-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q3qr/wxGCPHpWfHo/nfQlAZLXM38Z6dAGNd+/53WNfZYUvunrRxYo8vTLbKOxtpH RqWw/dGO15jGYipp41ghgA== 0000704051-97-000011.txt : 19971117 0000704051-97-000011.hdr.sgml : 19971117 ACCESSION NUMBER: 0000704051-97-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 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: SEC FILE NUMBER: 001-08529 FILM NUMBER: 97720099 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 September 30, 1997 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. 24,709,746 shares of Common Stock as of the close of business on November 3, 1997. 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements LEGG MASON, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (in thousands of dollars) September 30,1997 March 31,1997 (Unaudited)
ASSETS: Cash and cash equivalents.............. $ 230,562 $ 150,976 Cash and securities segregated for regulatory purposes................... 515,401 442,305 Resale agreements...................... 72,653 132,801 Receivable from customers.............. 695,713 527,456 Securities borrowed.................... 420,443 263,612 Securities owned, at market value...... 108,881 78,862 Investment securities, at market value. 93,748 66,983 Equipment and leasehold improvements, net..................... 43,320 35,809 Intangible assets...................... 61,097 61,423 Other.................................. 157,826 118,741 ---------- ---------- $2,399,644 $1,878,968 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY: Liabilities: Payable to customers................... $1,222,156 $ 960,646 Payable to brokers and dealers......... 7,589 7,112 Securities loaned...................... 354,576 250,804 Short-term borrowings.................. 93,569 13,400 Securities sold, but not yet purchased, at market value....................... 37,208 12,507 Accrued compensation................... 69,316 58,893 Other.................................. 62,450 57,396 Senior notes........................... 99,605 99,581 ---------- ---------- 1,946,469 1,460,339 ---------- ---------- Stockholders' equity: Common stock........................... 2,462 1,827 Additional paid-in capital............. 196,998 192,817 Retained earnings...................... 253,290 223,752 Net unrealized appreciation on investment securities................. 425 233 ---------- ---------- 453,175 418,629 ---------- ---------- $2,399,644 $1,878,968 ========== ==========
See notes to condensed consolidated financial statements. 3 LEGG MASON, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (in thousands, except per share amounts) (Unaudited)
Three Months Six Months Ended September 30, Ended September 30, 1997 1996 1997 1996 Revenues: Commissions......................... $ 63,870 $ 41,718 $115,479 $ 89,304 Principal transactions.............. 20,840 16,610 42,890 34,954 Investment advisory and related fees 63,176 42,881 118,579 85,364 Investment banking.................. 25,232 18,750 40,153 32,891 Interest............................ 30,519 18,944 57,324 36,902 Other............................... 9,213 8,391 17,665 16,716 -------- -------- -------- -------- 212,850 147,294 392,090 296,131 -------- -------- -------- -------- Expenses: Compensation and benefits........... 120,578 82,765 221,410 167,212 Occupancy and equipment rental...... 13,952 10,071 25,786 20,196 Communications...................... 10,464 6,736 19,706 13,867 Floor brokerage and clearing fees... 1,500 1,271 2,685 2,804 Interest............................ 17,929 8,534 32,604 17,996 Other ....................... 16,345 14,742 30,869 28,895 -------- -------- ------- ------- 180,768 124,119 333,060 250,970 -------- -------- ------- ------- Earnings Before Income Taxes......... 32,082 23,175 59,030 45,161 Income taxes........................ 13,238 9,279 24,396 18,365 -------- -------- ------- ------- Net Earnings......................... $ 18,844 $ 13,896 $ 34,634 $ 26,796 ======== ======== ======== ======== Earnings per common share: Primary............................. $ .72 $ .58 $ 1.33 $ 1.19 Fully diluted....................... $ .72 $ .56 $ 1.32 $ 1.08 Average number of common shares outstanding: Primary............................. 26,165 23,808 25,983 22,609 Fully diluted....................... 26,350 25,016 26,251 24,985 Dividends declared per common share.. $ .11 $ .098 $ .208 $ .188 Book value per common share.......... $ 18.41 $ 16.19 $ 18.41 $ 16.19
See notes to condensed consolidated financial statements. 4 LEGG MASON, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands of dollars) (Unaudited)
Six Months Ended September 30, 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings.................................... $ 34,634 $ 26,796 Noncash items included in earnings: Depreciation and amortization................. 9,313 7,621 -------- -------- 43,947 34,417 (Increase) decrease in assets: Cash and securities segregated for regulatory purposes..................................... (73,096) (6,642) Receivable from customers...................... (168,257) (81,643) Securities borrowed............................ (156,831) (23,991) Securities owned............................... (30,019) (10,153) Other.......................................... (39,202) (8,822) Increase(decrease) in liabilities: Payable to customers........................... 261,510 101,741 Payable to brokers and dealers................. 477 3,996 Securities loaned.............................. 103,772 20,164 Securities sold, but not yet purchased......... 24,701 14,556 Accrued compensation........................... 10,423 (427) Other.......................................... 4,587 1,574 -------- -------- CASH (USED FOR)PROVIDED BY OPERATING ACTIVITIES.. (17,988) 44,770 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Payments for: Equipment and leasehold improvements........... (13,757) (4,936) Intangible assets.............................. (2,600) (32) Net decrease in resale agreements............... 60,148 (30,664) Purchases of investment securities.............. (97,568) (82,837) Proceeds from maturities of investment securities 71,121 111,817 -------- -------- CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES. 17,344 (6,652) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in short-term borrowings........... 80,169 31,758 Repayment of subordinated liabilities .......... - (29) Issuance of common stock........................ 4,819 1,656 Dividends paid.................................. (4,758) (3,695) -------- -------- CASH PROVIDED BY FINANCING ACTIVITIES............ 80,230 29,690 -------- -------- NET INCREASE IN CASH AND CASH EQUIVALENTS........ 79,586 67,808 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD. 150,976 89,378 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD....... $230,562 $157,186 ======== ========
See notes to condensed consolidated financial statements. 5 LEGG MASON, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (in thousands of dollars) September 30, 1997 (Unaudited) 1. Interim Basis of Reporting: The accompanying unaudited condensed consolidated financial statements of Legg Mason, Inc. and its wholly-owned subsidiaries (the "Company")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 September 30, 1997, the broker-dealer subsidiaries had aggregate net capital, as defined, of $138,933 which exceeded required net capital by $123,236. 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. Supplemental Cash Flow Information: Interest payments for the six months ended September 30, 1997 and September 30, 1996 were $32,305 and $19,225, respectively. Income tax payments for the six months ended September 30, 1997 and September 30, 1996 were $25,893 and $23,824, respectively. 6 5. Common Stock Split: On July 24, 1997, the Company declared a four-for-three stock split, paid September 24, 1997 to shareholders of record on September 8, 1997. Accordingly, all share and per share information has been retroactively restated to reflect the stock split. 6. Recent Accounting Developments: In June 1997, the Financial Accounting Standards Board issued Statement No. 130, "Reporting Comprehensive Income" effective for fiscal years beginning after December 15, 1997. SFAS 130 establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general-purpose financial statements. This Statement requires the disclosure of an amount that represents total comprehensive income and the components of comprehensive income in a financial statement. The impact of adoption will not affect the Company's financial position or results of operations. In June 1997, Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information" was issued and is effective for financial statements for periods beginning after December 15, 1997. This Statement establishes standards for determining an entity's operating segments and the type and level of financial information to be disclosed in both annual and interim financial statements. It also establishes standards for related disclosures about products and services, geographic areas and major customers. The impact of adoption will not affect the Company's financial position or results of operations. 7 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition RESULTS OF OPERATIONS During its second fiscal quarter and the six months ended September 30, 1997, Legg Mason, Inc. and its subsidiaries (the "Company") continued to benefit from the favorable conditions in the securities markets that prevailed during the periods. Rising equity markets and higher securities transaction volume contributed to record revenues, net earnings and earnings per share. Quarter Ended September 30, 1997 Compared to Quarter Ended September 30, 1996 In the second fiscal quarter ended September 30, 1997, the Company's net earnings increased 36% to $18.8 million from $13.9 million in the corresponding quarter of the prior year. Revenues rose 45% to $212.9 million from $147.3 million. Primary earnings per share increased 24% to $.72 from $.58. Fully diluted earnings per share were $.72, up 29% from $.56. Commission revenues were $63.9 million, up 53% from $41.7 million in the prior year's quarter, reflecting an increased volume of listed and over-the-counter securities transactions and sales of non-affiliated mutual funds. Revenues from principal transactions rose 25% to $20.8 million, principally as a result of higher sales of over-the-counter securities and corporate bonds. Despite losses on energy-related equity positions, profits on firm proprietary positions increased from the prior year's quarter. Investment advisory and related fees increased for the 30th consecutive quarter to $63.2 million and were 47% higher as a result of growth in assets under management in Company-sponsored mutual funds, the Company's fixed-income investment advisory subsidiary and fee-based brokerage accounts. Company subsidiaries now serve as investment advisors to individual and institutional accounts and mutual funds with assets of $51.7 billion, up from $37.9 billion at September 30, 1996. Investment banking revenues were $25.2 million, 35% higher than in the corresponding quarter of the prior year, reflecting an increase in corporate finance activities, particularly public offerings of real estate investment trusts. Other revenues increased 10% to $9.2 million because of higher fees from increased investor activity. Compensation and benefits increased 46% to $120.6 million, reflecting higher sales and profitability-based compensation and an increase in the average number of full-time employees as a result of business expansion. 8 Occupancy and equipment rental increased 39% to $14.0 million as a result of increased technology-related expenses and additional costs related to the Company's relocation of its corporate headquarters scheduled to be completed in February 1998. Communications expense rose 55% to $10.5 million because of increased telephone, quote service and postage expenses related to increased business activity. Floor brokerage and clearing fees increased 18% to $1.5 million, as a result of substantially higher transaction volume. Other expense increased 11% to $16.3 million, primarily because of higher litigation-related and promotional expenses, offset in part by lower programming expenses. Interest revenue increased 61% to $30.5 million because of larger firm investment, customer margin account and conduit stock loan balances. Interest expense increased 110% to $17.9 million as a result of larger interest-bearing customer credit and conduit stock loan balances. Income taxes rose 43% to $13.2 million because of an increase in pre-tax earnings. The effective tax rate was 41.3% compared with 40.0% in the prior year's quarter as a result of non-deductible foreign operating losses. 9 Six Months Ended September 30, 1997 Compared to Six Months Ended September 30, 1996 The Company's revenues were $392.1 million, a 32% increase from revenues of $296.1 million in the corresponding period of the prior year. Net earnings rose 29% to $34.6 million from $26.8 million. Primary earnings per share increased 12% to $1.33 from $1.19. Fully diluted earnings per share increased 22% to $1.32 from $1.08. Commission revenues were $115.5 million, up 29% from $89.3 million in the prior year, reflecting an increased volume of transactions in listed securities and non-affiliated mutual funds. Revenues from principal transactions rose 23% to $42.9 million, because of increased sales of over-the-counter securities and profits on firm proprietary positions. Investment advisory and related fees increased 39% to $118.6 million, principally as a result of growth in assets under management in Company - -sponsored mutual funds, the Company's fixed-income investment advisory subsidiary and fee-based brokerage accounts. Investment banking revenues were $40.2 million, 22% higher than in the corresponding period of the prior year, reflecting increased corporate finance activities, particularly public offerings of real estate investment trusts. Other revenues increased 6% to $17.7 million because of higher fees from increased customer activity. Compensation and benefits increased 32% to $221.4 million, reflecting higher sales and profitability-based compensation and an increase in the average number of full-time employees as a result of business expansion. Occupancy and equipment rental increased 28% to $25.8 million as a result of increased technology-related expenses and additional costs related to the Company's relocation of its corporate headquarters scheduled to be completed in February 1998. Communications expense of $19.7 million rose 42% as a result of higher telephone, quote service and printing expenses related to increased business activity. Other expense increased 7% to $30.9 million, primarily due to higher promotional and litigation-related expenses, offset in part by lower programming expenses. Interest revenue increased 55% to $57.3 million because of larger firm investment, customer margin and conduit stock loan balances. Interest expense increased 81% to $32.6 million as a result of larger interest - -bearing customer credit balances. Income taxes rose 33% to $24.4 million because of an increase in pre-tax earnings. The effective tax rate was 41.3% compared with 10 40.7% in the prior year period as a result of non-deductible foreign operating losses. Liquidity and Capital Resources There has been no material change in the Company's financial position since March 31, 1997. A substantial portion of the Company's assets is liquid, consisting mainly of cash and assets readily convertible into cash. These assets are financed principally by free credit balances, equity capital, bank lines of credit, senior notes and other payables. During the six months ended September 30, 1997, cash and cash equivalents increased $79.6 million. Cash flows from financing activities increased $80.2 million, attributable to higher short-term borrowings by the Company's mortgage banking affiliates. Cash flows from investing activities increased $17.3 million, principally from reduced levels of investments, offset in large part by purchases of equipment and leasehold improvements. The Company used $18.0 million of cash in operating activities, principally to fund increased regulatory cash requirements, higher stock borrowed levels and clearing deposits, substantially offset by higher net customer payables and net earnings adjusted for depreciation and amortization. 11 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. Registrant's annual meeting of stockholders was held July 24, 1997. In the election of directors, the six director nominees were elected with the following votes:
Votes Cast For Withhold Charles A. Bacigalupo 15,483,072 15,483,072 76,131 Harry M. Ford, Jr. 15,485,636 15,485,636 73,566 Margaret DeB. Tutwiler 15,491,249 15,491,249 67,952 James E. Ukrop 13,663,990 13,663,990 1,895,212 John E. Koerner, III 15,484,808 15,484,808 74,394 Peter F. O'Malley 15,492,973 15,492,973 66,229
The stockholders voted in favor of the ratification of the appointment of Coopers & Lybrand L.L.P. as independent auditors of the Registrant as follows:
Votes Cast For Against Abstain Non-Vote Ratification of Appointment of Auditors 15,546,855 15,537,530 9,325 12,347 ---
Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 3.1 Articles of Incorporation of the Company, as amended (incorporated by reference to Form 10-Q for the quarter ended September 30, 1996) 3.2 By-laws of the Company as amended and restated April 25, 1988 (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended March 31, 1988) 11. Statement re: computation of per share earnings 27. Statement re: financial data schedules (b) No reports on Form 8-K were filed during the quarter ended September 30, 1997. 12 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: November 14, 1997 /s/ John F. Curley, Jr. John F. Curley, Jr. Vice Chairman of the Board DATE: November 14, 1997 /s/ F. Barry Bilson F. Barry Bilson Vice President - Finance 13 INDEX TO EXHIBITS 11. Statement re: computation of per share earnings 27. Statement re: financial data schedules EX-11 2 1 EXHIBIT 11 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE (in thousands, except per share amounts)
For The Three Months Ended September 30, 1997 1996 Fully Fully Primary Diluted Primary Diluted Weighted average shares outstanding: Common stock 24,545 24,545 22,940 22,940 Shares available under options 1,620 1,781 868 932 Issuable upon conversion of debentures - 24 - 1,144 ------- ------- ------- ------- Weighted average common and common equivalent shares outstanding 26,165 26,350 23,808 25,016 ======= ======= ======= ======= Net earnings $18,844 $18,844 $13,896 $13,896 Interest expense, net, on debentures - 4 - - ------- ------- ------- ------- Net earnings applicable to common stock $18,844 $18,848 $13,896 $13,896 ======= ======= ======= ======= Per share $ .72 $ .72 $ .58 $ .56 ======= ======= ======= =======
All share and per share information has been restated to reflect a 4 for 3 stock split paid on September 24, 1997 to shareholders of record on September 8, 1997. 2 EXHIBIT 11.1 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE (in thousands, except per share amounts)
For The Six Months Ended September 30, 1997 1996 Fully Fully Primary Diluted Primary Diluted Weighted average shares outstanding: Common stock 24,478 24,478 21,740 21,740 Shares available under options 1,505 1,749 869 923 Issuable upon conversion of debentures - 24 - 2,322 ------- ------- ------- ------- Weighted average common and common equivalent shares outstanding 25,983 26,251 22,609 24,985 ======= ======= ======= ======= Net earnings $34,634 $34,634 $26,796 $26,796 Interest expense, net, on debentures - 9 - 143 ------- ------- ------- ------- Net earnings applicable to common stock $34,634 $34,643 $26,796 $26,939 ======= ======= ======= ======= Per share $ 1.33 $ 1.32 $ 1.19 $ 1.08 ======= ======= ======= =======
All share and per share information has been restated to reflect a 4 for 3 stock split paid on September 24, 1997 to shareholders of record on September 8, 1997. 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 6-MOS MAR-31-1998 APR-01-1997 SEP-30-1997 1 $230,562,000 $695,713,000 $72,653,000 $420,443,000 $108,881,000 $43,320,000 $2,399,644,000 $93,569,000 $1,229,745,000 $0 $354,576,000 $37,208,000 $99,605,000 $0 $0 $2,462,000 $450,713,000 $2,399,644,000 $42,890,000 $57,324,000 $115,479,000 $40,153,000 $118,579,000 $32,604,000 $221,410,000 $59,030,000 $59,030,000 $0 $0 $34,634,000 $1.33 $1.32
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