SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q/A
(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, 1998
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.)
100 Light Street - Baltimore, MD 21202
(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.
56,237,949 shares of common stock as of the close of business on
February 2, 1999.
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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, 1998
As Restated
(see Note 8)
March 31, 1998
(Unaudited)
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ASSETS:
Cash and cash equivalents.................. $ 264,017 $ 206,245
Cash and securities segregated for
regulatory purposes....................... 1,259,438 921,606
Resale agreements.......................... 230,884 175,623
Receivable from customers.................. 858,314 713,391
Securities borrowed........................ 169,106 448,453
Securities inventory, at market value...... 126,904 81,457
Investment securities, at market value..... 27,590 30,853
Equipment and leasehold improvements, net.. 54,201 51,991
Intangible assets, net..................... 57,508 61,304
Other...................................... 184,230 141,406
$3,232,192 $2,832,329
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Payable to customers....................... $2,111,772 $1,562,997
Payable to brokers and dealers............. 8,022 5,284
Securities loaned.......................... 172,070 453,030
Short-term borrowings...................... 55,581 13,880
Securities sold, but not yet purchased,
at market value........................... 6,646 14,132
Accrued compensation....................... 107,808 97,912
Deferred compensation trust................ 44,341 --
Other...................................... 93,264 85,371
Senior notes............................... 99,664 99,628
$2,699,168 $2,332,234
Stockholders' equity:
Common stock............................... 5,617 2,753
Additional paid-in capital................. 213,900 203,133
Employee stock trust....................... (16,773) --
Appreciation of employee stock trust, net (11,732) --
Employee stock transactions................ (5,631) --
Retained earnings.......................... 347,530 293,263
Accumulated other comprehensive income, net 113 946
533,024 500,095
$3,232,192 $2,832,329
See notes to condensed consolidated financial statements.
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LEGG MASON, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share amounts)
(Unaudited)
Three Months Nine Months
Ended December 31, Ended December 31,
1998 1997 1998 1997
As Restated As Restated
(see Note 8) (see Note 8)
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Revenues:
Investment advisory and related fees $ 95,389 $ 76,704 $279,110 $210,643
Commissions......................... 70,212 60,847 201,129 176,326
Principal transactions.............. 23,169 19,989 67,623 62,879
Investment banking.................. 20,061 33,313 57,240 73,466
Interest............................ 39,243 33,776 119,387 91,153
Other............................... 12,440 10,583 32,371 28,248
260,514 235,212 756,860 642,715
Expenses:
Compensation and benefits........... 146,967 142,231 422,252 374,948
Occupancy and equipment rental...... 16,498 14,401 47,338 40,682
Communications...................... 10,868 10,369 35,461 30,534
Floor brokerage and clearing fees... 1,652 1,346 4,914 4,031
Interest............................ 23,324 19,348 70,929 51,953
Non-cash deferred compensation ..... 7,482 -- 7,242 --
Other............................... 22,759 18,907 59,908 51,351
229,550 206,602 648,044 553,499
Earnings Before Income Taxes ........ 30,964 28,610 108,816 89,216
Income taxes........................ 12,629 11,574 44,273 36,616
Net Earnings ........................ $ 18,335 $ 17,036 $ 64,543 $ 52,600
Earnings per common share:
Basic............................... $ .34 $ .31 $ 1.19 $ .97
Diluted............................. $ .32 $ .29 $ 1.12 $ .91
Average number of common shares
outstanding:
Basic.............................. 54,477 54,596 54,188 54,269
Diluted............................ 57,499 58,402 57,568 57,747
Dividends declared per common share.. $ .065 $ .055 $ .185 $ .159
Book value per common share.......... $ 9.73 $ 8.72 $ 9.73 $ 8.72
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)
Nine Months Ended
December 31,
1998 1997
As Restated
(see Note 8)
CASH FLOWS FROM OPERATING ACTIVITIES:
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Net earnings..................................... $ 64,543 $ 52,600
Non-cash items included in earnings:
Deferred compensation ........................ 7,242 --
Depreciation and amortization................. 15,653 14,846
Adjustment for pooled entity.................. -- (1,058)
Adjustment to conform fiscal year of pooled
entity......................................... -- 920
(Increase) decrease in assets:
Cash and securities segregated for regulatory
purposes....................................... (337,832) (170,876)
Receivable from customers....................... (144,923) (229,743)
Securities borrowed............................. 279,347 (134,829)
Securities owned................................ (45,447) (38,024)
Other........................................... (35,163) 13,687
Increase (decrease) in liabilities:
Payable to customers............................ 548,775 459,191
Payable to brokers and dealers.................. 2,738 5,156
Securities loaned............................... (280,960) 107,353
Securities sold, but not yet purchased.......... (7,486) 3,663
Accrued compensation............................ 9,896 33,209
Deferred compensation trust..................... 933 --
Other........................................... 5,532 11,463
CASH PROVIDED BY OPERATING ACTIVITIES............ 82,848 127,558
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for:
Equipment and leasehold improvements........... (13,385) (23,644)
Intangible assets.............................. (566) (2,646)
Net increase in resale agreements................ (55,261) (79,168)
Purchases of investment securities............... (37,510) (135,741)
Proceeds from maturities and sales of
investment securities.......................... 41,645 134,455
CASH USED FOR INVESTING ACTIVITIES............... (65,077) (106,744)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term borrowings............ 41,701 67,519
Issuance of common stock......................... 7,984 7,897
Dividends paid................................... (9,684) (7,472)
CASH PROVIDED BY FINANCING ACTIVITIES............ 40,001 67,944
NET INCREASE IN CASH AND CASH EQUIVALENTS........ 57,772 88,758
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD. 206,245 151,188
CASH AND CASH EQUIVALENTS AT END OF PERIOD....... $264,017 $239,946
See notes to condensed consolidated financial statements.
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LEGG MASON, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, AS RESTATED
(in thousands of dollars)
December 31, 1998
(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. Comprehensive Income:
In April 1998, the Company adopted the provisions of Financial
Accounting Standards Board Statement No. 130, "Reporting Comprehensive
Income". Statement No. 130 requires reporting of comprehensive income for
all gains and losses that result from transactions not included in net
earnings. The components of comprehensive income are as follows:
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Three Months Nine Months
Ended December 31, Ended December 31,
1998 1997 1998 1997
As Restated As Restated
(see Note 8) (see Note 8)
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Net earnings........................ $18,335 $17,036 $64,543 $52,600
Other comprehensive income:
Net unrealized holding gains(losses)
arising during the period........ 413 2 (1,316) 320
Deferred income taxes............... (188) (3) 483 (129)
Total other comprehensive income. 225 (1) (833) 191
Comprehensive income................ $18,560 $17,035 $63,710 $52,791
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3. 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, 1998, the
broker-dealer subsidiaries had aggregate net capital, as defined, of
$205,995 which exceeded required net capital by $187,754.
<PAGE> 6
4. 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.
5. Employee Stock Transactions:
In December 1998, the Company granted a restricted stock award to a
key employee; the award is subject to vesting in equal installments over a
four-year period and will be expensed over the vesting period. In
addition, in December 1998 the Company granted a $3.4 million loan to a key
employee to purchase shares of the Company's common stock. Both amounts
are shown as reductions to stockholders' equity until the restricted stock
is vested and the loan is no longer outstanding.
6. Recent Accounting Developments:
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" effective for all fiscal periods beginning after June 15, 1999.
Statement No. 133 establishes standards for derivative instruments and
hedging activities. It requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial condition and
measure those instruments at fair value. The impact of adoption of
Statement No. 133 will not have a material effect on the Company's
financial statements.
In July 1998, the Emerging Issues Task Force ("EITF") reached a
consensus on EITF Issue 97-14, "Accounting for Deferred Compensation
Arrangements Where Amounts Earned Are Held in a Rabbi Trust and Invested"
("EITF 97-14"). Under EITF 97-14, assets of the trust should be
consolidated with those of the employer, and the employer's stock held in
the rabbi trust should be classified in stockholders' equity and generally
accounted for in a manner similar to treasury stock. In certain
situations, the corresponding deferred compensation liability should be
recorded as a liability at the fair market value of the shares held in the
trust and changes in the fair market value of the deferred compensation
liability after September 30, 1998 should be recognized in earnings. The
Company adopted EITF 97-14 as of September 30, 1998. The shares of the
Company's stock are shown in stockholders equity similar to treasury stock,
at cost, and the deferred compensation obligation is recorded in
liabilities at the fair market value of the shares in the trust. The
difference between the cost and fair market value through September 30,
1998 has been presented as a separate component of stockholders' equity.
In accordance with EITF 97-14,for the three and nine month periods ended
<PAGE> 7
December 31, 1998, the Company recorded a non-cash charge to earnings of
$7,482 and $7,242, respectively.
7. Common Stock Split:
On July 23, 1998 the Company declared a two-for-one stock split, paid
September 25, 1998 to shareholders of record on September 9, 1998.
Accordingly, all share and per share information has been retroactively
restated to reflect the stock split.
8. Restatement
The three and nine month financial statements have been restated
from the Company's original 10-Q Filing to reflect the provisions of EITF
97-14. At December 31, the Company stock held in the rabbi trust is presented
similarly to treasury stock in equity at a cost of $16,773 and the deferred
compensation obligation is presented at the fair market value of the Company
stock held of $44,341. Additionally, the Company recorded a non-cash charge
to earnings for changes in the fair value of the Company stock for the period
from September 30, 1998 to December 31, 1998. The following is a summary of
the impacts of applying the provisions of EITF 97-14:
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Consolidated Statement of Earnings
Three Months Nine Months
Ended December 31, 1998 Ended December 31, 1998
As Reported As Restated As Reported As Restated
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Revenues $260,514 $260,514 $756,860 $756,860
Operating Expenses 222,068 229,550 640,802 648,044
Income Taxes 15,622 12,629 47,170 44,273
Net Income 22,824 18,335 68,888 64,543
Comprehensive Income 23,049 18,560 68,055 63,710
Earnings per Common
Share:
Basic $ .41 $ .34 $ 1.24 $ 1.19
Diluted $ .39 $ .32 $ 1.17 $ 1.12
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Consolidated Statement of Financial Condition
December 31, 1998
As Reported As Restated
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Total Assets $3,220,701 $3,232,192
Total Liabilities 2,654,827 2,699,168
Total Stockholders' Equity 565,874 533,024
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<PAGE> 8
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition
RESULTS OF OPERATIONS
During its third fiscal quarter and the nine months ended December 31,
1998, Legg Mason, Inc. and its subsidiaries (the "Company") showed
increased revenues, net earnings, and earnings per share. The Company's
growth was fueled by increased assets under management and higher
transaction volume, in volatile market conditions.
The Company's profitability may vary significantly from period to period as
a result of a variety of factors, including the volume of trading in
securities, the volatility and general level of market prices, and the
demand for investment banking and mortgage banking services. Accordingly,
sustained periods of unfavorable market conditions may adversely affect
profitability.
Quarter Ended December 31, 1998 Compared to Quarter Ended December 31, 1997
In the third fiscal quarter ended December 31, 1998, the Company's net
earnings increased 8% to $18.3 million from $17.0 million in the
corresponding quarter of the prior year. Revenues rose 11% to $260.5
million from $235.2 million. Basic earnings per share increased 10% to
$.34 from $.31. Diluted earnings per share increased 10%, to $.32 from
$.29.
In accordance with Emerging Issues Task Force ("EITF") 97-14, results for
the third fiscal quarter ended December 31, 1998, include a non-cash
increase in deferred compensation expense of $7.5 million related to a
change to variable plan accounting treatment for a non-qualified deferred
compensation stock plan and related compensation arrangements. See Notes 6
and 8 of Notes to Condensed Consolidated Financial Statements.
Excluding this charge, net earnings were $22.8 million up 34% from net
earnings in the prior fiscal quarter. Basic earnings per share increased
32% to $.41 from $.31. Diluted earnings per share increased 34% to $.39
from $.29.
Revenues from investment advisory and related fees increased to a record
$95.4 million, up 24% from $76.7 million in the prior year. The increase
is primarily a result of growth in assets under management in Company-
sponsored mutual funds and fixed-income investment advisory accounts. At
December 31, 1998, Legg Mason subsidiaries served as investment advisors to
individuals, institutions and mutual funds with assets of $82 billion, up
from $55 billion at December 31, 1997. Commission revenues were $70.2
million, up 15% from $60.8 million in the prior year's quarter, reflecting
an increase in securities transaction volume. Revenues from principal
transactions were $23.2 million, up 16% from $20.0 million in the prior
year's quarter, primarily as a result of higher fixed-income revenues.
Interest revenue increased 16% to $39.2 million as a result of increased
<Page 9>
Firm investment (predominately funds segregated for regulatory purposes)
and margin loan balances, partially offset by lower interest rates.
Investment banking revenues were $20.0 million, a decline of 40% from $33.3
million in the corresponding period of last year. The decrease is
primarily attributable to a decline in revenues from public offerings,
particularly offerings of real estate investment trusts. Other revenues
were $12.4 million, an 18% increase from the prior year's quarter, as a
result of gains on Firm investment securities.
The Company's compensation and benefits totaled $147.0 million, up 3% from
$142.2 in the corresponding quarter of the prior year. This rate of
increase reflects the inclusion of approximately $6.3 million of additional
compensation expense in the third quarter of the prior year, reflecting
costs of the Company's Brandywine Asset Management subsidiary in connection
with its acquisition by the Company in January 1998. Without these
expenses, the Company's compensation expense would have increased 8% over
the prior year as a result of an increase in the number of full-time
employees and higher commission expense attributable to increased
transaction volume. Occupancy and equipment rental expense totaled $16.5
million, up 15% from $14.4 million in the prior year's quarter as a result
of increased investments in technology and higher rent at new and existing
branch office locations. Communications expense rose 5% to $10.9 million,
principally as a result of increased business activity. Interest expense
increased 21% to $23.3 million as a result of increased interest-bearing
customer account balances, which were partially offset by lower interest
rates. Floor brokerage and clearing fees increased 23% to $1.7 million,
reflecting an increase in securities transaction volume. In the third
fiscal quarter, in accordance with EITF 97-14, the Company incurred a non-
cash deferred compensation charge of $7.5 million related to a change to
variable plan accounting treatment for a non-qualified deferred compensation
stock plan and related compensation arrangements. See Notes 6 and 8 of Notes
to the Condensed Consolidated Financial Statements. Other expenses increased
20% to $22.8 million, primarily reflecting higher business volume. Income
taxes rose 9% to $12.6 million in line with the increase in pre-tax
earnings.
Nine Months Ended December 31, 1998 Compared to Nine Months Ended December
31, 1997
The Company's revenues were $756.9 million, an 18% increase from $642.7
million in the corresponding period of the prior year. Net earnings rose
23% to $64.5 million from $52.6 million. Basic earnings per share
increased 23% to $1.19 from $.97. Diluted earnings per share increased 23%
to $1.12 from $.91.
In accordance with EITF 97-14, results for the nine months ended December
31, 1998, include a non-cash increase in deferred compensation expense of
$7.2 million related to a change to variable plan accounting treatment for
a non-qualified deferred compensation stock plan and related compensation
arrangements. See Notes 6 and 8 of Notes to Condensed Consolidated
Financial Statements.
Excluding this charge, net earnings were $68.9 million, up 31% from net
earnings in the prior nine month period. Basic earnings per share increased
<PAGE> 10
28% to $1.24 from $.97. Diluted earnings per share increased 29% to $1.17
from $.91.
Revenues from investment advisory and related fees increased to $279.1
million, up 33% from $210.6 million in the corresponding period of the
prior year. The increase is primarily a result of growth in assets under
management in Company-sponsored mutual funds and fixed-income investment
advisory accounts. Commission revenues were $201.1 million, up 14% from
$176.3 million in the prior year's period, reflecting an increase in
securities transaction volume. Revenues from principal transactions were
$67.6 million, up 8% from the prior year, primarily as a result of higher
fixed-income revenues. Interest revenue increased 31% to $119.4 million as
a result of increased Firm investment (predominantly funds segregated for
regulatory purposes) and margin loan balances, partially offset by lower
interest rates. Investment banking revenues were $57.2 million, a decline
of 22% from $73.5 million. The decrease is primarily attributable to a
decline in revenues from public offerings of equity securities,
particularly offerings of real estate investment trusts. Other revenues
were $32.4 million, a 15% increase from $28.2 million due to an increase in
loan originations by the Company's mortgage banking subsidiaries and gains
on Firm investment securities.
Compensation and benefits totaled $422.3 million, up 13% from $374.9
million in the corresponding period of the prior year. This rate of
increase reflects the inclusion of approximately $6.3 million of additional
compensation expense in the third quarter of the prior year, reflecting
costs of the Company's Brandywine Asset Management subsidiary in connection
with its acquisition by the Company in January 1998. Without these
expenses, the Company's compensation expense would have increased 15% over
the prior year's period as a result of an increase in the number of full-
time employees and increased commission expense attributable to increased
transaction volume. Occupancy and equipment rental expense totaled $47.3
million, up 16% from $40.7 million as a result of the relocation of the
Company's corporate headquarters to a larger facility, increased
investments in technology and higher rent at branch office locations.
Communications expense rose 16% to $35.5 million, principally as a result
of increased business activity. Interest expense increased 37% to $70.9
million as a result of increased interest-bearing customer account
balances, which were partially offset by lower interest rates. Floor
brokerage and clearing fees increased 22% to $4.9 million, reflecting an
increase in securities transaction volume. In the nine months ended
December 31, 1998, in accordance with EITF 97-14, the Company incurred a
non-cash deferred compensation charge of $7.2 million related to a change to
variable plan accounting treatment for a non-qualified deferred
compensation stock plan and related compensation arrangements. See Notes 6
and 8 of Notes to the Condensed Consolidated Financial Statements. Other
expenses increased 17% to $59.9 million, primarily reflecting higher
business volume. Income taxes rose 21% to $44.3 million in line with the
increase in pre-tax earnings.
<PAGE> 11
Liquidity and Capital Resources
There has been no material change in the Company's financial position since
March 31, 1998. 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,
senior notes, bank lines of credit and other payables.
During the nine months ended December 31, 1998, cash and cash equivalents
increased $57.8 million. Cash flows from operating activities provided
$82.8 million, attributable to net earnings, adjusted for depreciation and
amortization. Cash flows from financing activities provided $40.0 million
as a result of increased levels of short-term borrowings by the Company's
mortgage banking affiliates. Investing activities used $65.1 million,
principally as a result of an increase in fundings of resale agreements and
purchases of equipment and leasehold improvements.
Year 2000
The Year 2000 issue affects the ability of computer systems to correctly
process dates after December 31, 1999. The Company has substantially
completed the inventory and assessment phases of its Year 2000 project plan
through an evaluation of its internal and third party software, as well as
its service providers' computer systems, to determine their ability to
accurately process in the next millennium. The Company has also assessed
the Year 2000 status of its non-information technology systems and
equipment which may contain embedded hardware or software.
Having substantially identified and assessed those computer systems,
processes and equipment that require modification, the Company is currently
in the remediation and testing phases of its project plan and is utilizing
both internal and external resources to make the necessary modifications.
The Company has completed the remediation of its key internal applications
systems. In addition to internal testing, the Company is actively
participating in systems testing among securities brokerage firms,
securities exchanges, clearing organizations, and other vendors. These
industry-wide tests will continue throughout 1999, as necessary.
In November 1997, the Company converted its securities brokerage processing
system to a vendor that is the principal service provider of this type to
the securities brokerage industry. The vendor has confirmed to the Company
that it has substantially completed the necessary coding modifications and
that its testing plan is on schedule with expected completion during the
second quarter of 1999. The Company has received similar confirmation for
its proprietary mutual funds from the vendors to the Company that are the
principal service providers to the mutual fund industry.
The Company is also continuing to communicate with its remaining vendors
and other third parties, including its landlords and utility suppliers, to
determine the likely extent to which the Company may be affected by third
parties' Year 2000 plans and target dates. The Company expects its
critical third party vendors to demonstrate or provide assurances of their
Year 2000 compliance by the end of the second quarter of 1999.
<PAGE> 12
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. While the Company does not have a current expectation of any
material loss as a result of the Year 2000 issue, there can be no assurance
that the Company's internal systems or the systems of external parties on
which the Company relies will be remediated on a timely basis, or that a
failure to remediate by another party, or a remediation or conversion that
is incompatible with the Company's systems, would not have a material
adverse effect on the Company. The Company is currently developing
contingency plans in the event that external parties fail to achieve their
Year 2000 plans and target dates and expects to finalize its contingency
plans by the end of the first quarter of 1999. There can be no assurance
that any such contingency plans will fully mitigate the effects of any such
failure.
Based on information currently available, including information provided by
third party vendors, the Company expects its aggregate expenditures for its
Year 2000 project plan to be approximately $2.0 million, of which an
estimated $.9 million has been incurred as of December 31, 1998. A
significant portion of these costs will not be incremental costs to the
Company, but rather will represent the redeployment of existing information
technology and operations resources, primarily to test the remediation
efforts of the Company's third party vendors. The Company expects to fund
all Year 2000 related costs through operating cash flows and a reallocation
of the Company's overall information technology developmental spending. In
accordance with generally accepted accounting principles, Year 2000
expenditures will be expensed as incurred. The costs of the Company's Year
2000 project and the date on which the Company plans to complete the Year
2000 modifications are based on management's best current estimates, which
were derived utilizing numerous assumptions of future events, including the
continued availability of certain resources, third party compliance plans
and other factors. However, there can be no assurance that these estimates
will prove correct and actual results could differ materially from those
plans.
Forward-Looking Statements
The Company has made in this report, and from time to time may otherwise
make in its public filings, press releases and statements by Company
management, "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 concerning the Company's
operations, economic performance and financial condition. The words or
phrases "can be", "expects", "may affect", "may depend", "believes",
"estimate", "project" and similar words and phrases are intended to identify
such forward-looking statements. Such forward-looking statements are
subject to various known and unknown risks and uncertainties and the
Company cautions readers that any forward-looking information provided by
or on behalf of the Company is not a guarantee of future performance.
Actual results could differ materially from those anticipated in such
forward-looking statements due to a number of factors, some of which are
beyond the Company's control, in addition to those discussed elsewhere
herein and in the Company's other public filings, press releases and
statements by Company management, including (i) the volatile and
<PAGE> 13
competitive nature of the securities business, (ii) changes in domestic and
foreign economic and market conditions, (iii) the effect of federal, state
and foreign regulation on the Company's business, (iv) market, credit and
liquidity risks associated with the Company's underwriting, securities
trading, market-making and investment management activities, (v) failure of
the Company, its vendors or other third parties to achieve Year 2000
compliance or Euro conversion, (vi) impairment of acquired client
contracts, (vii) potential restrictions on the business of, and withdrawal
of capital from, certain subsidiaries of the Company due to net capital
requirements, (viii) potential liability under federal and state securities
laws and (ix) the effect of any future acquisitions. Due to such risks,
uncertainties and other factors, the Company cautions each person receiving
such forward-looking information not to place undue reliance on such
statements. All such forward-looking statements are current only as of the
date on which such statements were made. The Company does not undertake
any obligation to publicly update any forward-looking statement to reflect
events or circumstances after the date on which any such statement is made
or to reflect the occurrence of unanticipated events.
<PAGE> 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In November 1998, the United States District Court for
the Southern District of New York approved a settlement in the
litigation captioned In re: Nasdaq Market-Makers Antitrust
Litigation in which Legg Mason Wood Walker, Incorporated, the
Company's principal broker-dealer subsidiary ("Legg Mason Wood
Walker"), together with other defendants in the litigation have
agreed to pay an aggregate $1.027 billion to the plaintiffs in
such litigation. Legg Mason Wood Walker's share of the total
settlement amount was approximately $2.8 million.
In January 1999, the Securities and Exchange Commission
("SEC") issued an order accepting Legg Mason Wood Walker's offer
of settlement to certain related public administrative
proceedings, which imposed sanctions on Legg Mason Wood Walker,
including a $425,000 civil penalty, in connection with Legg Mason
Wood Walker's activities as a market-maker in certain securities
quoted on The Nasdaq Stock Market.
These two settlements terminated Legg Mason Wood
Walker's involvement in and liability for the In re: Nasdaq
Market-Makers Antitrust Litigation and related SEC investigation.
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)
<PAGE> 15
10.1 Executive Stock Purchase and Loan
Agreement between Legg Mason,
Inc. and an Executive Officer of
Legg Mason, Inc., dated as of
December 8, 1998 (incorporated by reference
to Form 10-Q for the quarter ended September
30, 1998)
10.2 Restricted Stock Agreement
between Legg Mason, Inc. and an
Executive Officer of Legg Mason,
Inc., dated as of December 8,1998
(incorporated by reference to Form 10-Q for the
quarter ended September 30, 1998)
10.3 Promissory Note of Executive
Officer of Legg Mason, Inc.,
dated as of December 8, 1998 (incorporated
by reference to Form 10-Q for the quarter
ended September 30, 1998)
10.4 Pledge Agreement by and between
Legg Mason, Inc. and an Executive
Officer of Legg Mason, Inc.,
dated as of December 8, 1998 (incorporated
by reference to Form 10-Q for the quarter
ended September 30, 1998)
11. Statement re: computation of
earnings per share
27. Statement re: financial data
schedule
(b) No reports on Form 8-K were filed
during the quarter ended December 31,
1998
<PAGE> 16
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: 6/4/99 /s/Timothy C. Scheve
Timothy C. Scheve
Executive Vice President
DATE: 6/4/99 /s/Charles J. Daley, Jr.
Charles J. Daley, Jr.
Principal Accounting Officer
<PAGE> 17
INDEX TO 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)
10.1 Executive Stock Purchase and Loan
Agreement between Legg Mason,
Inc. and an Executive Officer of
Legg Mason, Inc., dated as of
December 8, 1998 (incorporated by reference
to Form 10-Q for the quarter ended
September 30, 1998)
10.2 Restricted Stock Agreement
between Legg Mason, Inc. and an
Executive Officer of Legg Mason,
Inc., dated as of December 8, 1998
(incorporated by reference to Form
10-Q for the quarter ended September 30, 1998)
10.3 Promissory Note of Executive
Officer of Legg Mason, Inc.,
dated as of December 8, 1998 (incorporated
by reference to Form 10-Q for the quarter
ended September 30, 1998)
10.4 Pledge Agreement by and between
Legg Mason, Inc. and an Executive
Officer of Legg Mason, Inc.,
dated as of December 8, 1998 (incorporated
by reference to Form 10-Q for the quarter
ended September 30, 1998)
11. Statement re: computation of
earnings per share
27. Statement re: financial data
schedule
EXHIBIT 11
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share amounts)
For the Three Months Ended December 31,
1998 1997
Basic Diluted Basic Diluted
Weighted average shares
Outstanding:
Common stock 54,477 54,477 54,596 54,596
Shares available under
Options - 2,975 - 3,759
Issuable upon conversion
Of debentures - 47 - 47
Weighted average common
and common equivalent
Shares outstanding 54,477 57,499 54,596 58,402
Net earnings $18,335 $18,335 $17,036 $17,036
Interest expense, net,
on debentures - 4 - 4
Net earnings applicable
to common stock $18,335 $18,339 $17,036 $17,040
Per share $ .34 $ .32 $ .31 $ .29
On July 23, 1998 the Company declared a two-for-one stock split, paid
September 25, 1998 to shareholders of record on September 9, 1998.
Accordingly, all share and per share information has been retroactively
restated to reflect the stock split.
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share amounts)
For the Nine Months Ended December 31,
1998 1997
Basic Diluted Basic Diluted
Weighted average shares
outstanding:
Common stock 54,188 54,188 54,269 54,269
Shares available under
Options - 3,333 - 3,431
Issuable upon conversion
of debentures - 47 - 47
Weighted average common
and common equivalent
shares outstanding 54,188 57,568 54,269 57,747
Net earnings $64,543 $64,543 $52,600 $52,600
Interest expense, net,
on debentures - 13 - 13
Net earnings applicable
to common stock $64,543 $64,556 $52,600 $52,613
Per share $ 1.19 $ 1.12 $ .97 $ .91
On July 23, 1998 the Company declared a two-for-one stock split, paid
September 25, 1998 to shareholders of record on September 9, 1998.
Accordingly, all share and per share information has been retroactively
restated to reflect the stock split.
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