<PAGE> 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 June 30, 1995
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.
12,335,985 shares of Common Stock as of the close of business on
August 1, 1995.
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
LEGG MASON, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands of dollars)
June 30,1995 March 31,1995
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $131,322 $ 59,823
Cash and securities segregated for
regulatory purposes 57,762 30,528
Resale agreements 57,046 63,960
Receivable from customers 309,901 306,004
Receivable from brokers and dealers 1,949 902
Securities borrowed 175,904 120,402
Securities owned, at market value 81,288 51,890
Investment securities, at market value 19,335 19,589
Property and equipment, net 27,605 25,871
Intangible assets 70,706 72,463
Other 65,924 65,226
-------- --------
$998,742 $816,658
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Payable to customers $354,826 $320,830
Payable to brokers and dealers 19,267 3,929
Securities loaned 152,529 104,304
Short-term borrowings 69,127 -
Securities sold, but not yet purchased,
at market value 4,462 6,362
Accrued compensation 23,686 15,866
Other 38,636 36,427
-------- --------
662,533 487,718
-------- --------
Subordinated liabilities 102,482 102,487
-------- --------
Stockholders' equity:
Common stock 1,233 1,225
Additional paid-in capital 80,383 79,591
Retained earnings 151,751 145,279
Net unrealized appreciation on
investment securities 360 358
-------- --------
233,727 226,453
-------- --------
$998,742 $816,658
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 3
<TABLE>
<CAPTION>
LEGG MASON, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands of dollars, except per share amounts)
(Unaudited)
Three Months
Ended June 30,
1995 1994
<S> <C> <C>
Revenues:
Commissions $ 36,879 $29,191
Principal transactions 16,931 13,759
Investment advisory and related fees 28,781 19,501
Investment banking 9,154 12,929
Interest 12,140 8,021
Other 7,436 6,434
-------- -------
111,321 89,835
-------- -------
Expenses:
Compensation and benefits 62,914 53,172
Occupancy and equipment rental 8,593 7,143
Communications 6,839 5,979
Floor brokerage and clearing fees 1,334 1,274
Interest 5,847 3,613
Other 12,534 10,315
-------- -------
98,061 81,496
-------- -------
Earnings Before Income Taxes 13,260 8,339
Income taxes 5,433 3,336
-------- -------
Net Earnings $ 7,827 $ 5,003
======== =======
Earnings per common share:
Primary $ .61 $ .40
Fully diluted $ .50 $ .35
Average number of common shares
outstanding:
Primary 12,820 12,383
Fully diluted 17,080 16,603
Dividends declared per common share $ .11 $ .10
Book value per common share $ 18.96 $ 17.94
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 4
<TABLE>
<CAPTION>
LEGG MASON, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(Unaudited)
Three Months
Ended June 30,
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 7,827 $ 5,003
Noncash items included in earnings:
Depreciation and amortization 3,459 2,342
-------- -------
11,286 7,345
(Increase) decrease in assets:
Cash and securities segregated for regulatory
purposes (27,234) 65,883
Receivable from customers (3,897) (39,188)
Receivable from brokers and dealers (1,047) (3,388)
Securities borrowed (55,502) 56,548
Securities owned (29,398) (14,002)
Other (698) (2,689)
Increase(decrease) in liabilities:
Payable to customers 33,996 (11,853)
Payable to brokers and dealers 15,338 (3,085)
Securities loaned 48,225 (62,852)
Securities sold, but not yet purchased (1,900) (2,627)
Accrued compensation 7,820 5,577
Other 2,200 (5,597)
-------- -------
CASH USED FOR OPERATING ACTIVITIES (811) (9,928)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for:
Property and equipment (3,252) (1,533)
Intangible assets (181) (177)
Net decrease in resale agreements 6,914 24,152
Purchases of investment securities - (21,684)
Proceeds from sales of investment securities 255 1,549
-------- -------
CASH PROVIDED BY INVESTING ACTIVITIES 3,736 2,307
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term borrowings 69,127 46,073
Net increase in repurchase agreements - 9,335
Issuance of common stock 794 724
Dividends paid (1,347) (1,172)
-------- -------
CASH PROVIDED BY FINANCING ACTIVITIES 68,574 54,960
-------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 71,499 47,339
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 59,823 40,208
-------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $131,322 $87,547
======== =======
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 5
LEGG MASON, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of dollars, except share amounts)
June 30, 1995
(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, 1995, the broker-dealer
subsidiaries had aggregate net capital, as defined, of $94,690
which exceeded required net capital by $86,599.
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 were $7,104 in 1995 and $5,027 in 1994.
Income tax payments were $312 in 1995 and $112 in 1994.
<PAGE> 6
5. Subsequent Event:
On July 26, 1995, the Company called for redemption on
August 25, 1995 (the "Redemption Date"), the entire $34.5
million aggregate principal amount outstanding of its 7%
Convertible Subordinated Debentures due June 15, 2011
(the "Debentures").
Holders may, in lieu of having their Debentures redeemed for
cash, convert any or all of their Debentures into 45.96 shares of
Common Stock of Legg Mason for each $1 thousand principal amount
of Debentures (based on the conversion price of $21.76 per share
of Common Stock), with cash to be paid in lieu of fractional
shares. All Debentures not converted into Common Stock will be
redeemed at 100.7% of the principal amount on the Redemption Date.
<PAGE> 7
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition
Quarter Ended June 30, 1995 Compared to Quarter Ended
June 30, 1994
In the quarter ended June 30, 1995, the first quarter of the
Company's fiscal year, the securities industry experienced
favorable market conditions as a result of declining interest
rates and substantially higher securities transaction volume and
price levels. In contrast, the corresponding quarter of the
prior year was adversely affected by rising interest rates and
uncertain equity markets.
RESULTS OF OPERATIONS
The Company's net earnings for the quarter rose 56% to $7.8
million from $5.0 million in the prior year's quarter.
Revenues rose 24% to $111.3 million from $89.8 million.
Primary earnings per share increased 53% to $.61 from $.40.
Fully diluted earnings per share increased 43% to $.50 from $.35.
Commission revenues rose 26% to $36.9 million, principally as a
result of increased sales of listed and over-the-counter
securities.
Revenues from principal transactions rose 23% to $16.9 million,
reflecting increased sales of corporate debt and over-the-counter
equity securities and higher trading profits on firm proprietary
positions, partially offset by a decline in sales of municipal
securities.
Investment advisory and related fees increased for the 21st
consecutive quarter and were 48% higher than in the
corresponding quarter of the prior year, principally as a result
of the addition of fees earned by Batterymarch Financial
Management, acquired in January 1995, as well as growth in assets
under management in Company-sponsored mutual funds and the
Company's fixed-income advisory subsidiary. Company subsidiaries
now serve as investment advisors to individual and institutional
accounts and mutual funds with assets of $26.2 billion, up from
$17.3 billion at June 30, 1994.
Investment banking revenues declined 29% to $9.2 million,
principally because of a significant decline in the number
and size of co-managed offerings of real estate investment
trusts.
Other revenues rose 16% to $7.4 million, primarily because of
increased mortgage banking loan originations.
Compensation and benefits rose 18% to $62.9 million, reflecting
higher sales compensation on increased commission-based revenues,
the addition of expenses of Batterymarch and personnel additions
in new brokerage office locations and expanded product areas.
Occupancy and equipment rental rose 20% to $8.6 million,
principally as a result of increased rent related to new
brokerage offices as well as higher transaction volume processed
by the Company's data processing service bureau. In addition,
the current year's period reflects the addition of Batterymarch.
<PAGE> 8
Communications costs rose 14% to $6.8 million, reflecting
increased quote and telephone services related to brokerage office
and product area expansion.
Other expense rose 22% to $12.5 million, attributable to the
addition of Batterymarch, including amortization of intangibles,
as well as litigation-related expenses. Amortization of
acquisition-related intangibles reduces the Company's reported
operating results but not operating cash flow.
Interest revenue increased 51% to $12.1 million because of higher
interest rates earned on larger customer margin account balances
and higher levels of stock loan conduit activity.
Interest expense increased 62% to $5.8 million because of higher
interest rates paid on larger customer credit balances and
increased conduit stock loan balances.
Income taxes rose 63% to $5.4 million because of higher pre-tax
earnings. The Company's effective tax rate increased to 41.0%
from 40.0% as a result of higher effective state income tax
rates.
Liquidity and Capital Resources
There has been no material change in the Company's financial
position since March 31, 1995. The Company's assets are
primarily liquid, consisting mainly of cash and assets readily
convertible into cash. These assets are financed primarily by
free credit balances, equity capital, convertible debentures,
bank lines of credit and other payables.
During the quarter ended June 30, 1995, cash and cash equivalents
increased $71.5 million. Cash flows from financing activities
were $68.6 million because of higher short-term borrowings by the
Company's mortgage banking subsidiaries. Investing activities
provided cash of $3.7 million, principally related to a decline
in resale agreements. Cash flows from operating activities
decreased $.8 million, with increases in securities inventories
and regulatory cash requirements substantially offset by higher
payables to customers, brokers and dealers.
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 $54.1 million cash at closing. A supplemental
closing payment of $5.9 million is due on or before January 1996
if Batterymarch reaches a specified annualized revenue level in
any month during calendar 1995. An additional payment, due in
early 1998 and based on Batterymarch's achievement of specified
revenue levels for calendar 1997, could increase the total
consideration up to $120 million. If the amount of any 1998
payment exceeds $40 million, the Company may pay all or any
portion of the excess in the form of shares of the Company's
common stock.
On July 26, 1995, the Company called for redemption on August 25,
1995 (the "Redemption Date"), the entire $34.5 million aggregate
principal amount outstanding of its 7% Convertible Subordinated
Debentures due June 15, 2011 (the "Debentures").
<PAGE> 9
Holders may, in lieu of having their Debentures redeemed for
cash, convert any or all of their Debentures into 45.96 shares
of Common Stock of Legg Mason for each $1 thousand principal
amount of Debentures (based on the conversion price of $21.76
per share of Common Stock), with cash to be paid in lieu of
fractional shares. All Debentures not converted into Common
Stock will be redeemed at 100.7% of the principal amount on
the Redemption Date.
<PAGE> 10
PART II. OTHER INFORMATION
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 June 30, 1995.
<PAGE> 11
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 11, 1995 /s/ John F. Curley, Jr.
John F. Curley, Jr.
Vice Chairman of the Board
DATE: August 11, 1995 /s/ F. Barry Bilson
F. Barry Bilson
Vice President - Finance
<PAGE> 12
INDEX TO EXHIBITS
PAGE
11. Statement re: computation of per share earnings. 13
27. Statement re: Financial data schedules. 14
<PAGE> 1
EXHIBIT 11
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(in thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
For The Three Months Ended June 30,
1995 1994
Fully Fully
Primary Diluted Primary Diluted
<S> <C> <C> <C> <C>
Weighted average shares
outstanding:
Common stock 12,286 12,286 12,037 12,037
Shares available under
options 534 574 346 346
Issuable upon conversion
of debentures - 4,220 - 4,220
------- ------- ------- -------
12,820 17,080 12,383 16,603
======= ======= ======= =======
Weighted average common
and common equivalent
shares outstanding 12,820 17,080 12,383 16,603
======= ======= ======= =======
Net earnings $ 7,827 $ 7,827 $ 5,003 $ 5,003
Interest expense, net,
on debentures - 712 - 738
------- ------- ------- -------
Net earnings applicable
to common stock $ 7,827 $ 8,539 $ 5,003 $ 5,741
======= ======= ======= =======
Per share $ .61 $ .50 $ .40 $ .35
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
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.
</LEGEND>
<CIK> 0000704051
<NAME> LEGG MASON INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<CASH> $131,322
<RECEIVABLES> $311,850
<SECURITIES-RESALE> $57,046
<SECURITIES-BORROWED> $175,904
<INSTRUMENTS-OWNED> $81,288
<PP&E> $27,605
<TOTAL-ASSETS> $998,742
<SHORT-TERM> $69,127
<PAYABLES> $374,093
<REPOS-SOLD> $0
<SECURITIES-LOANED> $152,529
<INSTRUMENTS-SOLD> $4,462
<LONG-TERM> $102,482
<COMMON> $1,233
$0
$0
<OTHER-SE> $232,494
<TOTAL-LIABILITY-AND-EQUITY> $998,742
<TRADING-REVENUE> $16,931
<INTEREST-DIVIDENDS> $12,140
<COMMISSIONS> $36,879
<INVESTMENT-BANKING-REVENUES> $9,154
<FEE-REVENUE> $28,781
<INTEREST-EXPENSE> $5,847
<COMPENSATION> $62,914
<INCOME-PRETAX> $13,260
<INCOME-PRE-EXTRAORDINARY> $13,260
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> $7,827
<EPS-PRIMARY> $0.61
<EPS-DILUTED> $0.50
</TABLE>
