SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 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 issuers classes
of common stock, as of the latest practicable date.
55,810,190 shares of common stock as of the close of business
on November 6, 1998
<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)
September 30, March 31,
1998 1998
As Restated
(see Note 8)
<S> (Unaudited)
ASSETS: <C> <C>
Cash and cash equivalents.................. $ 238,991 $ 206,245
Cash and securities segregated for
regulatory purposes....................... 949,620 921,606
Resale agreements.......................... 217,487 175,623
Receivable from customers.................. 855,906 713,391
Securities borrowed........................ 274,164 448,453
Securities owned, at market value.......... 102,405 81,457
Investment securities, at market value..... 30,228 30,853
Equipment and leasehold improvements, net.. 53,482 51,991
Intangible assets, net..................... 58,822 61,304
Other...................................... 160,369 141,406
$2,941,474 $2,832,329
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Payable to customers....................... $1,731,642 $1,562,997
Payable to brokers and dealers............. 8,152 5,284
Securities loaned.......................... 289,449 453,030
Short-term borrowings...................... 90,322 13,880
Securities sold, but not yet purchased,
at market value........................... 8,415 14,132
Accrued compensation....................... 82,944 97,912
Deferred compensation trust................ 35,107 -
Other...................................... 78,981 85,371
Senior notes............................... 99,652 99,628
$2,424,664 $2,332,234
Stockholders' Equity:
Common stock............................... 5,566 2,753
Additional paid-in capital................. 205,389 203,133
Employee stock trust....................... (15,113) -
Appreciation of employee stock trust, net.. (11,732) -
Retained earnings.......................... 332,812 293,263
Accumulated other comprehensive income, net (112) 946
516,810 500,095
$2,941,474 $2,832,329
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
LEGG MASON, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share amounts)
(Unaudited)
Three Months Six Months
Ended September 30, Ended September 30,
1998 1997 1998 1997.
As Restated As Restated
(see Note 8) (see Note 8)
<S> <C> <C> <C> <C>
Revenues:
Commissions.........................$ 65,956 $ 63,870 $130,917 $115,479
Principal transactions.............. 22,044 20,840 44,454 42,890
Investment advisory and related fees 93,318 71,222 183,721 133,939
Investment banking.................. 16,244 25,232 37,179 40,153
Interest............................ 39,959 30,546 80,144 57,377
Other............................... 10,082 9,213 19,931 17,665
247,603 220,923 496,346 407,503
Expenses:
Compensation and benefits........... 138,136 126,655 275,285 232,717
Occupancy and equipment rental...... 15,004 14,204 30,840 26,281
Communications...................... 12,589 10,682 24,593 20,165
Floor brokerage and clearing fees... 1,758 1,500 3,262 2,685
Interest............................ 23,377 17,929 47,605 32,605
Non-cash deferred compensation...... (240) -- (240) --
Other............................... 20,066 17,089 37,149 32,444
210,690 188,059 418,494 346,897
Earnings Before Income Taxes ......... 36,913 32,864 77,852 60,606
Income taxes........................ 15,069 13,559 31,644 25,042
Net Earnings ........................ $ 21,844 $ 19,305 $ 46,208 $ 35,564
Earnings per common share:
Basic...............................$ .39 $ .36 $ .84 $ .66
Diluted.............................$ .37 $ .33 $ .78 $ .62
Average number of common shares
outstanding:
Basic............................... 55,438 54,238 55,287 54,105
Diluted............................. 58,861 57,901 58,876 57,528
Dividends declared per common share...$ .065 $ .055 $ .12 $ .104
Book value per common share...........$ 9.51 $ 8.46 $ 9.51 $ 8.46
</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)
Six Months
Ended September 30,
As Restated
(see Note 8)
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings..................................... $ 46,208 $ 35,564
Non-cash items included in earnings:
Deferred compensation......................... (240) -
Depreciation and amortization................. 10,288 9,442
Adjustment for pooled entity.................. - 704
Adjustment to conform fiscal year of pooled
entity........................................ - 920
(Increase) decrease in assets:
Cash and securities segregated for regulatory
purposes...................................... (28,014) (73,096)
Receivable from customers....................... (142,515) (169,866)
Securities borrowed............................. 174,289 (156,831)
Securities owned................................ (20,948) (30,019)
Other........................................... (11,302) (39,316)
Increase (decrease) in liabilities:
Payable to customers............................ 168,645 261,510
Payable to brokers and dealers.................. 2,868 477
Securities loaned............................... (163,581) 103,772
Securities sold, but not yet purchased.......... (5,717) 24,702
Accrued compensation............................ (14,968) 10,725
Deferred compensation trust..................... 841 -
Other........................................... (6,024) 4,584
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES. 9,830 (16,728)
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for:
Equipment and leasehold improvements........... (8,795) (14,016)
Intangible assets.............................. (418) (2,600)
Net decrease(increase) in resale agreements...... (41,864) 60,147
Purchases of investment securities............... (24,111) (97,568)
Proceeds from maturities and sales of
investment securities.......................... 22,673 71,121
CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES. (52,515) 17,084
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term borrowings............ 76,442 79,668
Issuance of common stock......................... 5,051 4,819
Dividends paid................................... (6,062) (4,758)
CASH PROVIDED BY FINANCING ACTIVITIES............ 75,431 79,729
NET INCREASE IN CASH AND CASH EQUIVALENTS........ 32,746 80,085
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD. 206,245 151,188
CASH AND CASH EQUIVALENTS AT END OF PERIOD....... $238,991 $231,273
See notes to condensed consolidated financial statements
</TABLE>
<PAGE> 5
LEGG MASON, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of dollars)
September 30, 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:
<TABLE>
<CAPTION>
Three Months Six Months
Ended September 30, Ended September 30
As Restated As Restated
(see Note 8) (see Note 8)
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net earnings........................ $21,844 $19,305 $46,208 $35,564
Other comprehensive income:
Net unrealized holding gains(losses)
arising during the period........ (905) 179 (1,729) 318
Deferred income taxes............... 349 (71) 671 (126)
Total other comprehensive income. (556) 108 (1,058) 192
Comprehensive income................ $21,288 $19,413 $45,150 $35,756
</TABLE>
<PAGE> 6
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 September 30, 1998, the broker-dealer subsidiaries had
aggregate net capital, as defined, of $202,541 which exceeded required
net capital by $185,366.
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. Supplemental Cash Flow Information:
Interest payments for the six months ended September 30, 1998 and
1997 were $47,418 and $32,305, respectively. Income tax payments for
the six months ended September 30, 1998 and 1997 were $43,268 and
$25,893, respectively.
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 employer's
stock held in the rabbi trust should be classified in shareholders'
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
<PAGE> 7
accordance with EITF 97-14, for the three and six month periods ended
September 30, 1998, the Company recorded non-cash income of $240.
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, except for the
number of shares presented in "Item 4, Submission of Matters to a Vote
of Security Holders."
8. Restatement
The three and six month financial statements have been restated from
the Company's original 10-Q filing to reflect the provisions of EITF 97-14.
At September 30, 1998 the Company stock held in the rabbi trust is
presented similarly to treasury stock in equity at a cost of $15,113
and the deferred compensation obligation is presented at the fair
market value of the Company stock held in the trust of $35,107. The
following is a summary of the impacts of applying the provisions of
EITF 97-14:
<TABLE>
<CAPTION>
Consolidated Statement of Earnings
Three Months Six Months
Ended September 30, 1998 Ended September 30, 1998
As Reported As Restated As Reported As Restated
<S> <C> <C> <C> <C>
Revenues $247,603 $247,603 $496,346 $496,346
Operating Expenses 210,930 210,690 418,734 418,494
Income Taxes 14,973 15,069 31,548 31,644
Net Income 21,700 21,844 46,064 46,208
Earnings per Common
Share:
Basic $ .39 $ .39 $ .83 $ .84
Diluted $ .37 $ .37 $ .78 $ .78
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statement of Financial Condition
September 30, 1998
As Reported As Restated
<S> <C> <C>
Total Assets $2,933,068 $2,941,474
Total Liabilities 2,389,557 2,424,664
Total Stockholder's
Equity 543,511 516,810
</TABLE>
<PAGE> 8
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition
RESULTS OF OPERATIONS
During its second fiscal quarter and the six months ended September
30, 1998, Legg Mason, Inc. and its subsidiaries (the "Company") showed
continued growth from the corresponding periods of a year ago.
Despite volatile market conditions, the Company recorded increased
revenue and net earnings as a result of growth in fee-based revenues
and higher net interest profit, partially offset by a sharp decline in
investment banking revenues.
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 September 30, 1998 Compared to Quarter Ended September
30, 1997
In the second fiscal quarter ended September 30, 1998, the Company's
net earnings increased 13% to $21.8 million from $19.3 million in the
prior year's quarter. Revenues rose 12% to $247.6 million from $220.9
million in the corresponding quarter of the prior year. Basic
earnings per share increased by 8% to $.39 from $.36. Diluted
earnings per share increased by 12% to $.37 from $.33.
In accordance with Emerging Issues Task Force ("EITF")97-14, results
for the second fiscal quarter ended September 30, 1998, include a non-
cash decrease in deferred compensation expense of $.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 adjustment, net earnings were $21.7 million up 12% from
net earnings in the prior fiscal quarter. Basic earnings per share
increased 8% to $.39 from $.36. Diluted earnings per share increased
12% to $.37 from $.33.
Commission revenues were $66.0 million, up 3% from $63.9 million in
the prior year's quarter as a result of a higher volume of listed
securities transactions, partially offset by a decline in the volume
of over-the-counter securities transactions. Commission revenues from
non-affiliated mutual funds also increased, primarily attributable to
higher levels of 12b-1 commissions.
Revenues from principal transactions were $22.0 million, up 6% from
$20.8 million in the prior year's quarter as a result of improved
trading results on energy-related equity positions and increased sales
<PAGE> 9
of fixed-income securities, offset in part by a decline in sales of
over-the-counter securities.
Revenues from investment advisory and related fees grew for the 34th
consecutive quarter, to a record $93.3 million, up 31% from $71.2
million a year ago, as a result of growth in assets under management
in Company-sponsored mutual funds, fixed-income investment advisory
and fee-based brokerage accounts. At September 30, 1998, Legg Mason
subsidiaries served as investment advisors to individuals,
institutions and mutual funds with assets of $74.8 billion, up from
$51.7 billion at September 30, 1997.
Investment banking revenues were $16.2 million, down 36% from $25.2
million in the prior year's quarter, attributable to a decline in
public offerings of equity securities, specifically real estate
investment trusts.
Other revenues increased 9% to $10.1 million because of an increase in
loan originations by the Company's mortgage banking subsidiaries,
offset in part by unrealized losses on firm investment securities.
Compensation and benefits was $138.1 million, up 9% from $126.7
million in the corresponding quarter a year ago, reflecting an
increase in the number of full-time employees in product and support
areas and in branch office locations.
Occupancy and equipment rental was $15.0 million, up 6% from $14.2
million in the prior year's quarter as a result of the relocation of
the Company's corporate headquarters to a larger facility, increased
investments in technology and higher rent at new and existing branch
office locations.
Communications expense rose 18% to $12.6 million as a result of higher
business volume which gave rise to increased costs for printing
expense, office supplies and telephone expense.
Floor brokerage and clearing fees increased 17% to $1.8 million,
reflecting an increase in securities transaction volume.
In the second fiscal quarter, in accordance with EITF 97-14, the
Company incurred non-cash compensation income of $.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 $20.1 million, primarily as a result
of higher promotional expenses.
Interest revenue increased 31% to $40.0 million because of larger firm
investment (predominantly funds segregated for regulatory purposes)
and customer margin account balances.
<PAGE> 10
Interest expense increased 30% to $23.4 million as a result of larger
interest-bearing customer credit balances.
Income taxes rose 11% to $15.1 million because of an increase in pre-
tax earnings. The effective tax rate decreased to 40.8% from 41.3% as
a result of a decline in non-deductible foreign operating losses.
Six Months Ended September 30, 1998 Compared to Six Months Ended
September 30, 1997
The Company's revenues were $496.3 million, a 22% increase from
revenues of $407.5 million in the corresponding period of the prior
year. Net earnings rose 30% to $46.2 million from $35.6 million in
the prior year's period. Basic earnings per share increased by 27% to
$.84 from $.66. Diluted earnings per share increased 26% to $.78 from
$.62.
In accordance with EITF 97-14, results for the six months ended
September 30, 1998, include a non-cash decrease in deferred
compensation expense of $.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 $46.1 million up 30% from net
earnings in the prior six month period. Basic earnings per share
increased 26% to $.83 from $.66. Diluted earnings per share increased
26% to $.78 from $.62.
Commission revenues were $130.9 million, up 13% from $115.5 million in
the prior year's period, reflecting an increased volume of
transactions in listed and over-the-counter securities and higher
sales of non-affiliated mutual funds.
Revenues from principal transactions were $44.5 million, up 4% from
$42.9 million in the prior year's period as a result of improved
trading results on energy-related equity positions and increased sales
of fixed-income securities, offset in part by a decline in volume from
over-the-counter principal transactions.
Investment advisory and related fees increased 37% to $183.7 million,
principally as a result of growth in assets under management in
Company-sponsored mutual funds, fixed-income investment advisory and
fee-based brokerage accounts.
Investment banking revenues declined 7% to $37.2 million, attributable
to a decline in corporate finance activities, particularly public
offerings of real estate investment trusts, offset in part by
increased revenues from managed municipal bond offerings.
Other revenues increased 13% to $19.9 million because of an increase
in loan originations by the Company's mortgage banking subsidiaries,
offset in part by unrealized losses on firm investment securities.
<PAGE> 11
Compensation and benefits rose 18% to $275.3 million reflecting an
increase in the number of full-time employees in product and support
areas and in branch office locations.
Occupancy and equipment rental increased 17% to $30.8 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 new and existing branch office locations.
Communications expense rose 22% to $24.6 million as a result of higher
business volume which gave rise to increased costs for printing
expense, postage, office supplies and telephone expense.
Floor brokerage and clearing fees increased 21% to $3.3 million,
reflecting an increase in securities transaction volume.
In the six months ended September 30, 1998, in accordance with EITF
97-14, the Company incurred non-cash compensation income of $.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 15% to $37.1 million, primarily as a result
of higher promotional expenses.
Interest revenue increased 40% to $80.1 million because of larger firm
investment (predominantly funds segregated for regulatory purposes)
and customer margin account balances.
Interest expense increased 46% to $47.6 million as a result of larger
interest-bearing customer credit balances.
Income taxes rose 26% to $31.6 million because of an increase in pre-
tax earnings. The effective tax rate decreased to 40.6% from 41.3% as
a result of decreases in non-deductible foreign operating losses
combined with a decline in the effective state tax rate.
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 six months ended September 30, 1998, cash and cash
equivalents increased $32.7 million. Cash flows from financing
activities provided $75.4 million as a result of increased levels of
short-term borrowings by the Company's mortgage banking affiliates.
Investing activities used $52.5 million, principally as a result of an
increase in fundings of resale agreements and purchases of equipment
and leasehold improvements. Cash flows from operating activities
<PAGE> 12
provided $9.8 million, attributable to net earnings, adjusted for
depreciation and amortization, and increased net customer payables,
offset in part by higher levels of segregated cash and proprietary
securities inventories and a decline in operating liabilities.
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 expects to
complete the remediation of its key internal systems by the end of the
first quarter of 1999. 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.
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
<PAGE> 13
Company has not yet developed contingency plans in the event that
external parties fail to achieve their Year 2000 plans and target
dates but plans to do so 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 $.7 million has been incurred as of
September 30, 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.
In addition to the Company's Year 2000 project, modifications to
certain of the Company's computer systems and programs are also being
made in preparation for the adoption of the "Euro" as the legal
currency of participating member states of the European Union. The
Euro conversion will primarily impact the Company's asset management
business, but is not anticipated to have a material adverse effect on
the business, operations or financial condition of the Company.
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
<PAGE> 14
Company management, including (i) the volatile and 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 15>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
Share information in this item has not been restated to reflect
the two-for-one stock split paid September 25, 1998 to shareholders of
record on September 9, 1998.
Registrant's annual meeting of stockholders was held July 23,
1998. In the election of directors, the four director nominees were
elected with the following votes:
<TABLE>
<CAPTION>
Votes
Cast For Withhold
<S> <C> <C> <C>
Edmund J. Cashman, Jr. 23,555,692 23,555,692 471,088
William Wirth 23,564,601 23,564,601 462,179
Harold L. Adams 23,548,137 23,548,137 478,643
W. Curtis Livingston 23,564,182 23,564,182 462,598
</TABLE>
The stockholders voted in favor of the approval of the amendment
of the Legg Mason, Inc. 1988 Stock Option Plan For Non-Employee
Directors and the ratification of the appointment of
PricewaterhouseCoopers LLP as independent auditors of the Registrant
as follows:
<TABLE>
<CAPTION>
Votes
Cast For Against Abstain Non-Vote
<S> <C> <C> <C> <C> <C>
Approval of
Amendment of Legg
Mason, Inc. 1988
Stock Option Plan
For Non-Employee
Directors 23,275,538 22,306,350 969,188 751,242 ---
Ratification of
appointment of
auditors 24,012,565 24,000,336 12,229 14,215 ---
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)
<PAGE> 16
3.2 By-laws of the Company as
amended and restated April 25, 1988
(incorporated by reference to the
Company's Annual Report on Form 10-
K for the year ended March 31,
1988)
11. Statement re: computation of
earnings per share
27. Statement re: financial data
schedule
(b) No reports on Form 8-K were filed
during the quarter ended September
30, 1998.
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> 18
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)
11. Statement re: computation of
earnings per share
27. Statement re: financial data
schedule
</TABLE>
