<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, 1996
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.
18,062,831 shares of Common Stock as of the close of business on
August 1, 1996.
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LEGG MASON, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands of dollars)
<TABLE>
<CAPTION>
June 30,1996 March 31,1996
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 152,934 $ 89,378
Cash and securities segregated for
regulatory purposes 139,300 168,859
Resale agreements 98,942 108,413
Receivable from customers 450,220 398,375
Securities borrowed 235,093 196,569
Securities owned, at market value 98,127 84,219
Investment securities, at market value 75,403 83,497
Mortgage notes held for resale 66,589 -
Property and equipment,net 34,015 33,339
Intangible assets 65,674 67,370
Other 83,998 84,481
---------- ----------
$1,500,295 $1,314,500
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Payable to customers $ 580,447 $ 564,698
Payable to brokers and dealers 5,595 3,854
Securities loaned 190,250 170,829
Short-term borrowings 133,877 6,800
Securities sold, but not yet purchased,
at market value 23,551 10,693
Accrued compensation 34,747 41,168
Other 53,624 50,018
Senior notes 99,546 99,534
---------- ----------
1,121,637 947,594
---------- ----------
Subordinated liabilities 68,000 68,000
---------- ----------
Stockholders' equity:
Common stock 1,542 1,538
Additional paid-in capital 121,635 120,960
Retained earnings 187,149 176,098
Net unrealized appreciation on
investment securities 332 310
---------- ----------
310,658 298,906
---------- ----------
$1,500,295 $1,314,500
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 3
LEGG MASON, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended June 30,
1996 1995
<S> <C> <C>
Revenues:
Commissions $ 47,586 $ 37,492
Principal transactions 18,344 16,931
Investment advisory and related fees 42,483 32,487
Investment banking 14,141 9,154
Interest 17,958 12,274
Other 8,325 7,659
-------- --------
148,837 115,997
-------- --------
Expenses:
Compensation and benefits 84,447 66,460
Occupancy and equipment rental 10,125 8,856
Communications 7,131 6,992
Floor brokerage and clearing fees 1,533 1,453
Interest 9,462 5,890
Other 14,153 13,088
-------- --------
126,851 102,739
-------- --------
Earnings Before Income Taxes 21,986 13,258
Income taxes 9,086 5,432
-------- --------
Net Earnings $ 12,900 $ 7,826
======== ========
Earnings per common share:
Primary $ .80 $ .55
Fully diluted $ .71 $ .46
Average number of common shares
outstanding:
Primary 16,050 14,144
Fully diluted 18,728 18,404
Dividends declared per common share $ .12 $ .11
Book value per common share $ 20.15 $ 17.42
</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,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 12,900 $ 7,826
Noncash items included in earnings:
Depreciation and amortization 3,734 3,518
-------- --------
16,634 11,344
(Increase) decrease in assets:
Cash and securities segregated for regulatory
purposes 29,559 (27,249)
Receivable from customers (51,845) ( 4,440)
Securities borrowed (38,524) (55,502)
Securities owned (13,908) (29,398)
Mortgage notes held for resale (66,589) -
Other 483 (6,242)
Increase(decrease) in liabilities:
Payable to customers 15,749 35,259
Payable to brokers and dealers 1,741 15,338
Securities loaned 19,421 48,225
Securities sold, but not yet purchased 12,858 ( 1,900)
Accrued compensation (6,421) 7,820
Other 3,588 2,564
-------- --------
CASH USED FOR OPERATING ACTIVITIES (77,254) (4,181)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for:
Property and equipment (2,679) ( 3,326)
Intangible assets (13) (181)
Net decrease in resale agreements 9,471 6,914
Purchases of investment securities (38,589) -
Proceeds from sales of investment securities 46,720 336
-------- --------
CASH PROVIDED BY INVESTING ACTIVITIES 14,910 3,743
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term borrowings 127,077 72,257
Issuance of common stock 669 794
Dividends paid (1,846) (1,347)
-------- --------
CASH PROVIDED BY FINANCING ACTIVITIES 125,900 71,704
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 63,556 71,266
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 89,378 60,097
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $152,934 $131,363
======== ========
</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)
June 30, 1996
(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, 1996, the broker-dealer subsidiaries had
aggregate net capital, as defined, of $111,114 which exceeded
required net capital by $100,727.
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. Interim Mortgage Transaction:
On June 26, 1996, a subsidiary of the Company purchased
$66,589 of multi-family residential mortgages for resale on a pre-
committed basis to the Federal Home Loan Mortgage Corporation ("Freddie
Mac"). The mortgages were delivered to Freddie Mac and the short-
term borrowing was repaid in July 1996.
5. Supplemental Cash Flow Information:
Interest payments were $8,573 1996 and $7,148 in 1995. Income
tax payments were $3,515 in 1996 and $312 in 1995.
<PAGE> 6
6. Subsequent Event:
On July 2, 1996 the Company called for redemption on August
1, 1996 the entire $68.0 million aggregate principal amount
outstanding of its 5.25% Convertible Subordinated Debentures due
May 1, 2003 (the "Debentures"). Substantially all holders
converted their Debentures into 38.76 shares of Common Stock of
Legg Mason for each $1 thousand principal amount of Debentures
(based on the conversion price of $25.80 per share of Common Stock)
for a total issuance of 2,634,515 new common shares. Cash was paid
in lieu of fractional shares.
<PAGE> 7
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition
RESULTS OF OPERATIONS
During the three months ended June 30, 1996, the first quarter of
the Company's fiscal year, the securities markets reacted to
continued favorable market trends and a stable interest rate
environment with higher securities transaction volume, increased
underwriting activity and rising equity markets. Favorable
conditions also prevailed in the prior year's period as the
financial markets benefitted from declining interest rates and
increasing securities price levels and transaction volumes.
Quarter Ended June 30, 1996 Compared to Quarter Ended June 30, 1995
In the first fiscal quarter ended June 30, 1996, the Company's net
earnings increased 65% to $12.9 million from $7.8 million in the
prior year's quarter. Revenues rose 28% to $148.8 million from
$116.0 million. Primary earnings per share were $.80, up 45% from
$.55. Fully diluted earnings per share increased 54% to $.71 from
$.46.
Commission revenues rose 27% to $47.6 million attributable to
increased sales of non-affiliated mutual funds, variable annuities
and listed securities.
Revenues from principal transactions increased 8% to $18.3 million,
reflecting increased sales of over-the-counter securities, offset
in part by a decline in trading profits on firm proprietary
positions and in sales of corporate debt securities.
Investment advisory and related fees increased for the 25th
consecutive quarter and were 31% higher than in the corresponding
quarter of the prior year, as a result of increased assets under
management in Company-sponsored mutual funds, the Company's fixed-
income investment advisory subsidiary and fee-based brokerage
accounts. In addition, the current year's quarter includes fees
earned by Western Asset Global Management, a manager of global
fixed-income and currency investments, acquired in February 1996.
Company subsidiaries now serve as investment advisors to individual
and institutional accounts and mutual funds with assets of $36.1
billion, up from $26.2 billion at June 30, 1995.
Investment banking revenues were $14.1 million, 54% higher than in
the corresponding quarter of the prior year, reflecting an increase
in energy-related corporate finance offerings.
Other revenues rose 9% to $8.3 million because of an increase in
fees as a result of increased investor activity.
Compensation and benefits increased 27% to $84.4 million,
reflecting higher sales and profitability-based compensation and
personnel additions in new brokerage office locations.
<PAGE> 8
Occupancy and equipment rental increased 14% to $10.1 million as a
result of the acquisition of Western Asset Global, higher
transaction volume processed by the Company's data processing
service bureau and increased technology-related depreciation
expense.
Communications expense of $7.1 million rose slightly from $7.0
million in the prior year's quarter.
Floor brokerage and clearing fees rose 6%, despite a 12% increase
in transaction volume, as a result of the installation of a new
order processing system beginning in November 1995.
Other expenses increased 8% to $14.2 million, primarily
attributable to increased consulting and promotional expenses,
offset in part by lower litigation-related fees.
Interest revenue increased 46% to $18.0 million because of larger
firm investment and customer margin account balances.
Interest expense increased 61% to $9.5 million as a result of
larger customer credit balances and the issuance of $100 million in
Senior Notes in February 1996.
Income taxes rose 67% to $9.1 million because of an increase in
pre-tax earnings. The effective tax rate was 41.3% compared with
41.0% in the prior year's quarter.
Liquidity and Capital Resources
There has been no material change in the Company's financial
position since March 31, 1996. 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, senior notes, subordinated
borrowings, bank lines of credit and other payables.
During the three months ended June 30, 1996, cash and cash
equivalents increased $63.6 million. Cash flows from financing
activities generated $125.9 million, attributable to higher short-
term borrowings by the Company's mortgage banking affiliates,
primarily for the funding of multi-family residential mortgages for
pre-committed delivery to the Federal Home Loan Mortgage
Corporation ("Freddie Mac"). The mortgages were delivered to
Freddie Mac and the loan was repaid in July 1996. The Company used
$77.3 million of cash in operating activities primarily to fund the
aforementioned multi-family residential mortgages and higher
customer margin account balances. Cash flows from investing
activities provided $14.9 million, principally from investment
securities transactions including repurchase and resale agreements.
On January 5, 1995, the Company acquired the assets of Batterymarch
Financial Management ("Batterymarch"). The Company paid $54.1
million in cash at closing. 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 $120.0 million. If the amount of any 1998 payment exceeds $40.0
million, the Company may pay all or any portion of the excess in
the form of shares of the Company's common stock.
<PAGE> 9
On July 2, 1996, the Company called for redemption on August 1,
1996 the entire $68.0 million aggregate principal amount
outstanding of its 5.25% Convertible Subordinated Debentures due
May 1, 2003 (the "Debentures"). Substantially all holders
converted their Debentures into 38.76 shares of Common Stock of
Legg Mason for each $1 thousand principal amount of Debentures
(based on the conversion price of $25.80 per share of Common Stock)
for a total issuance of 2,634,515 new common shares. Cash was paid
in lieu of fractional shares.
<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, 1996.
<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 13, 1996 /s/ John F. Curley, Jr.
John F. Curley, Jr.
Vice Chairman of the Board
DATE: August 13, 1996 /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
<TABLE>
<CAPTION>
EXHIBIT 11
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share amounts)
For The Three Months Ended June 30,
1996 1995
Fully Fully
Primary Diluted Primary Diluted
<S> <C> <C> <C> <C>
Weighted average shares
outstanding:
Common stock 15,399 15,399 13,610 13,610
Shares available under
options 651 693 534 574
Issuable upon conversion
of debentures - 2,636 - 4,220
------- ------- ------- -------
Weighted average common
and common equivalent
shares outstanding 16,050 18,728 14,144 18,404
======= ======= ======= =======
Net earnings $12,900 $12,900 $ 7,826 $ 7,826
Interest expense, net,
on debentures - 428 - 712
------- ------- ------- -------
Net earnings applicable
to common stock $12,900 $13,328 $ 7,826 $ 8,538
======= ======= ======= =======
Per share $ .80 $ .71 $ .55 $ .46
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM CONDENSED
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION AND CONDENSED
CONSOLIDATED STATEMNETS OF EARNINGS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000704051
<NAME> LEGG MASON, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> $152,934,000
<RECEIVABLES> $450,220,000
<SECURITIES-RESALE> $98,942,000
<SECURITIES-BORROWED> $235,093,000
<INSTRUMENTS-OWNED> $98,127,000
<PP&E> $34,015,000
<TOTAL-ASSETS> $1,500,295,000
<SHORT-TERM> $133,877,000
<PAYABLES> $586,042,000
<REPOS-SOLD> $0
<SECURITIES-LOANED> $190,250,000
<INSTRUMENTS-SOLD> $23,551,000
<LONG-TERM> $167,546,000
$0
$0
<COMMON> $1,542,000
<OTHER-SE> $309,116,000
<TOTAL-LIABILITY-AND-EQUITY> $1,500,295,000
<TRADING-REVENUE> $18,344,000
<INTEREST-DIVIDENDS> $17,958,000
<COMMISSIONS> $47,586,000
<INVESTMENT-BANKING-REVENUES> $14,141,000
<FEE-REVENUE> $42,483,000
<INTEREST-EXPENSE> $9,462,000
<COMPENSATION> $84,447,000
<INCOME-PRETAX> $21,986,000
<INCOME-PRE-EXTRAORDINARY> $21,986,000
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> $12,900,000
<EPS-PRIMARY> $.80
<EPS-DILUTED> $.71
</TABLE>
