-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, oplZQM/P/gKXTn+ymQ4GWO1rv92QOgyyNMh1vAnBvm63+lxUQMBypzdjOc4fOvvu QL1B4eDqtN1VfRBwTXyyuw== 0000704051-95-000005.txt : 19950515 0000704051-95-000005.hdr.sgml : 19950515 ACCESSION NUMBER: 0000704051-95-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950214 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LEGG MASON INC CENTRAL INDEX KEY: 0000704051 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 521200960 STATE OF INCORPORATION: MD FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08529 FILM NUMBER: 95510193 BUSINESS ADDRESS: STREET 1: 111 S CALVERT ST CITY: BALTIMORE STATE: MD ZIP: 21202 BUSINESS PHONE: 4105390000 MAIL ADDRESS: STREET 1: 111 SOUTH CALVERT STREET CITY: BALTIMORE STATE: MD ZIP: 21202 10-Q 1 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended December 31, 1994 OR [ ] 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 1-8529 LEGG MASON, INC. (Exact name of registrant as specified in its charter) MARYLAND 52-1200960 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 111 South Calvert Street - Baltimore, MD 21203-1476 (Address of principal executive offices) (Zip code)
(410) 539-0000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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 X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 12,240,017 shares of Common Stock as of the close of business on February 1, 1995. 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements
LEGG MASON, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (in thousands of dollars) December 31,1994 March 31,1994 (Unaudited) ASSETS: Cash and cash equivalents.............. $125,904 $ 40,208 Cash and securities segregated for regulatory purposes................... 35,916 127,003 Resale agreements...................... 83,682 97,950 Receivable from brokers and dealers.... 1,395 5,074 Receivable from customers.............. 297,272 250,237 Securities owned, at market value...... 71,377 57,617 Securities borrowed.................... 112,976 96,030 Investment securities.................. 45,806 29,754 Property and equipment................. 23,316 15,679 Intangible assets...................... 22,095 23,727 Other.................................. 81,607 68,209 -------- -------- $901,346 $811,488 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY: Liabilities: Payable to brokers and dealers......... $ 9,993 $ 10,629 Payable to customers................... 351,538 298,943 Short-term borrowings.................. 54,399 15,546 Securities loaned...................... 100,563 108,065 Securities sold, but not yet purchased, at market value....................... 6,954 8,513 Accrued compensation................... 19,408 15,651 Other.................................. 32,804 39,968 -------- -------- 575,659 497,315 -------- -------- Subordinated liabilities................ 102,487 102,487 -------- -------- Stockholders' equity: Common stock........................... 1,221 1,173 Additional paid-in capital............. 79,160 76,249 Retained earnings...................... 142,606 134,264 Net unrealized appreciation on investment securities................. 213 - -------- -------- 223,200 211,686 -------- -------- $901,346 $811,488 ======== ========
See notes to condensed consolidated financial statements. 3
LEGG MASON, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (in thousands of dollars except per share amounts) (Unaudited) Three Months Nine Months Ended December 31, Ended December 31, 1994 1993 1994 1993 Revenues: Commissions......................... $29,987 $ 35,430 $ 88,542 $103,945 Principal transactions.............. 15,347 12,539 42,377 40,316 Investment advisory and related fees 21,167 16,781 61,621 47,299 Investment banking.................. 8,488 23,312 29,785 67,483 Interest............................ 10,690 7,807 27,915 22,126 Other............................... 7,208 7,256 20,934 20,071 ------- -------- -------- -------- 92,887 103,125 271,174 301,240 ------- -------- -------- -------- Expenses: Compensation and benefits........... 54,817 59,094 159,894 171,723 Occupancy and equipment rental...... 7,258 6,738 21,594 19,752 Communications...................... 6,266 5,629 18,412 16,821 Floor brokerage and clearing fees... 1,227 1,473 3,674 4,479 Interest............................ 4,378 3,969 11,931 11,241 Other............................... 11,953 9,900 34,990 28,957 ------- -------- -------- -------- 85,899 86,803 250,495 252,973 ------- -------- -------- -------- Earnings Before Income Taxes......... 6,988 16,322 20,679 48,267 Income taxes........................ 2,855 6,433 8,442 18,886 ------- -------- -------- -------- Net Earnings......................... $ 4,133 $ 9,889 $ 12,237 $ 29,381 ======= ======== ======== ======== Earnings per common share: Primary............................. $ .33 $ .81 $ .98 $ 2.43 Fully diluted....................... $ .29 $ .65 $ .86 $ 1.95 Average number of common shares outstanding: Primary............................. 12,565 12,183 12,489 12,086 Fully diluted....................... 16,804 16,425 16,737 16,112 Dividends declared per common share $ .11 $ .10 $ .32 $ .28 Book value per common share.......... $ 18.28 $ 17.57 $ 18.28 $ 17.57
See notes to condensed consolidated financial statements. 4
LEGG MASON, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands of dollars) (Unaudited) Nine Months Ended December 31, 1994 1993 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings..................................... $ 12,237 $ 29,381 Noncash items included in earnings: Depreciation and amortization................. 6,977 6,249 Loss(gain) on sale of investment securities... 124 (41) Tax benefit of pooled entity..................... 213 264 -------- -------- 19,551 35,853 (Increase) decrease in assets excluding acquisition: Cash and securities segregated for regulatory purposes..................................... 91,087 (31,702) Receivable from brokers and dealers............ 3,679 (378) Receivable from customers...................... (46,364) (31,486) Securities owned............................... (13,760) 48,148 Securities borrowed............................ (16,946) (100,275) Other.......................................... (12,199) (20,324) Increase(decrease) in liabilities excluding acquisition: Payable to brokers and dealers................. (636) (388) Payable to customers........................... 52,595 63,779 Securities loaned.............................. (7,502) 117,509 Securities sold, but not yet purchased......... (1,559) (2,592) Accrued compensation........................... 3,757 2,794 Other.......................................... (8,888) 8,112 -------- -------- CASH PROVIDED BY OPERATING ACTIVITIES............ 62,815 89,050 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Payments for: Property and equipment......................... (10,923) (6,197) Intangible assets.............................. (482) (1,198) Net decrease(increase) in resale agreements..... 14,268 (68,673) Purchases of investment securities.............. (48,877) (113,599) Proceeds from sales of investment securities.... 32,115 94,885 -------- -------- CASH USED FOR INVESTING ACTIVITIES............... (13,899) (94,782) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase(decrease) in short-term borrowings. 38,853 (4,122) Net decrease in repurchase agreements........... - (11,791) Issuance of subordinated liabilities............ - 67,900 Issuance of common stock........................ 1,794 1,682 Repurchase of common stock...................... (140) - Dividends paid.................................. (3,727) (2,991) -------- -------- CASH PROVIDED BY FINANCING ACTIVITIES............ 36,780 50,678 -------- -------- NET INCREASE IN CASH AND CASH EQUIVALENTS........ 85,696 44,946 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD. 40,208 24,998 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD....... $125,904 $ 69,944 ======== ========
See notes to condensed consolidated financial statements. 5 LEGG MASON, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (in thousands of dollars) December 31, 1994 (Unaudited) 1. Interim Basis of Reporting: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all information and notes required by generally accepted accounting principles for complete financial statements. The interim financial statements have been prepared utilizing 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 presentation of the results for the periods presented. The nature of the Company's business is such that the results of any interim period are not necessarily indicative of results for a full year. 2. Net Capital Requirements: The Company's broker-dealer subsidiaries are subject to the Securities and Exchange Commission's Uniform Net Capital Rule. The Rule provides that equity capital may not be withdrawn or cash dividends paid if resulting net capital would fall below specified levels. As of December 31, 1994, the broker-dealer subsidiaries had aggregate net capital, as defined, of $97,121 which exceeded required net capital by $89,617. 3. Legal Proceedings: The Company and its subsidiaries have been named as defendants in various legal actions arising primarily from securities and investment banking activities, including certain class actions which primarily allege violations of securities laws and seek unspecified damages which could be substantial. While the ultimate resolution of these actions cannot be currently determined, in the opinion of management, after consultation with legal counsel, the actions will be resolved with no material adverse effect on the consolidated financial statements of the Company. 4. Investment Securities: Effective April 1, 1994, the Company prospectively adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Accordingly, investment securities held as available- for-sale are included in the statement of financial condition at market value and related unrealized gains, net of tax ($213 at December 31, 1994) are recorded in stockholders' equity. The adoption of SFAS No. 115 had no impact on the Company's results of operations. 6 5. Litigation Settlement Charge: Other expense for the nine months ended December 31, 1994, includes a charge of $2,000 ($950 after tax) related to the proposed settlement of class action litigation arising from taxable municipal bond offerings underwritten in 1986 by one of the Company's subsidiaries. See "Part II. Other Information--Item 1. Legal Proceedings" for further discussion related to this matter. 6. Supplemental Cash Flow Information: Interest payments were $13,198 in 1994 and $11,057 in 1993. Income tax payments were $8,899 in 1994 and $20,543 in 1993. On April 25, 1994, in exchange for common stock, the Company acquired GSH & Co., Inc.'s net assets of $1,306. 7. Subsequent Event: On January 5, 1995, the Company acquired the assets of Batterymarch Financial Management ("Batterymarch"), an investment advisory firm that manages equity portfolios for institutional clients. The Company paid $52.4 million cash at closing and will pay an additional $2.1 million cash in March 1995. A possible supplemental closing payment of $5.5 million cash will be due at or before January 1996 if Batterymarch reaches a specified annualized revenue level in any month during calendar 1995, and a final contingent performance payment that could increase the total consideration to $120 million will be due in early 1998 based on Battermarch's achievement of specified levels of actual fee revenues for calendar 1997. If the amount of the 1998 payment would exceed $40 million, the Company will have the right to pay all or any portion of the excess in the form of shares of the Company's common stock. 7 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition RESULTS OF OPERATIONS During the Company's third fiscal quarter and nine months ended December 31, 1994, the securities industry was adversely affected by rising interest rates and uncertain equity markets as compared to more favorable market conditions experienced during the corresponding periods of the prior year. Quarter Ended December 31, 1994 Compared to Quarter Ended December 31, 1993 In the third fiscal quarter ended December 31, 1994, the Company's net earnings declined 58% to $4.1 million from $9.9 million in the prior year's quarter. Revenues fell 10% to $92.9 million from $103.1 million. Primary earnings per share were $.33, down 59% from $.81. Fully diluted earnings per share were $.29 down 55% from $.65. Commission revenues fell 15% to $30.0 million because of reduced sales of over-the-counter securities and non-affiliated mutual funds. Revenues from principal transactions rose 22% to $15.3 million, reflecting increased sales of municipal and corporate debt securities, offset in part by a decline in sales of over-the- counter equity securities. Investment advisory and related fees increased for the 19th consecutive quarter and were 26% higher than in the corresponding quarter of the prior year because of growth in assets under management in Company-sponsored mutual funds, the Company's fixed- income investment advisory subsidiary and fee-based brokerage accounts. Additionally, the current quarter includes fees earned by Gray, Seifert & Co., Inc., an investment advisory firm acquired in April 1994. At quarter end, Company subsidiaries served as investment advisors to individual and institutional accounts and mutual funds with assets of $18.0 billion, up from $15.9 billion at December 31, 1993. Investment banking revenues were $8.5 million, 64% lower than in the corresponding quarter of the prior year, principally reflecting a substantial decline in corporate and municipal underwritings following sharp increases in interest rates. Included in the December 1993 quarter were significant revenues from sizable co- managed offerings of real estate investment trust securities. 8 Compensation and benefits declined 7% to $54.8 million, as lower commission and profitability-based compensation was partially offset by increased staffing in new and existing product areas and the addition of new retail brokerage offices. Occupancy and equipment rental increased 8% to $7.3 million because of higher depreciation expense and the inclusion of the expenses of Gray, Seifert & Co. Communications expense increased 11% to $6.3 million because of increased quotation service expense and higher printing costs. Floor brokerage and clearing fees declined 17% to $1.2 million, reflecting reduced transaction volume and lower execution charges. Other expense increased 21% to $12.0 million, principally because of increased litigation, marketing and promotional expenses. Interest revenue increased 37% to $10.7 million, reflecting higher interest rates earned on larger customer margin account balances, firm investments and fixed-income securities positions. Interest expense increased 10% to $4.4 million because of higher interest rates paid on customer credit balances, offset in part by a decline in interest expense related to short-term borrowings. Income taxes declined 56% to $2.9 million as a result of lower pre-tax earnings. The effective tax rate increased to 40.9% from 39.4% as a result of an increased effective state tax rate and federal tax law changes. 9 Nine Months Ended December 31, 1994 Compared to Nine Months Ended December 31, 1993 The Company's net earnings in the nine months ended December 31, 1994 declined 58% to $12.2 million from a record $29.4 million in the prior year's corresponding period. Revenues fell 10% to $271.2 million from $301.2 million. Primary earnings per share were $.98, down 60% from $2.43. Fully diluted earnings per share were $.86, down 56% from $1.95. Commission revenues fell 15% to $88.5 million because of declines in sales of listed securities, non-affiliated mutual funds and over-the-counter securities. Revenues from principal transactions increased 5% to $42.4 million because of increased sales of municipal, corporate debt and over- the-counter equity securities. These increases were substantially offset by lower sales of U.S. government and agency securities and a decline in trading profits on firm proprietary positions. Investment advisory and related fees increased 30% to $61.6 million, reflecting growth in assets under management in Company- sponsored mutual funds, the Company's fixed-income investment advisory subsidiary and fee-based brokerage accounts. Additionally, the current period includes fees earned by Gray, Seifert & Co. Investment banking revenues fell 56% to $29.8 million from record levels achieved in the corresponding period of the prior year as both corporate and municipal underwriting declined because of rising interest rates. Other revenues rose 4% to $20.9 million, primarily because of increased loan origination and mortgage servicing fees. Compensation and benefits declined 7% to $159.9 million, as lower commission and profitability-based compensation was partially offset by personnel additions in new retail brokerage offices and new and existing product areas. In addition, the current period includes expenses of Gray, Seifert & Co. Occupancy and equipment rental increased 9% to $21.6 million because of higher depreciation and rent expense related to branch and product area expansion, and the acquisition of Gray, Seifert & Co. Communications expense increased 9% to $18.4 million because of higher quote services, printing, and telephone expenses, related principally to business expansion. 10 Floor brokerage and clearing fees fell 18% to $3.7 million, reflecting reduced transaction volume and lower listed securities execution charges. Other expense increased 21% to $35.0 million, principally because of increased litigation, marketing and promotional expenses. Interest revenue increased 26% to $27.9 million because of higher interest rates earned on larger customer margin account balances and higher rates earned on firm investments. Interest expense increased 6% to $11.9 million because of higher interest rates paid on customer credit balances and the issuance of $68.0 million of convertible subordinated debentures on April 28, 1993. These increases were substantially offset by lower financing costs on reduced holdings of fixed-income securities. Income taxes declined 55% to $8.4 million, principally because of lower pre-tax earnings. The effective tax rate increased to 40.8% from 39.1% as a result of an increased effective state tax rate and federal tax law changes. Liquidity and Capital Resources There has been no material change in the Company's financial position since March 31, 1994. A substantial portion of the Company's assets is liquid, consisting mainly of cash and assets readily convertible into cash. These assets are financed primarily by free credit balances, equity capital, bank lines of credit, subordinated borrowings and other payables. During the nine months ended December 31, 1994, cash and cash equivalents increased $85.7 million. Cash flows from operating activities provided $62.8 million, primarily because of increases in regulatory deposits and net earnings, offset in part by higher securities inventory positions. Additionally, cash flows from financing activities provided $36.8 million, attributable to higher short-term borrowings by the Company's mortgage banking operations. Cash flows from investing activities used $13.9 million, principally related to purchases of property, equipment and investment securities. On January 5, 1995, the Company completed the acquisition of Batterymarch Financial Management, utilizing $52.4 million in cash. See Note 7 of Notes to Condensed Consolidated Financial Statements regarding additional future payments that may be required in the business combination. PART II. OTHER INFORMATION Item 1. Legal Proceedings Taxable Municipal Bond Litigation. Reference is made to the discussion under the caption "Taxable Municipal Bond Litigation" in Item 3 of Registrant's 10-K Report for the fiscal year ended March 31, 1994 and Part II, Item 1 of Registrant's 10-Q Report for the quarter ended September 30, 1994. In February 1995, the MDL Court preliminarily approved the principal terms of a proposed settlement of the class actions as set forth in a settlement agreement among the defendants and the representatives of the putative plaintiff class. The settlement agreement will require Howard, Weil, Labouisse, Friedrichs Incorporated, as one of the underwriter defendants, to contribute approximately $3.6 million toward a total settlement amount of $25.6 million. The settlement agreement permits the settling defendants to terminate the settlement if plaintiffs having more than a specified aggregate dollar amount of claims elect to "opt out" of participation in the settlement. The amount of opt outs that will allow this termination option to be exercised has been filed under seal with the MDL Court. In February 1995, the MDL Court established a settlement notice mailing date of February 28, 1995, an opt-out and objection notice date of April 14, 1995 and a settlement hearing date of July 31, 1995. 12 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits (11) Statements re: computation of per share earnings (27) Financial Data Schedules (b) No reports on Form 8-K were filed during the quarter ended December 31, 1994. 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LEGG MASON, INC. (Registrant) DATE February 14, 1995 /s/ John F. Curley, Jr. John F. Curley, Jr. Vice Chairman of the Board DATE February 14, 1995 /s/ F. Barry Bilson F. Barry Bilson Vice President - Finance 14 INDEX TO EXHIBITS PAGE 11. Statement re: computation of per share earnings. 15-16 27. Statement re: Financial data schedules. 17 EX-11 2 1 EXHIBIT 11 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE (in thousands except per share amounts)
For The Three Months Ended December 31, 1994 1993 Fully Fully Primary Diluted Primary Diluted Weighted average shares outstanding: Common stock 12,190 12,190 11,697 11,697 Shares available under options 375 394 486 507 Issuable upon conversion of debentures - 4,220 - 4,221 ------- ------- ------- ------- 12,565 16,804 12,183 16,425 ======= ======= ======= ======= Weighted average common and common equivalent shares outstanding 12,565 16,804 12,183 16,425 ======= ======= ======= ======= Net earnings $ 4,133 $ 4,133 $ 9,889 $ 9,889 Interest expense, net, on debentures - 727 - 736 ------- ------- ------- ------- Net earnings applicable to common stock $ 4,133 $ 4,860 $ 9,889 $10,625 ======= ======= ======= ======= Per share $ .33 $ .29 $ .81 $ .65 ======= ======= ======= =======
2 EXHIBIT 11 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE (in thousands except per share amounts)
For The Nine Months Ended December 31, 1994 1993 Fully Fully Primary Diluted Primary Diluted Weighted average shares outstanding: Common stock 12,128 12,128 11,619 11,619 Shares available under options 361 389 467 530 Issuable upon conversion of debentures - 4,220 - 3,963 ------- ------- ------- ------- 12,489 16,737 12,086 16,112 ======= ======= ======= ======= Weighted average common and common equivalent shares outstanding 12,489 16,737 12,086 16,112 ======= ======= ======= ======= Net earnings $12,237 $12,237 $29,381 $29,381 Interest expense, net, on debentures - 2,182 - 2,076 ------- ------- ------- ------- Net earnings applicable to common stock $12,237 $14,419 $29,381 $31,457 ======= ======= ======= ======= Per share $ .98 $ .86 $ 2.43 $ 1.95 ======= ======= ======= =======
EX-27 3
BD THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION AND CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000704051 LEGG MASON, INC. 1 U.S. DOLLARS 9-MOS MAR-31-1995 APR-01-1994 DEC-31-1994 1 $125,904,000 $298,667,000 $83,682,000 $112,976,000 $71,377,000 $23,316,000 $901,346,000 $54,399,000 $361,531,000 $0 $100,563,000 $6,954,000 $102,487,000 $1,221,000 $0 $0 $221,979,000 $901,346,000 $42,377,000 $27,915,000 $88,542,000 $29,785,000 $61,621,000 $11,931,000 $159,894,000 $20,679,000 $20,679,000 $0 $0 $12,237,000 $.98 $.86
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