approximately one-third currently subleased to various firms, the majority of which are within the U.S. Office facilities and equipment are leased under various non-cancelable operating leases and certain equipment is also leased under financing leases. Legg Mason's current leases have remaining terms that vary up to 1918 years. Certain leases provide for options to extend for periods of up to 1512 years and/or options to terminate within seven years.

The following table reflects leases included in the Consolidated Balance Sheets as of:



	Classification	June 30, 2020			March 31, 2020
Operating leases:
Operating lease ROU assets	Right-of-use assets	$	279,580		$	290,167
Operating lease liabilities	Lease liabilities	345,384			355,483
Finance leases:
Property and equipment, gross	Right-of-use assets	$	2,011		$	2,011
Less: accumulated depreciation	Right-of-use assets	(1,063		)	(836		)
Property and equipment, net		$	948		$	1,175
Finance lease liabilities	Lease liabilities	$	848		$	1,068

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AsROU ~~previously~~assets ~~disclosed~~that ininvolve ~~Note 2, the lease reserve liability related to our~~ subleased ~~space~~or ~~and~~vacant ~~vacated~~ space ~~for~~aggregate ~~which~~$72,942 ~~subleases~~and ~~are~~$71,257 ~~being~~as ~~pursued~~of ~~was~~June ~~$24~~30,~~063~~ as2020 ofand March 31, ~~2019~~2020, respectively. ~~Upon~~These ~~adoption~~assets ofmay ~~the~~become ~~updated~~impaired ~~lease~~if ~~accounting~~tenants ~~guidance~~are onunable ~~April~~to 1,service ~~2019,~~their ~~the~~obligations ~~existing~~under ~~Other~~the ~~current~~sublease, and/or ~~non-current~~if ~~liabilities~~the ~~were~~estimates ~~reclassified~~ as ato ~~reduction~~occupancy ofare ~~the~~not ~~ROU~~realized, ~~asset~~either ~~recorded~~of inwhich ~~accordance~~may ~~with~~be ~~the~~more ~~updated~~likely ~~guidance~~as COVID-19 impacts evolve.

The components of lease expense included in the Consolidated Statements of Income were as follows:

	Classification	As of December 31, 2019
		Three Months Ended June 30,
Operating leases:
	Classification	2020			2019
Operating lease ROU assets	Right-of-use assets	$	294,174
Operating lease cost	Occupancy expense	$	24,622		$	20,921
Operating lease liabilities	Lease liabilities	361,921
Financing lease cost:
Finance leases:
Amortization of right-of-use asset	Occupancy expense	237			241
Property and equipment, gross	Right-of-use assets	$	2,134
Interest on lease liabilities	Interest expense	8			13
Less: accumulated depreciation	Right-of-use assets	(643		)
Total finance lease cost		245			254
Property and equipment, net		$	1,491
Short-term lease cost	Occupancy expense	281			1,845
Finance lease liabilities	Lease liabilities	$	1,367
Variable lease cost(1)	Occupancy expense	6,232			5,003
Less: sublease billings	Occupancy expense	(5,769		)	(6,234		)
Net lease cost(2)		$	25,611		$	21,789

	Classification	Three Months Ended December 31, 2019			Nine Months Ended December 31, 2019
Operating lease cost	Occupancy expense	$	25,361		$	67,172
Financing lease cost:
Amortization of right-of-use asset	Occupancy expense	251			737
Interest on lease liabilities	Interest expense	11			36
Total finance lease cost		262			773
Short-term lease cost	Occupancy expense	1,190			4,885
Variable lease cost(1)	Occupancy expense	6,599			17,788
Less: sublease billings	Occupancy expense	(6,091		)	(18,624		)
Net lease cost(2)		$	27,321		$	71,994

(1) Variable lease cost includes operating expenses, real estate and other taxes and other amounts that fluctuate in amount and are therefore excluded from fixed base rent.

(12) ~~Variable~~Excludes ~~lease~~other ~~cost~~occupancy ~~includes~~expense ~~operating~~of ~~expenses~~$6,406 ~~real estate~~ and ~~other~~$3,917 ~~taxes. Variable~~for ~~lease~~the ~~costs~~three ~~are~~months ~~determined~~ended byJune ~~whether~~30, ~~they~~2020 ~~are to be included in base rent~~ and if2019, ~~amounts~~respectively, ~~are~~related ~~based~~to onleasehold ~~a consumer price index~~amortization.

~~(2)~~During ~~Excludes~~the ~~other~~quarter ~~occupancy~~ended ~~expense~~June 30, 2020, in connection with Legg Mason's strategic restructuring, as further discussed in Note 15, it was determined that the carrying value of a right-of-use asset would not be recoverable. A related impairment charge of $53,~~292~~681 ~~and~~(exclusive of accelerated depreciation of $132,~~123~~740) ~~for~~was ~~the~~recognized ~~three~~in ~~and~~the ~~nine~~quarter ~~months~~ ended ~~December~~June 3130, ~~2019~~2020, ~~respectively~~and is included in operating lease cost in the table above and in Occupancy expense in the Consolidated Statement of Income. The fair value of the right-of-use asset was estimated based on various Level 3 assumptions, ~~related~~that consider the prevailing rental rates in the applicable market and the amount of time it will take to ~~leasehold~~secure ~~amortization~~a sublease agreement.

~~During~~Undiscounted ~~the~~future ~~quarter~~cash ~~ended~~flows ~~December~~for ~~31,~~each ~~2019, in connection with Legg Mason's strategic restructuring, as further discussed in Note 15, it was determined that the carrying values~~ of ~~certain right-of-use assets would not be recoverable. Related impairment charges of $4,328 (exclusive of accelerated depreciation of $1,603) were recognized in~~ the ~~three~~next ~~months~~five ~~ended~~fiscal ~~December~~years ~~31, 2019,~~ and ~~are~~thereafter ~~included~~related into operating ~~lease cost in the table above~~ and infinancing ~~Occupancy~~leases ~~expense~~as ~~in the Consolidated Statement~~ of ~~Income~~June ~~(Loss). The fair value of the right-of-use asset related to a substantial portion of the charge was estimated based on various assumptions~~30, ~~including~~2020 ~~the~~were ~~prevailing~~as ~~rental rates in the applicable market and the amount of time it will take to secure a sublease agreement.~~follows:

Lease expense incurred in the three and nine months ended December 31, 2018 was $20,445 and $64,649, respectively, excluding leasehold amortization of $3,632 and $11,684, respectively.



	Operating Leases			Finance Leases			Total
Remaining fiscal 2021	$	66,931		$	447		$	67,378
2022	89,182			267			89,449
2023	88,240			128			88,368
2024	74,126			35			74,161
2025	30,495			4			30,499
Thereafter	30,975			—			30,975
Totallease payments	379,949			881			380,830
Less: Imputed interest	(34,565		)	(33		)	(34,598		)
Present value of lease liabilities	$	345,384		$	848		$	346,232

~~Sublease amounts billed are recorded as a reduction of Occupancy expense in the Consolidated Statement of Income (Loss).~~ The ~~amounts~~weighted-average ~~billed~~remaining ~~are primarily fixed base rental payments combined with variable~~ lease ~~cost~~terms ~~reimbursements. Sublease~~and ~~amounts~~weighted-average ~~related~~discount torates ~~base~~for ~~rent~~operating ~~are~~and ~~recorded~~finance onleases awere ~~straight-line~~as ~~basis.~~follows:



	June 30, 2020				March 31, 2020
	Operating Leases		Finance Leases		Operating Leases		Finance Leases
Weighted-average remaining lease term (in years)	4.7		1.9		4.8		1.9
Weighted-average discount rates	4.0	%	3.3	%	3.9	%	3.2	%

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As of December 31, 2019, undiscounted future cash flows for each of the next five fiscal years and thereafter related to operating and finance leases were as follows:

	Operating Leases			Finance Leases			Total
Remaining fiscal 2020	$	23,181		$	263		$	23,444
2021	88,048			714			88,762
2022	86,385			271			86,656
2023	84,530			131			84,661
2024	70,210			35			70,245
Thereafter	46,472			5			46,477
Total lease payments	398,826			1,419			400,245
Less: Imputed interest	(36,905		)	(52		)	(36,957		)
Present value of lease liabilities	$	361,921		$	1,367		$	363,288

As of December 31, 2019, the weighted-average remaining lease terms and weighted-average discount rates for operating and finance leases were as follows:

	Operating Leases		Finance Leases
Weighted-average remaining lease term (in years)	4.8		2.0
Weighted-average discount rates	4.0	%	3.1	%

Supplemental cash flow information related to leases was as follows:

	Nine Months Ended December 31, 2019
	Three Months Ended June 30,
Cash paid for amounts included in the measurement of lease liabilities:
	2020		2019
Operating cash flows from operating leases	$	64,470
Cash paid for amounts included in the measurement of lease liabilities:
Financing cash flows from finance leases	727
Operating cash flows from operating leases	$	20,619	$	22,871
Financing cash flows from finance leases	192		248

There was no significant non-cash lease activity for the nine months ended December 31, 2019.

As of March 31, 2019, minimum aggregate rentals under operating leases were as follows:

	Operating Leases(1)
2020	$	90,667
2021	86,095
2022	84,485
2023	83,425
2024	72,192
Thereafter	47,240
Total	$	464,104

(1) The minimum rental commitments have not been reduced by $105,193 for minimum sublease rentals to be received under non-cancelable subleases.

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9. Commitments and Contingencies

As of ~~December~~June 3130, ~~2019~~2020, Legg Mason had commitments to invest $1716,~~588~~723 in limited partnerships that make private investments. These commitments are expected to be outstanding, or funded as required, through the end of their respective investment periods ranging through fiscal 2030. Also, in connection with the acquisition of Clarion Partners in April 2016, Legg Mason committed to ultimately provide up to $100,000 of seed capital to Clarion Partners products.

As of ~~December~~June 3130, ~~2019~~2020, Legg Mason also had future commitments totaling $~~102~~89,~~794~~606 related to multi-year agreements for certain services, of which $2034,~~087,~~980 ~~$39,348~~ and $2125,~~534~~461 will be due during the remainder of fiscal ~~2020,~~2021 and in fiscal ~~2021 and fiscal~~ 2022, respectively. The remaining $2129,~~825~~165 is due through fiscal ~~2027~~2028.

In the normal course of business, Legg Mason enters into contracts that contain a variety of representations and warranties and that provide general indemnifications, which are not considered financial guarantees by relevant accounting guidance. Legg Mason’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against Legg Mason that have not yet occurred.

Legg Mason has been the subject of customer complaints and has also been named as a defendant in various legal actions arising primarily from asset management, securities brokerage, and investment banking activities, including certain class actions, which primarily allege violations of securities laws and seek unspecified damages, which could be substantial. In the normal course of its business, Legg Mason has also received subpoenas and is currently involved in other governmental and industry self-regulatory agency inquiries, investigations and, from time to time, proceedings involving asset management activities. In accordance with guidance for accounting for contingencies, Legg Mason has established provisions for estimated losses from pending complaints, legal actions, investigations and proceedings when it is probable that a loss has been incurred and a reasonable estimate of loss can be made.

There are matters of litigation and other proceedings, including those described above as customer complaints, legal actions, inquiries, proceedings and investigations, where Legg Mason cannot estimate the reasonably possible loss or range of loss. The inability to provide a reasonably possible amount or range of losses is not because there is uncertainty as to the ultimate outcome of a matter, but because liability and damage issues have not developed to the point where Legg Mason can conclude that there is both a reasonable possibility of a loss and a meaningful amount or range of possible losses. There are numerous aspects to customer complaints, legal actions, inquiries, proceedings and investigations that prevent Legg Mason from estimating a related amount or range of reasonably possible losses. These aspects include, among other things, the nature of the matters; that significant relevant facts are not known, are uncertain or are in dispute; and that damages sought are not specified, are uncertain, unsupportable or unexplained. In addition, for legal actions, discovery may not yet have started, may not be complete or may not be conclusive, and meaningful settlement discussions may not have occurred. Further, for regulatory matters, investigations may run their course without any clear indication of wrongdoing or fault until their conclusion.

In management's opinion, an adequate accrual has been made as of ~~December~~June 3130, ~~2019~~2020, to provide for any probable losses that may arise from matters for which the Company could reasonably estimate an amount. Legg Mason's financial condition, results of operations and cash flows could be materially affected during a period in which probable losses become apparent or a matter is ultimately resolved. In addition, the ultimate costs of litigation-related charges can vary significantly from period-to-period, depending on factors such as market conditions, the size and volume of customer complaints and claims, including class action suits, and recoveries from indemnification, contribution, insurance reimbursement, or reductions in compensation under revenue share arrangements.

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Merger Agreement

The Company has made customary representations and warranties in the Merger Agreement. The Merger Agreement also contains customary covenants and agreements, including covenants and agreements relating to the conduct of the Company’s business between the date of the signing of the Merger Agreement and the closing of the transactions contemplated under the Merger Agreement.

In connection with, and subject to, the Merger closing, Legg Mason has committed certain severance and retention payments to its employees aggregating up to approximately $125,000, subject to continuing employment through the closing of the Merger. There is also an affiliate deferred compensation arrangement that accelerates the vesting of approximately $48,000 upon closing of the Merger, substantially all of which will be settled by delivering fund shares held within a related trust.

Noncontrolling Interests

Legg Mason may be obligated to settle redeemable noncontrolling interests related to certain affiliates. As of ~~December~~June 3130, ~~2019~~2020, affiliate redeemable noncontrolling interests, excluding amounts related to management equity plans, aggregated $~~524~~518,~~889~~642. In addition, as of ~~December~~June 3130, ~~2019~~2020, the estimated redemption fair value for units under affiliate management equity plans (redeemable and nonredeemable) aggregated $8283,~~495~~895.

See Notes 10 and 13 for additional information regarding affiliate management equity plans and noncontrolling interests, respectively.

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Contingent Consideration

As further discussed in Note 4, on April 10, 2019, Clarion Partners acquired a majority interest in Gramercy. The transaction included a potential contingent consideration payment of up to $3,~~721~~726 (using the foreign exchange rate as of ~~December~~June 3130, ~~2019~~2020, for the €3,315 potential payment), due on the fifth anniversary of closing upon the achievement of certain financial metrics. As of ~~December~~June 3130, ~~2019~~2020 and March 31, ~~2019~~2020, contingent consideration liabilities totaling $3,~~376~~380 and $13,~~415~~308, respectively, were included in Other non-current liabilities in the Consolidated Balance Sheets.

10. Stock-Based Compensation

Legg Mason's stock-based compensation includes restricted stock units, stock options, an employee stock purchase plan, market and performance-based performance shares payable in common stock, affiliate management equity plans and deferred compensation payable in stock. Shares available for issuance under the equity incentive stock plan as of ~~December~~June 3130, ~~2019~~2020, were 6,~~292~~354. Options under Legg Mason’s equity incentive stock plans have been granted at prices not less than 100% of the fair market value on the date of grant. Options are generally exercisable in equal increments over four years and expire within eight years ~~to 10 years~~ from the date of grant.

The components of Legg Mason's total stock-based compensation expense were as follows:

	Three Months Ended December 31,				Nine Months Ended December 31,
	Three Months Ended June 30,
	2019		2018		2019		2018
	2020		2019
Restricted stock and restricted stock units	$	127,~~025~~054	$	1117,~~668~~634	$	~~43,507~~	$	~~38,707~~
Stock options	~~728~~166		1,~~057~~154		~~2,643~~		~~3,513~~
Employee stock purchase plan	77		96		415		480
Affiliate management equity plans	23		1,623
Non-employee director awards	—		—		1,000		1,025
Performance share units	169		3,011
Affiliate management equity plans	23		719		1,670		2,213
Employee stock trust	9		8
Performance share units	2,564		1,202		8,688		4,014
Employee stock purchase plan	—		254
Employee stock trust	9		8		26		23
Non-employee director awards	—		150
Total stock-based compensation expense	$	157,~~426~~421	$	1423,~~750~~834	$	~~57,949~~	$	~~49,975~~

The Merger Agreement provides for the settlement of all outstanding share-based equity awards (vested and unvested), upon the Merger closing. The settlement of unvested awards accommodates Franklin Templeton's acquisition of Legg Mason, therefore, Legg Mason does not incur any related accelerated compensation expense. For fiscal 2020 incentive awards, the Merger Agreement prohibited Legg Mason from issuing equity awards to employees. Instead, employees received the same portion of their incentive awards that would have been paid as equity in the form of deferred cash units, which vest ratably

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over four years, beginning April 30, 2021. The deferred cash units will be accelerated and paid out in cash upon the completion of the Merger, consistent with the treatment of outstanding equity awards.

Restricted Stock

Restricted stock and restricted stock unit transactions are summarized below:

	Nine Months Ended December 31,
	Three Months Ended June 30,
	2019				2018
	2020				2019
	Number of Shares		Weighted-Average Grant Date Value		Number of Shares		Weighted-Average Grant Date Value
Unvested shares at March 31	32,~~045~~760		$	3736.7643	3,~~299~~045		$	3837.0976
Granted	~~1,205~~—		~~35.50~~—		1,~~179~~196		3935.0550
Vested	(1,~~288~~159	)	3835.70		(1,~~286~~199	)	3938.7386
Canceled/forfeited	(5913	)	36.8883		(~~108~~30	)	3735.6279
Unvested shares at December 31	2,903		$	36.43	3,084		$	37.80
Unvested shares at June 30	1,588		$	36.96	3,012		$	36.45

Unamortized compensation cost related to unvested restricted stock awards at ~~December~~June 3130, ~~2019~~2020, of $6342,~~186~~985 is expected to be recognized over a weighted-average period of 1.65 years.

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Stock Options

Stock option transactions under Legg Mason's equity incentive plans are summarized below:

	Nine Months Ended December 31,
	Three Months Ended June 30,
	2019				2018
	2020				2019
	Number of Shares		Weighted-Average Exercise Price Per Share		Number of Shares		Weighted-Average Exercise Price Per Share
Options outstanding at March 31	4,115		$	39.05	4,437		$	38.78
Options outstanding at March 31, 2020	2,518		$	41.41	4,115		$	39.05
Exercised	(~~369~~1,285	)	3135.5526		(~~189~~311	)	31.6283
Canceled/forfeited	(8012	)	4639.1865		(9537	)	4340.9263
Options outstanding at December 31	3,666		$	39.65	4,153		$	38.99
Options outstanding at June 30	1,221		$	47.90	3,767		$	39.63

At ~~December~~June 3130, ~~2019~~2020, options were exercisable for 31,~~262~~106 shares, with a weighted-average exercise price of $4048.2393 and a weighted average remaining contractual life of 32.09 years. Unamortized compensation cost related to unvested options for ~~404~~115 shares at ~~December~~June 3130, ~~2019~~2020, was $~~920~~383, which is expected to be recognized over a weighted-average period of 01.90 ~~years~~year.

Affiliate Management Equity Plans

In connection with the acquisition of Clarion Partners in April 2016, Legg Mason implemented a management equity plan for Clarion Partners that entitles certain of its key employees to participate in 15% of the future growth, if any, of the Clarion Partners enterprise value (subject to appropriate discounts) subsequent to the date of the grant. As of December 31, 2019, the estimated aggregate redemption fair value of units under the plan, as if they were currently redeemable, was $12,100.

Effective March 1, 2016, Legg Mason implemented a management equity plan for Royce Investment Partners ("Royce") key employees. Under the management equity plan, minority equity interests equivalent to a 24.5% interest in the Royce entity have been issued to certain key employees. Equity holders receive quarterly distributions of a portion of Royce's pre-tax income in amounts equal to the percentage of ownership represented by the equity they hold, subject to payment of Legg Mason's revenue share and reasonable expenses. As of December 31, 2019, the estimated aggregate redemption fair value of units under the plan, as if they were currently redeemable, was $10,800.

On March 31, 2014, Legg Mason implemented a management equity plan and granted units to key employees of its subsidiary ClearBridge Investments, LLC ("ClearBridge") that entitle them to participate in 15% of the future growth, if any, of the ClearBridge enterprise value (subject to appropriate discounts) subsequent to the grant date. Independent valuation determined the aggregate cost of the award to be approximately $16,000, which was recognized as Compensation and benefits expense in the Consolidated Statements of Income (Loss) over the related vesting periods through March 2019. Total compensation expense related to the ClearBridge affiliate management equity plan was $23 and $719 for the three months ended December 31, 2019 and 2018, respectively, and $1,670 and $2,213 for the nine months ended December 31, 2019 and 2018, respectively. The compensation expense for the nine months ended December 31, 2019, includes $1,600 related to the modification of the plan settlement features, which resulted in an increase in the fair value of the awards. This arrangement provides for one-half of the cost to be absorbed by the ClearBridge incentive pool. As of December 31, 2019, the estimated aggregate redemption fair value of vested units under the ClearBridge plan, as if they were currently redeemable, was approximately $59,595.

Other

As of ~~December~~June 3130, ~~2019~~2020 and ~~2018~~2019, non-employee directors held 3435 and 98100 restricted stock units, respectively, which vest on the grant date and are, therefore, not included in ~~the~~ unvested shares of restricted stock units in the table above.,

~~Upon~~Affiliate ~~the~~Management ~~acquisition~~Equity ofPlans Clarion Partners in April 2016, Legg Mason granted certain key employees of Clarion Partners a total of 716 performance-based Legg Mason restricted share units, which are not included in the unvested shares of restricted stock units in the table above, with an aggregate fair value of $11,121, which was included in the purchase price. These restricted share units vest upon Clarion Partners achieving a certain level of EBITDA, as defined in the purchase agreement, within a designated period after the closing of the acquisition.

In ~~May~~connection ~~2019~~with ~~and~~the ~~2018~~acquisition of Clarion Partners in April 2016, Legg Mason ~~granted~~implemented ~~certain~~a ~~executive~~management ~~officers~~equity aplan ~~total~~for Clarion Partners that entitles certain of ~~168~~its ~~and~~key ~~163~~employees ~~performance~~to ~~share~~participate ~~units,~~in ~~respectively~~15% of the future growth, asif ~~part~~any, of ~~their~~the ~~fiscal~~Clarion ~~2019~~Partners ~~and~~enterprise ~~2018~~value ~~incentive~~(subject ~~awards~~to ~~with~~appropriate andiscounts) subsequent to the date of the grant. As of June 30, 2020, the estimated aggregate redemption fair value of $6units under the plan,~~334~~ ~~and~~as $5if they were currently redeemable,~~820,~~ ~~respectively~~was $14,300.

23Effective March 1, 2016, Legg Mason implemented a management equity plan for Royce Investment Partners ("Royce") key employees. Under the management equity plan, minority equity interests equivalent to a 24.5% interest in the Royce entity have been issued to certain key employees. Equity holders receive quarterly distributions of a portion of Royce's pre-tax income in amounts equal to the percentage of ownership represented by the equity they hold, subject to payment of Legg Mason's revenue share and reasonable expenses and subordination provisions in certain cases. As of June 30, 2020, the estimated aggregate redemption fair value of units under the plan, as if they were currently redeemable, was $10,000.

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~~The~~On ~~vesting~~March of31, ~~performance~~2014, ~~share~~Legg ~~units~~Mason ~~granted~~implemented ina ~~May~~management ~~2019~~equity plan and ~~2018~~granted ~~and~~units ~~the~~to ~~number~~key employees of ~~shares~~its ~~payable~~subsidiary atClearBridge ~~vesting~~Investments, ~~are~~LLC ~~determined~~("ClearBridge") ~~based~~that onentitle ~~Legg~~them ~~Mason’s~~to ~~relative~~participate ~~total~~in ~~stockholder~~15% ~~return~~of ~~and~~the ~~relative~~future ~~organic~~ growth, ~~rate~~if any, of ~~long-term~~the ~~AUM~~ClearBridge ~~over three-year~~enterprise ~~periods~~value ~~ending~~(subject ~~March~~to ~~31,~~appropriate ~~2022~~discounts) ~~and~~subsequent ~~2021,~~to ~~respectively~~the grant date. ~~The~~Total ~~recorded~~compensation ~~grant~~expense ~~date~~related ~~fair~~to ~~values~~the ~~per~~ClearBridge ~~performance~~affiliate ~~share~~management ~~unit~~equity ofplan was $~~37.63~~23 and $~~35.67~~1,623 ~~respectively,~~for ~~were~~the ~~estimated~~three ~~based~~months onended ~~multiple~~June ~~fair~~30, ~~value~~2020 ~~Monte~~and ~~Carlo~~2019, ~~pricing models~~respectively. The ~~Expense~~compensation ~~associated~~expense ~~with~~for ~~these~~the ~~grants~~three ~~are~~months ~~adjusted~~ended ~~for~~June ~~the~~30, ~~level~~2019, ofincluded ~~relative~~$1,600 ~~organic~~related ~~growth~~to ~~expected~~the tomodification beof ~~ultimately~~the ~~achieved.~~plan ~~The~~settlement ~~estimated~~features, ~~fair~~which ~~values~~resulted ~~for~~in ~~the~~an ~~May~~increase ~~2019~~in ~~grant~~the ~~range~~fair ~~from~~value ~~$21.63~~of tothe ~~$45~~awards.63 This ~~per~~arrangement ~~performance~~provides ~~share~~for ~~unit~~one-half ~~and~~of ~~for~~ the ~~May~~cost ~~2018~~to ~~grant~~be ~~range~~absorbed ~~from~~by ~~$18.08~~the toClearBridge ~~$44~~incentive pool.46 As ~~per~~of ~~performance~~June ~~share~~30, ~~unit.~~2020, ~~The~~the ~~following~~estimated ~~assumptions~~aggregate ~~were~~redemption ~~used~~fair invalue of vested units under the ~~Monte~~ClearBridge ~~Carlo~~plan, ~~pricing~~as ~~models~~if ~~for~~they ~~the~~were ~~May~~currently ~~2019~~redeemable, ~~and~~was ~~2018~~approximately ~~grants:~~$59,595.

	May 2019		May 2018
Expected dividend yield	4.41	%	3.49	%
Risk-free interest rate	2.11	%	2.71	%
Average expected volatility	23.96	%	26.14	%

11. Revenue

The following table presents Total Operating Revenues disaggregated by asset class:

Three Months Ended December 31,

Nine Months Ended December 31

Three Months Ended June 30,

2019

2018

2019

2018

2020

2019

Equity

~~293~~249,~~130~~583

~~296~~291,~~738~~341

~~875,965~~

~~931,350~~

Fixed Income

~~299~~277,~~121~~380

~~275~~282,~~559~~911

~~873,687~~

~~855,343~~

Alternative

~~139~~111,~~061~~616

~~110~~107,~~390~~542

~~384,068~~

~~361,239~~

Liquidity

2227,~~602~~607

2123,~~635~~566

~~68,818~~

~~62,722~~

Total Operating Revenues

~~753~~666,~~914~~186

~~704~~705,~~322~~360

~~2,202,538~~

~~2,210,654~~

Revenues by geographic location are primarily based on the location of the advisor or domicile of fund families managed by Legg Mason and do not necessarily reflect where the customer resides or the currency in which the revenues are denominated. The following table presents Total Operating Revenues disaggregated by geographic location:

Three Months Ended December 31,

Nine Months Ended December 31,

Three Months Ended June 30,

2019

2018

2019

2018

2020

2019

United States

~~583~~533,~~080~~616

~~547~~553,~~696~~760

~~1,730,546~~

~~1,711,426~~

United Kingdom

5631,~~264~~391

3532,~~142~~010

~~121,303~~

~~111,739~~

Other International

~~114~~101,~~570~~179

~~121~~119,~~484~~590

~~350,689~~

~~387,489~~

Total Operating Revenues

~~753~~666,~~914~~186

~~704~~705,~~322~~360

~~2,202,538~~

~~2,210,654~~

Certain sales commissions paid in connection with obtaining assets managed in retail separately managed accounts are capitalized as deferred costs. As of ~~December~~June 3130, ~~2019~~2020 and March 31, ~~2019~~2020, capitalized sales commissions of $89,~~565~~115 and $8,~~126~~954, respectively, were included in Other current assets and $1011,~~234~~990 and $1011,~~147~~396, respectively, were included in Other non-current assets in the Consolidated Balance Sheets. Amortization related to capitalized sales commissions included in Compensation and benefits in the Consolidated Statements of Income ~~(Loss)~~ was $2,~~417~~606 and $2,~~305~~284 for the three months ended ~~December~~June 3130, ~~2019~~2020 and ~~2018, respectively, and $7,050 and $6,964 for the nine months ended December 31,~~ 2019 ~~and 2018~~, respectively. There were no impairment losses in relation to the capitalized costs during the three ~~or nine~~ months ended ~~December~~June 3130, ~~2019~~2020 orand ~~2018~~2019.

2421

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12. Earnings Per Share

The following table presents the computations of basic and diluted ~~earnings per share attributable to Legg Mason, Inc. shareholders ("~~EPS"):

	Three Months Ended December 31,					Nine Months Ended December 31,
	Three Months Ended June 30,
	2019		2018			2019		2018
	2020		2019
Basic weighted-average shares outstanding for EPS	8689,~~878~~823		8586,~~537~~297			~~86,666~~		~~85,381~~
Potential common shares:
Dilutive employee stock options	~~287~~376		—197			~~266~~		—
Diluted weighted-average shares outstanding for EPS	8790,~~165~~199		8586,~~537~~494			~~86,932~~		~~85,381~~
Net Income (Loss) Attributable to Legg Mason, Inc.	$	74,775	$	(216,888	)	$	187,208	$	(77,995	)
Net Income Attributable to Legg Mason, Inc.	$	49,422	$	45,350
Less: Earnings (distributed and undistributed) allocated to participating securities	~~2,428~~904		1,~~049~~510			~~6,138~~		~~3,190~~
Net Income (Loss) (Distributed and Undistributed) Allocated to Shareholders (Excluding Participating Securities)	$	72,347	$	(217,937	)	$	181,070	$	(81,185	)
Net Income (Distributed and Undistributed) Allocated to Shareholders (Excluding Participating Securities)	$	48,518	$	43,840
Net Income (Loss) per share Attributable to Legg Mason, Inc. Shareholders
Net Income per share Attributable to Legg Mason, Inc. Shareholders
Basic	$	0.8354	$	(20.5551	)	$	~~2.09~~	$	~~(0.95~~	)
Diluted	0.8354		(20.5551		)	~~2.08~~		~~(0.95~~		)

The weighted-average shares exclude weighted-average unvested restricted shares deemed to be participating securities of 21,~~935~~971 and 32,~~104~~852 for the three months ended ~~December~~June 3130, ~~2019~~2020 and ~~2018, respectively, and 2,919 and 3,104 for the nine months ended December 31,~~ 2019 ~~and 2018~~, respectively.

Options to purchase ~~1,860~~735 and 12,~~995~~464 shares for the three ~~and nine~~ months ended ~~December~~June 3130, 2020 and 2019, respectively, were not included in the computation of diluted EPS because the presumed proceeds from exercising such options, including the related unamortized expense, exceed the average price of the common shares for the period and, therefore, the options are deemed antidilutive.

~~The~~Further, ~~diluted~~market- ~~EPS calculation for the three~~ and ~~nine~~performance-based ~~months ended December 31~~awards, ~~2018,~~such ~~excludes~~as 56those ~~and~~issued ~~143~~to ~~potential~~Legg ~~common~~Mason ~~shares~~executive ~~from employee stock options~~officers, ~~respectively,~~are ~~that~~excluded ~~are~~from ~~anti-dilutive~~potential ~~due~~dilution tountil the ~~net~~designated ~~loss~~market inor ~~each~~performance ~~period~~condition is met.

Further, market- and performance-based awards, such as those issued to Legg Mason executive officers or those issued in the acquisition of Clarion Partners, are excluded from potential dilution until the designated market or performance condition is met.

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13. Noncontrolling Interests

Net income attributable to noncontrolling interests included the following amounts:

	Three Months Ended December 31,				Nine Months Ended December 31,
	Three months ended June 30,
	2019		2018		2019		2018
	2020		2019
Net income attributable to redeemable noncontrolling interests	$	144,~~266~~865	$	813,~~852~~356	$	~~36,595~~	$	~~24,460~~
Net income attributable to nonredeemable noncontrolling interests	~~1,962~~787		12,~~646~~863		~~5,300~~		~~6,583~~
Total	$	165,~~228~~652	$	1016,~~498~~219	$	~~41,895~~	$	~~31,043~~

~~The following tables present the changes in redeemable and nonredeemable noncontrolling interests:~~22

	Redeemable noncontrolling interests
	Consolidated investment vehicles(1) and other			Affiliate
				Noncontrolling interests			Management equity plans		Total			Nonredeemable noncontrolling interests(3)
Balance as of March 31, 2019	$	103,630		$	540,595		$	48,151	$	692,376		$	29,784
Net income attributable to noncontrolling interests	9,006			27,589			—		36,595			5,300
Business acquisition				11,715			—		11,715			—
Net subscriptions (redemptions)	(31,307		)	—			—		(31,307		)	—
Purchase of affiliate noncontrolling interest:
Payment (fair value portion)	—			(8,789		)	—		(8,789		)	—
Change in redemption value	—			(25,708		)	—		(25,708		)	—
Distributions	—			(22,775		)	—		(22,775		)	(4,519		)
Foreign exchange	—			(833		)	—		(833		)	—
Vesting/change in estimated redemption value	—			3,095			13,984		17,079			—
Balance as of December 31, 2019	$	81,329		$	524,889		$	62,135	$	668,353		$	30,565

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	Redeemable noncontrolling interests
	Consolidated investment vehicles(1) and other			Affiliate
				Noncontrolling interests			Management equity plans		Total			Nonredeemable noncontrolling interests(2)
Balance as of March 31, 2018	$	125,047		$	573,950		$	33,298	$	732,295		$	27,731
Net income attributable to noncontrolling interests	1,036			23,424			—		24,460			6,583
Net subscriptions (redemptions)	(36,328		)	—			—		(36,328		)	—
Settlement of affiliate noncontrolling interest put:
Payment	—			(15,547		)	—		(15,547		)	—
Change in redemption value	—			(12,345		)	—		(12,345		)	—
Distributions	—			(25,538		)	—		(25,538		)	(6,820		)
Foreign exchange	—			(5,009		)	—		(5,009		)	—
Vesting/change in estimated redemption value	—			1,037			13,925		14,962			—
Balance as of December 31, 2018	$	89,755		$	539,972		$	47,223	$	676,950		$	27,494

The following tables present the changes in redeemable and nonredeemable noncontrolling interests:

(1) Related to variable interest entities ("VIEs") and seeded investment products.



	Redeemable noncontrolling interests
	Consolidated investment vehicles⁽¹⁾ and other			Affiliate
	Consolidated investment vehicles⁽¹⁾ and other			Noncontrolling interests			Management equity plans		Total			Nonredeemable noncontrolling interests⁽²⁾
Balance as of March 31, 2020	$	117,140		$	525,422		$	71,852	$	714,414		$	29,042
Net income attributable to noncontrolling interests	898			3,967			—		4,865			787
Subscriptions (redemptions), net	(95,233		)	5			—		(95,228		)	—
Distributions	—			(12,821		)	—		(12,821		)	(855		)
Foreign exchange	—			264			—		264			—
Vesting/change in estimated redemption value	—			1,805			37		1,842			—
Balance as of June 30, 2020	$	22,805		$	518,642		$	71,889	$	613,336		$	28,974



	Redeemable noncontrolling interests
	Consolidated investment vehicles⁽¹⁾ and other			Affiliate
	Consolidated investment vehicles⁽¹⁾ and other			Noncontrolling interests			Management equity plans		Total			Nonredeemable noncontrolling interests⁽²⁾
Balance as of March 31, 2019	$	103,630		$	540,595		$	48,151	$	692,376		$	29,784
Net income attributable to noncontrolling interests	6,477			6,879			—		13,356			2,863
Subscriptions (redemptions), net	(6,906		)	—			—		(6,906		)	—
Business acquisition	—			11,715			—		11,715			—
Purchase of affiliate noncontrolling interest put:									—
Payment (fair value portion)	—			(8,789		)	—		(8,789		)	—
Change in redemption value	—			(25,708		)	—		(25,708		)	—
Distributions	—			(14,063		)	—		(14,063		)	(2,167		)
Foreign exchange	—			(837		)	—		(837		)	—
Vesting/change in estimated redemption value	—			801			2,812		3,613			—
Balance as of June 30, 2019	$	103,201		$	510,593		$	50,963	$	664,757		$	30,480

(1) Related to VIEs and seeded investment products.

(2) Related to Royce management equity plan.

~~The following tables present the changes in redeemable noncontrolling interests by affiliate (exclusive of management equity plans):~~23

	Redeemable noncontrolling interests
	EnTrust Global			Clarion Partners			RARE Infrastructure			Other			Total
Balance as of March 31, 2019	$	380,684		$	123,502		$	35,181		$	1,228		$	540,595
Net income (loss) attributable to noncontrolling interests	12,694			14,904			106			(115		)	27,589
Business acquisition	—			—			—			11,715			11,715
Purchase of affiliate noncontrolling interest:
Payment (fair value portion)	—			—			(8,789		)	—			(8,789		)
Change in redemption value	—			—			(25,708		)	—			(25,708		)
Distributions	(9,892		)	(12,880		)	—			(3		)	(22,775		)
Foreign exchange	—			—			(790		)	(43		)	(833		)
Change in estimated redemption value	—			3,095			—			—			3,095
Balance as of December 31, 2019	$	383,486		$	128,621		$	—		$	12,782		$	524,889

Table of Contents

	Redeemable noncontrolling interests
	EnTrust Global			Clarion Partners			RARE Infrastructure			Other			Total
Balance as of March 31, 2018	$	386,884		$	117,272		$	68,285		$	1,509		$	573,950
Net income (loss) attributable to noncontrolling interests	9,752			12,460			1,417			(205		)	23,424
Distributions	(13,475		)	(10,359		)	(1,693		)	(11		)	(25,538		)
Settlement of affiliate noncontrolling interest put:
Payment	—			—			(15,547		)				(15,547		)
Change in redemption value	—			—			(12,345		)				(12,345		)
Foreign exchange	—			—			(5,009		)	—			(5,009		)
Change in estimated redemption value	—			1,037			—			—			1,037
Balance as of December 31, 2018	$	383,161		$	120,410		$	35,108		$	1,293		$	539,972

The following tables present the changes in redeemable noncontrolling interests by affiliate (exclusive of management equity plans):



	Redeemable noncontrolling interests
	EnTrust Global			Clarion Partners			Other		Total
Balance as of March 31, 2020	$	379,090		$	133,610		$	12,722	$	525,422
Net income (loss) attributable to noncontrolling interests	(1,177		)	5,086			58		3,967
Subscriptions (redemptions), net	—			—			5		5
Distributions	(1,966		)	(10,855		)	—		(12,821		)
Foreign exchange	—			—			264		264
Change in estimated redemption value	—			1,805			—		1,805
Balance as of June 30, 2020	$	375,947		$	129,646		$	13,049	$	518,642



	Redeemable noncontrolling interests
	EnTrust Global			Clarion Partners			RARE Infrastructure			Other			Total
Balance as of March 31, 2019	$	380,684		$	123,502		$	35,181		$	1,228		$	540,595
Net income (loss) attributable to noncontrolling interests	2,884			4,118			106			(229		)	6,879
Business acquisition	—			—			—			11,715			11,715
Distributions	(3,407		)	(10,656		)	—			—			(14,063		)
Purchase of affiliate noncontrolling interest:
Payment (fair value portion)	—			—			(8,789		)	—			(8,789		)
Change in redemption value	—			—			(25,708		)	—			(25,708		)
Foreign exchange	—			—			(790		)	(47		)	(837		)
Change in estimated redemption value	—			801			—			—			801
Balance as of June 30, 2019	$	380,161		$	117,765		$	—		$	12,667		$	510,593

Redeemable noncontrolling interests of 35% of the outstanding equity of EnTrust Global and 18% of the outstanding equity of Clarion Partners can be put by the holders or called by Legg Mason for settlement at fair value subject to various conditions, including the passage of time. The amounts for noncontrolling interests, if reported at fair value in the Consolidated Balance Sheets, reflect the total business enterprise value of the combined entity, after appropriate discounts for lack of marketability and control.

On May 10, 2019, Legg Mason purchased the 15% equity interest in RARE Infrastructure held by the firm's management team for total consideration of $21,988. The initial cash payment of $11,967, which included related dividends in arrears of $1,759, was paid on May 10, 2019. ~~The~~One-half of the remaining balance ~~will~~was bepaid ~~due~~in ~~50%~~May ~~one~~2020 ~~year~~and ~~after~~the ~~closing~~remaining ~~and~~one-half ~~50%~~will ~~two~~be ~~years~~due ~~after~~in ~~closing~~May 2021, subject to certain conditions. The $11,440 difference between the fair value of the noncontrolling interest on the settlement date and the total consideration due (excluding dividends in arrears) was recorded as Compensation and benefits in the ~~three~~year ~~months~~ ended ~~June~~March 3031, ~~2019~~2020. The $25,708 difference between the fair value and the carrying value of the noncontrolling interest of $34,497 on the settlement date was recorded as an increase to additional paid in capital. This purchase was part of Legg Mason's strategic restructuring, as further discussed in Note 15, to pursue operational efficiencies between RARE Infrastructure and ClearBridge intended to reduce costs and enhance growth opportunities for both of the businesses.

On July 2, 2018, the corporate minority owner of RARE Infrastructure exercised the put option for its 10% ownership interest. The settlement value of $15,547 was based on the midpoint of the valuations determined by the independent valuation experts appointed by Legg Mason and the corporate minority owner and was paid on October 10, 2018, along with $981 of dividends in arrears. The $12,345 difference between the settlement value and the carrying value of the noncontrolling interest of $27,892 on the settlement date was recorded as an increase to additional paid in capital. 24

Table of Contents

14. Derivatives and Hedging

Legg Mason uses currency forwards to economically hedge the risk of movements in exchange rates, primarily between the U.S. dollar, British pound, Australian dollar, Singapore dollar, Japanese yen, and euro. All derivative transactions for which Legg Mason has certain legally enforceable rights of setoff are governed by International Swaps and Derivative Association ("ISDA") Master Agreements. For these derivative transactions, Legg Mason has one ISDA Master Agreement with each of the significant counterparties, which covers transactions with that counterparty. Each of the respective ISDA agreements provides for legally enforceable settlement netting and close-out netting between Legg Mason and that counterparty. Other assets recorded in the Consolidated Balance Sheets as of ~~December~~June 3130, ~~2019~~2020 and March 31, ~~2019~~2020, were $34,~~074~~173 and $4,~~183~~716, respectively. Other liabilities recorded in the Consolidated Balance Sheets as of ~~December~~June 3130, ~~2019~~2020 and March 31, ~~2019~~2020, were $1,~~362~~557 and $713,~~579~~872, respectively.

Legg Mason also uses market hedges on certain seed capital investments by entering into futures contracts to sell index funds and treasuries that benchmark the hedged seed capital investments and has entered into total return swap arrangements with respect to certain Legg Mason sponsored ETFs, as further discussed below.

Legg Mason has not designated any derivatives as hedging instruments for accounting purposes during the periods ended ~~December~~June 3130, ~~2019~~2020, March 31, ~~2019,~~2020 or ~~December~~June 3130, ~~2018~~2019. As of ~~December~~June 3130, ~~2019~~2020, Legg Mason had open currency forward contracts with aggregate notional amounts totaling $~~323~~309,~~654~~365, and open futures contracts relating to seed capital investments with aggregate notional amounts totaling $9585,~~910~~122. AsWith the exception of ~~December~~the 31total return swap arrangement discussed below, these amounts are representative of the level of non-hedge designation derivative activity throughout the three months ended June 30, 2020 and 2019. As of June 30, 2020, the weighted-average remaining contract terms for currency forward contracts was seven months and for futures contracts relating to seed capital investments was three months.

Legg Mason has entered into various total return swap arrangements with financial intermediaries with respect to certain Legg Mason sponsored ETFs, which resulted in investments by each of the financial intermediaries in the respective ETF. Under the terms of each of the total return swap arrangements, Legg Mason receives the related investment gains and losses on the underlying shares of the ETF and pays a floating rate on the value of the underlying shares. Each of the total return swap arrangements allows either party to terminate all or part of the arrangement and provides for automatic termination upon occurrence of certain events. Each financial intermediary counterparty may hedge its total return swap position through an investment in the ETF and the financial intermediaries purchased interests in the related Legg Mason ETF on the date of the transactions. The aggregate notional amount for the ~~two~~ total return ~~swaps~~swap outstanding as of ~~December~~June 3130, ~~2019~~2020 was $341,~~907~~505, with a weighted-average remaining contract term of ~~five~~seven months. The floating rate paid on the value of the underlying securities for ~~all~~the total return swap ~~arrangements~~arrangement outstanding as of ~~December~~June 3130, ~~2019~~2020 was three-month LIBOR plus 1.6%.

In connection with the total return swap arrangements, Legg Mason executed futures contracts with notional amounts totaling $7,916 as of December 31, 2019 to partially hedge the gains and losses recognized on the total return swaps. These contracts had a weighted-average remaining contract term of three months.

The amounts above are representative of the level of non-hedge designation derivative activity throughout the three and nine months ended December 31, 2019 and 2018.

As further discussed in Note 16, the total return swap arrangements create variable interests in the underlying funds for Legg Mason, and, if significant, Legg Mason is deemed to be the primary beneficiary. Accordingly, Legg Mason may consolidate ETF products with significant open total return swap arrangements.

2925

Table of Contents

The following table presents the derivative assets and related offsets, if any:

								Gross Amounts Not Offset in the Balance Sheet
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Balance Sheet			Net Amount of Derivative Assets Presented in the Balance Sheet		Financial Instruments		Cash Collateral		Net Amount as of ~~December~~June 3130, ~~2019~~2020
Derivative instruments not designated as hedging instruments
Currency forward contracts	$	46,~~092~~282	$	(12,~~310~~607	)	$	23,~~782~~675	$	—	$	—	$	23,~~782~~675
Total return swaps	—		—			—		292		961		1,253
Futures contracts relating to seed capital investments	—		—			—		338		2,632		2,970
Total derivative instruments not designated as hedging instruments	$	4,092	$	(1,310	)	$	2,782	$	292	$	961	$	4,035
Total return swaps	—		—			—		160		120		280
Total derivative instruments not designated as hedging instruments	$	6,282	$	(2,607	)	$	3,675	$	498	$	2,752	$	6,925

The following table presents the derivative liabilities and related offsets, if any:

										Gross Amounts Not Offset in the Balance Sheet
	Gross Amounts of Recognized Liabilities			Gross Amounts Offset in the Balance Sheet			Net Amount of Derivative Liabilities Presented in the Balance Sheet			Financial Instruments			Cash Collateral		Net Amount as of ~~December~~June 3130, ~~2019~~2020
Derivative instruments not designated as hedging instruments
Currency forward contracts	$	~~(1,426~~497	)	$	~~986~~(1,574	)	$	(~~440~~1,077	)	$	—		$	—	$	(~~440~~1,077	)
Futures contracts relating to:
Futures contracts relating to seed capital investments	—			—			—			(480		)	4,944		4,464
Seed capital investments	—			—			—			(801		)	4,809		4,008
Total derivative instruments not designated as hedging instruments	$	497		$	(1,574	)	$	(1,077	)	$	(480	)	$	4,944	$	3,387
Total return swaps	—			—			—			(49		)	366		317
Total future contracts	—			—			—			(850		)	5,175		4,325
Total return swaps										(72		)	890		818
Total derivative instruments not designated as hedging instruments	$	(1,426	)	$	986		$	(440	)	$	(922	)	$	6,065	$	4,703

3026

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The following table presents the derivative assets and related offsets, if any:

								Gross Amounts Not Offset in the Balance Sheet
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Balance Sheet			Net Amount of Derivative Assets Presented in the Balance Sheet		Financial Instruments		Cash Collateral		Net amount as of March 31, ~~2019~~2020
Derivative instruments not designated as hedging instruments
Currency forward contracts	$	34,~~997~~493	$	(1,~~874~~709	)	$	2,~~123~~784	$	—	$	—	$	2,~~123~~784
Total return swaps	—		—			—		2,060		2,310		4,370
Futures contracts relating to:
Total derivative instruments not designated as hedging instruments	$	3,997	$	(1,874	)	$	2,123	$	2,060	$	2,310	$	6,493
Seed capital investments	—		—			—		1,802		2,206		4,008
Total return swaps	—		—			—		130		158		288
Total futures contracts	—		—			—		1,932		2,364		4,296
Total derivative instruments not designated as hedging instruments	$	4,493	$	(1,709	)	$	2,784	$	1,932	$	2,364	$	7,080

The following table presents the derivative liabilities and related offsets, if any:

									Gross Amounts Not Offset in the Balance Sheet
	Gross Amounts of Recognized Liabilities			Gross Amounts Offset in the Balance Sheet		Net Amount of Derivative Liabilities Presented in the Balance Sheet			Financial Instruments			Cash Collateral		Net amount as of March 31, ~~2019~~2020
Derivative instruments not designated as hedging instruments
Currency forward contracts	$	(711,~~465~~482	)	$	24,~~094~~368	$	(57,~~371~~114	)	$	—		$	—	$	(57,~~371~~114	)
Futures contracts relating to:
Seed capital investments	—			—		—			(13,~~798~~203		)	7,~~640~~326		54,~~842~~123
Total return swaps	—			—		—			(~~410~~360		)	~~1,104~~754		~~694~~394
Total futures contracts	—			—		—			(23,~~208~~563		)	8,~~744~~080		64,~~536~~517
Total derivative instruments not designated as hedging instruments	$	(7,465	)	$	2,094	$	(5,371	)	$	(2,208	)	$	8,744	$	1,165
Total return swaps	—			—		—			(3,195		)	4,125		930
Total derivative instruments not designated as hedging instruments	$	(11,482	)	$	4,368	$	(7,114	)	$	(6,758	)	$	12,205	$	(1,667	)

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The following table presents gains (losses) recognized in the Consolidated Statements of Income ~~(Loss)~~ on derivative instruments. As described above, the currency forward contracts and futures and forward contracts for seed capital investments included below are economic hedges of interest rate and market risk of certain operating and investing activities of Legg Mason.

Three Months Ended December 31,

Three months ended June 30,

2019

2018

2020

2019

Income Statement Classification

Gains

Losses

Gains

Losses

Derivatives not designated as hedging instruments

Currency forward contracts relating to:

Operating activities

Other expense

109,~~325~~260

(42,~~293~~278

)

3,~~110~~639

(5,~~587~~484

)

Seed capital investments

Other non-operating income (expense)

~~651~~1,570

(2,~~219~~909

)

~~1,503~~725

(~~1,116~~564

)

Futures contracts relating to:

Seed capital investments

Other non-operating income (expense)

—337

(713,~~351~~789

)

~~16,520~~311

(13,966

)

Total return swaps

Other non-operating income (expense)

31—

(~~563~~1,962

)

~~3,121~~1

(~~467~~803

)

Total return swaps

Other non-operating income (expense)

~~384~~1,672

~~(73~~—

)

~~203~~1,249

~~(832~~—

)

Total gain (loss) from derivatives not designated as hedging instruments

1112,~~391~~839

(1420,~~499~~938

)

245,~~457~~925

(810,~~003~~817

)

		Nine Months Ended December 31,
		2019					2018
	Income Statement Classification	Gains		Losses			Gains		Losses
Derivatives not designated as hedging instruments
Currency forward contracts relating to:
Operating activities	Other expense	$	7,813	$	(8,257	)	$	9,369	$	(19,366	)
Seed capital investments	Other non-operating income (expense)	2,356		(1,233		)	5,523		(788		)
Futures contracts relating to:
Seed capital investments	Other non-operating income (expense)	398		(11,223		)	19,224		(7,066		)
Total return swaps	Other non-operating income (expense)	84		(1,441		)	3,425		(3,418		)
Total return swaps	Other non-operating income (expense)	1,885		—			1,869		(938		)
Total gain (loss) from derivatives not designated as hedging instruments		$	12,536	$	(22,154	)	$	39,410	$	(31,576	)

Table of Contents

15. Strategic Restructuring

In fiscal 2019, Legg Mason initiated a strategic restructuring to reduce costs, which ~~includes~~included corporate and distribution functions, as well as efficiency initiatives at certain smaller affiliates that operate outside of revenue-sharing arrangements. The strategic restructuring iswas ~~expected to be~~ substantially complete byas ~~the end~~ of ~~fiscal~~June ~~2021~~30, 2020.

This plan ~~involves~~involved restructuring costs beginning January 1, 2019, which ~~are~~were primarily comprised of employee termination benefits and retention incentives expensed over identified transition periods. The restructuring costs also ~~include~~included charges for consolidating leased office space and other costs, including professional fees. Legg Mason ~~expects~~incurred tocumulative ~~incur total~~ strategic restructuring costs inthrough ~~the~~June ~~range~~30, 2020 of $~~125~~88,~~000~~408, toincluding $~~135~~8,~~000~~022 ~~through~~incurred ~~March~~during ~~2021~~the ~~that~~three ~~are~~months ~~expected~~ended toJune ~~result~~30, ~~in future cost savings~~2020. ~~Cumulative~~Any ~~strategic~~additional ~~restructuring~~charges ~~costs~~related ~~incurred~~to ~~through December 31, 2019 were $76,649, including $18,474 and $67,297 incurred during~~ the ~~three~~strategic ~~and~~restructuring ~~nine~~are ~~months~~not ~~ended~~expected ~~December~~to ~~31,~~be ~~2019~~material.

~~The table below presents a summary of changes in the strategic restructuring liability from January 1, 2019 through December 31, 2019, and cumulative charges incurred to date:~~ 28

	Compensation and benefits			Occupancy			Other			Total
Balance as of January 1, 2019	$	—		$	—		$	—		$	—
Accrued charges	—			2,090			6,504			8,594
Balance as of March 31, 2019	—			2,090			6,504			8,594
Accrued charges	40,860			4,427			8,059			53,346
Payments	(7,992		)	(289		)	(9,886		)	(18,167		)
Balance as of December 31, 2019	$	32,868		$	6,228		$	4,677		$	43,773
Non-cash charges(1)
Three months ended March 31, 2019	$	—		$	758		$	—		$	758
Nine months ended December 31, 2019	12,448			1,503			—			13,951
Total	$	12,448		$	2,261		$	—		$	14,709
Cumulative charges incurred through December 31, 2019	$	53,308		$	8,778		$	14,563		$	76,649

(1) Includes stock-based compensation expense and accelerated fixed asset depreciation.

The estimates for the remaining strategic restructuring costs expected to be incurred through fiscal 2021 are as follows:

	Minimum		Maximum
Compensation and benefits	$	12,000	$	17,000
Occupancy	16,000		18,000
Other costs	20,000		23,000
Total	$	48,000	$	58,000

While management expects the total estimated costs to be within the range disclosed, the ultimate nature and timing of the costs may differ from those presented above.

Table of Contents

The table below presents a summary of changes in the strategic restructuring liability from January 1, 2019 through June 30, 2020, and cumulative charges incurred to date:



	Compensation and benefits			Occupancy			Other			Total
Balance as of January 1, 2019	$	—		$	—		$	—		$	—
Accrued charges	—			2,090			6,504			8,594
Balance as of March 31, 2019	—			2,090			6,504			8,594
Accrued charges	44,919			4,426			7,887			57,232
Payments	(28,955		)	(622		)	(13,506		)	(43,083		)
Balance as of March 31, 2020	15,964			5,894			885			22,743
Accrued charges	858			3,681			474			5,013
Payments	(11,470		)	(334		)	(1,140		)	(12,944		)
Balance as of June 30, 2020	$	5,352		$	9,241		$	219		$	14,812
Non-cash charges⁽¹⁾
Three months ended March 31, 2019	$	—		$	758		$	—		$	758
Year ended March 31, 2020	12,325			1,477			—			13,802
Three months ended June 30, 2020	269			2,740			—			3,009
Total	$	12,594		$	4,975		$	—		$	17,569
Cumulative charges incurred through June 30, 2020	$	58,371		$	15,172		$	14,865		$	88,408

(1) Includes stock-based compensation expense and accelerated fixed asset depreciation.

In addition to strategic restructuring charges of $8,022, during the three months ended June 30, 2020, Legg Mason also incurred merger related costs of $22,910, primarily for proxy solicitation and professional fees.

16. Variable Interest Entities and Consolidated Investment Vehicles

In accordance with financial accounting standards, Legg Mason consolidates certain sponsored investment products, some of which are designated as CIVs. As presented in the table below, Legg Mason concluded it was the primary beneficiary of certain VIEs because it held significant financial interests in the funds. In addition, Legg Mason has 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, Legg Mason absorbs all of the related gains and losses on the underlying ETF investments of these financial intermediaries, and therefore has variable interests in ETFs with open total return swap arrangements and, if significant, Legg Mason is deemed to be the primary beneficiary of such ETFs. Because it was determined to be the primary beneficiary of these VIEs, Legg Mason consolidated and designated the following funds as CIVs in the Consolidated Balance Sheets as of:

December 31, 2019

March 31, 2019

December 31, 2018

June 30, 2020

March 31, 2020

June 30, 2019

Number of Consolidated Funds

Legg Mason Investment in Funds(1)

Number of Consolidated Funds

Legg Mason Investment in Funds(1)

Number of Consolidated Funds

Legg Mason Investment in Funds(1)

Sponsored investment partnerships

2—

~~9,419~~—

111,~~671~~690

1211,~~863~~224

Trust structure foreign mutual funds

2115,~~669~~806

2319,~~005~~303

4925,~~251~~966

Employee trust structure funds

1—

~~4,564~~—

65,~~215~~188

64,~~963~~544

ETFs(2)

~~2,764~~491

2,~~821~~216

2,~~487~~874

Total

116

3816,~~416~~297

1410

4328,~~712~~397

1413

7144,~~564~~608

(1) Represents Legg Mason's maximum risk of loss, excluding uncollected advisory fees.

(2) Under the total return swap arrangements, Legg Mason receives the related investment gains and losses on investments in ~~two~~one of Legg Mason's ETFs with notional amounts totaling $341,~~907~~505 as of ~~December~~June 3130, ~~2019~~2020. See Note 14 for additional information regarding total return swaps.

The assets of these CIVs are primarily comprised of investment securities and as of March 31, 2019, the liabilities of these CIVs were primarily comprised of payables for purchased securities. Investors and creditors of these CIVs have no recourse to the general credit or assets of Legg Mason beyond its investment in these funds.29

Legg Mason also consolidates certain voting rights entities ("VRE") products with seed capital investments where Legg Mason maintains a controlling financial interest in the product. As of December 31, 2019, March 31, 2019 and December 31, 2018, Legg Mason consolidated four, five, and seven VRE products with seed capital investments totaling $39,130, $24,924, and $29,355, respectively.

Table of Contents

The ~~following~~assets ~~tables~~of ~~reflect~~these ~~the~~CIVs ~~impact~~are primarily comprised of ~~CIVs~~investment securities. Investors and ~~other~~creditors ~~consolidated~~of ~~sponsored~~these ~~investment~~CIVs ~~products~~have inno recourse to the ~~Consolidated~~general ~~Balance~~credit ~~Sheets~~or ~~and~~assets ~~the~~of ~~Consolidated~~Legg ~~Statements~~Mason ofbeyond ~~Income~~its ~~(Loss):~~investment in these funds.

Legg Mason also consolidates certain VRE products with seed capital investments where Legg Mason maintains a controlling financial interest in the product. As of June 30, 2020, March 31, 2020, and June 30, 2019, Legg Mason consolidated three, four, and four VRE products with seed capital investments totaling $49,791, $41,774, and $20,548, respectively.

The financial information of certain consolidated investment products is included in Legg Mason's consolidated financial statements on a lag basis of up to three months based on the availability of the investment products' financial information. As of June 30, 2020, Legg Mason was the primary beneficiary of a sponsored collateralized loan obligation entity ("CLO") VIE which, based upon the availability of the related financial information, will be included in Legg Mason's consolidated financial statements beginning in the second quarter of fiscal 2021. Legg Mason invested $5,000 in the CLO’s $37,300 equity tranche on June 23, 2020, and as of June 30, 2020, the CLO’s assets (cash and cash equivalents and corporate loans) and liabilities (payables and notes payable) each aggregated $563,600.

The following tables reflect the impact of CIVs and other consolidated sponsored investment products in the Consolidated Balance Sheets and the Consolidated Statements of Income:

Consolidating Balance Sheets

	December 31, 2019									March 31, 2019
	June 30, 2020									March 31, 2020
	Balance Before Consolidation of CIVs and Other(1)		CIVs and Other(1)		Reclassifications & Eliminations			Consolidated Totals		Balance Before Consolidation of CIVs and Other(1)		CIVs and Other(1)		Reclassifications & Eliminations			Consolidated Totals
Current Assets	$	1,~~896~~940,~~010~~093	$	~~117~~38,~~167~~396	$	(3716,~~245~~297	)	$	1,~~975~~962,~~932~~192	$	1,~~916~~942,~~485~~583	$	~~144~~131,~~091~~869	$	(4034,~~720~~828	)	$	2,~~019~~039,~~856~~624
Non-current assets	65,~~061~~954,~~015~~266		~~3,942~~979		~~(1,171~~—		)	65,~~063~~955,~~786~~245		5,~~768~~945,~~265~~353		822,~~993~~313		(21,~~992~~170		)	5,~~774~~966,~~266~~496
Total Assets	$	7,~~957~~894,~~025~~359	$	~~121~~39,~~109~~375	$	(3816,~~416~~297	)	$	87,~~039~~917,~~718~~437	$	7,~~684~~887,~~750~~936	$	~~153~~154,~~084~~182	$	(4335,~~712~~998	)	$	78,~~794~~006,~~122~~120
Current Liabilities	$	~~929~~865,~~495~~237	$	~~1,364~~273	$	—		$	~~930~~865,~~859~~510	$	1925,~~104,002~~013	$	51,~~742~~044	$	—		$	1926,~~109,744~~057
Non-current liabilities	2,~~605~~543,~~229~~269		—		—			2,~~605~~543,~~229~~269		2,~~302~~543,~~463~~968		—		—			2,~~302~~543,~~463~~968
Total Liabilities	3,~~534~~408,~~724~~506		~~1,364~~273		—			3,~~536~~408,~~088~~779		3,~~406~~468,~~465~~981		51,~~742~~044		—			3,~~412~~470,~~207~~025
Redeemable Non-controlling interests	~~587~~590,~~024~~531		—		8122,~~329~~805			~~668~~613,~~353~~336		~~588~~597,~~746~~274		—		~~103~~117,~~630~~140			~~692~~714,~~376~~414
Total Stockholders’ Equity	3,835,277		119,745		(119,745		)	3,835,277		3,689,539		147,342		(147,342		)	3,689,539
Total Stock-holders’ Equity	3,895,322		39,102		(39,102		)	3,895,322		3,821,681		153,138		(153,138		)	3,821,681
Total Liabilities and Equity	$	7,~~957~~894,~~025~~359	$	~~121~~39,~~109~~375	$	(3816,~~416~~297	)	$	87,~~039~~917,~~718~~437	$	7,~~684~~887,~~750~~936	$	~~153~~154,~~084~~182	$	(4335,~~712~~998	)	$	78,~~794~~006,~~122~~120


(1)	Other represents consolidated sponsored investment product VREs that are not designated as CIVs.

3530

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Consolidating Statements of Income



$	51,439

	Three Months Ended
	June 30, 2020												June 30, 2019
	December 31, 2019												December 31, 2018
	Balance BeforeConsolidation of CIVs and Other(1)			CIVs and Other(1)			Eliminations			Consolidated Totals			Balance BeforeConsolidation of CIVs and Other(1)			CIVs and Other(1)			Eliminations			Consolidated Totals
Total Operating Revenues	$	~~753~~666,~~983~~232		$	—		$	(6946	)	$	~~753~~666,~~914~~186		$	~~704~~705,~~477~~485		$	—		$	(~~155~~125	)	$	~~704~~705,~~322~~360
Total Operating Expenses	~~623~~598,~~817~~565			~~166~~(6		)	(6381		)	~~623~~598,~~920~~478			~~940~~621,~~561~~291			~~308~~350			(~~120~~216		)	~~940~~621,~~749~~425
Operating Income (Loss)	~~130~~67,~~166~~667			~~(166~~6		)	(635		)	~~129~~67,~~994~~708			~~(236~~84,~~084~~194		)	(~~308~~350		)	~~(35~~91		)	~~(236~~83,~~427~~935		)
Total Non-Operating Income (Expense)	~~(7,300~~439		)	~~569~~(1,687		)	12,~~404~~544			(51,~~327~~296		)	(3211,~~158~~054		)	210,~~612~~085			(~~771~~3,349		)	(304,~~317~~318		)
Income (Loss) Before Income Tax Provision (Benefit)	122,866			403			1,398			124,667			(268,242		)	2,304			(806		)	(266,744		)
Income (Loss) Before Income Tax Provision	68,106			(1,681		)	2,579			69,004			73,140			9,735			(3,258		)	79,617
Income tax provision (benefit)	33,664			—			—			33,664			(60,354		)	—			—			(60,354		)
Income tax provision	13,930			—			—			13,930			18,048			—			—			18,048
Net Income (Loss)	89,202			403			1,398			91,003			(207,888		)	2,304			(806		)	(206,390		)
Net Income	54,176			(1,681		)	2,579			55,074			55,092			9,735			(3,258		)	61,569
Less: Net income (loss) attributable to noncontrolling interests	14,427			(245		)	2,046			16,228			9,000			242			1,256			10,498
Less: Net income attributable to noncontrolling interests	4,754			472			426			5,652			9,742			524			5,953			16,219
Net Income (Loss) Attributable to Legg Mason, Inc.	$	74,775		$	648		$	(648	)	$	74,775		$	(216,888	)	$	2,062		$	(2,062	)	$	(216,888	)
Net Income Attributable to Legg Mason, Inc.	$	49,422		$	(2,153	)	$	2,153		$	49,422		$	45,350		$	9,211		$	(9,211	)	$	45,350

	Nine Months Ended
	December 31, 2019												December 31, 2018
	Balance BeforeConsolidation of CIVs and Other(1)			CIVs and Other(1)			Eliminations			Consolidated Totals			Balance BeforeConsolidation of CIVs and Other(1)			CIVs and Other(1)			Eliminations			Consolidated Totals
Total Operating Revenues	$	2,202,888		$	—		$	(350	)	$	2,202,538		$	2,211,115		$	—		$	(461	)	$	2,210,654
Total Operating Expenses	1,862,253			1,292			87			1,863,632			2,184,807			1,386			(516		)	2,185,677
Operating Income (Loss)	340,635			(1,292		)	(437		)	338,906			26,308			(1,386		)	55			24,977
Total Non-Operating Income (Expense)	(40,072		)	15,625			(4,890		)	(29,337		)	(74,131		)	2,070			297			(71,764		)
Income (Loss) Before Income Tax Provision	300,563			14,333			(5,327		)	309,569			(47,823		)	684			352			(46,787		)
Income tax provision	80,466			—			—			80,466			165			—			—			165
Net Income (Loss)	220,097			14,333			(5,327		)	229,103			(47,988		)	684			352			(46,952		)
Less: Net income (loss) attributable to noncontrolling interests	32,889			721			8,285			41,895			30,007			115			921			31,043
Net Income (Loss) Attributable to Legg Mason, Inc.	$	187,208		$	13,612		$	(13,612	)	$	187,208		$	(77,995	)	$	569		$	(569	)	$	(77,995	)

(1) Other represents consolidated sponsored investment products (VREs) that are not designated as CIVs.

Non-Operating Income (Expense) of CIVs and Other includes interest income, interest expense, and net gains (losses) on investments.

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The consolidation of CIVs has no impact on Net Income (Loss) Attributable to Legg Mason, Inc.

~~There~~As ~~were~~of noJune ~~transfers~~30, ~~between~~2020 and March 31, 2020, financial assets of CIVs carried at fair value totaling $26,337 and $93,648, respectively, were valued using Level 1 inputs, $7,474 and ~~Level~~$23,118, 2respectively, ~~assets~~were orvalued ~~liabilities~~using ~~during~~Level ~~the~~2 ~~three~~inputs, and ~~nine~~as ~~months~~of ~~ended~~March ~~December~~ 31, ~~2019~~2020, ~~and~~$2,029 ~~2018~~were valued using NAV as a practical expedient.

The NAVs used as a practical expedient by CIVs have been provided by the investees and have been derived from the fair values of the underlying investments as of the respective reporting dates. The following table summarizes the nature of these investments and any related liquidation restrictions or other factors, which may impact the ultimate value realized:31

Fair Value Determined Using NAV

As of December 31, 2019

Category of Investment

Investment Strategy

December 31, 2019

March 31, 2019

Unfunded Commitments

Remaining Term

Hedge funds

Global macro, fixed income, long/short equity, systematic, emerging market, U.S. and European hedge

3,619

(1)

12,547

n/a

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n/a - not applicable

(1) Redemption restrictions: 22% monthly redemption; 77% quarterly redemption; and 1% are subject to three to five-year lock-up or side pocket provisions.

Legg Mason's carrying value and maximum risk of loss for VIEs in which Legg Mason holds a variable interest, but for which it was not the primary beneficiary, were as follows:

As of December 31, 2019

As of March 31, 2019

As of June 30, 2020

As of March 31, 2020

Equity Interests on the Consolidated Balance Sheet (1)

Maximum Risk of Loss (2)

Equity Interests on the Consolidated Balance Sheet (1)

Maximum Risk of Loss (2)

Real Estate Investment Trusts

122,~~312~~922

145,~~052~~442

102,~~812~~922

155,~~241~~442

Other investment funds

3139,~~090~~102

4940,~~646~~886

2533,~~155~~365

4552,~~897~~230

Total

4342,~~402~~024

6346,~~698~~328

3536,~~967~~287

6157,~~138~~672


(1)	Amounts are related to investments in proprietary and other fund products.


(2)	Includes equity investments the Company has made or is required to make and any earned but uncollected management fees.

The Company's total AUM of unconsolidated VIEs was $2926,~~677~~304,~~965~~649 and $2931,~~025~~325,~~764~~927 as of ~~December~~June 3130, ~~2019~~2020 and March 31, ~~2019~~2020, respectively.

The assets of these VIEs are primarily comprised of cash and cash equivalents and investment securities, and the liabilities are primarily comprised of various expense accruals. These VIEs were not consolidated because Legg Mason does not have both the power to direct significant economic activities of the entity and rights/obligations associated with benefits/losses that could be significant to the entity.

3717. Subsequent Events

On July 17, 2020, Franklin Templeton and Legg Mason announced that all conditions to the closing of the Merger were satisfied. The closing will take effect at the end of the day on July 31, 2020, the date this Report is being filed.

On July 21, 2020, Legg Mason used existing cash resources to repay the total $250,000 of borrowings outstanding under the Credit Agreement.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 that involve substantial risks or uncertainties. Forward-looking statements are typically identified by words or phrases such as “achieve,” “anticipate,” “assume,” “believe,” “continue,” “current,” “estimate,” “expect,” “intention,” “maintain,” “opportunity,” “position,” “potential,” “projection,” “remain,” “seek,” “sustain,” “trend” and similar expressions, or future or conditional verbs such as “could,” “may,” “should,” "will," "would" and similar expressions. Forward-looking statements are based on our current expectations and beliefs, and involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance and achievements and the timing of certain events to differ materially from the results, performance, achievements or timing discussed, projected, anticipated or indicated in any forward-looking statement. Such risks, uncertainties and other factors include, among others, information or anticipated information relating to: our expectations regarding financial market conditions, including interest rate volatility, future investment performance of our affiliates, and future net client cash flows; the performance of our business, including revenues, net income, earnings per share, dividends, investments, capital expenditures, and other conditions; our expense levels; changes in our business or in the amount or composition of our client assets under management ("AUM"); the expected effects of acquisitions and other transactions, including the proposed merger between Legg Mason and Franklin Resources, Inc. ("Franklin Templeton"), and their effect on our business; changes in tax regulations and rates, including the effect on our estimated effective income tax rate; the expected costs and benefits of our ongoing strategic restructuring; and other regulatory or legislative changes.

Actual results may differ materially from those expressed in forward-looking information as a result of various factors, some of which are beyond our control, including, but not limited to, the foregoing factors as well as those discussed under the heading "Risk Factors" in our Annual Report on Form 10-K for the year ended March 31, ~~2019~~2020. Due to such risks, uncertainties and other factors, we caution each person receiving such forward-looking information not to place undue reliance on such statements. Further, forward-looking statements speak only as of the date on which such statements are made, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date of any such statement or to reflect the occurrence of unanticipated events.

Executive Overview

Legg Mason, Inc. is a global asset management firm that operates through nine independent asset management subsidiaries (collectively with its subsidiaries, “Legg Mason”). We help investors globally to achieve 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. Terms such as "we," "us," "our," and "Company" refer to Legg Mason.

~~The~~Merger ~~financial~~Agreement ~~services~~for ~~business~~Acquisition 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 by ~~our~~Franklin ~~competitors~~Resources, ~~and the consolidation of financial services firms through mergers and acquisitions~~Inc. 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.

38On 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. 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. All conditions to the closing of the Merger have been satisfied and the closing will take effect at the end of the day on July 31, 2020, the date this Report is being filed.

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~~Our~~Refer ~~revenues~~to ~~and net income are derived primarily from AUM and fees associated with our investment products. Accordingly, changes in global financial markets,~~ the ~~composition~~definitive ~~and~~proxy ~~level~~statement of ~~AUM, net new business inflows (or outflows) and changes in~~ the ~~mix~~Company ~~of investment products between asset classes~~ and ~~geographies~~Franklin ~~may materially affect our results of operations. Our most significant operating expenses are employee compensation and benefits~~Templeton, aas ~~majority~~filed ofby which is variable and includes incentive compensation, and distribution and servicing expenses, which consist primarily of fees paid to third-party distributors for selling our asset management products and services. Our profitability is sensitive to a variety of factors, including the ~~amount~~Company ~~and~~with ~~composition of our AUM, and~~ the ~~volatility and general level of securities prices, interest rates, and changes in currency exchange rates, among other things~~U. ~~Periods of unfavorable market conditions are likely to have an adverse effect on our profitability~~S. In ~~addition,~~Securities ~~the diversification of services, vehicles,~~ and ~~products~~Exchange ~~offered,~~Commission ~~investment~~on ~~performance,~~April ~~access to distribution channels~~16, ~~reputation in the market~~2020, 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~~additional weinformation 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 under the heading “Risk Factors” in our Annual Report on ~~Form 10-K for~~ the ~~year ended March 31, 2019 and in Item 1A~~Merger. ~~herein.~~

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 by our competitors, 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 revenues and net income are derived primarily from AUM and fees associated with our investment products. Accordingly, 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 most significant operating expenses are employee compensation and benefits, a majority of which is variable and includes incentive compensation, and distribution and servicing expenses, which consist primarily of fees paid to third-party distributors for selling our asset management products and services. 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 under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended March 31, 2020.

Global markets experienced extreme volatility beginning in the second half of February 2020 in reaction to the novel coronavirus ("COVID-19") pandemic. While global financial markets improved during the three months ended June 30, 2020, uncertainty remains about the extent and duration of business disruptions related to COVID-19 as well as its impacts on the global economy. This market uncertainty may have an impact on our business.

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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. Upon effectiveness of the Merger, 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 ~~drive~~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 quarterly results discussion below.

39Restructuring

~~Table~~During the fourth quarter of ~~Contents~~fiscal 2019, we initiated a strategic restructuring to reduce costs, which included corporate and distribution functions, as well as efficiency initiatives at certain smaller affiliates that operate outside of revenue-sharing arrangements. As of June 30, 2020, our strategic restructuring was substantially complete. During the three months ended June 30, 2020, we incurred $8.0 million, or $0.06 per diluted share, of costs related to the strategic restructuring, for cumulative costs of $88.4 million since January 1, 2019. These aggregate costs were significantly lower than our initial forecasted range of $120 million to $140 million. See Note 15 of Notes to Consolidated Financial Statements for additional information.

~~Strategic~~During ~~Restructuring~~the quarter ended June 30, 2020, we achieved annual run rate cost savings of $104 million. We realized an additional $12 million of savings related to the strategic restructuring during the three months ended June 30, 2020, for cumulative realized savings of $84 million since January 1, 2019.

~~During~~In ~~the fourth quarter of fiscal 2019~~addition, weduring 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 $125 million to $135 million 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 three ~~and nine~~ months ended ~~December~~June 3130, ~~2019~~2020, we incurred $1822.59 million, or $0.1518 per diluted share, ~~and $67.3 million, or $0.55 per diluted share, respectively,~~ of ~~costs~~merger related to the strategic restructuring. See Note 15 of Notes to Consolidated Financial Statements for additional information. We achieved $20 million of savings related to the strategic restructuring during the three months ended December 31costs, ~~2019,~~primarily for ~~cumulative~~proxy ~~achieved~~solicitation ~~savings~~and ofprofessional ~~$49 million since January 1, 2019~~fees.

In addition, during the three and nine months ended December 31, 2019, we incurred $2.4 million, or $0.02 per diluted share, and $6.2 million, or $0.05 per diluted share, respectively, of restructuring costs for other corporate matters, and during the three and nine months ended December 31, 2018, we incurred $5.9 million, or $0.05 per diluted share, and $14.3 million, or $0.12 per diluted share, respectively, of costs associated with our previous corporate restructuring plans. We do not attribute or include these other corporate restructuring costs in our strategic restructuring.

Net Income (Loss) Attributable to Legg Mason, Inc.

Net Income Attributable to Legg Mason, Inc. for the three months ended December 31, 2019, was $74.8 million, or $0.83 per diluted share, as compared to Net Loss Attributable to Legg Mason, Inc. of $216.9 million, or $2.55 per diluted share for the three months ended December 31, 2018. As further discussed below, the increase in Net Income (Loss) Attributable to Legg Mason, Inc. was primarily driven by non-cash impairment charges totaling $365.2 million, or $3.17 per diluted share, related to intangible assets at EnTrust Global and RARE infrastructure, recognized in the prior year period. The increase was also driven by the impact of higher operating revenues in the current year period, reflecting an increase in investment advisory fees from separate accounts and funds and performance fees that were not passed through as compensation expense, and the impact of savings from the strategic restructuring.

Average AUM increased 7% for the three months ended December 31, 2019, as compared to the three months ended December 31, 2018.

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

~~Business Environment~~35

U.S. equity markets delivered strong results for the three months ended December 31, 2019, driven by optimism about a trade deal between the U.S. and China and signs of improvement in the manufacturing sector. The U.S. Federal Reserves' target federal funds rate remained at 2.0% during the quarter, which helped ease uncertainties after three rate changes during calendar year 2019. From a sector standpoint, information technology, communication services, and healthcare performed strongest during the quarter. Equity markets in the U.S. achieved their strongest performance in years. Developed international equity markets also delivered strong results, as volatility decreased due to signs of global growth stabilization, an anticipated resolution to Brexit uncertainty, and optimism regarding a trade deal between the U.S. and China. Emerging equity markets also rallied during the quarter in response to interest rate cuts in several countries and an interim trade deal between the U.S. and China.

Global bond markets were mixed during the quarter. The broad U.S. bond market posted positive returns for the quarter. Long-term treasury yields rose throughout the quarter, especially for longer maturities, due to low global interest rates and expectations of economic growth in the U.S. Short-term treasuries declined during the quarter. International government bond yields also declined during the quarter, compared to higher risk credit categories, in response to easing political tensions and positive economic outlook. Many major central banks reduced interest rates during the quarter. Investment-grade and high yield corporate bonds recorded strong returns, driven by momentum in the stock market.

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Business Environment

The quarter ended June 30, 2020 showed signs of recovery following an extreme downturn in the previous quarter due to the rapid spread of COVID-19. Almost all U.S. asset classes posted gains in the quarter ended June 30, 2020 in response to government stimulus spending, other government support actions, and gradual easing of shutdown measures. U.S. equities rebounded during the quarter and outperformed most major global equity markets. Developed international equity markets also rose as global economies began to reopen, although they were outperformed by U.S. equities. Emerging markets recorded their strongest quarter in a decade as consumer sentiment improved and drove demand for riskier assets.

As governments worldwide began to ease shutdown restrictions mid-quarter, riskier assets showed signs of recovery. Corporate and high-yield bonds performed the strongest during the quarter, and emerging markets also produced gains. Government bonds remained relatively stagnant throughout the quarter. The U.S. treasury yield remained at record lows throughout the quarter in response to quantitative easing by the government. U.S. stocks recorded their best quarterly performance in 20 years. All sectors performed well during the quarter, led by information technology. Energy and industrial sectors also posted gains.

The following table summarizes the returns for various major market indices:

	% Change for the Three Months Ended December 31,				% Change for the Nine Months Ended December 31,
	% Change for the Three Months Ended June 30,
Indices(1)	~~2019~~2020		~~2018~~2019		~~2019~~		~~2018~~
Dow Jones Industrial Average(2)	617.08	%	~~(11~~2.86	)%	~~10.1~~	%	~~(3.2~~	)%
S&P 500(2)	820.50	%	~~(14~~3.08	)%	~~14.0~~	%	~~(5.1~~	)%
Nasdaq Composite Index(2)	1230.26	%	~~(17~~3.56	)%	~~16.1~~	%	~~(6.1~~	)%
Barclays Capital U.S. Aggregate Bond Index	0.2.9	%	13.61	%	~~5.6~~	%	~~1.5~~	%
Barclays Capital Global Aggregate Bond Index	03.53	%	13.23	%	~~4.5~~	%	~~(2.5~~	)%


(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.

InThe ~~addition~~impact toof ~~these~~the ~~factors,~~COVID-19 ~~our~~pandemic ~~industry~~on ~~continues~~U.S. toand beinternational ~~impacted~~financial bymarkets ~~the~~may ~~generally~~have ~~low~~a ~~growth~~significantly ~~and~~negative ~~mixed~~impact ~~return~~on ~~environment,~~our ~~with~~AUM ~~continued~~and ~~migration~~results ~~from~~of ~~active~~operations toduring ~~passive~~fiscal ~~strategies. Together~~2021, ~~with~~particularly ~~continuing~~in ~~regulatory~~the ~~changes,~~near ~~these~~term. Given ~~factors~~continued ~~continue~~uncertainty toand ~~put~~volatility, ~~pressure~~we oncannot ~~fees,~~reasonably ~~contributing~~estimate to the ~~consolidation~~impact ofmarket ~~products~~conditions ~~and~~will ~~managers~~have on ~~distribution~~our ~~platforms. These~~future ~~factors~~results ~~also~~of ~~continue~~operations, tocash ~~create~~flows, ~~significant~~or ~~flow~~financial ~~challenges for active managers like ourselves~~condition.

~~While~~In ~~the~~addition, ~~economic~~our ~~outlook~~industry ~~for~~continues ~~the~~to ~~U.S.~~be ~~has remained positive in recent years, it has been~~ impacted by ~~increased~~migration ~~uncertainty. This~~from ~~uncertainty~~active ~~over time has led~~ to ~~increased~~passive ~~volatility~~strategies. Together inwith ~~the~~continuing ~~U.S.~~regulatory ~~and~~changes, ~~international~~these ~~equity~~factors ~~and~~continue ~~bond~~to ~~markets. The~~put ~~volatility~~pressure ofon ~~the~~fees, ~~markets~~contributing ~~highlights~~to the ~~importance~~consolidation of aproducts ~~strong~~and ~~investment~~managers ~~strategy~~on distribution platforms. ~~The~~These ~~financial~~factors ~~environment~~also incontinue ~~which we operate continues~~ to ~~reflect~~create asignificant ~~heightened~~flow ~~level~~challenges offor ~~sensitivity~~active ~~and~~managers ~~continued~~like ~~pressure on our fees, as discussed above~~ourselves.

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Three Months Ended ~~December~~June 3130, ~~2019~~2020, Compared to Three Months Ended ~~December~~June 3130, ~~2018~~2019

Assets Under Management

Our AUM is primarily managed across the following asset classes:

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

The components of the changes in our AUM (in billions) were as follows:

	Three Months Ended
	Three Months EndedJune 30,
	December 31,
	2020			2019
	2019			2018
Beginning of period	$	730.8		$	758.0
Beginning of period	$	781.8		$	755.4
Net client cash flows:
Investment funds, excluding liquidity products(1):
Subscriptions	16.67			1417.49
Redemptions	(1216.92		)	(1916.71		)
Long-term separate account flows, net	(5.31		)	(30.27		)
Total long-term flows	(1.6		)	(8.5		)
Total long-term flows, net	(4.6		)	1.1
Total liquidity flows	—			10.5
Total liquidity flows, net	(5.2		)	(1.6		)
Total net client cash flows	(19.68		)	2.(0.5		)
Realizations(2)	(0.62		)	(0.24		)
Market performance and other(3)	2059.97			~~(30~~21.09		)
Impact of foreign exchange	32.09			—0.6
End of period	$	803.5		$	727.2
Acquisition	—			0.6
End of period	$	783.4		$	780.2


(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)	Other primarily includes the reinvestment of dividends.

AUM at ~~December~~June 3130, ~~2019~~2020 was $~~803~~783.54 billion, an increase of $2152.76 billion, or 37%, from ~~September~~March 3031, ~~2019~~2020. Total net long-term client outflows were $14.6 billion, comprised of ~~equity~~fixed income net outflows of $43.81 billion, ~~partially~~and ~~offset~~equity ~~by fixed income~~ net ~~inflows~~outflows of $12.70 billion, ~~and~~partially offset by alternative net inflows of $10.5 billion. ~~Liquidity~~There ~~asset class flows~~ were ~~flat~~$5. ~~Equity~~2 billion of net outflows ~~were~~in ~~primarily~~the ~~from~~liquidity ~~products~~asset ~~managed by ClearBridge Investments (“ClearBridge”), Brandywine Global Investment~~

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~~Management ("Brandywine"), Royce Investment Partners (“Royce”), and QS Investors, partially offset by net inflows in products managed by Martin Currie~~class. Fixed income net ~~inflows~~outflows were primarily in products managed by Brandywine Global Investment Management ("Brandywine") and Western Asset Management Company ("Western Asset"),. Equity ~~partially offset by~~ net outflows were primarily from products managed by ~~Brandywine~~ClearBridge Investments (“ClearBridge”), Martin Currie, and QS Investors. Alternative net inflows were in products managed by Clarion Partners and ~~RARE~~EnTrust ~~Infrastructure~~Global, partially offset by net outflows from products managed by ~~EnTrust~~RARE ~~Global~~Infrastructure. In general, we earn higher fees and profits per dollar of alternative and equity AUM, and outflows in those asset classes more negatively impact our revenues and Net Income (Loss) Attributable to Legg Mason, Inc. than do outflows in the fixed income and liquidity asset classes. The positive impact of market performance and other was $2059.97 billion. The positive impact of foreign exchange fluctuations was $32.09 billion.

Our net client cash flows also reflect the significant industry-wide flow pressure for active managers of equity and fixed income assets discussed above under the heading "Business Environment".

AUM by Asset Class

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

As of December 31,	2019		% ofTotal		2018		% ofTotal		% Change
As of June 30,	2020		% ofTotal		2019		% ofTotal		% Change
Equity	$	~~214~~192.04	2725	%	$	~~181~~205.06	2526	%	18(6	)%
Fixed income	~~451~~447.80		5657		~~406~~438.60		56		112
Alternative	7473.37		9		6670.31		9		125
Total long-term assets	~~740~~713.1		9291		~~653~~713.97		9091		13—
Liquidity	6370.43		89		7366.35		109		~~(14~~6	)
Total	$	~~803~~783.54	100	%	$	~~727~~780.2	100	%	10—	%

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

Three months ended December 31,	2019		% ofTotal		2018		% ofTotal		% Change
Three months ended June 30,	2020		% ofTotal		2019		% ofTotal		% Change
Equity	$	~~209~~181.3	2724	%	$	~~198~~202.27	2726	%	6(11	)%
Fixed income	~~447~~435.30		5657		~~407~~427.40		5556		102
Alternative	73.18		9		6669.83		9		96
Total long-term assets	~~729~~690.71		9290		~~672~~699.40		91		9(1	)
Liquidity	6274.03		810		66.9		9		(711	)
Total	$	~~791~~764.74	100	%	$	~~739~~765.39	100	%	7—	%

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The component changes in our AUM by asset class (in billions) were as follows:

	Equity			Fixed Income			Alternative			Total Long-Term			Liquidity			Total
September 30, 2019	$	203.3		$	442.7		$	72.6		$	718.6		$	63.2		$	781.8
March 31, 2020	$	161.2		$	420.2		$	74.3		$	655.7		$	75.1		$	730.8
Investment funds, excluding liquidity funds(1):
Subscriptions	45.64			910.61			21.42			16.67			—			16.67
Redemptions	(56.81		)	(5.9.4		)	(10.27		)	(1216.92		)	—			(1216.92		)
Long-term separate account flows, net	(31.63		)	(23.08		)	~~0.3~~—			(5.31		)	—			(5.31		)
Liquidity flows, net	—			—			—			—			—(5.2		)	—(5.2		)
Net client cash flows	(42.80		)	1(3.71		)	10.5			(14.6		)	—(5.2		)	(19.68		)
Realizations(2)	—			—			(0.62		)	(0.62		)	—			(0.62		)
Market performance and other(3)	1433.91			527.23			0(1.61		)	2059.73			0.24			2059.97
Impact of foreign exchange	0.61			2.26			0.2			32.09			—			32.09
December 31, 2019	$	214.0		$	451.8		$	74.3		$	740.1		$	63.4		$	803.5
June 30, 2020	$	192.4		$	447.0		$	73.7		$	713.1		$	70.3		$	783.4


(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)	Other primarily includes the reinvestment of dividends.

	Equity			Fixed Income			Alternative			Total Long-Term			Liquidity			Total
September 30, 2018	$	214.5		$	411.0		$	67.4		$	692.9		$	62.5		$	755.4
March 31, 2019	$	202.0		$	419.6		$	68.6		$	690.2		$	67.8		$	758.0
Investment funds, excluding liquidity funds(1):
Subscriptions	57.41			79.84			1.24			1417.49			—			1417.49
Redemptions	(78.69		)	(106.84		)	(10.38		)	(1916.71		)	—			(1916.71		)
Long-term separate account flows, net	(1.18		)	(20.19		)	—0.2			(30.27		)	—			(30.27		)
Liquidity flows, net	—			—			—			—			10(1.56		)	10(1.56		)
Net client cash flows	(3.36		)	(53.19		)	(0.18		)	(81.51		)	10(1.56		)	2.(0.5		)
Realizations(2)	—			—			(0.24		)	(0.24		)	—			(0.24		)
Market performance and other(3)	~~(30~~7.2		)	013.79			(0.85		)	~~(30~~21.36		)	0.3			~~(30~~21.09		)
December 31, 2018	$	181.0		$	406.6		$	66.3		$	653.9		$	73.3		$	727.2
Impact of foreign exchange	—			0.6			—			0.6			—			0.6
Acquisition	—			—			0.6			0.6			—			0.6
June 30, 2019	$	205.6		$	438.0		$	70.1		$	713.7		$	66.5		$	780.2


(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)	Other primarily includes the reinvestment of dividends.

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AUM by Distribution Channel

Broadly, 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
September 30, 2019	$	358.2	$	423.6		$	781.8
March 31, 2020	$	317.9	$	412.9		$	730.8
Net client cash flows, excluding liquidity	12.52		(36.18		)	(14.6		)
Liquidity flows, net	—		—(5.2		)	—(5.2		)
Net client cash flows	12.52		(312.10		)	(19.68		)
Realizations(1)	—		(0.62		)	(0.62		)
Market performance and other(2)	1539.64		520.3			2059.97
Impact of foreign exchange	12.30		10.79			32.09
December 31, 2019	$	376.6	$	426.9		$	803.5
June 30, 2020	$	361.5	$	421.9		$	783.4


(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)	Other primarily includes the reinvestment of dividends.

	Global Distribution			Affiliate/Other			Total
September 30, 2018	$	341.6		$	413.8		$	755.4
March 31, 2019	$	339.3		$	418.7		$	758.0
Net client cash flows, excluding liquidity	(64.50		)	(2.09		)	(81.51		)
Liquidity flows, net	—			10(1.56		)	10(1.56		)
Net client cash flows	(64.50		)	8(4.5		)	2.(0.5		)
Realizations(1)	—			(0.24		)	(0.24		)
Market performance and other(2)	~~(23~~11.21		)	(610.8		)	~~(30~~21.09		)
Impact of foreign exchange	0.13			(0.13		)	—0.6
December 31, 2018	$	312.0		$	415.2		$	727.2
Acquisition	—			0.6			0.6
June 30, 2019	$	354.7		$	425.5		$	780.2


(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)	Other primarily includes the reinvestment of dividends.

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Operating Revenue Yield

We calculate operating revenue yields as the ratio of annualized 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 3634 basis points ("bps") and 37 bps, for the three months ended ~~December~~June 3130, ~~2019~~2020 and ~~2018~~2019, respectively. Our operating revenue yields by asset class and distribution channel were as follows:

	Three Months Ended December 31,
	Three Months Ended June 30,
	2019	2018
	2020	2019
Asset Class:
Equity	5655 bps	5958 bps
Fixed Income	2625 bps	2726 bps
Alternative	5856 bps	5960 bps
Liquidity	1415 bps	1314 bps
Total	3634 bps	37 bps
Distribution Channel:
Global Distribution	4037 bps	41 bps
Affiliate/Other	32 bps	3433 bps

Our total operating revenue yield decreased over the last year primarily due to ~~asset~~product mix, the shift to lower fee vehicles and share classes and specific fee reductions. The operating revenue yields for managing equity and alternative assets declined over the last year 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, and specific fee reductions.

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 three ~~and nine months~~ ended ~~December~~June 3130, ~~2019~~2020, see "Business Environment."

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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 December 31, 2019								As of December 31, 2018
	As of June 30, 2020								As of June 30, 2019
	1-year		3-year		5-year		10-year		1-year		3-year		5-year		10-year
Total (includes liquidity)	7857	%	7968	%	8367	%	8485	%	4175	%	8583	%	7884	%	8387	%
Equity:
Large cap	1817	%	2124	%	5213	%	4551	%	5760	%	5749	%	3365	%	5150	%
Small cap	5467	%	6873	%	6480	%	4150	%	6574	%	7968	%	3740	%	4542	%
Total equity (includes other equity)	6162	%	5662	%	6070	%	5056	%	5661	%	5756	%	3648	%	5152	%
Fixed income:
U.S. taxable	9774	%	~~100~~99	%	9995	%	9998	%	2497	%	99	%	8895	%	9499	%
U.S. tax-exempt (includes only one strategy)	~~100~~0	%	~~100~~0	%	~~100~~0	%	100	%	0	%	100	%	100	%	100	%
Global taxable	9845	%	9935	%	8450	%	9798	%	1245	%	9092	%	9186	%	9998	%
Total fixed income	9762	%	9976	%	9478	%	98	%	1977	%	9697	%	9092	%	9599	%
Alternative	9978	%	9590	%	9879	%	99	%	7598	%	7384	%	9398	%	5699	%

The following table presents a summary of the percentages of our U.S. mutual fund assets⁽²⁾ that outpaced their Lipper category averages⁽²⁾ for the trailing 1-year, 3-year, 5-year, and 10-year periods:

	As of December 31, 2019								As of December 31, 2018
	As of June 30, 2020								As of June 30, 2019
	1-year		3-year		5-year		10-year		1-year		3-year		5-year		10-year
Total (excludes liquidity)	6259	%	6563	%	7674	%	6869	%	4372	%	6966	%	7172	%	6568	%
Equity:
Large cap	3927	%	4039	%	7270	%	5458	%	6170	%	6142	%	6370	%	4253	%
Small cap	5279	%	6273	%	7280	%	3646	%	7375	%	9376	%	5576	%	4650	%
Total equity (includes other equity)	4541	%	4948	%	72	%	4955	%	6272	%	6351	%	5972	%	4450	%
Fixed income:
U.S. taxable	9288	%	9592	%	9592	%	9192	%	2893	%	9195	%	9091	%	9293	%
U.S. tax-exempt	1316	%	128	%	306	%	5517	%	1910	%	2528	%	5624	%	5654	%
Global taxable	8053	%	8548	%	4543	%	8377	%	2341	%	6276	%	8132	%	8382	%
Total fixed income	7875	%	8076	%	7976	%	8480	%	2673	%	7581	%	8373	%	84	%
Alternative (includes only three funds)	077	%	~~100~~77	%	n/a		n/a		3018	%	024	%	0	%	~~n/a~~87	%

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 ~~December~~June 3130, ~~2019~~2020 and ~~2018~~2019, approximately 8788% and 89%, 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 managed 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. As of ~~December~~June 3130, ~~2019~~2020 and ~~2018~~2019, the U.S. long-term mutual fund assets represented in the data accounted for 19% and 1718%, respectively, of our total AUM. 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 Note 16 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:

	Three Months Ended December 31,
	Three Months Ended June 30,
	2019		2018		$ Change			% Change
	2020		2019		$ Change			% Change
Investment advisory fees:
Separate accounts	$	~~266~~245.64	$	~~256~~260.75	$	9(15.91	)	4(6	)%
Funds	~~379~~347.09		~~361~~366.28		17(18.89		)	(5	)
Performance fees	3911.4		~~12.~~6.9		264.85			~~n/m~~65
Distribution and service fees	6759.69		7269.29		(410.60		)	(614	)
Other	1.36		1.63		(0.3		)	~~(19~~23	)
Total Operating Revenues	$	~~753~~666.92	$	~~704~~705.34	$	49(39.62	)	7(6	)%

Total Operating Revenues for the three months ended ~~December~~June 3130, ~~2019~~2020, ~~increased~~decreased $4939.62 million, or 76%, to $~~753~~666.92 million, as compared to $~~704~~705.34 million for the three months ended ~~December~~June 3130, ~~2018~~2019, driven by a $2734.70 million ~~increase~~decrease in investment advisory fees from funds and separate accounts and a $10.0 million decrease in distribution and service fees, reflecting ~~higher~~a 1% decrease in average long-term AUM, ~~offset~~and ~~in part by~~ a ~~reduction~~decrease in our ~~total~~ operating revenue yield from 37 basis points to 3634 basis points, as previously discussed. AThese ~~$26.8~~decreases ~~million~~were offset in part by an increase in performance fees, of $234.5 million, including an increase of ~~which~~$5.8 ~~were~~million ~~not~~in performance fees passed through as compensation expense, ~~also~~partially ~~contributed~~offset toby ~~the~~a ~~increase~~$1.2 million decrease in non-pass through performance fees.

Investment advisory fees from separate accounts ~~increased~~decreased $915.91 million, or 46%, to $~~266~~245.64 million, as compared to $~~256~~260.75 million for the three months ended ~~December~~June 3130, ~~2018~~2019. Fees earned on ~~fixed income and~~ equity assets ~~increased~~decreased $97.08 million ~~and $2.1 million~~, ~~respectively,~~ reflecting ana ~~increase~~decrease in average ~~fixed income and~~ equity AUM,. Fees ~~offset in part by a reduction in the average fee rates~~ earned on alternative and fixed income ~~and~~assets ~~equity~~decreased ~~assets~~$3. ~~These~~5 ~~increases~~million ~~were~~and ~~offset in part by a~~ $13.24 million, ~~decrease in fees earned on alternative assets~~respectively, reflecting a ~~reduction~~decrease in the average ~~fees~~fee rates earned on alternative ~~assets,~~and ~~offset~~fixed inincome ~~part~~AUM byand ana ~~increase~~decrease in average alternative and fixed income AUM.

Investment advisory fees from funds ~~increased~~decreased $1718.89 million, or 5%, to $~~379~~347.09 million, as compared to $~~361~~366.28 million for the three months ended ~~December~~June 3130, ~~2018~~2019. Fees earned on ~~fixed~~equity ~~income~~ assets ~~increased~~decreased $926.02 million, reflecting a reduction in average equity AUM and a reduction in the average fee rate earned on equity AUM. This decrease was partially offset by increases of $5.4 million and $2.1 million in fees earned on liquidity and alternative assets, respectively, driven by higher average ~~fixed~~AUM ~~income~~in ~~AUM~~each asset class, offset in part by a reduction in the average fee rates earned on ~~fixed~~liquidity ~~income~~and ~~assets.~~alternative AUM. Fees earned on ~~alternative~~fixed income assets ~~increased~~remained ~~$8.2~~relatively ~~million~~flat, ~~reflecting~~as ~~higher~~an increase in average ~~alternative~~fixed income AUM ~~and~~was ansubstantially ~~increase~~offset by a reduction in the average fee rates earned on ~~alternative~~fixed ~~assets.~~income AUM.

As of ~~December~~June 3130, ~~2019~~2020 and ~~2018~~2019, approximately 1110% and 12%, respectively, of our long-term average 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 majority of pass through performance fees at Clarion Partners to phase out by fiscal 2022. Excluding AUM eligible to earn pass through performance fees, approximately 7% ~~and 8%~~ of our long-term average AUM was in accounts that were performance fee eligible as of ~~December~~June 3130, ~~2019~~2020 and ~~2018~~2019.

4843

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Investment advisory performance fees increased $264.85 million to $3911.4 million, as compared to $~~12.~~6.9 million for the three months ended ~~December~~June 3130, ~~2018~~2019, driven by a $177.80 million increase in performance fees at ~~EnTrust~~Clarion ~~Global~~Partners, aincluding an increase of $5.08 million ~~increase~~in atpass ~~Western~~through ~~Asset~~performance fees, ~~and~~offset in part by a $31.38 million ~~increase~~decrease in ~~pass~~performance ~~through~~fees at RARE Infrastructure and a $1.8 million decrease in performance fees at ~~Clarion~~Western ~~Partners~~Asset.

Distribution and service fees decreased $410.60 million, or 614%, to $6759.69 million, as compared to $7269.29 million for the three months ended ~~December~~June 3130, ~~2018~~2019, primarily due to a reduction in the average fee rate earned on mutual fund AUM subject to distribution and service fees, reflecting a shift to lower fee share classes., and a decrease in average mutual fund AUM subject to distribution and service fees.

Operating Expenses

The components of Total Operating Expenses (in millions), and the dollar and percentage changes between periods were as follows:

	Three Months Ended December 31,
	Three Months Ended June 30,
	2019		2018			$ Change			% Change
	2020		2019			$ Change			% Change
Compensation and benefits	$	~~375~~353.02	$	~~316~~379.98		$	58(26.16	)	18(7	)%
Distribution and servicing	~~104~~91.43		~~108~~103.89			(412.46		)	(412	)
Communications and technology	5762.14		5655.63			07.51			113
Occupancy	32.50		2425.16			86.4			3525
Amortization of intangible assets	65.05		65.15			~~(0.1~~—		)	(2—	)
Impairment of intangible assets	—		365.2			(365.2		)	n/m
Contingent consideration fair value adjustments	—		(1.2		)	1.2			n/m
Other	4854.91		6352.05			~~(14.~~1.6		)	~~(22~~3	)
Total Operating Expenses	$	~~623~~598.95	$	~~940~~621.74		$	(~~316~~22.89	)	(344	)%

n/m - not meaningful

Operating expenses for the three months ended ~~December~~June 3130, ~~2019~~2020 and ~~2018~~2019, incurred at the investment management affiliate level represented approximately 70% of total operating expenses in each period ~~(excluding intangible asset impairment charges in the prior year period)~~. The remaining operating expenses are corporate costs, including costs of our global distribution operations.

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The components of Compensation and benefits (in millions), and the dollar and percentage changes between periods were as follows:

	Three Months Ended December 31,
	Three Months Ended June 30,
	2019		2018			$ Change			% Change
	2020		2019			$ Change			% Change
Salaries, incentives and benefits	$	~~341~~324.95	$	~~320~~341.39		$	21(17.64	)	7(5	)%
Strategic restructuring	10.2		—			10.2			n/m
Restructuring costs	1.9		29.9			(28.0		)	n/m
Affiliate charges	0.2		—			0.2			n/m
Performance fee pass through	6.8		1.0			5.8			n/m
Performance fee pass through	10.7		7.4			3.3			45
Gains on deferred compensation and seed capital investments	20.0		7.0			13.0			n/m
Gains (losses)on deferred compensation and seed capital investments	12.0		(10.8		)	22.8			n/m
	$	353.2	$	379.8		$	(26.6	)	(7	)%
Compensation and benefits	$	375.0	$	316.9		$	58.1		18	%

n/m - not meaningful

Compensation and benefits ~~increased~~decreased 187% to $~~375~~353.02 million for the three months ended ~~December~~June 3130, ~~2019~~2020, as compared to $~~316~~379.98 million for the three months ended ~~December~~June 3130, ~~2018~~2019.

• Salaries, incentives and benefits ~~increased~~decreased $2117.64 million, to $~~341~~324.95 million, as compared to $~~320~~341.39 million for the three months ended ~~December~~June 3130, ~~2018~~2019. The ~~increase~~decrease was ~~primarily~~driven ~~due~~by to a $2314.06 million ~~increase~~decrease in net compensation at investment affiliates, ~~driven~~primarily bydue anto ~~increase~~a decrease in operating ~~revenues~~revenue at certain affiliates., ~~Increases~~and ~~in operating revenues at revenue-share based affiliates typically create a corresponding increase in compensation per the applicable revenue share agreements. A~~ $68.64 million ~~increase~~ in ~~salary~~incremental ~~and~~savings ~~incentive~~from ~~compensation related to corporate and distribution personnel, including increased sales commissions, also contributed to~~ the ~~increase~~strategic restructuring. These ~~increases~~decreases were ~~partially~~ offset in part by a $112.17 million increase in ~~savings~~sales ~~from~~commissions ~~our~~for ~~strategic~~distribution ~~restructuring~~personnel.

• ~~Strategic~~Restructuring ~~restructuring~~ costs of $101.29 million for the three months ended ~~December~~June 3130, ~~2019,~~2020 were ~~primarily~~ comprised of ~~employee~~strategic ~~termination~~restructuring ~~benefit~~ costs, ~~including~~of ~~severance~~$1.1 ~~and~~million, ~~the~~affiliate ~~acceleration~~charges of ~~deferred~~$0.7 ~~compensation~~million, ~~awards.~~and ~~See~~merger ~~Note~~related 15costs of ~~Notes~~$0.1 tomillion. ~~Consolidated~~Restructuring ~~Financial Statements for additional information.~~costs

Compensation as a percentage of operating revenues increased to 49.7%, as compared to 45.0% for the three months ended December 31, 2018, primarily due to the impact of market gains on deferred compensation and seed capital investments recognized in the current year period, as compared to losses on such assets in the prior year period, and costs incurred in connection with our strategic restructuring in the current year period.44

Distribution and servicing expense decreased $4.4 million, or 4%, to $104.4 million, as compared to $108.8 million for the three months ended December 31, 2018, reflecting a shift in average AUM subject to distribution and service fees to lower fee share classes, as previously discussed.

Occupancy expense increased $8.4 million, or 35%, to $32.5 million, as compared to $24.1 million for the three months ended December 31, 2018, primarily due to strategic restructuring costs of $5.9 million, largely related to space vacated in our corporate headquarters.

Impairment of intangible assets was $365.2 million for the three months ended December 31, 2018. The impairment charges recognized during the three months ended December 31, 2018, were comprised of $274.6 million and $18.2 million related to the EnTrustPermal indefinite-life fund managements 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 EnTrustPermal 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. See Note 6 of Notes to Consolidated Financial Statements for further discussion of these impairment charges.

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~~Other~~of ~~expense decreased~~ $1429.19 million, orfor ~~22%~~the three months ended June 30, to2019, were comprised of strategic restructuring costs of $4828.97 million, asand ~~compared~~affiliate tocharges of $631.02 million. The ~~for~~strategic ~~the~~restructuring ~~three~~costs ~~months~~in ~~ended~~each ~~December~~period ~~31,~~were ~~2018~~primarily comprised of employee termination benefit costs, ~~primarily~~including ~~due~~severance toand ~~$7.4~~the ~~million~~acceleration of ~~savings~~deferred ~~associated~~compensation ~~with~~awards. See ~~our~~Note ~~strategic~~15 ~~restructuring,~~of asNotes ~~well~~to asConsolidated aFinancial ~~decrease~~Statements for additional information. The affiliate charges in ~~advertising~~each ~~expense~~period ~~and~~were ~~professional~~comprised ~~fees~~of severance costs associated with restructuring plans at certain affiliates.

Compensation as a percentage of operating revenues decreased to 53.0% for the three months ended June 30, 2020, as compared to 53.8% for the three months ended June 30, 2019, primarily due to the impact of the decrease in strategic restructuring costs, offset in part by the impact of an increase in market gains on deferred compensation and seed capital investments.

Distribution and servicing expense decreased $12.6 million, or 12%, to $91.3 million, as compared to $103.9 million for the three months ended June 30, 2019, reflecting a shift in average AUM subject to distribution and service fees to lower fee share classes, as previously discussed, and a decrease in average mutual fund AUM subject to distribution and service fees.

Communications and technology expense increased $7.1 million, or 13%, to $62.4 million, as compared to $55.3 million for the three months ended June 30, 2019, primarily due to $3.3 million of merger related costs recognized in the current year period, primarily related to the printing, filing and mailing costs for the proxy voting related to the Merger, and a $2.3 million increase in technology consulting costs, primarily at revenue-share based affiliates.

Occupancy expense increased $6.4 million, or 25%, to $32.0 million, as compared to $25.6 million for the three months ended June 30, 2019, primarily due to strategic restructuring costs of $6.4 million, largely related to office space vacated and subleased in the current year period.

Other expense increased $1.6 million, or 3%, to $54.1 million, as compared to $52.5 million for the three months ended June 30, 2019, primarily due to $19.6 million of merger related costs in the current period, which were substantially offset by reductions in travel and entertainment, conference, and advertising expenses, and savings from our strategic 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:

	Three Months Ended December 31,
	Three Months Ended June 30,
	2019			2018			$ Change			% Change
	2020			2019			$ Change			% Change
Interest income	$	20.9		$	34.10		$	(03.21	)	(678	)%
Interest expense	(2728.06		)	(28.85		)	1(0.81		)	(6—	)
Other income (expense), net	1831.01			(710.06		)	2520.05			n/m
Non-operating income (expense) of consolidated investment vehicles, net	0(2.81		)	29.46			(111.67		)	~~(67~~n/m	)
Total Non-Operating Income (Expense)	$	(51.3	)	$	(304.3	)	$	255.06		~~(83~~n/m	)%

~~Interest~~n/m ~~expense~~-not decreased $1.8 million, or 6%, to $27.0 million, as compared to $28.8 million for the three months ended December 31, 2019, primarily due to the repayment of our $250 million 2.7% Senior Notes in July 2019.meaningful

~~Other~~Interest income ~~(expense),~~decreased ~~net, totaled income of~~ $183.01 million, ~~for~~or ~~the~~78%, ~~three~~to ~~months~~$0.9 ~~ended December 31~~million, ~~2019,~~ as compared to ~~expense of~~ $74.0 million for the three months ended ~~December~~June 3130, ~~2018. The three months ended December 31,~~ 2019 ~~included net market gains of $12.0 million on seed capital investments and assets invested for deferred compensation plans~~, ~~which~~primarily ~~were~~due ~~offset~~to bylower ayields ~~corresponding~~earned ~~increase in compensation expense, and $6.2 million of net market gains~~ on ~~corporate~~interest-bearing ~~investments~~investment ~~not offset in compensation expense. The three months ended December 31~~balances, ~~2018~~largely ~~included~~due ~~net~~to ~~market~~interest ~~losses~~rate ofreductions ~~$10.8~~associated ~~million~~with on seed capital investments and assets invested for deferred compensation plans, which were offset by a corresponding decrease in compensation expense, and net market losses on corporate investments of $4COVID-19.~~9 million. These losses were offset in part by an $8.4 million distribution from an investment holding.~~

~~Non-operating~~Other income (expense) ~~of CIVs~~, net, totaled income of $031.81 million for the three months ended ~~December~~June 3130, ~~2019~~2020, as compared to income of $210.46 million for the three months ended ~~December~~June 3130, ~~2018~~2019. The ~~change~~three ~~was~~months ~~due~~ended toJune ~~activity~~30, 2020 included net market gains of ~~the~~$20.0 ~~CIVs~~million ~~during~~on ~~the~~seed ~~respective~~capital ~~periods~~investments and assets invested for deferred compensation plans, which were offset by a corresponding increase in compensation expense, and net market gains on corporate investments not offset in compensation of $10.6 million. ~~See~~The ~~Note~~three 16months ended June 30, 2019 included net market gains of ~~Notes~~$7.0 tomillion ~~Consolidated~~on ~~Financial~~seed ~~Statements~~capital investments and assets invested for ~~additional~~deferred ~~information~~compensation ~~regarding~~plans, ~~the~~which ~~consolidation~~were ofoffset ~~sponsored~~by ~~investment~~a ~~vehicles~~corresponding increase in compensation expense, and net market gains on corporate investments not offset in compensation of ~~certain~~$3.1 ~~CIVs~~million.

~~Income Tax Provision (Benefit)~~45

The income tax provision was $33.7 million for the three months ended December 31, 2019, as compared to an income tax benefit of $60.4 million for the three months ended December 31, 2018. The effective tax rate was 27.0% for the three months ended December 31, 2019, as compared to 22.6% for the three months ended December 31, 2018. The effective tax rate for the three months ended December 31, 2019 reflects discrete tax expense of $3.3 million relating to state law changes, offset in part by a discrete tax benefit of $2.7 million. The net impact of all discrete tax items on the effective income tax rate was not material for the three months ended December 31, 2019. The three months ended December 31, 2018, reflects discrete tax expense of $14.1 million related to uncertain tax positions for federal, state and local taxes (including those relating to legislative changes) and $0.7 million of other discrete tax expenses, which together reduced the effective tax rate by 5.5 percentage points.

CIVs and other consolidated sponsored investment products did not have a material impact on the effective tax rate for the three months ended December 31, 2019 or 2018.

Net Income (Loss) Attributable to Legg Mason, Inc. and Operating Margin

Net Income Attributable to Legg Mason, Inc. for the three months ended December 31, 2019 was $74.8 million, or $0.83 per diluted share, as compared to Net Loss Attributable to Legg Mason, Inc. of $216.9 million, or $2.55 per diluted share, for the three months ended December 31, 2018. The increase in Net Income (Loss) Attributable to Legg Mason, Inc. was

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~~primarily~~Non-operating ~~driven~~income by(expense) ~~non-cash~~of ~~intangible~~CIVs, ~~impairment~~net, ~~charges~~totaled expense of $~~365.~~2.1 million, orfor ~~$3.17~~the ~~per~~three ~~diluted~~months ~~share,~~ended ~~recognized~~June in30, ~~the~~2020, ~~prior~~as ~~year~~compared ~~period.~~to ~~The~~income ~~increase~~of ~~was~~$9.6 ~~also~~million ~~driven~~for bythe ~~higher~~three ~~operating~~months ~~revenues~~ended inJune ~~the current year period~~30, ~~reflecting~~2019. The anchange ~~increase~~was indue ~~investment~~to ~~advisory~~activity ~~fees~~of ~~from~~the ~~funds~~CIVs ~~and~~during ~~separate~~the ~~accounts,~~respective ~~driven~~periods. See byNote ~~higher~~16 ~~average~~of ~~long-term~~Notes ~~AUM,~~to anConsolidated ~~increase~~Financial inStatements ~~performance~~for ~~fees~~additional ~~which~~information ~~were~~regarding ~~not~~the ~~passed~~consolidation ~~through~~of assponsored ~~compensation~~investment ~~expense,~~vehicles and ~~the~~net ~~impact~~market ofgains ~~savings~~on ~~from~~investments ~~our~~of ~~strategic~~certain ~~restructuring~~CIVs.

Operating margin was 17.2% for the three months ended December 31, 2019, as compared to (33.6)% for the three months ended December 31, 2018, reflecting the impact of the non-cash impairment charges recognized in the three months ended December 31, 2018.

Nine Months Ended December 31, 2019, Compared to Nine Months Ended December 31, 2018

Assets Under Management

The components of the changes in our AUM (in billions) were as follows:

Nine Months Ended December 31,

Filing Compare · LEGG MASON, INC.