Intangible Assets and Goodwill

3 Months Ended

Jun. 30, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

6. Intangible Assets and Goodwill

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



	June 30, 2017			March 31, 2017
Amortizable intangible asset management contracts and other
Cost	$	374,938		$	408,025
Accumulated amortization	(199,315		)	(194,371		)
Net	175,623			213,654
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
EnTrustPermal fund management contracts	596,404			596,404
Other fund management contracts	547,917			542,908
Trade names	68,031			69,863
	3,823,903			3,820,726
Intangible assets, net	$	3,999,526		$	4,034,380

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.

During the three months ended June 30, 2017, projected revenues related to the RARE Infrastructure separate account contacts amortizable asset declined due to losses of separate account AUM and other factors, including the withdrawal of approximately $1,500,000 by an institutional client in June 2017. Based on revised attrition estimates, the remaining useful life of the acquired contracts was decreased from eight years to five years at June 30, 2017. As a result of the decline in projected revenues and the revised estimate of the remaining useful life, the amortized carrying value was determined to exceed its fair value and an impairment charge of $32,000 was recorded during the three months ended June 30, 2017. Management estimated the fair value of this asset based upon a discounted cash flow analysis using unobservable market inputs, which are Level 3 measurements. The significant assumptions used in the cash flow analysis included projected AUM growth rates of 7%, attrition rates of 20%, and a discount rate of 16.5%.

In addition, as a result of the AUM losses and other factors, Legg Mason tested the RARE Infrastructure indefinite-life fund management contracts intangible asset and trade name indefinite-life intangible asset for impairment during the three months ended June 30, 2017. The assessed fair value of the RARE Infrastructure indefinite-life fund management contracts intangible asset exceeded the carrying value by 7% and therefore was not impaired. The carrying value of the trade name exceeded its fair value, which resulted in an impairment charge of $2,000. Management estimated the fair value of the RARE Infrastructure trade name based upon a relief from royalty approach and a discounted cash flow method using unobservable market data inputs, which are Level 3 measurements. The significant assumptions used in the cash flow analysis included projected annual revenue growth rates of 5% to 18% (average: 8%), a royalty rate of 1.0%, and a discount rate of 16.5%.

Projected revenue, AUM growth rates and client attrition are most dependent on client AUM flows, changes in market conditions, and product investment performance. Discount rates are also influenced by changes in market conditions, as well as interest rates and other factors. Decreases in projected revenue or AUM growth rates and/or increases in the discount rates could result in lower fair value measurements and potential additional impairments in these intangible assets.

Based on qualitative assessments, Legg Mason determined as of June 30, 2017, that no further quantitative impairment testing was required. Also, there were no impairments to amortizable management contract intangible assets as of June 30, 2017.

In Legg Mason's annual impairment test as of December 31, 2016, the assessed fair value of the Permal trade name indefinite-life asset declined below its carrying value, and accordingly was impaired during the year ended March 31, 2017. Should market performance, flows, and related AUM levels decrease in the near term such that cash flow projections deviate from current projections, it is reasonably possible that this asset could be deemed to be impaired by a material amount.

The assessed fair value of the indefinite-life domestic mutual funds contracts asset related to the Citigroup Asset Management acquisition exceeds the carrying value by a material amount.

As of June 30, 2017, amortizable intangible asset management contracts and other are being amortized over a weighted-average remaining life of 7.6 years.

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



Remaining fiscal 2018	$	18,196
2019	24,678
2020	24,213
2021	23,797
2022	23,559
Thereafter	61,180
Total	$	175,623

The change in the carrying value of goodwill is summarized below:



	Gross Book Value			Accumulated Impairment			Net Book Value
Balance as of March 31, 2017	3,086,789			(1,161,900		)	1,924,889
Impact of excess tax basis amortization	(5,204		)	—			(5,204		)
Changes in foreign exchange rates and other	4,526			—			4,526
Balance as of June 30, 2017	$	3,086,111		$	(1,161,900	)	$	1,924,211

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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