Exhibit

EX-99 2 exhibit99112312018.htm EXHIBIT 99 Exhibit

News Release

FOR IMMEDIATE RELEASE



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

LEGG MASON REPORTS RESULTS FOR THIRD FISCAL QUARTER


--	Third Quarter Net Loss of $216.9 Million, or $2.55 per Diluted Share, Including:


•	Non-Cash Intangible Asset Impairment Charges of $365.2 Million, or $3.11 per Diluted Share


•	Net Discrete Expenses and Other Tax Items of $10.5 Million, or $0.12 per Diluted Share

-- Assets Under Management of $727.2 Billion

-- Long-term Net Outflows of $8.5 Billion for the Quarter

-- Initiating New Global Operating Platform

•Annual Expense Savings of $90 Million to $110 Million

•Expected Costs to Implement of $130 Million to $150 Million

Baltimore, Maryland - February 4, 2019 - Legg Mason, Inc. (NYSE: LM) today reported its operating results for the third fiscal quarter ended December 31, 2018.




	Quarters Ended								Nine Months Ended
Financial Results	Dec			Sep		Dec			Dec			Dec
(Amounts in millions, except per share amounts)	2018			2018		2017			2018			2017
Operating Revenues	$	704.3		$	758.4	$	793.1		$	2,210.7		$	2,355.3
Operating Expenses	940.7			622.7		820.4			2,185.7			2,131.0
Operating Income (Loss)	(236.4		)	135.7		(27.3		)	25.0			224.3
Net Income (Loss)¹	(216.9		)	72.8		149.2			(78.0		)	275.8
Net Income (Loss) Per Share - Diluted¹	(2.55		)	0.82		1.58			(0.95		)	2.86

Assets Under Management
(Amounts in billions)
End of Period Assets Under Management	$	727.2		$	755.4	$	767.2		$	727.2		$	767.2
Average Assets Under Management	739.3			750.2		759.9			745.6			750.6

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

Joseph A. Sullivan, Chairman and CEO of Legg Mason said, “Legg Mason’s quarterly results were negatively impacted by the industry’s record net outflows from actively-managed U.S. mutual funds, as well as double-digit equity market losses. However, the diversification of our assets under management served to mitigate equity market declines, with Legg Mason’s total AUM down just 4%. Furthermore, we continue to focus on working together with our Affiliates from both strategic and operational perspectives to better execute for our clients and shareholders. To that point, we are developing a new global operating platform to enhance collaboration to improve the efficiency and effectiveness of our multi-Affiliate model, while still prioritizing independent investment management. Over time, we believe a more integrated operating platform will benefit clients and create a path for continued growth.”

News Release

Assets Under Management of $727.2 Billion

Assets Under Management were $727.2 billion at December 31, 2018 compared with $755.4 billion at September 30, 2018, resulting from $30.0 billion in negative market performance and other, $8.5 billion in long-term outflows and $0.2 billion in realizations, partially offset by liquidity inflows of $10.5 billion.




	Quarter Ended December 31, 2018
Assets Under Management	AUM (in billions)		Flows (in billions)				Operating Revenue Yield ¹
Equity	$	181.0	$	(3.3	)		59 bps
Fixed Income	406.6		(5.1		)		27 bps
Alternative	66.3		(0.1		)	²	59 bps
Long-Term Assets	653.9		(8.5		)
Liquidity	73.3		10.5				13 bps
Total	$	727.2	$	2.0			37 bps

(1) Operating revenue yield equals total operating revenues less performance fees divided by average AUM
(2) Excludes realizations of $0.2 billion

At December 31, 2018, fixed income represented 56% of AUM, while equity represented 25%, alternative represented 9% and liquidity represented 10%.

By geography, 68% of AUM was from clients domiciled in the United States and 32% from non-US domiciled clients.

Average AUM during the quarter was $739.3 billion compared to $750.2 billion in the prior quarter and $759.9 billion in the third quarter of fiscal year 2018. Average long-term AUM was $672.4 billion compared to $690.0 billion in the prior quarter and $685.3 billion in the third quarter of fiscal year 2018.




Quarterly Performance

At December 31, 2018:		1-Year	3-Year	5-Year	10-Year
% of Strategy AUM beating Benchmark³		41%	80%	73%	81%

% of Long-Term U.S. Fund Assets Beating Lipper Category Average		43%	69%	71%	65%

	(3) See “Supplemental Data Regarding Quarterly Performance.”

Of Legg Mason’s long-term U.S. mutual fund assets, 59% were in funds rated 4 or 5 stars by Morningstar.

News Release

Operating Results - Comparison to the Second Quarter of Fiscal Year 2019

Net loss was $216.9 million, or $2.55 per diluted share, compared to net income of $72.8 million, or $0.82 per diluted share, in the second quarter of fiscal year 2019. In addition to the net impact of the factors listed below, the decreased earnings were driven by lower average AUM and lower non-pass through performance fees.

This quarter's results included:


•	Non-cash intangible asset impairment charges of $365.2 million, or $3.11 per diluted share, primarily related to commingled fund management contracts at EnTrustPermal and RARE Infrastructure.


•	Net discrete expenses and other tax items of $10.5 million, or $0.12 per diluted share.


•	Global operating platform implementation costs⁴ of $5.9 million, or $0.05 per diluted share.

The prior quarter's results included:


•	Discrete tax benefit related to the completion of a prior year audit of $2.8 million, or $0.03 per diluted share.

•Global operating platform implementation costs of $3.2 million, or $0.02 per diluted share.


•	Real estate charge associated with the sublease of office space in the Company’s Baltimore headquarters of $2.4 million, or $0.02 per diluted share.

Operating revenues of $704.3 million were down 7% compared to $758.4 million in the prior quarter reflecting:


•	A decrease in separate account and fund advisory fee revenues of $27.7 million, or 4% reflecting lower average AUM.


•	A $16.6 million decrease in pass-through performance fees.

Operating expenses were $940.7 million compared to $622.7 million in the prior quarter, but excluding the non-cash impairment charges of $365.2 million, expenses were down 8%, reflecting:


•	Lower compensation of $48.0 million driven by lower operating revenues.


•	An increase in other expenses of $10.8 million.


•	A $10.8 million loss in the market value of deferred compensation and seed investments which is recorded as a decrease in compensation and benefits with an offset in non-operating income, as compared to a $4.0 million gain in the prior quarter.

Non-operating expense was $30.3 million, as compared to $24.8 million in the prior quarter reflecting:


•	Losses on corporate investments, not offset in compensation, were $4.9 million compared with gains of $2.9 million in the prior quarter.


•	A residual distribution of $8.4 million from an investment holding.


•	Gains on funded deferred compensation and seed investments, as described above.


•	A $2.6 million gain associated with the consolidation of sponsored investment vehicles compared to a $4.3 million loss in the prior quarter. The consolidation of sponsored investment vehicles has no impact on net income as the effects of consolidation are fully attributable to noncontrolling interests.

Operating margin was (33.6%) compared to 17.9% in the prior quarter, reflecting the impact of the non-cash impairment charges of $365.2 million. Operating margin, as adjusted⁵, was 21.1%, as compared to 23.6% in the prior quarter.

Net income attributable to noncontrolling interests, excluding consolidated investment vehicles, was $9.0 million compared to $11.3 million in the prior quarter, principally related to Clarion, EnTrustPermal, RARE and Royce.

(4) For the September and December quarters, global operating platform implementation costs include all collaboration initiatives costs

(5) See "Use of Supplemental Non-GAAP Financial Information."

News Release

Operating Results - Comparison to the Third Quarter of Fiscal Year 2018

Net loss was $216.9 million, or $2.55 per diluted share, compared to net income of $149.2 million, or $1.58 per diluted share, in the third quarter of fiscal year 2018. In addition to the factors listed below, the decreased earnings were driven by lower average long-term AUM and lower non-pass through performance fees.

This quarter's results included:


•	Non-cash intangible asset impairment charges of $365.2 million, or $3.11 per diluted share, primarily related to commingled fund management contracts at EnTrustPermal and RARE Infrastructure.


•	Net discrete expenses and other tax items of $10.5 million, or $0.12 per diluted share.


•	Global operating platform implementation costs of $5.9 million, or $0.05 per diluted share.

The prior year quarter's results included:


•	One-time non-cash tax benefit of $213.7 million, or $2.27 per diluted share, related to the tax law change.


•	Non-cash intangible asset impairment charge of $195.0 million, or $1.62 per diluted share.


•	Discrete tax expense items of $7.4 million, or $0.08 per diluted share.


•	EnTrustPermal acquisition and transition-related costs of $1.3 million, or $0.01 per diluted share.

Operating revenues of $704.3 million down 11% compared with $793.1 million in the prior year quarter reflecting:


•	Decreases principally due to lower average long-term AUM.


•	A decrease in non-pass through performance fees of $43.8 million.

Operating expenses of $940.7 million were up 15% compared with $820.4 million in the prior year quarter reflecting:


•	Non-cash intangible impairment charges of $365.2 million, compared with a non-cash impairment charge of $195.0 million in the prior year quarter.


•	Decreased compensation, related to decreased revenues driven by lower average long-term AUM and performance fees.


•	An increase in other expenses of $9.9 million.


•	A $10.8 million loss in the market value of deferred compensation and seed investments, which is recorded as an increase in compensation and benefits with an offset in non-operating income, compared with a gain of $4.3 million in the prior year quarter.

Non-operating expense was $30.3 million, compared to $13.5 million in the prior year quarter reflecting:


•	Losses on corporate investments, not offset in compensation, were $4.9 million compared with gains of $1.5 million in the prior year quarter.


•	Losses on funded deferred compensation and seed investments this quarter, as compared to gains in the prior year quarter, as described above.


•	A residual distribution of $8.4 million from an investment holding.


•	A $2.6 million gain associated with the consolidation of sponsored investment vehicles, as compared to an $7.9 million gain in the prior year quarter. The consolidation of sponsored investment vehicles has no impact on net income as the effects of consolidation are fully attributable to noncontrolling interests.

Operating margin was (33.6%) as compared to (3.4%) in the prior year quarter reflecting the impact of the non-cash impairment charges of $365.2 million this quarter and $195.0 million in the prior year quarter. Operating margin, as adjusted, was 21.1%, as compared to 27.2% in the prior year quarter.

Net income attributable to noncontrolling interests, excluding consolidated investment vehicles, was $9.0 million, compared to $13.6 million in the prior year quarter, principally related to Clarion, EnTrustPermal, RARE and Royce.

News Release

Quarterly Business Developments and Recent Announcements


•	Legg Mason initiated a new global operating platform, which will result in annual expense savings of $90 million to $110 million, and costs to implement of $130 million to $150 million.


•	Legg Mason, Brandywine Global, ClearBridge Investments and Western Asset were all recognized by Pensions & Investments (P&I) in their Best Places to Work in Investment Management survey for 2018.


•	Legg Mason was ranked #3 among 32 Capital Markets companies and was ranked in the top quintile overall in the Forbes/Just Capital annual ranking.


•	Western Asset Management is the sub-advisor on the launch of the first active fixed income ETF in Australia on November 11, 2018, the Betashares Legg Mason Australia Bond Fund.

Balance Sheet

At December 31, 2018, Legg Mason’s cash position was $835.2 million. Total debt was $2.2 billion, and stockholders' equity was $3.7 billion. The ratio of total debt to total capital was 38%, compared to 37% in the prior quarter. Seed investments totaled $224.2 million.

Conference Call to Discuss Results

A conference call to discuss the Company's results, hosted by Joseph A. Sullivan, will be held at 5:00 p.m. EST today. The call will be open to the general public. Interested participants should access the call by dialing 1-800-447-0521 (or for international calls 1-847-413-3238), confirmation number 48102569, at least 10 minutes prior to the scheduled start to ensure connection. A live, listen-only webcast will also be available via the Investor Relations section of www.leggmason.com.

The presentation slides that will be reviewed during the conference call will be available on the Investor Relations section of the Legg Mason website shortly after the release of the financial results.

A replay of the live broadcast will be available on the Legg Mason website, www.leggmason.com, in the Investor Relations section, or by dialing 1-888-843-7419 (or for international calls 1-630-652-3042), enter pass code 48102569# when prompted. Please note that the replay will be available beginning at 8:00 p.m. EST on Monday, February 4, 2019, and ending at 11:59 p.m. EST on Monday, February 18, 2019.

About Legg Mason

Guided by a mission of Investing to Improve Lives,^TM Legg Mason helps investors globally achieve better financial outcomes by expanding choice across investment strategies, vehicles and investor access through independent investment managers with diverse expertise in equity, fixed income, alternative and liquidity investments. Legg Mason’s assets under management are $727.2 billion as of December 31, 2018. To learn more, visit our web site, our newsroom, or follow us on LinkedIn, Twitter, or Facebook.

This release contains forward-looking statements subject to risks, uncertainties and other factors that may cause actual results to differ materially. For a discussion of these risks and uncertainties, see "Risk Factors" and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Legg Mason's Annual report on Form 10-K for the fiscal year ended March 31, 2018 and in the Company’s quarterly reports on Form 10-Q.

News Release

Supplemental Data Regarding Quarterly Performance

Strategy Performance

For purposes of investment performance comparisons, strategies are an aggregation of discretionary 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.

Approximately 89% of total AUM is included in strategy AUM as of December 31, 2018, although not all strategies have three-, five-, and ten-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. The information in this presentation is provided solely for use regarding this presentation and is not directed toward existing or potential clients of Legg Mason.




At December 31, 2018:		1-Year	3-Year	5-Year	10-Year
% of Strategy AUM beating Benchmark

	Fixed Income	19%	88%	81%	92%
	Equity	56%	57%	36%	51%
	Alternatives	75%	73%	93%	56%

Long-term US Fund Assets Beating Lipper Category Average

Long-term US fund assets include open-end, closed-end, and variable annuity funds. These performance comparisons do not reflect the actual performance of any specific fund; individual fund performance may differ. Past performance is not a guarantee of future results. Source: Lipper Inc.




At December 31, 2018:		1-Year	3-Year	5-Year	10-Year
% of Long-Term U.S. Fund Assets Beating Lipper Category Average

	Fixed Income	26%	75%	83%	84%
	Equity	62%	63%	59%	44%
	Alternatives (performance relates to only 3 funds)	30%	0%	0%	n/a



LEGG MASON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Amounts in thousands)
(Unaudited)

				Quarters Ended									Nine Months Ended
				December			September			December			December			December
				2018			2018			2017			2018			2017
Operating Revenues:
	Investment advisory fees:
		Separate accounts		$	256,657		$	261,567		$	255,696		$	778,119		$	758,870
		Funds		361,173			383,923			395,370			1,128,660			1,170,633
		Performance fees		12,619			31,874			58,926			68,529			181,284
	Distribution and service fees			72,185			79,074			81,463			230,449			241,037
	Other			1,688			1,989			1,635			4,897			3,446
			Total operating revenues	704,322			758,427			793,090			2,210,654			2,355,270

Operating Expenses:
	Compensation and benefits			316,876			364,885			362,071			1,043,329			1,143,329
	Distribution and servicing			108,842			114,525			124,254			339,959			370,237
	Communications and technology			56,664			57,489			54,239			170,893			155,841
	Occupancy			24,077			27,352			24,982			76,333			74,561
	Amortization of intangible assets			6,089			6,102			6,071			18,371			18,492
	Impairment of intangible assets			365,200			—			195,000			365,200			229,000
	Contingent consideration fair value adjustments			—			145			739			571			(15,811		)
	Other			63,001			52,201			53,067			171,021			155,330
			Total operating expenses	940,749			622,699			820,423			2,185,677			2,130,979

Operating Income (Loss)				(236,427		)	135,728			(27,333		)	24,977			224,291

Non-Operating Income (Expense):
	Interest income			3,126			2,420			1,827			7,992			4,867
	Interest expense			(28,770		)	(29,860		)	(29,088		)	(88,547		)	(87,431		)
	Other income (expense), net			(7,042		)	6,627			5,519			6,837			24,196
	Non-operating income (expense) of
		consolidated investment vehicles, net		2,369			(3,998		)	8,225			1,954			11,316
			Total non-operating income (expense)	(30,317		)	(24,811		)	(13,517		)	(71,764		)	(47,052		)

Income Before Income Tax Provision
		(Benefit)		(266,744		)	110,917			(40,850		)	(46,787		)	177,239

	Income tax provision (benefit)			(60,354		)	29,844			(209,396		)	165			(142,468		)

Net Income (Loss)				(206,390		)	81,073			168,546			(46,952		)	319,707
	Less: Net income attributable
		to noncontrolling interests		10,498			8,270			19,324			31,043			43,901

Net Income (Loss) Attributable to Legg
		Mason, Inc.		$	(216,888	)	$	72,803		$	149,222		$	(77,995	)	$	275,806

													(Continued)



LEGG MASON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS), CONTINUED
(Amounts in thousands, except per share amounts)
(Unaudited)

				Quarters Ended							Nine Months Ended
				December			September		December		December			December
				2018			2018		2017		2018			2017

Net Income (Loss) Attributable to Legg Mason, Inc.				$	(216,888	)	$	72,803	$	149,222	$	(77,995	)	$	275,806

	Less: Earnings (distributed and undistributed)
		allocated to participating securities ⁽¹⁾		1,049			2,577		5,347		3,190			9,639

Net Income (Loss) (Distributed and Undistributed)
	Allocated to Shareholders (Excluding
	Participating Securities)			$	(217,937	)	$	70,226	$	143,875	$	(81,185	)	$	266,167

Net Income (Loss) per Share Attributable to
	Legg Mason, Inc. Shareholders:
			Basic	$	(2.55	)	$	0.82	$	1.59	$	(0.95	)	$	2.87

			Diluted	$	(2.55	)	$	0.82	$	1.58	$	(0.95	)	$	2.86

Weighted-Average Number of Shares
	Outstanding: ⁽²⁾
			Basic	85,537			85,482		90,377		85,381			92,770
			Diluted	85,537			85,612		90,833		85,381			93,199

(1)		Participating securities excluded from weighted-average number of shares outstanding were 3,104, 3,156, and 3,357 for the quarters ended December 2018, September 2018, and December 2017, respectively, and 3,104 and 3,322 for the nine months ended December 2018 and December 2017, respectively.
(2)		Diluted shares are the same as basic shares for periods with a loss.



LEGG MASON, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF INCOME (LOSS)
(Amounts in thousands)
(Unaudited)
	Quarters Ended
	December 2018									September 2018									December 2017

	Balance Before Consolidation of Consolidated Investment Vehicles and Other ⁽¹⁾			Consolidated Investment Vehicles and Other ⁽¹⁾			Consolidated Totals			Balance Before Consolidation of Consolidated Investment Vehicles and Other ⁽¹⁾			Consolidated Investment Vehicles and Other ⁽¹⁾			Consolidated Totals			Balance Before Consolidation of Consolidated Investment Vehicles and Other ⁽¹⁾			Consolidated Investment Vehicles and Other ⁽¹⁾			Consolidated Totals

Total operating revenues	$	704,477		$	(155	)	$	704,322		$	758,530		$	(103	)	$	758,427		$	793,373		$	(283	)	$	793,090
Total operating expenses	940,561			188			940,749			622,430			269			622,699			819,984			439			820,423
Operating Income (Loss)	(236,084		)	(343		)	(236,427		)	136,100			(372		)	135,728			(26,611		)	(722		)	(27,333		)
Non-operating income (expense)	(32,158		)	1,841			(30,317		)	(22,189		)	(2,622		)	(24,811		)	(19,970		)	6,453			(13,517		)
Income (Loss) Before Income Tax Provision (Benefit)	(268,242		)	1,498			(266,744		)	113,911			(2,994		)	110,917			(46,581		)	5,731			(40,850		)
Income tax provision (benefit)	(60,354		)	—			(60,354		)	29,844			—			29,844			(209,396		)	—			(209,396		)
Net Income (Loss)	(207,888		)	1,498			(206,390		)	84,067			(2,994		)	81,073			162,815			5,731			168,546
Less: Net income (loss) attributable
to noncontrolling interests	9,000			1,498			10,498			11,264			(2,994		)	8,270			13,593			5,731			19,324
Net Income (Loss) Attributable to Legg Mason, Inc.	$	(216,888	)	$	—		$	(216,888	)	$	72,803		$	—		$	72,803		$	149,222		$	—		$	149,222


	Nine Months Ended
	December 2018									December 2017

	Balance Before Consolidation of Consolidated Investment Vehicles and Other ⁽¹⁾			Consolidated Investment Vehicles and Other ⁽¹⁾			Consolidated Totals			Balance Before Consolidation of Consolidated Investment Vehicles and Other ⁽¹⁾			Consolidated Investment Vehicles and Other ⁽¹⁾			Consolidated Totals

Total operating revenues	$	2,211,115		$	(461	)	$	2,210,654		$	2,355,620		$	(350	)	$	2,355,270
Total operating expenses	2,184,807			870			2,185,677			2,130,412			567			2,130,979
Operating Income (Loss)	26,308			(1,331		)	24,977			225,208			(917		)	224,291
Non-operating income (expense)	(74,131		)	2,367			(71,764		)	(55,892		)	8,840			(47,052		)
Income (Loss) Before Income Tax Provision (Benefit)	(47,823		)	1,036			(46,787		)	169,316			7,923			177,239
Income tax provision (benefit)	165			—			165			(142,468		)	—			(142,468		)
Net Income (Loss)	(47,988		)	1,036			(46,952		)	311,784			7,923			319,707
Less: Net income attributable
to noncontrolling interests	30,007			1,036			31,043			35,978			7,923			43,901
Net Income (Loss) Attributable to Legg Mason, Inc.	$	(77,995	)	$	—		$	(77,995	)	$	275,806		$	—		$	275,806

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



LEGG MASON, INC. AND SUBSIDIARIES
SUPPLEMENTAL DATA
RECONCILIATION OF OPERATING MARGIN, AS ADJUSTED ⁽¹⁾
(Amounts in thousands)
(Unaudited)

				Quarters Ended												Nine Months Ended

				December				September				December				December				December
				2018				2018				2017				2018				2017

Operating Revenues, GAAP basis				$	704,322			$	758,427			$	793,090			$	2,210,654			$	2,355,270

	Plus (less):
		Pass-through performance fees		(7,436		)		(24,006		)		(9,970		)		(44,062		)		(95,275		)
		Operating revenues eliminated upon
			consolidation of investment vehicles	155				103				283				461				350
		Distribution and servicing expense excluding
			consolidated investment vehicles	(108,771		)		(114,516		)		(124,071		)		(339,845		)		(369,998		)

Operating Revenues, as Adjusted				$	588,270			$	620,008			$	659,332			$	1,827,208			$	1,890,347


Operating Income (Loss), GAAP basis				$	(236,427	)		$	135,728			$	(27,333	)		$	24,977			$	224,291

	Plus (less):
		Gains (losses) on deferred compensation
			and seed investments, net	(10,826		)		3,964				4,333				(5,590		)		14,585
		Impairment of intangible assets		365,200				—				195,000				365,200				229,000
		Amortization of intangible assets		6,089				6,102				6,071				18,371				18,492
		Contingent consideration fair value adjustments		—				145				739				571				(15,811		)
		Charge related to regulatory matter		—				151				—				4,151				—
		Operating loss of consolidated investment
			vehicles, net	343				372				722				1,331				917

Operating Income, as Adjusted				$	124,379			$	146,462			$	179,532			$	409,011			$	471,474

Operating Margin, GAAP basis				(33.6		)	%	17.9			%	(3.4		)	%	1.1			%	9.5			%
Operating Margin, as Adjusted				21.1				23.6				27.2				22.4				24.9

⁽¹⁾ See explanations for "Use of Supplemental Non-GAAP Financial Information."



LEGG MASON, INC. AND SUBSIDIARIES
SUPPLEMENTAL DATA
RECONCILIATION OF CASH PROVIDED BY OPERATING ACTIVITIES
TO ADJUSTED EBITDA ⁽¹⁾
(Amounts in thousands)
(Unaudited)

				Quarters Ended									Nine Months Ended

				December			September			December			December			December
				2018			2018			2017			2018			2017

Cash provided by operating activities, GAAP basis				$	256,591		$	289,568		$	116,912		$	443,989		$	291,818

	Plus (less):
		Interest expense, net of accretion and amortization
			of debt discounts and premiums	28,259			29,341			28,503			86,956			85,176
		Current tax expense (benefit)		(1,218		)	9,975			8,823			17,635			24,557
		Net change in assets and liabilities		(170,384		)	(69,426		)	27,338			(24,794		)	97,672
		Net change in assets and liabilities
			of consolidated investment vehicles	60,158			(84,704		)	20,023			(9,966		)	51,223
		Net income attributable to noncontrolling interests		(10,498		)	(8,270		)	(19,324		)	(31,043		)	(43,901		)
		Net gains (losses) and earnings on investments		21,367			8,336			(4,163		)	36,495			2,874
		Net gains (losses) on consolidated investment vehicles		2,369			(3,998		)	8,225			1,954			11,316
		Other		(68		)	153			663			(289		)	934

Adjusted EBITDA				$	186,576		$	170,975		$	187,000		$	520,937		$	521,669

⁽¹⁾		See explanations for "Use of Supplemental Non-GAAP Financial Information."



LEGG MASON, INC. AND SUBSIDIARIES
(Amounts in billions)
(Unaudited)
Assets Under Management
			Quarters Ended
By asset class:			December 2018			September 2018			June 2018			March 2018			December 2017
	Equity		$	181.0		$	214.5		$	206.4		$	203.0		$	207.6
	Fixed Income		406.6			411.0			412.3			422.3			420.1
	Alternative		66.3			67.4			66.4			66.1			66.3
		Long-Term Assets	653.9			692.9			685.1			691.4			694.0
	Liquidity		73.3			62.5			59.5			62.7			73.2
		Total	$	727.2		$	755.4		$	744.6		$	754.1		$	767.2

			Quarters Ended															Nine Months Ended
By asset class (average):			December 2018			September 2018			June 2018			March 2018			December 2017			December 2018			December 2017
	Equity		$	198.2		$	212.2		$	205.0		$	208.8		$	204.7		$	204.1		$	197.9
	Fixed Income		407.4			411.4			416.7			422.2			414.8			411.9			408.7
	Alternative		66.8			66.4			66.0			66.1			65.8			66.3			66.4
		Long-Term Assets	672.4			690.0			687.7			697.1			685.3			682.3			673.0
	Liquidity		66.9			60.2			61.8			69.8			74.6			63.3			77.6
		Total	$	739.3		$	750.2		$	749.5		$	766.9		$	759.9		$	745.6		$	750.6

Component Changes in Assets Under Management
			Quarters Ended															Nine Months Ended
			December 2018			September 2018			June 2018			March 2018			December 2017			December 2018			December 2017
Beginning of period			$	755.4		$	744.6		$	754.1		$	767.2		$	754.4		$	754.1		$	728.4
Net client cash flows:
Equity			(3.3		)	(1.1		)	(2.2		)	(2.1		)	(3.2		)	(6.6		)	(4.6		)
Fixed Income			(5.1		)	(0.5		)	1.3			2.8			5.4			(4.3		)	6.6
Alternative			(0.1		)	0.6			—			0.5			—			0.6			(1.5		)
Long-Term flows			(8.5		)	(1.0		)	(0.9		)	1.2			2.2			(10.3		)	0.5
Liquidity			10.5			3.0			(2.9		)	(10.7		)	(2.3		)	10.4			(13.6		)
Total net client cash flows			2.0			2.0			(3.8		)	(9.5		)	(0.1		)	0.1			(13.1		)
Realizations⁽¹⁾			(0.2		)	(0.2		)	(0.3		)	(0.5		)	(0.3		)	(0.7		)	(2.2		)
Market performance and other			(30.0		)	11.0			1.1			(6.0		)	13.5			(17.8		)	51.8
Impact of foreign exchange			—			(2.0		)	(6.5		)	2.9			(0.4		)	(8.5		)	2.5
Acquisitions (disposition), net			—			—			—			—			0.1			—			(0.2		)
End of period			$	727.2		$	755.4		$	744.6		$	754.1		$	767.2		$	727.2		$	767.2

(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) Due to effects of rounding, the sum of the quarterly results may differ immaterially from the year-to-date results.

News Release

Use of Supplemental Non-GAAP Financial Information

As supplemental information, we are providing a performance measure for "Operating Margin, as Adjusted" and a liquidity measure for "Adjusted EBITDA", each of which are based on methodologies other than generally accepted accounting principles ("non-GAAP"). Our management uses these measures as benchmarks in evaluating and comparing our period-to-period operating performance and liquidity.

Operating Margin, as Adjusted

We calculate "Operating Margin, as Adjusted," by dividing (i) Operating Income, adjusted to exclude the impact on compensation expense of gains or losses on investments made to fund deferred compensation plans, the impact on compensation expense of gains or losses on seed capital investments by our affiliates under revenue sharing arrangements, amortization related to intangible assets, income (loss) of consolidated investment vehicles, the impact of fair value adjustments of contingent consideration liabilities, if any, unusual and other non-core charges (including the previously disclosed regulatory charge), and impairment charges by (ii) our operating revenues, adjusted to add back net investment advisory fees eliminated upon consolidation of investment vehicles, less distribution and servicing expenses which we use as an approximate measure of revenues that are passed through to third parties, and less performance fees that are passed through as compensation expense or net income (loss) attributable to noncontrolling interests, which we refer to as "Operating Revenues, as Adjusted." The deferred compensation items are removed from Operating Income in the calculation because they are offset by an equal amount in Non-operating income (expense), net, and thus have no impact on Net Income (Loss) Attributable to Legg Mason, Inc. We adjust for the impact of the amortization of management contract assets and the impact of fair value adjustments of contingent consideration liabilities, if any, which arise from acquisitions to reflect the fact that these items distort comparison of our operating results with the results of other asset management firms that have not engaged in significant acquisitions. Impairment charges, unusual and other non-core charges (including the previously disclosed regulatory charge), and income (loss) of consolidated investment vehicles are removed from Operating Income in the calculation because these items are not reflective of our core asset management operations. We use Operating Revenues, as Adjusted, in the calculation to show the operating margin without distribution and servicing expenses, which we use to approximate our distribution revenues that are passed through to third parties as a direct cost of selling our products, although distribution and servicing expenses may include commissions paid in connection with the launching of closed-end funds for which there is no corresponding revenue in the period. We also use Operating Revenues, as Adjusted, in the calculation to show the operating margin without performances fees which are passed through as compensation expense or net income (loss) attributable to noncontrolling interests per the terms of certain more recent acquisitions. Operating Revenues, as Adjusted, also include our advisory revenues we receive from consolidated investment vehicles that are eliminated in consolidation under GAAP.

We believe that Operating Margin, as Adjusted, is a useful measure of our performance because it provides a measure of our core business activities. It excludes items that have no impact on Net Income (Loss) Attributable to Legg Mason, Inc. and indicates what our operating margin would have been without distribution revenues that are passed through to third parties as a direct cost of selling our products, performance fees that are passed through as compensation expense or net income (loss) attributable to noncontrolling interests per the terms of certain more recent acquisitions, amortization related to intangible assets, changes in the fair value of contingent consideration liabilities, if any, impairment charges, unusual and other non-core charges (including the previously disclosed regulatory charge), and the impact of the consolidation of certain investment vehicles described above. The consolidation of these investment vehicles does not have an impact on Net Income (Loss) Attributable to Legg Mason, Inc. This measure is provided in addition to our operating margin calculated under GAAP but is not a substitute for calculations of margins under GAAP and may not be comparable to non-GAAP performance measures, including measures of adjusted margins of other companies.

News Release

Adjusted EBITDA

We define Adjusted EBITDA as cash provided by (used in) operating activities plus (minus) interest expense, net of accretion and amortization of debt discounts and premiums, current income tax expense (benefit), the net change in assets and liabilities, net (income) loss attributable to noncontrolling interests, net gains (losses) and earnings on investments, net gains (losses) on consolidated investment vehicles, and other. The net change in assets and liabilities adjustment aligns with the Consolidated Statements of Cash Flows. Adjusted EBITDA is not reduced by equity-based compensation expense, including management equity plan non-cash issuance-related charges. Most management equity plan units may be put to or called by Legg Mason for cash payment, although their terms do not require this to occur.

We believe that this measure is useful to investors and us as it provides additional information with regard to our ability to meet working capital requirements, service our debt, and return capital to our stockholders. This measure is provided in addition to Cash provided by operating activities and may not be comparable to non-GAAP performance measures or liquidity measures of other companies, including their measures of EBITDA or Adjusted EBITDA. Further, this measure is not to be confused with Net Income, Cash provided by operating activities, or other measures of earnings or cash flows under GAAP, and are provided as a supplement to, and not in replacement of, GAAP measures.