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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 June 30, 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)
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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)
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(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.
12,158,507 shares of Common Stock as of the close of business on
August 1, 1994.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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LEGG MASON, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands of dollars)
June 30, 1994 March 31, 1994
(Unaudited)
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ASSETS:
Cash and cash equivalents.............. $ 87,547 $ 40,208
Cash and securities segregated for
regulatory purposes................... 61,120 127,003
Resale agreements...................... 73,798 97,950
Receivable from brokers and dealers.... 8,462 5,074
Receivable from customers.............. 290,096 250,237
Securities owned, at market value...... 71,619 57,617
Securities borrowed.................... 39,482 96,030
Investment securities.................. 49,852 29,754
Office equipment and leasehold
improvements.......................... 16,244 15,679
Intangible assets...................... 24,107 23,727
Other.................................. 72,020 68,209
-------- --------
$794,347 $811,488
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LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Payable to brokers and dealers......... $ 7,544 $ 10,629
Payable to customers................... 287,090 298,943
Short-term borrowings.................. 61,619 15,546
Repurchase agreements.................. 9,335 -
Securities loaned...................... 45,213 108,065
Securities sold, but not yet purchased,
at market value....................... 5,886 8,513
Accrued compensation................... 21,228 15,651
Other.................................. 35,900 39,968
-------- --------
473,815 497,315
-------- --------
Subordinated liabilities................ 102,487 102,487
-------- --------
Stockholders' equity:
Common stock........................... 1,215 1,173
Additional paid-in capital............. 78,554 76,249
Retained earnings...................... 137,735 134,264
Net unrealized appreciation of
investment securities................. 541 -
-------- --------
218,045 211,686
-------- --------
$794,347 $811,488
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See notes to condensed consolidated financial statements.
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LEGG MASON, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands of dollars except per share amounts)
(Unaudited)
Three Months
Ended June 30,
1994 1993
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Revenues:
Commissions.......................... $ 29,191 $ 33,841
Principal transactions............... 13,759 12,821
Investment advisory and related fees. 19,501 14,689
Investment banking................... 12,929 17,412
Interest............................. 8,021 6,865
Other................................ 6,434 5,720
-------- --------
89,835 91,348
-------- --------
Expenses:
Compensation and benefits............ 53,172 52,978
Occupancy and equipment rental....... 7,143 6,365
Communications....................... 5,979 5,468
Floor brokerage and clearing fees.... 1,274 1,645
Interest............................. 3,613 3,228
Other................................ 10,315 8,461
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81,496 78,145
-------- --------
Earnings Before Income Taxes............ 8,339 13,203
Income taxes......................... 3,336 5,071
-------- --------
Net Earnings............................ $ 5,003 $ 8,132
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Earnings per common share:
Primary.............................. $ .40 $ .68
Fully diluted........................ $ .35 $ .57
Average number of common shares
outstanding:
Primary.............................. 12,383 11,968
Fully diluted........................ 16,603 15,435
Dividends declared per common share..... $ .10 $ .08
Book value per common share............. $ 17.94 $ 15.98
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See notes to condensed consolidated financial statements.
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LEGG MASON, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(Unaudited)
Three Months
Ended June 30,
1994 1993
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings..................................... $ 5,003 $ 8,132
Noncash items included in earnings:
Depreciation and amortization................. 2,342 2,074
Tax benefit of pooled entity..................... 76 92
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7,421 10,298
(Increase)decrease in assets excluding
acquisition:
Cash and securities segregated for regulatory
purposes..................................... 65,883 (21,165)
Receivable from brokers and dealers............ (3,388) 134
Receivable from customers...................... (39,188) (25,423)
Securities owned............................... (14,002) (3,946)
Securities borrowed............................ 56,548 2,337
Other.......................................... (2,689) (7,270)
Increase(decrease) in liabilities excluding
acquisition:
Payable to brokers and dealers................. (3,085) 124
Payable to customers........................... (11,853) 20,288
Securities loaned.............................. (62,852) (248)
Securities sold, but not yet purchased......... (2,627) (785)
Accrued compensation........................... 5,577 2,016
Other.......................................... (5,673) 6,098
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CASH USED FOR OPERATING ACTIVITIES............... (9,928) (17,542)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for:
Office equipment and leasehold improvements.... (1,533) (1,056)
Intangible assets.............................. (177) (67)
Net decrease in resale agreements............... 24,152 11,191
Purchases of investment securities.............. (21,684) (31,061)
Proceeds from sales of investment securities.... 1,549 -
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CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES. 2,307 (20,993)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings 46,073 (910)
Net increase in repurchase agreements........... 9,335 22,592
Issuance of subordinated liabilities............ - 68,000
Issuance of common stock........................ 724 372
Dividends paid.................................. (1,172) (927)
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CASH PROVIDED BY FINANCING ACTIVITIES............ 54,960 89,127
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NET INCREASE IN CASH AND CASH EQUIVALENTS........ 47,339 50,592
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD. 40,208 24,998
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CASH AND CASH EQUIVALENTS AT END OF PERIOD....... $87,547 $75,590
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See notes to condensed consolidated financial statements.
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LEGG MASON, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of dollars)
June 30, 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 June 30, 1994, the broker-dealer subsidiaries had
aggregate net capital, as defined, of $104,518 which exceeded
required net capital by $97,825.
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 net unrealized gains ($541 at June 30,
1994, net of tax) are recorded in stockholders' equity. The
adoption of SFAS No. 115 had no impact on the Company's results of
operations.
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5. Supplemental Cash Flow Information:
Interest payments were $5,027 in 1994 and $3,168 in 1993.
Income tax payments were $112 in 1994 and $1,470 in 1993.
On April 25, 1994, in exchange for common stock, the Company
acquired GSH & Co., Inc.'s net assets of $1,306.
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Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition
RESULTS OF OPERATIONS
Quarter Ended June 30, 1994 Compared to Quarter Ended June 30, 1993
In the first quarter of the Company's fiscal 1995, the securities
industry was adversely affected by rising interest rates and
uncertain equity markets, compared to more favorable market
conditions which prevailed during the corresponding quarter of the
prior year.
The Company's net earnings for the quarter declined 38% to $5.0
million from $8.1 million in the prior year's quarter. Revenues
fell 2% to $89.8 million from $91.3 million. Primary earnings per
share were $.40, a decrease of 41% from $.68. Fully diluted
earnings per share declined 39% to $.35 from $.57.
Commission revenues fell 14% to $29.2 million because of reduced
sales of listed and over-the-counter securities.
Revenues from principal transactions rose 7% to $13.8 million as a
result of increased sales of municipal bond and over-the-counter
securities, partially offset by lower sales of U.S. government,
agency and mortgage-backed securities.
Investment advisory and related fees increased for the 17th
consecutive quarter and were 33% higher than in the corresponding
quarter of the prior year because of growth in assets under
management in Company-sponsored mutual funds and the Company's
fixed-income investment advisory subsidiary. Additionally, the
current quarter includes fees earned by Gray, Seifert & Co., Inc.,
an investment advisory firm acquired in April 1994. Company
subsidiaries now serve as investment advisors to individual and
institutional accounts and mutual funds with assets of $17.3
billion, up from $13.8 billion at June 30, 1993.
Investment banking revenues fell 26% to $12.9 million, principally
because of lower municipal underwriting activity. Municipal
underwriting revenues in the prior year's quarter benefited from a
substantial number of refinancings designed to take advantage of
lower interest rates. The pace of refinancings has slowed
considerably in calendar 1994, in part because of rising interest
rates but also because many municipalities have completed their
refinancing programs.
Other revenues were $6.4 million, a 12% increase from the prior
year's quarter, primarily because of increased mortgage banking
loan origination and servicing fees and the addition of a full
quarter's fees of The Fairfield Group, acquired on April 20, 1993.
In the current year's quarter, compensation and benefits were
substantially unchanged at $53.2 million, as personnel additions in
new and existing product areas were offset, in part, by lower
commission and profitability-based incentive compensation.
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Occupancy and equipment rental rose 12% to $7.1 million because of
increased data processing expenses and higher depreciation expenses
incurred as a result of new securities quotation systems.
Communications expense rose 9% to $6.0 million because of increased
telephone and supplies usage.
Floor brokerage and clearing fees fell 23%, principally because of
lower trading volume.
Other expense rose 22% to $10.3 million, principally because of
increased promotional, programming and acquisition-related
expenses.
Interest revenue rose 17% to $8.0 million because of higher
interest rates on larger customer margin account balances and
higher levels of stock loan conduit activity offset, in part, by
reduced earnings on substantially lower holdings of fixed-income
securities.
Interest expense increased 12% to $3.6 million as a result of
issuance of $68.0 million of convertible subordinated debentures on
April 28, 1993, higher customer interest expense because of rising
interest rates, and an increase in stock loan conduit business.
These increases were partially offset by a decline in interest
expense related to lower short-term borrowings.
Income taxes fell 34% to $3.3 million, principally because of a
decline in pre-tax earnings, offset in part by an increase in the
effective tax rate to 40.0% from 38.4% as a result of federal tax
law changes.
Liquidity and Capital Resources
There has been no material change in the Company's financial
position since March 31, 1994. The Company's assets are primarily
liquid, consisting mainly of cash and assets readily convertible
into cash. These assets are financed by free credit balances,
equity capital, bank lines of credit, subordinated borrowings and
other payables.
During the quarter ended June 30, 1994, cash and cash equivalents
increased $47.3 million. The Company used $10.0 million of cash in
operating activities primarily to finance increases in customer
receivables and purchases of proprietary securities. These
increases were substantially offset by a reduction in the Company's
regulatory cash requirement. Investing activities provided $2.3
million of cash as a result of reductions in resale agreements, the
proceeds of which were used, in part, to purchase investment
securities. Cash flow from financing activities was $55.0 million
because of higher short-term borrowings by the Company's mortgage
banking subsidiaries and increased repurchase agreements.
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Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(11) Statement re: computation of per share
earnings
(b) No reports on Form 8-K were filed during the
quarter ended June 30, 1994.
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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 August 12, 1994 /s/ John F. Curley, Jr.
John F. Curley, Jr.
Vice Chairman of the Board
DATE August 12, 1994 /s/ F. Barry Bilson
F. Barry Bilson
Vice President - Finance
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INDEX TO EXHIBITS
11. Statement re: computation of per share earnings.
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EXHIBIT 11
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STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(in thousands except per share amounts)
For The Three Months Ended June 30,
1994 1993
Fully Fully
Primary Diluted Primary Diluted
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Weighted average shares
outstanding:
Common stock 12,037 12,037 11,527 11,527
Shares available under
options 346 346 441 469
Issuable upon conversion
of debentures - 4,220 - 3,439
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12,383 16,603 11,968 15,435
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Weighted average common
and common equivalent
shares outstanding 12,383 16,603 11,968 15,435
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Net earnings $ 5,003 $ 5,003 $ 8,132 $ 8,132
Interest expense, net, on
debentures - 738 - 614
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Net earnings applicable
to common stock $ 5,003 $ 5,741 $ 8,132 $ 8,746
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Per share $ .40 $ .35 $ .68 $ .57
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