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 September 30, 2000
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.
61,878,641 shares of common stock and 3,152,081 exchangeable shares as of
the close of business on November 6, 2000. The exchangeable shares, which
were issued by Legg Mason Canada Holdings in connection with the
acquisition of Perigee Inc., are exchangeable at any time into common stock
on a one-for-one basis and entitle holders to dividend, voting and other
rights equivalent to common stock.
<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, 2000 March 31, 2000
(Unaudited)
ASSETS:
<S> <C> <C>
Cash and cash equivalents...................$ 276,118 $ 213,203
Cash and securities segregated for
regulatory purposes........................ 1,114,582 1,419,021
Securities purchased under agreements
to resell.................................. 265,414 170,643
Receivables:
Customers.................................. 1,425,408 1,386,676
Brokers,dealers and clearing organizations. 189,897 163,263
Others..................................... 108,804 109,846
Securities borrowed......................... 372,795 671,252
Financial instruments owned, at fair value.. 121,875 102,907
Investment securities, at fair value........ 16,016 17,765
Investments of finance subsidiaries......... 214,670 241,639
Equipment and leasehold improvements, net... 63,094 61,243
Intangible assets, net...................... 145,377 145,142
Other....................................... 131,972 109,507
$4,446,022 $4,812,107
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Payables:
Customers.................................$2,435,988 $2,633,542
Brokers and dealers....................... 65,369 15,245
Securities loaned.......................... 375,119 688,331
Short-term borrowings...................... 93,814 23,290
Financial instruments sold, but not yet
purchased, at fair value.................. 52,816 27,713
Accrued compensation....................... 126,811 147,188
Other...................................... 128,276 166,999
Notes payable of finance subsidiaries...... 213,030 239,268
Senior notes............................... 99,746 99,723
3,590,969 4,041,299
Stockholders' Equity:
Common stock............................... 6,164 5,860
Shares exchangeable into common stock...... 12,442 19,527
Additional paid-in capital................. 305,519 271,687
Deferred compensation and employee note
receivable................................ (26,897) (19,003)
Employee stock trust....................... (65,073) (50,699)
Deferred compensation employee stock trust. 65,073 50,699
Retained earnings.......................... 557,762 493,696
Accumulated other comprehensive income,net. 63 (959)
855,053 770,808
$4,446,022 $4,812,107
</TABLE>
See notes to condensed consolidated financial statements.
<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,
2000 1999 2000 1999
Revenues:
<S> <C> <C> <C> <C>
Investment advisory and related fees. $164,638 $133,553 $322,096 $263,359
Commissions.......................... 89,209 73,243 180,845 155,695
Principal transactions............... 27,742 27,976 61,233 56,446
Investment banking................... 10,104 13,459 32,499 35,555
Interest............................. 73,085 49,511 143,774 96,237
Other................................ 10,991 11,083 22,139 22,952
Total revenues...................... 375,769 308,825 762,586 630,244
Interest expense..................... 45,865 28,888 89,552 56,569
Net revenues........................ 329,904 279,937 673,034 573,675
Non-Interest Expenses:
Compensation and benefits........... 197,736 172,021 397,645 349,721
Occupancy and equipment rental...... 23,379 18,556 45,499 37,727
Communications...................... 14,297 13,462 29,170 26,133
Floor brokerage and clearing fees... 1,974 1,900 4,096 3,901
Other............................... 29,722 22,961 64,857 46,175
Total non-interest expenses........ 267,108 228,900 541,267 463,657
Earnings Before Income Tax Provision. 62,796 51,037 131,767 110,018
Income tax provision................ 25,590 20,732 54,177 45,043
Net Earnings......................... $ 37,206 $ 30,305 $ 77,590 $ 64,975
Earnings per common share:
Basic............................... $ 0.58 $ 0.49 $ 1.22 $ 1.06
Diluted............................. $ 0.55 $ 0.46 $ 1.15 $ 0.98
Weighted average number of common
shares outstanding:
Basic............................... 63,724 61,969 63,465 61,284
Diluted............................. 68,187 65,630 67,730 65,419
Dividends declared per common share.. $ 0.09 $ 0.08 $ 0.17 $ 0.145
Book value per common share.......... $ 13.17 $ 10.78
</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,
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings........................................ $ 77,590 $ 64,975
Non-cash items included in earnings:
Depreciation and amortization..................... 17,325 12,473
Deferred compensation............................. 2,269 3,345
Adjustment to conform fiscal year of pooled entity. (74) -
(Increase) decrease in assets excluding
acquisitions:
Cash and securities segregated for regulatory
purposes.......................................... 304,439 224,329
Receivable from customers.......................... (38,731)(164,618)
Other receivables.................................. (26,668) 10,330
Securities borrowed................................ 298,457 (92,854)
Financial instruments owned........................ (18,967) 17,316
Other.............................................. (26,290) 2,593
Increase (decrease) in liabilities excluding
acquisitions:
Payable to customers............................... (197,554) 47,411
Payable to brokers and dealers..................... 50,124 1,717
Securities loaned.................................. (313,212) 76,037
Financial instruments sold, but not yet purchased.. 25,104 16,648
Accrued compensation............................... (20,275) (6,854)
Other.............................................. (33,952) (14,704)
CASH PROVIDED BY OPERATING ACTIVITIES................ 99,585 198,144
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for:
Equipment and leasehold improvements.............. (13,181) (11,460)
Intangible assets................................. (1,843) (235)
Acquisitions, net of cash acquired................ - (27,875)
Net increase in securities purchased
under agreements to resell......................... (94,771)(101,238)
Purchases of investment securities.................. (5,634) (1,687)
Proceeds from sales and maturities of investment
securities........................................ 22,333 5,638
CASH USED FOR INVESTING ACTIVITIES................... (93,096)(136,857)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term borrowings............... 70,524 63,056
Repayment of notes payable of finance subsidiaries.. (13,827) -
Issuance of common stock............................ 13,500 9,533
Dividends paid...................................... (13,079) (11,303)
CASH PROVIDED BY FINANCING ACTIVITIES................ 57,118 61,286
EFFECT OF EXCHANGE RATE CHANGES ON CASH.............. (692) 155
NET INCREASE IN CASH AND CASH EQUIVALENTS............ 62,915 122,728
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..... 213,203 212,725
CASH AND CASH EQUIVALENTS AT END OF PERIOD........... $276,118 $335,453
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 5
<TABLE>
<CAPTION>
LEGG MASON, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands of dollars)
(Unaudited)
Three months ended Six months ended
September 30, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net earnings.......................... $37,206 $30,305 $77,590 $64,975
Other comprehensive income:
Foreign currency translation
adjustments......................... 674 473 (211) 771
Net unrealized holding gains (losses)
arising during the period........... 657 (295) 1,603 775
Deferred income taxes................ (131) 119 (370) (256)
Total other comprehensive income.... 1,200 297 1,022 1,290
Comprehensive income.................. $38,406 $30,602 $78,612 $66,265
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 6
LEGG MASON, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
September 30, 2000
(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 generally accepted
accounting principles for interim financial information. 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.
The information contained in the interim financial statements
should be read in conjunction with the Company's latest Annual Report
on Form 10-K filed with the Securities and Exchange Commission. The
financial statements have been restated for the acquisition on a
pooling of interests basis of Perigee Inc. ("Perigee") on May 26,
2000. Where appropriate, prior years' financial statements have been
reclassified to conform with the current year's presentation. Unless
otherwise noted, all per share amounts include both common shares of
the Company and shares issued in connection with the Perigee
acquisition which are exchangeable into common shares of the Company
on a one for one basis at any time.
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 September 30, 2000, the broker-dealer subsidiaries had
aggregate net capital, as defined, of $262,835 which exceeded required
net capital by $233,000.
<PAGE> 7
3. Earnings Per Share
The following tables present the computations of basic and
diluted earnings per share for the three and six months ended
September 30, 2000 and 1999.
<TABLE>
<CAPTION>
Three months ended September 30,
2000 1999
Basic Diluted Basic Diluted
<S> <C> <C> <C> <C>
Weighted average shares
outstanding:
Common stock 63,724 63,724 61,969 61,969
Shares available under
options - 3,897 - 3,582
Shares related to
deferred compensation - 566 - 32
Issuable upon conversion
of debentures - - - 47
Weighted average common
and common equivalent
shares outstanding 63,724 68,187 61,969 65,630
Net earnings $37,206 $37,206 $30,305 $30,305
Interest expense, net,
on debentures - - - 5
Net earnings applicable $37,206 $37,206 $30,305 $30,310
to common stock
Per share $ 0.58 $ 0.55 $ 0.49 $ 0.46
</TABLE>
<PAGE> 8
<TABLE>
<CAPTION>
Six months ended September 30,
2000 1999
Basic Diluted Basic Diluted
<S> <C> <C> <C> <C>
Weighted average shares
outstanding:
Common stock 63,465 63,465 61,284 61,284
Shares available under
options - 3,737 - 3,544
Shares related to
deferred compensation - 528 - 544
Issuable upon conversion
of debentures - - - 47
Weighted average common
and common equivalent
shares outstanding 63,465 67,730 61,284 65,419
Net earnings $77,590 $77,590 $64,975 $64,975
Adjustment related to
deferred compensation - - - (638)
Interest expense, net,
on debentures - - - 9
Net earnings applicable
to common stock $77,590 $77,590 $64,975 $64,346
Per share $ 1.22 $ 1.15 $ 1.06 $ 0.98
</TABLE>
4. Legal Proceedings:
The Company has been named as a defendant 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, and has been involved in certain governmental and self
regulatory agency investigations and proceedings. 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. However, if during
any period a potential adverse contingency should become probable, the
results of operations in that period could be materially affected.
5. Acquisitions
On May 26, 2000, the Company completed the acquisition of Perigee,
one of Canada's leading institutional investment managers. Under the
terms of the agreement, each outstanding share of Perigee was exchanged
for 0.387 of an exchangeable share of Legg Mason Canada Holdings, a
subsidiary of the Company. Holders of exchangeable shares have
<PAGE> 9
dividend, voting, and other rights equivalent to those of common
stockholders. These exchangeable shares are the economic equivalent of
common shares of the Company and may be exchanged for those shares on a
one-for-one basis at any time. The Company issued approximately 5.2
million exchangeable shares in this transaction. The acquisition was
accounted for as a pooling of interests and, accordingly, all prior
period consolidated financial statements have been restated to include
the combined results of operations, financial position and cash flows of
Perigee.
Prior to the acquisition, Perigee's fiscal year-end was December
31. In recording the business combination, Perigee's prior period
financial statements have been adjusted to conform to the Company's
fiscal year-end. The change in year-end resulted in an adjustment of
($0.4) million, which is included in retained earnings, and represents
Perigee's results of operations and dividend for the three months ended
March 31, 2000. In addition, the Company incurred approximately $3.9
million in acquisition costs, of which $2.0 million was incurred in the
three months ended June 30, 2000.
Adjustments were made to conform accounting practices of Perigee to
accounting principles generally accepted in the U.S. with respect to
business combinations which occurred in 1996 and 1998. The result of
the adjustments was to establish intangible assets for the excess of the
purchase price over the tangible net assets of the businesses acquired
by Perigee, which are being amortized over 15 years from the date of
each acquisition. The restated net earnings for the three and six
months ended September 30, 1999, presented below include amortization
expense of $0.3 million and $0.6 million, respectively.
Net revenues and net earnings of the Company and Perigee for the
three and six months ended September 30, 1999 were as follows:
<TABLE>
<CAPTION>
(unaudited) Net Revenues Net Earnings
<S> <C> <C>
Three months ended
September 30, 1999
Legg Mason, Inc., as
previously reported $272,738 $28,324
Perigee 7,199 1,981
Combined $279,937 $30,305
Six months ended
September 30, 1999
Legg Mason, Inc., as
previously reported $559,681 $61,142
Perigee 13,994 3,833
Combined $573,675 $64,975
</TABLE>
Additionally, during the fiscal year ended March 31, 2000, the
Company acquired LeggMason Investors Holdings PLC ("LeggMason
Investors") (formerly Johnson Fry Holdings PLC) and Berkshire Asset
Management, Inc. ("Berkshire"). The following unaudited pro forma
consolidated results are presented as though the acquisitions of
LeggMason Investors and Berkshire had occurred as of the beginning of
the three and six month periods ended September 30, 1999, adjusted for
<PAGE> 10
amortization of the excess of cost over the net tangible assets
acquired.
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, 1999 September 30, 1999
<S> <C> <C>
Net Revenues $286,702 $587,462
Net Earnings 26,152 59,031
Earnings per common share:
Basic $ 0.42 $ 0.96
Diluted $ 0.40 $ 0.89
</TABLE>
6. Business Segment Information
The Company provides financial services through four business
segments: Asset Management; Private Client; Capital Markets; and Other.
Segment results include all direct revenues and expenses of the
operating units in each segment and allocations of indirect revenues and
expenses based on specific methodologies.
Asset Management provides investment advisory services to Company-
sponsored mutual funds and asset management for institutional and
individual clients.
Private Client distributes a wide range of financial products
through its branch distribution network, including equity and fixed
income securities, proprietary and non-affiliated mutual funds and
annuities. Net interest profit from customers' margin loan and credit
account balances is included in this segment.
Capital Markets consists of the Company's equity and fixed income
institutional sales and trading, syndicate, and corporate and public
finance activities. Sales credits associated with underwritten
offerings are reported in Private Client when sold through retail
distribution channels and in Capital Markets when sold through
institutional distribution channels. This segment also includes
realized and unrealized gains and losses on merchant banking activities
and warrants acquired in connection with investment banking activities.
Other consists principally of the Company's real estate service
business.
<PAGE> 11
<TABLE>
<CAPTION>
Segment financial results are as follows:
Three months ended Six months ended
September 30, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net revenues:
Asset Management........... $111,851 $ 88,641 $219,775 $174,258
Private Client............. 179,353 152,685 360,184 310,347
Capital Markets............ 30,606 29,934 77,238 74,366
Other...................... 8,094 8,677 15,837 14,704
$329,904 $279,937 $673,034 $573,675
Earnings before income tax
provision:
Asset Management........... $ 37,552 $ 33,862 $ 67,949 $ 63,045
Private Client............. 28,496 22,111 59,814 42,733
Capital Markets............ (4,599) (6,216) 1,950 2,501
Other...................... 1,347 1,280 2,054 1,739
$ 62,796 $ 51,037 $131,767 $110,018
</TABLE>
The Company's revenues and earnings presented above are
substantially derived from domestic operations. Results of
international operations are not significant. The Company does not
report asset information by business segment.
<PAGE> 12
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Legg Mason, Inc. and its subsidiaries' (the "Company") 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 securities prices, and the demand for
investment banking and mortgage banking services. Accordingly,
sustained periods of unfavorable market conditions may adversely
affect profitability.
RESULTS OF OPERATIONS
During its second fiscal quarter and the six months ended September
30, 2000, the Company reported growth in net revenues, net earnings,
and earnings per share from the corresponding periods in fiscal 2000.
The increase in net revenues and net earnings was primarily the result
of growth in assets under management in Company-sponsored mutual
funds, fee-based brokerage accounts and fixed income advisory
accounts, as well as increased net interest profit. In addition, net
revenues include fees earned by LeggMason Investors(formerly Johnson
Fry), a UK fund manager acquired in December 1999. All periods
presented include the results of Perigee Inc, a Canadian pension fund
manager, acquired on May 26, 2000 in a transaction accounted for as a
pooling of interests.
Quarter Ended September 30, 2000 Compared to Quarter Ended September
30, 1999
Revenues:
In the quarter ended September 30, 2000, net revenues increased 18% to
$329.9 million from $279.9 million in the prior year's quarter.
Investment advisory and related fees:
Investment advisory and related fees increased to $164.6 million, up
23% from the September 1999 quarter as a result of growth in Company-
sponsored mutual funds, fee-based brokerage accounts and fixed income
investment advisory accounts. In addition, the current year quarter
includes fees earned by LeggMason Investors. Legg Mason subsidiaries
served as investment advisors to individual and institutional accounts
and mutual funds with an asset value of $133.8 billion, up 41% from
$94.9 billion a year ago(excluding assets of approximately $14.0
billion managed by Perigee) and from $126.6 billion or 6% from June
30, 2000.
Commissions:
Commission revenues of $89.2 million increased 22% from $73.2 million
in the prior year's quarter as a result of a higher volume of listed
and over-the-counter securities transactions and non-affiliated mutual
funds.
<PAGE> 13
Principal transactions:
Principal transactions revenues were $27.7 million, down 1% from $28.0
million in the prior year's quarter as a result of a decline in fixed
income trading revenues, substantially offset by an increase in equity
trading revenues.
Investment banking:
Investment banking revenues of $10.1 million were down 25% from $13.5
million in the corresponding prior year quarter, attributable to a
decrease in corporate advisory and underwriting fees.
Other:
Other revenues decreased 1% to $11.0 million from $11.1 million in the
prior year's quarter, primarily as a result of a decrease in the
volume of loan originations at the Company's mortgage banking
subsidiary, offset substantially by fees from increased customer
activity.
Expenses:
Compensation and benefits:
Compensation and benefits increased 15% to $197.7 million from $172.0
million in the corresponding prior year quarter, primarily
attributable to increased incentive compensation related to higher
profits, higher commission expense on increased commission-generating
revenues, and increased fixed compensation and benefit expenses as a
result of an increase in the number of employees.
Occupancy and equipment rental:
Occupancy and equipment rental was $23.4 million, up 26% from $18.6
million in the corresponding prior year quarter, primarily due to
higher costs resulting from increased rent at new and existing branch
office locations and increased investments in technology.
Communications:
Communications expense rose 6% to $14.3 million from $13.5 million in
the corresponding prior year quarter as a result of increased business
activity, which gave rise to increased costs for quote services and
telephone usage.
Floor brokerage and clearing fees:
Floor brokerage and clearing fees increased 5% to $2.0 million,
reflecting an increase in securities transaction volume.
<PAGE> 14
Other:
Other expenses increased 29% to $29.7 million from $23.0 million in
the corresponding prior year quarter primarily as a result of the
addition of expenses of LeggMason Investors and increased promotional
related expenses.
Interest:
Interest revenue increased 48% to $73.1 million from $49.5 million in
the corresponding prior year quarter because of higher interest rates
earned on larger customer margin account balances, firm investments
(predominantly funds segregated for regulatory purposes) and conduit
stock loan balances. In addition, interest revenue increased as a
result of the addition of revenues from LeggMason Investors.
LeggMason Investors has two wholly owned finance subsidiaries. The
purpose of these finance subsidiaries is to raise funds by issuing
secured fixed-rate loan securities and to use the proceeds to invest
in a portfolio of bonds issued by various financial institutions,
which are generally not available to the public in tranches small
enough for the retail investor.
Interest expense increased 59% to $45.9 million from $28.9 million in
the corresponding prior year quarter as a result of increased interest
rates on larger customer credit account and conduit stock loan
balances. In addition, interest expense increased as a result of the
addition of expenses of the LeggMason Investors finance subsidiaries
described above.
Income tax provision:
The income tax provision rose 23% to $25.6 million because of an
increase in pre-tax earnings. The effective tax rate increased to
40.8% for the quarter ended September 30, 2000 from 40.6% for the
comparable prior year quarter as a result of an increase in non-
deductible losses from foreign subsidiaries.
Six Months Ended September 30, 2000 Compared to Six Months Ended
September 30, 1999
Revenues:
In the six months ended September 30, 2000, net revenues increased 17%
to $673.0 million from $573.7 million in the prior year period.
Investment advisory and related fees:
Investment advisory and related fees increased 22% to $322.1 million
from $263.4 million in the corresponding prior year period,
principally as a result of growth in assets under management in
Company-sponsored mutual funds, fee-based brokerage accounts and fixed
<PAGE> 15
income investment advisory accounts. In addition, the current year
period includes fees earned by LeggMason Investors.
Commissions:
Commission revenues of $180.8 million increased 16% from $155.7
million in the corresponding prior year period, reflecting increased
volume of transactions in non-affiliated mutual funds and listed
securities.
Principal transactions:
Principal transactions revenues were $61.2 million, up 9% from $56.4
million in the corresponding prior year period as a result of
increased volume of equity trading revenues.
Investment banking:
Investment banking revenues declined 9% to $32.5 million from $35.6
million in the corresponding prior year period, reflecting a decline
in corporate underwriting activities.
Other:
Other revenues decreased 4% to $22.1 million from $23.0 million in the
corresponding prior year period due to a gain in the prior year from
the sale of a merchant banking investment, offset in part by fees from
increased customer activities.
Expenses:
Compensation and benefits:
Compensation and benefits rose 14% to $397.6 million from $349.7
million, primarily attributable to increased incentive compensation
due to higher profits, higher commission expense on increased
commission-generating revenues, and increased fixed compensation and
benefit expenses as a result of an increased number of employees.
Occupancy and equipment rental:
Occupancy and equipment rental increased 21% to $45.5 million from
$37.7 million in the corresponding prior year period, as a result of
higher costs resulting from increased rent at new and existing branch
office locations and increased investments in technology.
Communications:
Communications expense rose 12% to $29.2 million from $26.1 million in
the corresponding prior year period as a result of increased business
activity, which gave rise to increased costs for quote services and
telephone usage.
<PAGE> 16
Floor brokerage and clearing fees:
Floor brokerage and clearing fees increased 5% to $4.1 million,
reflecting an increase in securities transaction volume.
Other:
Other expenses increased 40% to $64.9 million from $46.2 million in
the prior year primarily as a result of higher promotional related
expenses and the addition of expenses related to LeggMason Investors.
In addition, the current period includes acquisition costs related to
the acquisition of Perigee.
Interest:
Interest revenue increased 49% to $143.8 million from $96.2 million in
the comparative prior year period because of larger firm investments
(predominantly funds segregated for regulatory purposes) and customer
margin account balances, as well as higher average interest rates. In
addition, interest revenue increased as a result of the addition of
LeggMason Investors.
Interest expense increased 58% to $89.6 million from $56.6 million in
the comparative prior year period as a result of higher interest rates
on larger interest-bearing customer credit balances. In addition,
interest expense increased as a result of the addition of LeggMason
Investors.
Income tax provision:
The income tax provision rose 20% to $54.2 million because of an
increase in pre-tax earnings. The effective tax rate increased to
41.1% for the six months ended September 30, 2000 from 40.9% for the
comparable prior year period as a result of an increase in non-
deductible losses from foreign subsidiaries.
Liquidity and Capital Resources
There has been no material change in the Company's financial position
since March 31, 2000. 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, 2000, cash and cash
equivalents increased $62.9 million. Cash flows from operating
activities provided $104.4 million, which is attributable to lower
levels of segregated cash and an increase in net earnings adjusted for
depreciation and amortization, partially offset by a decrease in net
customer payables. Cash flows from financing activities provided
$57.1 million as a result of increased levels of short-term borrowings
<PAGE> 17
by the Company's mortgage banking affiliates. Investing activities
used $98.1 million, principally as a result of an increase in the
funding of securities purchased under agreements to resell.
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 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)
impairment of acquired client contracts, (vi) potential restrictions
on the business of, and withdrawal of capital from, certain
subsidiaries of the Company due to net capital requirements, (vii)
potential liability under federal and state securities laws and (viii)
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
During the quarter ended September 30, 2000, there were no material
changes to the information contained in Part II, Item 7A of the
Company's Annual Report on Form 10-K for the fiscal year ended March
31, 2000.
<PAGE> 18
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
Registrant's annual meeting of stockholders was held July 24,
2000. In the election of directors, the five director nominees were
elected with the following votes:
<TABLE>
<CAPTION>
Votes
Cast For Withhold
<S> <C> <C> <C>
Harry M. Ford, Jr. 52,113,612 51,788,792 324,820
Margaret DeB. Tutwiler 52,113,612 51,817,163 296,449
James E. Ukrop 52,113,612 51,804,461 309,151
John E. Koerner, III 52,113,612 51,817,419 296,193
Peter F. O'Malley 52,113,612 51,818,349 295,263
</TABLE>
The stockholders voted in favor of the approval of the amendment
of the Legg Mason, Inc. Articles of Incorporation as follows
Votes Cast 51,864,139
For 48,850,376
Against 3,013,763
Abstain 249,473
Non-Vote --
The stockholders voted in favor of the reapproval of the Legg
Mason, Inc. Executive Incentive Compensation Plan as follows:
Votes Cast 51,998,233
For 49,796,219
Against 2,202,014
Abstain 115,379
Non-Vote --
<PAGE> 19
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 Articles of Incorporation of
the Company, as amended
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)
27. Statement re: financial data
schedule
(b) No reports on Form 8-K were filed
during the quarter ended September
30, 2000.
<PAGE> 20
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: November 10, 2000 /s/Timothy C. Scheve
Timothy C. Scheve
Senior Executive Vice President
DATE: November 10, 2000 /s/Thomas L. Souders
Thomas L. Souders
Senior Vice President and
Treasurer
<PAGE> 21
INDEX TO EXHIBITS
3.1 Articles of Incorporation
of the Company, as amended
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)
27. Statement re: financial data
schedule
