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COVER
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended March 31, 1994
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission File No. 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 Identification No.)
incorporation or organization)
111 South Calvert Street 21202
Baltimore, Maryland (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (410) 539-0000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $.10 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of May 19, 1994, the aggregate market value of the registrant's common
stock held by non-affiliates was $197,987,439.
As of May 19, 1994, the number of shares outstanding of the registrant's
common stock was 12,145,519.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement dated June 15,
1994 are incorporated by reference into Part III.
1
Part I
Item 1. Business.
General
Legg Mason, Inc. (the "Company") is a holding company which,
through its subsidiaries, is engaged in securities brokerage and
trading, investment management of Company-sponsored mutual funds and
individual and institutional accounts, investment banking for
corporations and municipalities, sale of insurance and annuity
products, commercial mortgage banking and provision of other financial
services. The Company's principal broker-dealer subsidiaries are Legg
Mason Wood Walker, Incorporated ("Legg Mason Wood Walker") and Howard,
Weil, Labouisse, Friedrichs Incorporated ("Howard Weil"), each of
which is a regional broker-dealer and investment banking firm serving
individual, institutional, corporate and municipal clients. Legg
Mason Wood Walker operates primarily in the Mid-Atlantic and Mid-South
regions of the United States, and Howard Weil operates primarily in
the Mid-South region. The Company's other subsidiaries include Legg
Mason Fund Adviser, Inc., which serves as investment adviser to or
manager of Company-sponsored mutual funds with aggregate assets of
approximately $3.7 billion as of March 31, 1994; Western Asset
Management Company, which specializes in the management of fixed
income assets for institutional accounts and had approximately $10.5
billion under management as of that date; Legg Mason Capital
Management, Inc., which serves as investment adviser to individual and
institutional accounts with assets of approximately $615 million as of
that date; Gray, Seifert & Co., Inc., which serves as investment
adviser to wealthy individual, family group, endowment and foundation
accounts with assets of approximately $670 million as of that date;
The Fairfield Group, Inc., which serves as investment adviser to
mutual funds (with assets of approximately $560 million as of that
date) structured to meet the investment needs of banks and bank trust
departments; and Latimer & Buck, Inc. and Dorman & Wilson, Inc., which
are primarily engaged in commercial mortgage banking and commercial
loan servicing, with a total commercial loan servicing portfolio of
approximately $12.0 billion at March 31, 1994.
In the fiscal year ended March 31, 1994, the Company's total
revenues were derived approximately 53% from individual investor
brokerage accounts, including interest on margin accounts, 10% from
institutional investor brokerage accounts, 16% from investment
advisory services, and the balance from transactions as principal with
other dealers, investment banking, mortgage banking and other
activities.
The Company was incorporated in Maryland in 1981 to serve as
a holding company for Legg Mason Wood Walker and other subsidiaries.
The predecessor company to Legg Mason Wood Walker was formed in 1970
under the name Legg Mason & Co., Inc. to combine the operations of
Legg & Co., a Maryland-based broker-dealer formed in 1899, and Mason &
Company, Inc., a Virginia-based broker-dealer formed in 1962. The
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Company's subsequent growth has occurred through internal expansion as
well as through its acquisitions of Wood Walker & Co., a New York
broker-dealer, in 1973; Mason & Lee, Incorporated, a Virginia
broker-dealer, in 1981; C. C. Collings and Company, Inc. and A. E.
Masten & Co., Incorporated, two Pennsylvania broker-dealers, in 1984;
Hill & Co., an Ohio broker-dealer, in 1985; Western Asset Management
Company and Warren W. York & Co., a Pennsylvania broker-dealer, in
1986; Howard Weil in 1987; Latimer & Buck, Inc. in 1990; Dorman &
Wilson, Inc. in 1991; The Fairfield Group, Inc. in April 1993; and
Gray, Seifert & Co., Inc. in April 1994.
Unless the context otherwise requires, all references in
this Report to the Company include Legg Mason, Inc. and its
predecessors and subsidiaries.
Registrations and Exchange Memberships
Legg Mason Wood Walker and Howard Weil are registered as
broker-dealers with the Securities and Exchange Commission ("SEC"),
are members of the New York Stock Exchange, Inc. ("NYSE"), the New
York Futures Exchange, Inc., the National Association of Securities
Dealers, Inc. ("NASD") and the Securities Investors Protection
Corporation ("SIPC"), and are registered as futures commission
merchants with the Commodity Futures Trading Commission. In addition,
Legg Mason Wood Walker is a member of the Philadelphia Stock Exchange,
Inc.
3
Brokerage Offices
The following table reflects, as of March 31, 1994, certain
information with respect to the Company's securities brokerage
offices.
Number of
Investment Number of
Location Executives Offices
United States:
Maryland.................. 214 14
Pennsylvania.............. 155 14
Louisiana................. 89 10
Virginia.................. 89 8
North Carolina............ 54 7
Massachusetts............. 38 1
Texas..................... 38 5
District of Columbia...... 32 1
New York.................. 22 1
Alabama................... 21 3
Ohio...................... 21 2
Mississippi............... 18 4
Connecticut............... 17 3
New Jersey................ 16 4
Delaware.................. 13 2
West Virginia............. 13 2
Maine..................... 10 1
Tennessee................. 7 1
Florida................... 6 1
Georgia................... 6 1
South Carolina............ 4 1
Illinois.................. 2 1
France:
Paris..................... 5 1
TOTAL.............. 890 88
4
Revenues by Source
The following table sets forth certain information regarding
the revenues of the Company by source.
LEGG MASON, INC. AND SUBSIDIARIES
Years Ended March 31,
1992 1993 1994
(Dollars in thousands)
Amount Percent Amount Percent Amount Percent
Commissions
Listed.................. $ 53,979 18.5% $ 58,048 17.3% $ 67,034 16.9%
Over-the-Counter........ 29,249 10.0 26,644 7.9 29,920 7.5
Mutual Funds............ 21,100 7.2 23,927 7.1 31,364 7.9
Insurance & Annuities... 5,096 1.7 5,972 1.8 10,660 2.7
Options & Commodities... 3,132 1.1 2,714 0.8 2,397 0.6
Total............... 112,556 38.5 117,305 34.9 141,375 35.6
Principal Transactions(1)
Customer Related:
Government & Agency... 18,266 6.2 22,258 6.6 16,235 4.1
Municipal............. 14,843 5.1 12,907 3.9 13,173 3.3
Corporate Debt........ 3,760 1.3 2,939 0.9 2,855 0.7
Over-the-Counter...... 10,292 3.5 12,120 3.6 17,969 4.6
47,161 16.1 50,224 15.0 50,232 12.7
Dealer Related:
Government & Agency... 1,027 0.4 (1,043) (0.3) 714 0.1
Municipal............. 799 0.3 241 0.1 (585) (0.1)
Corporate Debt........ 42 - 72 - 45 -
Over-the-Counter...... 4,162 1.4 5,506 1.6 3,543 0.9
6,030 2.1 4,776 1.4 3,717 0.9
Total............... 53,191 18.2 55,000 16.4 53,949 13.6
Investment Advisory &
Related Fees............ 42,887 14.7 50,915 15.1 65,583 16.5
Investment Banking(2)
Corporate............... 30,721 10.5 45,432 13.5 60,838 15.3
Municipal............... 11,576 4.0 21,143 6.3 18,445 4.6
Total............... 42,297 14.5 66,575 19.8 79,283 19.9
Interest Income........... 25,629 8.7 23,973 7.1 29,990 7.5
Other(3).................. 15,796 5.4 22,579 6.7 27,354 6.9
Total Revenues...... $292,356 100.0% $336,347 100.0% $397,534 100.0%
(1) Principal transactions (securities transactions in which the Company buys
for or sells from its own inventory) are classified as "Customer Related"
when such transactions are effected with a customer of the Company
(whether an individual or institutional investor) and as "Dealer Related"
when such transactions are effected with another dealer.
(2) Principally selling concessions from underwriting participations and fees
from managed offerings.
(3) Includes revenues from mortgage servicing and loan originations (1992:
$5,624; 1993: $12,198; 1994: $14,908), real estate appraisal and
consulting fees (1992: $3,435; 1993: $3,776; 1994: $3,094) and gains
on sales of investment securities (1992: $1,822; 1993: $49; 1994: $48).
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Because the various activities and departments of the Company
are interdependent, and substantially the same sales personnel and
office facilities are engaged in the generation of revenues, the
Company does not believe that a meaningful allocation of expenses can
be made among these operations.
Retail Securities Business
For the fiscal years ended March 31, 1992, 1993 and 1994,
revenues derived from securities transactions for individual investors
(excluding interest on margin accounts) constituted approximately 83%,
82% and 84%, respectively, of total revenues from securities
transactions and 52%, 50% and 50%, respectively, of the Company's
total revenues. Management believes that such services will continue
to be the Company's primary source of revenues in the foreseeable
future, although the percentage of total revenues may decrease
primarily as a result of increases in investment advisory and mortgage
banking revenues. Retail commissions are charged on both exchange and
over-the-counter ("OTC") transactions in accordance with a schedule
which the Company has formulated and may change from time to time.
Discounts from the schedule may be granted in certain cases. The
Company also offers certain account arrangements under which a single
fee is charged based on a percentage of the assets held in a
customer's account and no commissions are charged on a transaction by
transaction basis. When OTC transactions are executed by the Company
as a dealer, the Company receives, in lieu of commissions, mark-ups or
mark-downs that are included in "Revenues by Source" as
customer-related principal transactions. The Company has dealer-sales
agreements with several major distributors that offer mutual fund
shares through broker-dealers. In addition, the Company sells shares
of Company-sponsored mutual funds. See "Company-Sponsored Mutual
Funds."
Margin Accounts, Interest Income and Free Credit Balances
Customers' securities transactions are effected on either a
cash or a margin basis. In a margin account, the customer pays less
than the full cost of the securities purchased and the broker-dealer
makes a loan for the balance of the purchase price secured by the
securities purchased or other securities owned by the investor. The
amount of the loan is subject to the margin regulations (Regulation T)
of the Board of Governors of the Federal Reserve System, NYSE margin
requirements, and the Company's internal policies, which in some
instances are more stringent than Regulation T or NYSE requirements.
In permitting a customer to purchase securities on margin, the Company
is subject to the risk that a market decline could reduce the value of
its collateral below the amount of the customer's indebtedness and
that the customer might be unable otherwise to repay the indebtedness.
Interest is charged on amounts borrowed by customers (debit
balances) to finance their margin transactions. The rate of interest
charged to customers is the brokers' call money rate (the interest
6
rate on bank loans to brokers collateralized by securities) plus an
additional amount that varies depending upon the size of the
customer's debit balances and level of account activity. For the
fiscal years ended March 31, 1992, 1993 and 1994, interest income
derived from these sources constituted approximately 3% of the
Company's total revenues in each year. Interest is also earned on
securities owned by the Company and on operating and segregated cash
balances.
Free credit balances (excess funds kept by customers in their
brokerage accounts), equity capital, subordinated liabilities and bank
lines of credit are the primary sources of funds to finance customers'
margin account borrowings. Legg Mason Wood Walker pays interest on
certain free credit balances in customers' accounts when the customer
has indicated that the funds will be used for reinvestment at a future
date. The rate of interest on these customer balances has generally
been below money market fund rates. In fiscal 1994, Legg Mason Wood
Walker paid interest on approximately 77% of customer free credit
balances.
Institutional Business
The Company is engaged in executing securities transactions
for institutional investors such as banks, mutual funds, insurance
companies and pension and profit-sharing plans. Such investors
normally purchase and sell securities in large quantities which
require special marketing and trading expertise. The Company believes
that a significant portion of its institutional brokerage commissions
is received as a consequence of provision to institutions of research
opinions and services regarding specific corporations and industries
and other matters affecting the securities markets. See "Research."
Transactions are executed by the Company acting as broker or
as principal. The Company permits discounts from its commission
schedule to its institutional customers. The size of such discounts
varies with the size of particular transactions and other factors.
For the fiscal years ended March 31, 1992, 1993 and 1994, revenues
derived from securities transactions for institutional investors
constituted approximately 17%, 18% and 16%, respectively, of total
revenues from securities transactions and 10%, 11% and 10%,
respectively, of the Company's total revenues.
Principal Transactions
The Company is an active market maker and distributor of
municipal bonds, particularly bonds issued by municipalities located
in the Mid-Atlantic and Mid-South regions. The Company also makes
primary markets in equity securities that are traded OTC, particularly
securities of companies located in the Mid-Atlantic and Mid-South
regions.
7
As of March 31, 1994, the Company made markets in equity
securities of approximately 490 corporations, including corporations
for which the Company has acted as a managing or co-managing
underwriter. The Company has 26 traders involved in trading corporate
equity and debt securities, 16 in trading municipal securities, and 8
in trading government securities.
The Company's market-making activities are also conducted
with other dealers through a network of direct wires, and with
institutional and individual customers of its branch office system.
In making markets in equity and debt securities, the Company maintains
positions in such securities to service its customers and accordingly
exposes its own capital to the risk of fluctuations in market value.
While the Company seeks to avoid substantial market risk, and may
engage in hedging transactions to minimize risk, it does, nonetheless,
realize profits and losses from market fluctuations. Trading profits
(or losses) depend upon the skills of the employees engaged in market
making, the amount of capital allocated to positions in securities and
the general level of activity and trend of prices in the securities
markets.
Investment Banking
Corporate and Municipal Finance
The Company participates as an underwriter in public
offerings of corporate debt and equity issues as well as municipal
securities, generally as a member of underwriting syndicates managed
by others. The Company also serves as manager or co-manager of
corporate equity and municipal offerings, generally involving issuers
located in the Mid-Atlantic and Mid-South regions.
The following tables set forth, for the periods indicated,
(i) the total number and dollar amount of corporate stock and bond and
municipal bond offerings managed or co-managed by the Company, and
(ii) the total number and dollar amount of its underwriting
participations in those offerings and in offerings managed by others.
Managed or Co-Managed Offerings
Calendar Year Number of Issues Amount of Offering
Corporate Municipal Corporate Municipal
1989 18 138 $3,144,263,000 $ 3,053,183,000
1990 18 125 2,006,152,000 2,327,652,000
1991 23 215 3,792,939,000 4,813,803,000
1992 62 314 7,361,066,000 10,091,755,000
1993 81 340 9,949,500,000 15,715,724,000
8
Underwriting Participations
Calendar Year Number of Issues Amount of Participation
Corporate Municipal Corporate Municipal
1989 336 195 $ 477,148,000 $ 908,231,000
1990 237 191 246,831,000 547,234,000
1991 380 313 595,406,000 1,654,210,000
1992 500 362 1,139,104,000 1,845,151,000
1993 598 458 1,396,410,000 6,017,729,000
As the above tables indicate, the number and size of
corporate and municipal offerings managed or underwritten by the
Company increased sharply in 1991, 1992 and 1993, largely because of
favorable conditions in the equity and debt markets, and refinancings
resulting from substantial declines in interest rates. The 1992 and
1993 increases included a substantial volume of closed-end fund
offerings and the 1993 increase included a substantial volume of real
estate investment trust offerings.
Underwriting involves both economic and regulatory risks. An
underwriter may incur losses if it is unable to resell the securities
it is committed to purchase, or if it is forced to liquidate its
commitments at less than the agreed purchase price. In addition, an
underwriter is subject to substantial potential liability for material
misstatements or omissions in prospectuses and other communications
with respect to underwritten offerings. See "Item 3. Legal
Proceedings" describing certain proceedings in which claims for
substantial damages have been asserted against a subsidiary of the
Company relating to certain underwritings. Furthermore, because
underwriting commitments require a charge against net capital, the
Company's broker-dealer subsidiaries could find it necessary to limit
their underwriting participations to remain in compliance with
regulatory net capital requirements. See "Net Capital Requirements."
Other Investment Banking Activities
The Company's investment banking activities also include
private debt and equity placements and initiation and advice with
respect to merger and acquisition transactions, as well as provision
of financial advisory services to corporate and municipal clients.
The Company sells interests in both private and public
limited partnership investments and has originated real estate
securities partnership offerings, although activities in this area
have not been significant for several years. In self-originated
offerings, subsidiaries of the Company serve as general partners of
limited partnerships sponsored by the Company, which may subject the
Company to the potential liabilities that can arise as a result of
such service.
At March 31, 1994, the Company had 65 professionals engaged
in investment banking activities, including 31 in municipal finance,
9
32 in corporate finance and 2 in limited partnership investment
activities.
Company-Sponsored Mutual Funds
The Company sponsors and serves as distributor for fourteen
Legg Mason mutual funds, including four equity funds, seven taxable
and tax-exempt fixed income funds and three taxable and tax-exempt
money market funds. Legg Mason Fund Adviser, Inc., Western Asset
Management Company, and Legg Mason Capital Management, Inc.,
wholly-owned subsidiaries of the Company, serve as investment adviser
to or manager of these funds. The Company anticipates that it will
sponsor additional funds in the future and that such funds will be
advised by investment advisory subsidiaries of the Company.
As of March 31, 1993 and 1994, the aggregate net assets of
all Company-sponsored mutual funds were approximately $3.0 billion and
$3.7 billion, respectively.
In 1992, the National Association of Securities Dealers
(NASD) adopted amendments to its rules designed to achieve approximate
economic equivalence between asset-based sales charges and other forms
of mutual fund sales charges it already regulates. The Company is in
compliance with the NASD amendments, which became effective in July
1993, and does not anticipate any adverse effect on the amounts it
receives as asset-based sales charges. For the fiscal years ended
March 31, 1992, 1993 and 1994, the Company received approximately $9.2
million, $12.3 million and $16.8 million, respectively, in asset-based
sales charges from its sponsored mutual funds.
Investment Advisory Services
Legg Mason Fund Adviser, Inc., a wholly-owned subsidiary of
the Company, serves as investment adviser to or manager of the
Company-sponsored mutual funds as described above.
Legg Mason Capital Management, Inc. ("Capital Management") a
wholly-owned subsidiary of the Company, manages securities portfolios
of individual and institutional clients. Agreements entered into with
clients provide broad discretionary account management authority to
Capital Management, which manages each account in accordance with a
client's general goals. At March 31, 1993 and 1994, this subsidiary
managed assets with values of approximately $385 million and $615
million, respectively, including approximately $28 million and $75
million, respectively, of the Company's funds invested in short-term
securities (not including assets in Company-sponsored mutual funds for
which it serves as investment adviser).
Western Asset Management Company, a wholly-owned investment
advisory subsidiary located in Pasadena, California, specializes in
the discretionary management of fixed-income assets for institutional
clients. At March 31, 1993 and 1994, Western Asset had approximately
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$8.0 billion and $10.5 billion, respectively, under management (not
including assets in Company-sponsored mutual funds for which it serves
as investment adviser). The Company has entered into a revenue
sharing agreement with Western and certain of its key officers
pursuant to which specified percentages of Western's revenues are
retained by Western to pay its operating expenses, including salaries
and bonuses, with specific expense and compensation allocations
generally determined by Western management.
The Fairfield Group, Inc., a wholly-owned subsidiary of the
Company acquired in April 1993, offers several investment vehicles
structured to meet the specialized investment needs of banks and bank
trust departments. These include the Navigator taxable and tax-free
money market funds, with combined assets of $560 million at March 31,
1994, and Navigator REPO/LINE, a service which invests $1.6 billion of
short-term cash in repurchase agreements collateralized by U.S.
government securities.
Gray, Seifert & Co., Inc., a wholly-owned subsidiary of the
Company acquired in April 1994, manages securities portfolios for
wealthy individuals and family groups, endowments, and foundations.
At March 31, 1994, this company managed assets with a value of
approximately $670 million.
The Company's advisory activities also include "wrap-fee"
programs in which the Company's customer pays a single asset-based fee
that covers all execution and advisory services, including advisory
services provided by the Company's investment advisory affiliates and
selected independent advisory firms. In addition, the Company
provides asset allocation and advisor performance and selection
consultation services.
Mortgage Banking and Real Estate Services
Latimer & Buck, Inc., a wholly-owned subsidiary of the
Company acquired in October 1990, is engaged in the commercial
mortgage banking, loan servicing and pension fund advisory businesses.
In its mortgage banking business, Latimer & Buck originates,
structures, places and services commercial mortgages on income-
producing properties for insurance companies, pension funds and other
investors. In its pension fund advisory business, Latimer & Buck
manages mortgage portfolios on behalf of two state pension funds.
Latimer & Buck's headquarters are located in Philadelphia,
Pennsylvania, and it has offices located in the Mid-Atlantic and
Southeastern regions of the United States.
In May 1991, the Company acquired the net assets of Dorman &
Wilson, Inc., a mortgage banking firm engaged in commercial mortgage
banking and loan servicing. Headquartered in White Plains, New York,
Dorman & Wilson has offices in New York and New Jersey.
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During fiscal 1994, the Company acquired commercial mortgage
servicing portfolios totalling approximately $1.0 billion. As of
March 31, 1994, the Company's aggregate commercial mortgage servicing
portfolio was approximately $12.0 billion.
Legg Mason Realty Group, Inc., a wholly-owned subsidiary of
the Company with offices in Baltimore, Washington, D.C. and
Philadelphia, provides market feasibility, consulting and appraisal
services regarding residential, retail, commercial and industrial real
estate to a diverse clientele.
Insurance and Financial Planning
Approximately 600 of the Company's investment executives are
licensed to sell insurance. Legg Mason Financial Services, Inc., a
wholly-owned subsidiary of the Company, acts as general agent for
several life insurance companies and sells fixed and variable
annuities and insurance. The Company also offers comprehensive
financial planning services to individuals.
Other Services
At March 31, 1994, the Company served as a non-bank custodian
for approximately 92,000 IRA's, 2,700 Keogh Plans, and 5,900
Simplified Employee Pension Plans.
The Company effects the purchase and sale of options and
commodities transactions on behalf of clients.
In March 1993, the Company established the Legg Mason Trust
Company, a state chartered, non-depository bank, to provide services
as a trustee for trusts established by the Company's individual and
employee benefit plan clients. The Company provides brokerage and
advisory services for a significant portion of the assets held in the
Trust Company's accounts.
Research
The Company employs 24 analysts who develop investment
recommendations and market information with respect to companies and
industries, a significant number of which are headquartered in the
Mid-Atlantic and Mid-South regions. Legg Mason Wood Walker's research
emphasizes the identification of securities of financially sound, well
managed companies that appear to be undervalued in relation to their
long-term earning power or the value of underlying assets. Legg Mason
refers to this investment strategy as the "Value Approach" to
investing. Howard Weil's analysts concentrate on the oil and gas
exploration, pipeline and service industries. The Company's research
services are supplemented by research services purchased from outside
consultants.
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The Company's clients do not pay for research services
directly, although the Company is often compensated for its research
services by institutional clients through the direction of brokerage
transactions to the Company for execution. The Company believes that
its research activities are extremely important in attracting and
retaining individual and institutional brokerage and investment
advisory clients.
Operations
Administrative and operations personnel are responsible for
the processing of securities transactions; receipt, identification
and delivery of funds and securities; internal financial controls;
office services; custody of customers' securities and the handling of
margin accounts. At March 31, 1994, the Company had approximately 300
full-time employees performing such functions.
There is considerable fluctuation during any year and from
year to year in the volume of transactions the Company must process.
During the fiscal years ended March 31, 1992, 1993 and 1994, the
Company processed approximately 1,456,000, 1,721,000 and 2,146,000
securities transactions, respectively. The Company records
transactions and posts its books on a daily basis. Operations
personnel monitor day-to-day operations to determine compliance with
applicable laws, rules and regulations. Failure to keep current and
accurate books and records can render the Company liable to
disciplinary action by governmental and self-regulatory authorities.
Legg Mason Wood Walker clears most of its securities
transactions as a participant in the National Securities Clearing
Corporation and the Depository Trust Company ("DTC"). Legg Mason Wood
Walker also has joined the Midwest Securities Trust Company for
custody of non-DTC eligible securities and clears U.S. government and
agency securities through a member bank of the Federal Reserve.
The Company's broker-dealer subsidiaries execute and compare
their NYSE and other exchange transactions (including transactions on
exchanges of which they are not a member) through the Pershing
Division of Donaldson, Lufkin & Jenrette Securities Corporation. The
subsidiaries execute and compare their own OTC transactions. The
subsidiaries clear options and foreign securities transactions through
Pershing. Pershing also processes orders and floor reports, matches
trades, and transmits execution reports to the subsidiaries' offices
and records data pertinent to trades in listed securities.
The Company believes that its internal controls and
safeguards are adequate, although fraud and misconduct by customers
and employees and the possibility of theft of securities are risks
inherent in the securities industry. As required by the NYSE and
certain other authorities, the Company carries a fidelity bond
covering loss or theft of securities as well as forgery of checks and
drafts and embezzlement and misplacement of securities. The bond
13
provides total coverage of $30,000,000 (subject to a $1,000,000
deductible per claim).
Employees
At March 31, 1994, the Company had approximately 2,650
employees. None of the Company's employees is covered by a collective
bargaining agreement. The Company considers its relations with its
employees to be satisfactory. However, competition for experienced
financial services personnel, especially investment executives and
investment management professionals, is keen and from time to time the
Company may experience a loss of valuable personnel.
The Company recognizes the importance of hiring and training
investment executives. The Company trains new investment executives
who are required to take examinations given by the NYSE, the NASD and
various states in order to be registered and qualified. The Company
also requires ongoing training for investment executives.
Competition
The Company is engaged in an extremely competitive business.
Its competition includes, with respect to one or more aspects of its
business, numerous national, regional and local broker-dealer and
investment advisory firms, and commercial banks and thrift
institutions. Many of these organizations have substantially greater
personnel and financial resources than the Company. Discount
brokerage firms oriented to the retail market, including firms
affiliated with commercial banks and thrift institutions, are devoting
substantial funds to advertising and direct solicitation of customers
in order to increase their share of commission dollars and other
securities-related income. In many instances, the Company is
competing directly with such organizations. The Company also competes
for investment funds with banks, insurance companies and investment
companies. The principal competitive factors relating to the
Company's business are the quality of advice and services provided to
investors and the price of those services.
Competition in the Company's business periodically has been
affected by significant developments in the securities industry. See
"Factors Affecting the Company and the Securities Industry -- Industry
Changes and Competitive Factors."
Regulation
The securities industry in the United States is subject to
extensive regulation under both Federal and state laws. The SEC is
the Federal agency charged with administration of the Federal
securities laws. Much of the regulation of broker-dealers has been
delegated to self-regulatory authorities, principally the NASD and the
securities exchanges. These self-regulatory organizations conduct
periodic examinations of member broker-dealers in accordance with
14
rules they have adopted and amended from time to time, subject to
approval by the SEC. Securities firms are also subject to regulation
by state securities commissions in those states in which they do
business.
Broker-dealers are subject to regulations that cover all
aspects of the securities business, including sales methods, trading
practices among broker-dealers, uses and safekeeping of customers'
funds and securities, capital structure and financial soundness of
securities firms, recordkeeping and the conduct of directors, officers
and employees. Additional legislation, changes in rules promulgated
by the SEC and self-regulatory authorities, or changes in the
interpretation or enforcement of existing laws and rules, may directly
affect the mode of operation and profitability of broker-dealers. The
SEC, self-regulatory authorities and state securities commissions may
conduct administrative proceedings that can result in censure, fine,
suspension or expulsion of a broker-dealer, its officers or employees.
Such administrative proceedings, whether or not resulting in adverse
findings, can require substantial expenditures and can have an adverse
impact on the reputation of a broker dealer. The principal purpose of
regulation and discipline of broker-dealers is the protection of
customers and the securities markets, rather than protection of
creditors and stockholders of the regulated entity.
The Company's investment advisory subsidiaries and the
Company-sponsored mutual funds are also subject to extensive Federal
and state regulation by the SEC and state securities commissions.
The Company's broker-dealer subsidiaries are required by
Federal law to belong to the SIPC. When the SIPC fund falls below a
certain amount, members are required to pay annual assessments. The
Company's broker-dealer subsidiaries are currently contributing
.00054% of their adjusted gross revenues to the fund. The SIPC fund
provides protection for securities held in customer accounts up to
$500,000 per customer, with a limitation of $100,000 on claims for
cash balances. The Company purchases insurance that provides
additional protection for securities of up to $9,500,000 per customer.
Net Capital Requirements
Every registered broker-dealer doing business with the public
is subject to the Uniform Net Capital Rule (Rule 15c3-1) promulgated
by the SEC. The Rule, which is designed to measure the financial
soundness and liquidity of broker-dealers, specifies minimum net
capital requirements. Since the Company is not itself a registered
broker-dealer, it is not directly subject to the Uniform Net Capital
Rule. However, its broker-dealer subsidiaries are subject to the
Rule, and a provision of the Rule requires that a broker-dealer notify
the SEC prior to the withdrawal of equity capital by a parent company
if the withdrawal would exceed the greater of $500,000 or 30 percent
of the broker-dealer's excess net capital.
15
Rule 15c3-1 provides that a broker-dealer doing business with
the public shall not permit its aggregate indebtedness to exceed 15
times its net capital (the "primary method") or, alternatively, that
it not permit its net capital to be less than 2% of its aggregate
debit items (primarily receivables from customers and broker-dealers)
computed in accordance with such Rule (the "alternative method").
Legg Mason Wood Walker and Howard Weil use the alternative method of
calculation. As of March 31, 1994, these broker-dealer subsidiaries
had aggregate net capital of $104.8 million, which exceeded the
minimum net capital requirements by $98.9 million.
In computing net capital under the Rule, various adjustments
are made to net worth with a view to excluding assets not readily
convertible into cash and to provide a conservative statement of other
assets, such as a firm's position in securities. To that end, a
deduction is made against the market value of securities to reflect
the possibility of a market decline prior to their disposition. For
every dollar that net capital is reduced, by means of such deductions
or otherwise (for example, through operating losses or capital
distributions), the maximum aggregate debit items which a firm may
carry is reduced. Thus, net capital rules, which are unique to the
securities industry, impose financial restrictions upon the Company's
business that are more severe than those imposed on other types of
businesses.
Under NYSE Rule 326, Legg Mason Wood Walker and Howard Weil,
as member organizations that carry customer accounts, would be
required to reduce their business activities if their net capital, as
defined, was less than 4% of aggregate debit items, as defined, and
would be precluded from expanding their business if their net capital
was less than 5% of aggregate debit items.
Compliance with applicable net capital rules could limit
operations of the Company's broker-dealer subsidiaries, particularly
operations such as underwriting and trading activities that require
use of significant amounts of capital. A significant operating loss
or an extraordinary charge against net capital could adversely affect
the ability of the broker-dealers to expand or even maintain their
present levels of business.
Outstanding Subordinated Liabilities
Legg Mason Wood Walker has incurred subordinated liabilities
("Subordinated Liabilities") which it is permitted to treat as capital
for the purposes of the Uniform Net Capital Rule and NYSE Rules 325
and 326. The Subordinated Liabilities instruments issued by Legg
Mason Wood Walker provide that such liabilities shall be subordinated
in right of payment to the prior payment in full, or provision for
such payment, of all obligations to all other present and future
creditors of Legg Mason Wood Walker (except for other Subordinated
Liabilities similarly subordinated). At March 31, 1994, Legg Mason
Wood Walker had $15.0 million of Subordinated Liabilities outstanding,
16
all of which was due to Legg Mason, Inc. The Subordinated Liabilities
due to Legg Mason, Inc. may, with the prior written consent of the
NYSE, be prepaid in whole or in part at any time after such
Subordinated Liabilities have been outstanding for more than one year.
Legg Mason Wood Walker may not pay or permit the payment or withdrawal
of any Subordinated Liability if, after giving effect to such payment
or withdrawal, its net capital would be less than 5% (6% in the case
of Subordinated Liabilities due to Legg Mason, Inc.) of aggregate
debit items. See Note 13 of Notes to Consolidated Financial
Statements in Item 8 of this Report.
Factors Affecting the Company and the Securities Industry
The securities industry is characterized by frequent change,
the effects of which have been difficult to predict. In addition to
an evolving regulatory environment, the industry has been subject to
radical changes in pricing structure, alternating periods of
contraction and expansion and intense competition from within and
outside the industry.
Fluctuating Securities Volume and Prices
The securities industry is subject to substantial
fluctuations in volume and price levels of securities transactions.
These fluctuations can occur on a daily basis as well as over longer
periods as a result of national and international economic and
political events, and broad trends in business and finance. Reduced
volume and prices generally result in lower commissions and investment
banking revenues, as well as losses from trading as principal and from
underwriting. Profitability is adversely affected in periods of
reduced volume because fixed costs remain relatively unchanged. To
the extent that purchases of securities are permitted to be made on
margin, securities firms also are subject to risks inherent in
extending credit, especially during periods of rapidly declining
markets, in that a market decline could reduce collateral value below
the amount of a customer's indebtedness. In the past, heavy trading
volume has caused clearance and processing problems for many
securities firms, and this could occur in the future. In addition,
there is risk of loss from errors that can occur in the execution and
settlement process. See "Operations."
Industry Changes and Competitive Factors
Considerable consolidation has occurred in the securities
industry since the late 1960's as numerous securities firms have
either ceased operations or been acquired by other securities firms,
in many cases resulting in firms with greater financial resources than
firms such as the Company. In addition, a number of substantial
companies not previously engaged in the securities business have made
investments in and acquired securities firms. Increasing competitive
pressures in the securities industry require regional securities firms
to offer to their customers many of the financial services that are
17
provided by much larger securities firms that have substantially
greater resources than the Company. A sizeable number of new
investment advisory firms and mutual funds have been established in
recent years, increasing competition in that area of the Company's
activities.
Fixed minimum commissions for securities transactions were
eliminated in 1975, resulting in substantial discounts of commissions
earned from institutional customers and in the establishment of an
increasing number of firms, including affiliates of banks and thrift
institutions, that offer discount brokerage services to retail
customers. These firms generally effect transactions at lower
commission rates on an "execution only" basis, without offering other
services such as investment advice and research that are provided by
"full-service" brokerage firms such as the Company. In addition, some
discount brokerage firms have increased the range of services that
they offer. Continued increases in the number of discount brokerage
firms and services provided by such firms may adversely affect the
Company.
Certain institutions, notably commercial banks and thrift
institutions, have become a competitive factor in the securities
industry by offering certain investment banking and corporate and
individual financial services traditionally provided only by
securities firms. The Federal Reserve Board has approved applications
of major commercial banks to underwrite and deal in certain types of
securities that such banks had not been permitted to underwrite and
deal in previously, subject to limitations on the resulting
underwriting volume and market share. Commercial banks, generally,
are expanding their securities activities, as well as their activities
relating to the provision of financial services. Also, major
corporations have acquired large securities firms. While it presently
is not possible to predict the type and extent of competitive services
that banks and other institutions ultimately may offer or the extent
to which administrative or legislative barriers will be repealed or
modified, to the extent that such services are offered on a large
scale, securities firms such as the Company that are heavily oriented
to individual retail customers may be adversely affected.
Regulation
The business of the Company and its subsidiaries in the
securities industry is subject to regulation by various regulatory
authorities that are charged with protecting the interests of
broker-dealers' customers. See "Regulation."
Effect of Net Capital Requirements
The SEC and the NYSE have stringent rules with respect to the
net capital requirements of securities firms. A significant operating
loss or extraordinary charge against net capital may adversely affect
the ability of the Company's broker-dealer subsidiaries to expand or
18
even maintain their present levels of business. See "Net Capital
Requirements."
Litigation
Many aspects of the Company's business involve substantial
risks of liability. In the normal course of business, the Company's
subsidiaries have been named as defendants or co-defendants in
lawsuits seeking substantial damages. There has been an increased
incidence of litigation in the securities industry in recent years,
including class action suits which generally seek substantial damages.
See "Item 3. Legal Proceedings."
Item 2. Properties.
The Company leases all of its office space. The Company's
Baltimore headquarters and sales office are located in an office
building in which the Company is the major tenant. The Company
currently occupies approximately 97,000 square feet for a term
expiring in February 1998. Annual base rental for the current leased
space is approximately $2.3 million.
Information concerning location of the Company's sales
offices is contained in Item 1 of this Report. See Note 7 of Notes to
Consolidated Financial Statements in Item 8 of this Report.
Item 3. Legal Proceedings.
Taxable Municipal Bond Litigation
From April 1990 through January 1991, a number of purported
class actions were filed in various federal courts naming Howard,
Weil, Labouisse, Friedrichs Incorporated as one of the defendants in
connection with seven different public offerings involving a total of
$1.55 billion in taxable municipal bonds issued by six state financing
authorities. The seven offerings were made in the period from July
through November 1986. Howard Weil was one of the co-managing
underwriters in the offerings, each of which had Drexel Burnham
Lambert Incorporated as the senior managing underwriter. All of these
actions, which generally are based on similar factual and legal
allegations, as discussed below, have been transferred by the Judicial
Panel on Multidistrict Litigation to the United States District Court
for the Eastern District of Louisiana (the "MDL Court") for
coordinated and consolidated pre-trial proceedings under the caption
In Re Taxable Municipal Bond Securities Litigation. Pursuant to a
pre-trial order of the MDL Court, the various actions have been
consolidated and a single complaint has been filed to cover all
actions relating to each of the public offerings. In addition, a
single complaint has been filed to cover the allegations made under
RICO with respect to all of the offerings. The following schedule
sets forth with respect to each offering the identification and amount
19
of the offering, including the percentage underwritten by Howard Weil,
and the title of the consolidated action in the MDL Court.
Bond Offering Title of Action
$150 Million Louisiana First National Bank v.
Housing Finance Agency Louisiana Housing
8.61% Securitized Multifamily Finance Agency, et al.
Housing Revenue Bonds,
Series 1986A
Howard Weil Underwriting
Percentage: 11.0%
$300 Million Southeast Texas Texas State Bank, et
Housing Finance Corporation al. v. Southeast Texas
8.6% Securitized Multifamily Housing Finance
Housing Revenue Bond Series 1986A Corporation, et al.
Howard Weil Underwriting
Percentage: 13.3%
$150 Million Louisiana Agricultural Bloomfield State Bank,
Finance Authority 8.25% Agricultural et al. v. Louisiana
Revenue Bonds Series 1986A Agricultural Finance
Howard Weil Underwriting Authority, et al.
Percentage: 23.0%
$150 Million Louisiana Agricultural Associated Kellogg Bank,
Finance Authority 8.80% Securitized et al. v. Louisiana
Agricultural Revenue Bonds Series 1986A Agricultural Finance
Howard Weil Underwriting Authority, et al.
Percentage: 17.8%
$400 Million Health, Educational Janet Virgin, et al. v.
and Housing Facility Board of the City Health, Educational and
of Memphis, Tennessee 8.68% Securitized Housing Facility Board of
Multifamily Housing Revenue Bonds, the City of Memphis,
Series 1986 Tennessee, et al.
Howard Weil Underwriting
Percentage: 11.1%
$200 Million El Paso Housing Finance Farm Bureau Town & Country
Corporation 8.8% Securitized Multifamily Insurance Company of
Housing Revenue Bonds, Series 1986A Missouri, et al. v.
Howard Weil Underwriting El Paso Housing Finance
Percentage: 19.7% Corporation, et al.
$200 Million Nebraska Investment Finance Washington National Life
Authority Agricultural Revenue Bonds, Insurance Company of New
Series 1986A and Series 1986B York, et al. v. Morgan
Howard Weil Underwriting Stanley & Co.
Percentage: 19.3% Incorporated, et al.
20
Generally, each action alleges, among other things, that the
official statement by which the public offering was made contained
misrepresentations and omissions in violation of federal and state
securities laws, common law fraud, negligent misrepresentation and
RICO. The complaints generally allege misstatements and omissions
regarding, among other things, (i) the likelihood that the proceeds of
each offering that were placed in a guaranteed investment contract
("GIC") issued by Executive Life Insurance Company would remain
invested in the GIC rather than being used to purchase, and
collateralize the bonds with, agricultural or multifamily housing
loans; (ii) an alleged scheme between Drexel Burnham Lambert
Incorporated, the senior managing underwriter of the offering, and
Executive Life relating to retention of the proceeds in the GIC;
(iii) Executive Life's substantial investment of its funds in junk
bonds; and (iv) the possibility that the GICs would not be treated as
insurance products entitled to pro rata treatment with other Executive
Life insurance products in the event of an Executive Life insolvency.
In each action, the plaintiff class purportedly consists of all
persons who purchased the bonds either in the initial offering or in
the open market through April 1990. Following the deterioration of
the junk bond market in early 1990, the ratings of both Executive Life
and the bonds that had been issued in the seven offerings were
downgraded and the bonds experienced substantial market price
declines. In addition, the bonds have defaulted in interest payments
as a result of Executive Life having been placed in conservatorship in
April 1991 and ceasing payments on the GICs, and the amount of future
payments of principal and interest is dependent upon successful
resolution of the pending conservatorship. The various complaints
seek actual and punitive damages in unspecified amounts, pre and post
judgment interest, as well as costs and attorneys' fees. If any of
these actions were determined adversely to Howard Weil, substantial
liabilities could result, with a significant adverse effect on Howard
Weil's financial condition and operations.
During 1992, the MDL Court issued orders denying the motions
to dismiss of Howard Weil and the other principal defendants with
respect to virtually all counts of the complaint. Based on the
pre-trial order of the MDL Court, the discovery process has been
substantially completed and the case will proceed through successive
pre-trial stages, including class certification.
In September 1993, all class plaintiffs except Washington
National Life Insurance Company of New York, a putative class
representative in the case relating to the Nebraska Investment Finance
Authority bonds, voluntarily dismissed the plaintiffs' joint complaint
covering allegations made under RICO. Howard Weil and other
defendants filed a motion for summary judgment with respect to
Washington National's RICO claim. This motion has been granted.
In August 1993, Howard Weil and other defendants filed
motions for summary judgment with respect to the issue of whether
plaintiffs' claims under Rule 10b-5 should be dismissed in any case in
which plaintiffs did not actually rely on the official statements that
21
are alleged to have been false and misleading. These motions are
pending.
In May 1991, an action captioned Texas Commerce Bank-El Paso,
N.A., et al. v. Garamendi, et al. was commenced seeking a declaration
as to the liquidation priority of the Executive Life GICs and
alleging, in the alternative, among other things, that Howard, Weil,
Labouisse, Friedrichs Incorporated and a co-managing underwriter, in
connection with the taxable bonds issued by the El Paso Housing
Finance Corporation ("El Paso"), violated the common law and the
Texas Securities Act by (i) representing to El Paso and to Texas
Commerce Bank-El Paso, N.A. ("TCB"), the indenture trustee of the El
Paso bonds, that the GIC issued by Executive Life Insurance Company to
TCB was a policy of insurance and that TCB would be treated as a
"policyholder" for purposes of priorities upon liquidation of
Executive Life under the California Insurance Code, or (ii) failing to
inform El Paso and TCB that there was reason to believe that the GIC
would not be treated as an insurance policy. Plaintiffs in the
present action seek a declaration by the court that they will be
entitled to damages and/or equitable indemnity from Howard Weil and
the other defendants for any liability incurred as a result of a
determination that TCB is not entitled to treatment as a policyholder
with respect to the Executive Life GIC. Howard Weil and the other
defendants have filed a motion to dismiss this action and
simultaneously moved to stay all proceedings on the alternative claims
pending resolution of the proceedings in the MDL Court. On November
15, 1991, the California Superior Court ruled that Executive Life GICs
issued in connection with the taxable municipal bonds should be
treated in the same liquidation priority as Executive Life insurance
policies. On November 30, 1992, the California Court of Appeals
affirmed the decision of the Superior Court.
In January 1991, an action captioned Magnolia Life Insurance
Company v. Howard, Weil, Labouisse, Friedrichs Incorporated was
commenced in the 14th Judicial District Court, Parish of Calcasieu,
State of Louisiana, alleging misrepresentation by Howard Weil in the
sale to Magnolia in April 1988 of approximately $830,000 of taxable
municipal bonds issued by the Louisiana Agricultural Finance Authority
("LAFA"). These bonds had been part of the bonds issued in the 1986
LAFA public offering described above. The plaintiff alleges that
Howard Weil misrepresented to it that the bonds were secured by
government guaranteed loans. In September 1991, the plaintiff filed
a motion for summary judgment. The hearing on the motion and
discovery in this action have been stayed pending the commencement of
proceedings in other taxable bond cases that are not included within
the MDL proceedings.
In addition to the matters described above, the Company's
subsidiaries have been named as defendants or co-defendants in various
other lawsuits alleging substantial damages. Some of these
proceedings relate to public offerings of securities in which one or
more subsidiaries of the Company participated as a member of the
22
underwriting syndicate. The Company is also aware of litigation
against certain underwriters of offerings in which one or more
subsidiaries of the Company was a participant, but where the
subsidiary is not now a defendant. In these latter cases, it is
possible that a subsidiary may be called upon to contribute to
settlements or judgments. While the ultimate resolution of pending
litigation cannot be predicted with certainty, in the opinion of
management, after consultation with legal counsel, pending litigation
will not have a material adverse effect on the consolidated financial
statements of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 4A. Executive Officers of the Company.
Information (not included in the Company's definitive proxy
statement for the 1993 Annual Meeting of Stockholders) regarding
certain executive officers of the Company is as follows:
F. Barry Bilson, age 41, was elected Vice
President-Finance of the Company in June 1984. He served as
Controller of the Company from October 1983 until September 1988, and
as Controller of Legg Mason Wood Walker from April 1981 to September
1988. From December 1978 to March 1981, he was Assistant Controller
of the Coatings Division of Dutch Boy, Inc. Mr. Bilson is a certified
public accountant.
Theodore S. Kaplan, age 51, became Senior Vice President
and General Counsel of the Company in April 1993. From 1970 until he
joined the Company, he was engaged in the private practice of law with
the firm of Weinberg and Green. Prior to 1970, Mr. Kaplan served as
an attorney in the Office of the General Counsel and Division of
Corporation Finance of the Securities and Exchange Commission.
Eileen M. O'Rourke, age 36, became Controller of the
Company and of Legg Mason Wood Walker in September 1988 and was
elected Vice President-Finance of the Company in March 1989, having
served as Assistant Controller since December 1984. Mrs. O'Rourke is
a certified public accountant and was an audit manager with Peat
Marwick Main & Co. prior to joining the Company in 1984.
Timothy C. Scheve, age 36, became Treasurer of the
Company and of Legg Mason Wood Walker in January 1992. Mr. Scheve has
served in various financial and administrative capacities since
joining the Company in 1984. Mr. Scheve was a management consultant
with Price Waterhouse & Co. prior to joining the Company.
Elisabeth N. Spector, age 46, became a Senior Vice
President of the Company and Legg Mason Wood Walker in January 1994.
She has general responsibilities in business and financial strategy.
23
From November 1989 until she joined the Company, Ms. Spector was
employed by the Resolution Trust Corporation, where, among other
things, she served as the initial Director of the RTC's Capital
Markets Division. From 1975 to November 1989 she was an investment
banker with Merrill Lynch & Co., Inc.
Edward A. Taber III, age 50, became an Executive Vice
President of the Company in September 1992. He is responsible for
supervising the Company's investment management activities. From 1973
until he joined the Company, Mr. Taber held various positions with T.
Rowe Price Associates, Inc., an investment management firm, last
serving as Director of that firm's taxable fixed income division.
Prior to 1973, Mr. Taber served as the Treasurer and Chief Financial
Officer of the Federal Home Loan Bank of Boston. Mr. Taber is a
Director of the Legg Mason Value Trust, Inc., the Legg Mason Total
Return Trust, Inc., the Legg Mason Special Investment Trust, Inc., the
Legg Mason Tax Free Income Fund, the Legg Mason Global Trust, Inc.,
and the Legg Mason Investors Trust, Inc.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
Shares of Legg Mason, Inc. common stock are listed and traded
on the New York Stock Exchange (symbol LM). As of March 31, 1994,
there were 1,366 shareholders of record of the Company's common stock.
Information with respect to the Company's dividends and stock prices
is as follows:
Quarter ended*
Mar. 31 Dec. 31 Sept. 30 June 30
1994
Cash dividend per share $ .10 $ .10 $ .10 $ .08
Stock price range:
High 25.250 25.250 24.125 22.625
Low 20.375 22.125 21.750 19.375
1993
Cash dividend per share $ .08 $ .08 $ .08 $ .072
Stock price range:
High 23.750 21.625 19.500 19.875
Low 20.250 17.000 15.250 15.250
*Adjusted to reflect the 5-for-4 stock split paid September 1993.
24
Item 6. Selected Financial Data.
(Dollars in thousands except per share amounts)
Years ended March 31,
1994 1993 1992 1991 1990
OPERATING RESULTS
Revenues $397,534 $336,347 $292,356 $251,021 $253,364
Expenses 338,320 287,364 257,341 228,795 232,089
Earnings before income taxes 59,214 48,983 35,015 22,226 21,275
Income taxes 23,166 18,780 13,898 8,702 8,373
Net earnings $ 36,048 $ 30,203 $ 21,117 $ 13,524 $ 12,902
PER COMMON SHARE*
Primary earnings $ 2.98 $ 2.61 $ 1.85 $ 1.21 $ 1.15
Fully diluted earnings $ 2.41 $ 2.37 $ 1.70 $ 1.14 $ 1.10
Dividends declared $ .38 $ .312 $ .28 $ .248 $ .216
Book value $ 18.04 $ 15.73 $ 13.38 $ 11.96 $ 11.04
Average shares outstanding:
Primary 12,109,820 11,574,018 11,386,148 11,142,970 11,235,695
Fully diluted 16,138,100 13,276,250 13,089,271 12,873,789 12,853,999
FINANCIAL CONDITION
Total assets $811,488 $640,454 $579,883 $502,678 $440,198
Subordinated liabilities $102,487 $ 34,597 $ 35,020 $ 35,120 $ 35,120
Total stockholders' equity $211,686 $176,928 $147,957 $130,264 $119,504
*Adjusted to reflect the 5-for-4 stock split paid September 1993.
25
Item 7. Management's Discussion and Analysis of Results of Operations
and Financial Condition.
Legg Mason, Inc. and its subsidiaries ("the Company") are
principally engaged in providing securities brokerage, investment
advisory, investment banking and mortgage banking services to
individuals, institutions, corporations and municipalities. The
Company's profitability is sensitive to 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.
Favorable conditions in the securities industry, including
record underwriting levels, increased commission revenues, and strong
trading profits, prevailed during most of the Company's fiscal year
ended March 31, 1994. The Company achieved record net earnings for the
fifth consecutive year, as generally lower interest rates contributed
to substantially higher revenues from securities brokerage, investment
advisory and investment banking activities. However, during the March
1994 quarter, interest rates rose, depressing bond and stock prices,
and adversely impacting the Company's investment banking revenues,
trading profits and net earnings. It is uncertain whether the market
conditions experienced in the March 1994 quarter will continue in
fiscal 1995, or longer.
The Company's investment advisory activities and their
contribution to profitability have grown significantly over the past
ten years. Assets under management for institutions, Company-sponsored
mutual funds and private accounts were $16.7 billion at March 31,
1994, up 27% from $13.1 billion a year earlier and from $300 million
ten years ago. Earnings from investment advisory services tend to be
more stable than those from securities brokerage and investment
banking activities because they are less affected by changes in
securities market conditions.
Results of any individual period should not be considered
representative of future profitability. Many of the Company's
activities have fixed operating costs which do not decline with
reduced levels of volume. While the Company attempts to reduce costs,
particularly during periods of low volume, it does not, as a general
rule, attempt to do so through personnel reduction. Accordingly,
sustained periods of unfavorable market conditions may adversely
affect profitability.
26
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated,
items in the Consolidated Statements of Earnings as percentages of
total revenues and the increase (decrease) by item as a percentage of
the amount for the previous period:
Percentage of Total Revenues Period to Period Change
1994 1993
Years Ended March 31, Compared Compared
1994 1993 1992 to 1993 to 1992
REVENUES
Commissions...................... 35.6% 34.9% 38.5% 20.5% 4.2%
Principal transactions........... 13.6 16.4 18.2 (1.9) 3.4
Investment advisory and
related fees................... 16.5 15.1 14.7 28.8 18.7
Investment banking............... 19.9 19.8 14.5 19.1 57.4
Interest......................... 7.5 7.1 8.7 25.1 (6.5)
Other............................ 6.9 6.7 5.4 21.1 42.9
100.0 100.0 100.0 18.2 15.0
EXPENSES
Compensation and benefits........ 57.6 57.6 56.3 18.1 17.8
Occupancy and equipment rental... 6.8 7.0 7.8 14.8 3.1
Communications................... 5.8 6.0 6.1 13.7 12.2
Floor brokerage and clearing fees 1.4 1.7 2.3 4.3 (18.6)
Interest......................... 3.9 3.4 4.6 32.4 (13.4)
Other............................ 9.6 9.7 10.9 17.1 3.0
85.1 85.4 88.0 17.7 11.7
EARNINGS BEFORE INCOME TAXES...... 14.9 14.6 12.0 20.9 39.9
Income taxes..................... 5.8 5.6 4.8 23.4 35.1
NET EARNINGS...................... 9.1% 9.0% 7.2% 19.4% 43.0%
In fiscal 1994, revenues and net earnings reached record
levels. Revenues were $397.5 million, an 18% increase from revenues of
$336.3 million in fiscal 1993. Net earnings increased 19% to $36.0
million from $30.2 million in the prior fiscal year.
Revenues derived from securities transactions for individual
investors constituted approximately 50% of the Company's total
revenues and the Company believes this will continue to be the largest
single source of its revenues in the foreseeable future.
Revenues
Commissions
Commissions rose 21% to $141.4 million in fiscal 1994,
principally because of increases in sales of listed securities,
non-affiliated mutual funds, variable annuities and over-the-counter
securities. During most of fiscal 1994, commission revenues benefited
27
from an active and rising stock market, attributable in part to
investors seeking higher investment returns than those available on
certificates of deposit and money market accounts.
In fiscal 1993, commissions rose 4% from levels in fiscal
1992, principally because of increases in listed securities
transaction volume and sales of non-affiliated mutual funds, offset in
part by a decline in over-the-counter securities transaction volume
from the prior year's then-record levels.
Principal Transactions
Revenues from principal transactions fell 2% to $53.9 million
in fiscal 1994 as a result of lower sales of taxable fixed-income
securities and a decline in profits on firm-owned securities
positions. These declines were substantially offset by increased sales
of over-the-counter securities.
In fiscal 1993, principal transactions rose 3% to $55.0
million because of increases in sales of U.S. government,
mortgage-backed and over-the-counter securities. Losses on certain
fixed-income securities positions and reduced revenues from
secondary-market municipal bond transactions partially offset gains in
this category.
Investment Advisory and Related Fees
Investment advisory and related fees rose 29% and 19% in
fiscal 1994 and 1993, respectively, because of growth in assets under
management in Company-sponsored mutual funds and the Company's
fixed-income advisory subsidiary, as well as growth in various types
of fee-based brokerage accounts. Assets under management in mutual
funds and individual and institutional accounts managed by the
Company's subsidiaries were $16.7 billion at March 31, 1994. Fees from
assets under management and from fee-based brokerage accounts
accounted for 16.5% of total revenues in fiscal 1994.
The graph here depicts the growth in Investment Advisory and
Related Fee revenue and Assets Under Management for the five fiscal
periods ended March 31, 1994.
1990 1991 1992 1993 1994
Assets Under Management
(in millions) $ 8,517 $11,021 $10,873 $13,069 $16,653
Investment Advisory Fees
(in thousands) $35,020 $38,259 $42,887 $50,915 $65,583
28
Investment Banking
Investment banking revenues rose 19% to a record $79.3
million in fiscal 1994 as a result of selling concessions and
management fees earned on a substantially higher level of corporate
underwritings, particularly co-managed offerings of real estate
investment trusts. In fiscal 1993, investment banking revenues
increased 57% to $66.6 million, reflecting strong increases in both
corporate and municipal underwriting activity. Low interest rates and
higher securities valuations were important factors in the growth of
investment banking revenues during fiscal years 1994 and 1993.
Other Revenues
Other revenues rose 21% to $27.4 million in fiscal 1994,
primarily because of increased mortgage banking loan origination fees
and the addition of certain fees earned by The Fairfield Group
subsequent to its acquisition in April 1993. With the real estate
industry gradually emerging from its prolonged downward cycle, the
Company's mortgage banking subsidiaries benefited from an increased
volume of loan originations.
In fiscal 1993, other revenues rose 43% to $22.6 million
because of a significant increase in commercial mortgage banking
origination and servicing fees, offset in part by a reduction in gains
on sales of investment securities.
Expenses
Compensation and Benefits
Compensation and benefits rose 18% to $229.0 million in
fiscal 1994, following an 18% increase to $193.9 million in fiscal
1993. The increases in both years reflect higher sales compensation on
increased commission-based revenues, personnel additions in certain
product and support areas, and higher profitability-based
compensation.
A substantial part of compensation expense fluctuates in
proportion to the level of business activity and generally does not
affect the Company's profit margins. Other compensation costs,
primarily salaries and benefits, are fixed and may not decline with
reduced levels of volume. Therefore, profitability may be adversely
affected by sustained periods of unfavorable market conditions or slow
revenue growth in new or acquired businesses or product areas.
Occupancy and Equipment Rental
Occupancy and equipment rental rose 15% to $26.9 million in
fiscal 1994 because of increased transaction-related data processing
29
costs and higher rental payments at corporate headquarters and certain
branch office locations. In fiscal 1993, occupancy and equipment
rental rose 3%, principally because of additional investment banking
and brokerage office locations.
Communications
Communications rose 14% and 12% in fiscal 1994 and 1993,
respectively, reflecting increases in telephone and transaction-
related variable costs attributable to increased business activity.
Floor Brokerage and Clearing Fees
Floor brokerage and clearing fees increased 4% to $5.8
million in fiscal 1994 because of higher securities transaction
volume. In fiscal 1993, floor brokerage and clearing fees fell 19%
because of a reduction in costs for clearing services, attributable in
part to conversion to self-clearing of fixed-income securities
transactions beginning in June 1991.
Other Expense
Other expense rose 17% to $38.3 million in fiscal 1994
because of increased litigation-related expenses and higher
promotional and programming expenses. In fiscal 1993, other expense
rose 3% because of increased advertising expenses, offset by lower
legal costs and amortization of intangibles.
Interest Revenue and Expense
Interest revenue increased 25% to $30.0 million in fiscal
1994 as a result of increased stock loan conduit activity, larger
customer margin account balances and investment of proceeds of the
Company's $68.0 million convertible subordinated debenture offering
completed in April 1993. These increases were partially offset by
lower interest revenues on reduced holdings of fixed-income
securities. Interest expense increased 32% to $15.4 million, primarily
because of debt service on the convertible subordinated debentures and
increased stock loan conduit activity.
Interest revenue declined 6% to $24.0 million in fiscal 1993
as a result of substantially lower interest rates, offset in part by
interest earned on larger holdings of fixed-income securities.
Interest expense fell 13% because of substantially lower interest
rates, offset in part by interest on higher short-term borrowings.
As a result of issuance of the convertible subordinated
debentures in April 1993, the Company's net interest margin declined
in fiscal 1994 to 48.7% from 51.5% in fiscal 1993.
30
Income Taxes
Income taxes increased 23% to $23.2 million in fiscal 1994
because of higher pre-tax earnings. The Company's effective tax rate
increased to 39.1% from 38.3% as a result of higher corporate income
tax rates following the enactment of the 1993 Omnibus Budget
Reconciliation Act.
The Company's effective tax rate declined to 38.3% in fiscal
1993 from 39.7% in fiscal 1992 as a result of a lower effective state
income tax rate.
LIQUIDITY AND CAPITAL RESOURCES
A substantial portion of the Company's assets is liquid,
consisting mainly of cash and assets readily convertible into cash.
These assets are financed primarily by free credit balances, equity
capital, convertible debentures, bank lines of credit and other
payables.
During the year ended March 31, 1994, cash and cash
equivalents increased $15.2 million. Cash flow from operating
activities was $73.3 million, resulting primarily from reductions in
the Company's securities inventories and from net earnings, adjusted
for depreciation and amortization. The Company used $60.2 million of
cash for investing activities, principally for the purchase of
investment securities, resale agreements and quotation and office
equipment. Cash flow from financing activities was $2.1 million,
resulting from issuance of $68.0 million of 5.25% convertible
subordinated debentures, offset by cash used for repayment of
short-term borrowings and repurchase agreements. The proceeds of the
convertible debenture offering have been invested in resale agreements
and investment securities. The proceeds are intended for use as
working capital for general corporate purposes, including expansion of
the Company's securities brokerage business and continued expansion
and diversification of its investment advisory and other financial
services businesses, both by internal growth and acquisition.
The Company's broker-dealer subsidiaries are subject to the
requirements of the SEC's net capital rule which is designed to
measure the general financial soundness and liquidity of
broker-dealers. At March 31, 1994, the brokerage subsidiaries had
aggregate net capital of $105.3 million, which exceeded minimum net
capital requirements by $99.2 million.
31
The graph here depicts the growth of regulatory net capital
as defined by SEC Rule 15c3-1 for the five fiscal periods ended March
31, 1994.
Regulatory Net Capital 1990 1991 1992 1993 1994
(In thousands)
Required $ 5,874 $ 4,368 $ 4,084 $ 4,823 $ 6,116
Total $56,031 $62,971 $73,497 $87,547 $105,335
The principal sources of the Company's funds are its
investment advisory and broker-dealer subsidiaries. The amount of the
broker-dealers' net assets which may be distributed is subject to
restrictions under applicable net capital rules. In addition, the
Company has a revolving bank line of credit in the amount of $23.0
million, none of which is currently outstanding, and the Company's
subsidiaries have committed bank lines of credit, aggregating $116.3
million, pursuant to which they may borrow on a short-term demand
basis generally at prevailing broker call rates. Management believes
that funds available from operations and its lines of credit are
sufficient to meet its present and reasonably foreseeable capital
needs, although the Company may augment its capital funds for
continued expansion by internal growth and acquisition.
The Company borrows and lends securities in the normal course
of business to facilitate the settlement of its customer and
proprietary transactions. In addition, the Company engages in conduit
securities borrowing and lending activities in which it acts as an
agent to facilitate settlement for other institutions. In both firm
and conduit transactions, the Company deposits or receives cash
generally equal to 102% of the market value of securities exchanged
and monitors the adequacy of collateral levels on a daily basis.
EFFECTS OF INFLATION
The Company's assets are not significantly affected by
inflation because they are primarily monetary, consisting of cash,
resale agreements, securities owned and receivables. However, the rate
of inflation affects various expenses, including employee
compensation, occupancy, and communications, which may not be readily
recoverable in charges for services provided by the Company.
32
RECENT ACCOUNTING DEVELOPMENT
Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities,"
was issued by the Financial Accounting Standards Board in May 1993.
Statement No. 115 is effective for fiscal years beginning after
December 15, 1993. The Company will adopt the provisions of Statement
No. 115 prospectively, beginning in fiscal 1995. The impact of
adoption will not be material to the Company's financial position or
results of operations.
33
Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders, Legg Mason, Inc.
We have audited the accompanying consolidated statements of
financial condition of Legg Mason, Inc. and Subsidiaries as of March
31, 1994 and 1993, and the related consolidated statements of
earnings, changes in stockholders' equity and cash flows for each of
the three years in the period ended March 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express and opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Legg Mason, Inc. and Subsidiaries as of March 31, 1994 and
1993, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended March 31, 1994,
in conformity with generally accepted accounting principles.
/s/ COOPERS & LYBRAND
Baltimore, Maryland
May 5, 1994
34
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands except per share amounts)
Years ended March 31,
1994 1993 1992
Revenues
Commissions $141,375 $117,305 $112,556
Principal transactions 53,949 55,000 53,191
Investment advisory and related fees 65,583 50,915 42,887
Investment banking 79,283 66,575 42,297
Interest 29,990 23,973 25,629
Other 27,354 22,579 15,796
397,534 336,347 292,356
EXPENSES
Compensation and benefits 228,998 193,857 164,595
Occupancy and equipment rental 26,902 23,437 22,741
Communications 22,943 20,186 17,988
Floor brokerage and clearing fees 5,816 5,575 6,847
Interest 15,396 11,629 13,433
Other 38,265 32,680 31,737
338,320 287,364 257,341
EARNINGS BEFORE INCOME TAXES 59,214 48,983 35,015
Income taxes 23,166 18,780 13,898
NET EARNINGS $ 36,048 $ 30,203 $21,117
EARNINGS PER COMMON SHARE
Primary $ 2.98 $ 2.61 $ 1.85
Fully diluted $ 2.41 $ 2.37 $ 1.70
See notes to consolidated financial statements.
35
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
March 31,
1994 1993
ASSETS
Cash and cash equivalents $ 40,208 $ 24,998
Cash and securities segregated
for regulatory purposes 127,003 106,065
Resale agreements 97,950 73,801
Receivable from brokers and dealers 5,074 8,296
Receivable from customers 250,237 208,273
Securities owned, at market value 57,617 109,097
Securities borrowed 96,030 14,156
Investment securities 29,754 4,454
Office equipment and leasehold
improvements 15,679 11,071
Intangible assets 23,727 25,766
Other 68,209 54,477
$811,488 $640,454
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Payable to brokers and dealers $ 10,629 $ 14,698
Payable to customers 298,943 267,316
Short-term borrowings 15,546 59,079
Repurchase agreements - 20,416
Securities loaned 108,065 10,840
Securities sold, but not yet purchased,
at market value 8,513 6,638
Accrued compensation 15,651 15,487
Other 39,968 34,455
497,315 428,929
COMMITMENTS AND CONTINGENCIES
SUBORDINATED LIABILITIES 102,487 34,597
STOCKHOLDERS' EQUITY
Common stock, par value $.10; authorized
20,000,000 shares;issued 11,734,573 in
1994 and 8,998,555 shares in 1993 1,173 900
Additional paid-in capital 76,249 73,498
Retained earnings 134,264 102,530
211,686 176,928
$811,488 $640,454
See notes to consolidated financial statements.
36
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands except share amounts)
Total
Common Stock Additional Retained Stockholders'
Shares Amount Paid-in Capital Earnings Equity
BALANCE MARCH 31, 1991 8,716,514 $ 871 $70,316 $ 59,077 $130,264
Issuance of common stock 132,839 14 991 1,005
Dividends declared
($.28 per share)* (3,072) (3,072)
Pro forma tax provision of
pooled entity (63) (63)
Equity distributions of
pooled entity (215) (895) (1,110)
Adjustment to conform fiscal
year of pooled entity (355) (355)
Tax benefit of pooled entity 171 171
Net earnings 21,117 21,117
BALANCE MARCH 31, 1992 8,849,353 $ 885 $71,263 $ 75,809 $147,957
Issuance of common stock 157,391 16 1,952 1,968
Repurchase of common stock (8,189) (1) (153) (154)
Dividends declared
($.312 per share)* (3,482) (3,482)
Tax benefit of pooled entity 436 436
Net earnings 30,203 30,203
BALANCE MARCH 31, 1993 8,998,555 $ 900 $73,498 $102,530 $176,928
Issuance of common stock 410,828 41 2,312 104 2,457
5-for-4 stock split 2,325,190 232 (239) (7)
Dividends declared
($.38 per share)* (4,418) (4,418)
Tax benefit of pooled entity 678 678
Net earnings 36,048 36,048
BALANCE MARCH 31, 1994 11,734,573 $1,173 $76,249 $134,264 $211,686
* Adjusted to reflect the 5-for-4 stock split paid September 1993.
See notes to consolidated financial statements.
37
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Years ended March 31,
1994 1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 36,048 $30,203 $21,117
Noncash items included in earnings:
Depreciation and amortization 8,328 8,404 9,474
Pro forma tax provision of pooled entity (63)
Gains on sales of investment securities (48) (49) (1,822)
Tax benefit of pooled entity 352 436 171
Gain on sale of mortgage servicing portfolio (345)
Adjustment to conform fiscal year of pooled entity (355)
44,680 38,649 28,522
(Increase) decrease in assets:
Cash and securities segregated for regulatory purposes (20,938) 19,755 (15,019)
Receivable from brokers and dealers 3,222 (2,763) (1,584)
Receivable from customers (41,884) (43,313) 12,979
Securities owned 51,480 (18,342) (28,134)
Securities borrowed (81,874) (2,436) 1,040
Other (13,405) (11,810) (7,978)
Increase (decrease) in liabilities:
Payable to brokers and dealers (4,069) 8,626 (259)
Payable to customers 31,627 30,337 (4,525)
Securities loaned 97,225 306 3,551
Securities sold, but not yet purchased 1,875 3,197 (363)
Accrued compensation 137 (1,406) 6,846
Other 5,201 5,126 3,153
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES 73,277 25,926 (1,771)
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for:
Office equipment and leasehold improvements (8,365) (4,313) (3,460)
Intangible assets (2,539) (2,537) (601)
Net (increase) decrease in resale agreements (24,149) 3,285 (54,476)
Purchases of investment securities (118,083) (563) (1,875)
Proceeds from sales of investment securities 92,934 49 1,837
Proceeds from sale of mortgage servicing portfolio 474
CASH USED FOR INVESTING ACTIVITIES (60,202) (3,605) (58,575)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings (43,533) (30,864) 47,494
Net increase (decrease) in repurchase agreements (20,416) 16,701 3,715
Issuance (repayment) of subordinated liabilities 67,900 (423) (100)
Issuance of common stock 2,329 1,968 1,005
Repurchase of common stock (154)
Equity distributions of pooled entity (1,110)
Dividends paid (4,145) (3,482) (3,072)
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 2,135 (16,254) 47,932
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 15,210 6,067 (12,414)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 24,998 18,931 31,345
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 40,208 $24,998 $18,931
See notes to consolidated financial statements.
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share amounts)
1. SUMMARY OF ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of
Legg Mason, Inc. and its wholly-owned subsidiaries. All material
intercompany balances and transactions have been eliminated. Where
appropriate, prior years' financial statements have been reclassified
to conform with the 1994 presentation.
Cash and Cash Equivalents
Cash equivalents are highly liquid investments with original
maturities of less than 90 days, other than those held for sale in the
ordinary course of business.
Resale and Repurchase Agreements
Resale and repurchase agreements are carried at the amounts
at which the securities will be reacquired or resold as specified in
the respective agreements, plus accrued interest.
The Company invests in short-term resale agreements
collateralized by U.S. government and agency securities. The market
value of the underlying collateral as determined daily, plus accrued
interest thereon, must exceed the face amount of the transaction. It
is the Company's policy to have such underlying collateral deposited
in the Company's accounts at its custodian banks.
Securities
Securities transactions are recorded on a settlement date
basis which does not differ materially from a trade date basis.
Commission revenues and related expenses for unsettled transactions
are recorded on a trade date basis. Securities owned by the Company's
broker-dealer subsidiaries are valued at market and resulting
unrealized gains and losses are reflected in earnings.
Securities held for investment consist primarily of U.S.
government and agency securities and high grade corporate debt and
marketable equity securities. Debt securities are recorded at
unamortized cost and marketable equity securities are carried at lower
of cost or market. At March 31, 1994 and 1993, aggregate cost was
$29,754 and $4,454, and aggregate market values were $30,368 and
$6,653, respectively.
39
Depreciation and Amortization
Office equipment and leasehold improvements are reported at
cost, net of accumulated depreciation and amortization of $28,025 and
$24,434 at March 31, 1994 and 1993, respectively.
Depreciation and amortization are determined by use of the
straight line method over the estimated useful life of the asset or
the remaining life of the lease. Maintenance and repair costs are
expensed as incurred.
Intangible Assets
Intangible assets consist principally of goodwill, mortgage
servicing and asset management contracts attributable to business
combinations. Intangibles are amortized using straight line and
accelerated methods over periods ranging from four to forty years.
Accumulated amortization at March 31, 1994 and 1993, was $36,714 and
$32,136, respectively.
Investment Advisory and Related Fees
The Company earns investment advisory fees on assets in
accounts managed by its subsidiaries, distribution fees on assets in
Company-sponsored equity and bond mutual funds, and asset based fees
on various types of "single-fee" brokerage accounts.
Income Taxes
The Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," as of April 1, 1993.
The impact of adoption was not material to the Company's financial
position or results of operations. Prior years' financial statements
were not restated.
Earnings Per Share
Primary earnings per share are computed by dividing net
earnings by the weighted average number of shares outstanding and
dilutive common stock equivalents. The Company's common stock
equivalents are shares of common stock issuable under various stock
option plans.
Fully diluted earnings per share assumes both the exercise of
dilutive common stock equivalents and conversion of subordinated
debentures.
40
The weighted average number of shares is as follows:
Years ended March 31,
1994 1993 1992
Primary....................... 12,109,820 11,574,018 11,386,148
Fully diluted................. 16,138,100 13,276,250 13,089,271
2. BUSINESS COMBINATIONS
On May 31, 1991, the Company completed the acquisition of the
net assets of Dorman & Wilson, Inc. ("D&W"), a mortgage banking firm
primarily engaged in commercial loan origination and servicing. The
Company issued 517,060 shares of common stock in conjunction with the
acquisition.
The acquisition was accounted for as a pooling of interests.
Accordingly, the consolidated financial statements have been restated
to include the accounts of D&W for all periods presented. In order to
conform to the Company's fiscal year, D&W's operating loss of $355 for
the quarter ended March 31, 1991 was reflected as an adjustment to
retained earnings. In addition, D&W's pre-acquisition operating
results include a pro forma income tax provision of $(63) for the two
months ended May 31, 1991. The provision, not applicable to D&W in its
status as a Subchapter S Corporation, was included to provide
comparability with the Company's historical operating results.
In April 1993, the Company acquired The Fairfield Group,
Inc., a provider of mutual fund advisory and other services to banks
and bank trust departments, through the issuance of common stock. The
acquisition was accounted for as a pooling of interests, but was not
material to the Company's results of operations and financial
position. Accordingly, the results of operations of The Fairfield
Group, Inc. have been included from the date of acquisition.
3. RECEIVABLE FROM AND PAYABLE TO CUSTOMERS
Receivable from and payable to customers represent balances
arising from cash and margin transactions. Securities owned by
customers are held as collateral for the receivable balances. Included
in payable to customers are free credit balances of approximately
$261,803 as of March 31, 1994, and $232,427 as of March 31, 1993. The
Company pays interest on certain customer free credit balances held
for reinvestment purposes.
41
4. SECURITIES, AT MARKET
Securities positions consist of the following at March 31:
Securities owned
1994 1993
U.S. government and federal agencies................ $12,347 $ 56,483
State and municipal bonds........................... 34,153 40,607
Corporate debt and equity........................... 11,117 12,007
$57,617 $109,097
Securities sold,
but not yet purchased
1994 1993
U.S. government and federal agencies................ $1,048 $1,019
State and municipal bonds........................... 383 1,299
Corporate debt and equity........................... 7,082 4,320
$8,513 $6,638
5. SHORT-TERM BORROWINGS
Short-term borrowings at March 31 are as follows:
1994 1993
Bank loans.......................................... $14,924 $58,937
Loans from clearing and other organizations......... 622 142
$15,546 $59,079
Short-term borrowings include loans from banks and a clearing
organization totalling $14,591 which bear interest at rates ranging
from 4.5% to 5.5% and are collateralized by securities having a market
value of $15,000.
The Company has a revolving credit agreement which permits it
to borrow up to $23,000, repayable over three years, at fixed and
floating rates as specified in the agreement. Under the terms of the
agreement, the Company is required, among other things, to maintain
consolidated net worth of not less than $125,446 plus 50% of
consolidated annual net earnings subsequent to March 31, 1994. No
borrowings were outstanding under this agreement at March 31, 1994.
Together with certain subsidiaries, the Company has jointly entered
into revolving credit agreements which permit it to borrow up to
$40,000, repayable within 30 days. No borrowings were outstanding
under these agreements at March 31, 1994. In addition, subsidiaries of
the Company have bank lines of credit of $116,250, which are generally
subject to termination at either party's discretion.
42
Interest payments were $12,704 in 1994, $10,941 in 1993 and
$13,489 in 1992.
6. SUBORDINATED LIABILITIES
The Company's subordinated liabilities at March 31, 1994 and
1993 are as follows:
1994 1993
7% Convertible subordinated debentures due 2011..... $ 34,487 $34,497
5.25% Convertible subordinated debentures due 2003.. 68,000 -
Other............................................... - 100
$102,487 $34,597
The 7% and 5.25% debentures mature on June 15, 2011 and May 1,
2003, respectively, and are convertible at any time prior to maturity
into common stock of the Company. The per share conversion price is
$21.76 for the 7% debentures and $25.80 for the 5.25% debentures. Each
conversion price is subject to adjustment in certain events.
The Company may redeem the debentures prior to maturity, in
whole or in part, subject to certain conditions. The 7% debentures are
redeemable at 102.1% of the principal until June 15, 1994, and
thereafter at prices declining annually to 100% on or after June 15,
1996. The 5.25% debentures are redeemable at 103.28% of the principal at
May 1, 1996, and thereafter at prices declining annually to 100% on or
after May 1, 2001.
The 7% debentures require annual sinking fund payments of
$1,500 beginning June 15, 1997 calculated to retire 61% of the
debentures prior to maturity.
7. COMMITMENTS AND CONTINGENCIES
The Company leases office facilities and equipment under
non-cancellable operating leases which expire on varying dates through
2005. Certain leases provide for renewal options and contain
escalation clauses providing for increased rentals. As of March 31,
1994, the minimum annual aggregate rentals are as follows:
1995............................................................... $13,108
1996............................................................... 10,991
1997............................................................... 9,296
1998............................................................... 7,510
1999............................................................... 3,651
Thereafter......................................................... 7,610
$52,166
43
The Company leases office space from a partnership in which
the Company and some of its officers, stockholders and directors have
a combined controlling interest. As of March 31, 1994, minimum annual
rentals under these lease agreements, which are included in the
amounts above, aggregate $2,146 through 1998. In addition, during
fiscal 1994, the Company acquired for $5,000 the mortgage
collateralized by the partnership's property.
Total rental expense, including cancellable equipment leases,
was $27,761, $24,768 and $23,478 for 1994, 1993 and 1992,
respectively, which includes payment of $811 in 1994, $690 in 1993 and
$688 in 1992 to the aforementioned partnership.
The Company enters into when-issued and underwriting
commitments. Had the open transactions relating to these commitments
as of March 31, 1994 been closed, the effect on the consolidated
financial statements of the Company would not have been material.
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.
8. EMPLOYEE BENEFITS
The Company, through its subsidiaries, maintains various
defined contribution plans covering substantially all employees.
Discretionary contributions charged to operations amounted to $7,241,
$6,181 and $4,796 in 1994, 1993 and 1992, respectively. In addition,
employees can make voluntary contributions under certain plans.
9. INCOME TAXES
The Company and its subsidiaries file a consolidated federal
income tax return. The provision for income taxes consists of:
1994 1993 1992
Federal.............................. $19,005 $15,569 $11,028
State and local...................... 4,161 3,211 2,870
Provision for income taxes........... $23,166 $18,780 $13,898
The 1994, 1993 and 1992 income tax provisions consist of
taxes currently payable of $23,390, $19,861 and $15,519, offset by
deferred tax benefits of $224, $1,081 and $1,621, respectively.
44
At March 31, 1994, the Company had deferred tax assets and
liabilities totalling $8,804 and $828, respectively. The sources and
amounts of deferred tax assets are primarily accrued compensation of
$3,419, net operating loss carryforwards of $1,250, pooled entity tax
benefits of $852, income deferred for financial reporting purposes of
$780 and deferred rent of $653. The primary source and amount of the
deferred tax liability is income deferred for tax purposes of $639. At
March 31, 1994, the Company had a deferred tax valuation allowance of
$1,288, primarily for benefits related to net operating losses.
Operating loss benefits of $96 expire through fiscal 1999 and the
remaining benefits of $1,154 expire through fiscal 2009.
At March 31, 1993 and 1992, deferred taxes are related
primarily to accrued compensation and other income reportable for tax,
not financial reporting, purposes.
In August 1993, the Omnibus Budget Reconciliation Act of 1993
("Revenue Act") was enacted. The Revenue Act increased the Company's
corporate statutory income tax rate to 35% from 34%.
A reconciliation of the difference between the effective
income tax rate and the statutory federal income tax rate follows:
1994 1993 1992
Taxes at statutory rates................. 35.0% 34.0% 34.0%
State income taxes, net of federal
income tax benefit..................... 4.6 4.3 5.4
Tax-exempt interest income, net.......... (0.8) (0.9) (0.8)
Other, net............................... 0.3 0.9 1.1
Effective income tax rates............... 39.1% 38.3% 39.7%
Income tax payments were $26,114 in 1994, $19,529 in 1993 and
$15,369 in 1992.
10. CAPITAL STOCK
At March 31, 1994, the authorized numbers of common and
preferred shares were 20,000,000 and 4,000,000, respectively, of which
4,220,540 common shares were reserved for issuance upon conversion of
the Company's convertible subordinated debentures. In addition, at
March 31, 1994 and 1993, there were 2,239,870 and 2,242,816 shares of
common stock reserved for issuance under the Company's stock option
plans.
On September 24, 1993, the Company paid a 5-for-4 stock split
to shareholders of record on September 8, 1993. All references in the
consolidated financial statements to the number of common shares and
per share amounts have been adjusted retroactively to reflect the
45
5-for-4 stock split, except for the number of issued common shares
presented in the consolidated financial statements.
11. STOCK PLANS
Options under the Company's employee stock option plans have
been granted at prices not less than 100% of the fair market value of
the shares on the date of grant. Options granted are generally
exercisable in cumulative 20% increments over five years and have a
term of not more than ten years from the date of grant. Transactions
under the plans during the three years ending March 31, 1994 are
summarized below:
Number of Shares
Options outstanding at
March 31, 1991 (687,101 exercisable)....................... 1,113,795
Granted.................................................... 144,355
Exercised.................................................. (134,259)
Per share option price: $1.85-$15.12
Cancelled.................................................. (12,706)
Options outstanding at
March 31, 1992 (683,448 exercisable)....................... 1,111,185
Granted.................................................... 185,883
Exercised.................................................. (138,815)
Per share option price: $2.33-$15.12
Cancelled.................................................. (18,929)
Options outstanding at
March 31, 1993 (679,888 exercisable)....................... 1,139,324
Granted.................................................... 214,025
Exercised.................................................. (117,683)
Per share option price: $5.82-$18.28
Cancelled.................................................. (16,405)
Options outstanding at
March 31, 1994 (691,499 exercisable)....................... 1,219,261
Per share option price: $6.11-$24.75
The Company has also adopted the "Legg Mason 1988
Non-Employee Director Option Plan." Options granted under the plan are
immediately exercisable at a price equal to the fair market value of
the shares on the date of grant. Options issuable under the plan,
limited to 175,000 shares in aggregate, have a term of not more than
ten years from the date of grant. At March 31, 1994, options on 55,000
shares have been granted, of which 50,000 are currently outstanding.
The Company makes no charge to income with respect to its stock option
plans.
The Company has an Employee Stock Purchase Plan covering
substantially all employees. Shares of common stock are purchased in
the open market on behalf of participating employees, subject to a
625,000 total share limit under the plan. Purchases are made through
46
payroll deductions with the Company matching 5% of the employees'
contributions. Charges to earnings were not significant with respect
to this plan.
12. OFF-BALANCE SHEET RISK AND CONCENTRATION OF CREDIT
In the normal course of business, the Company executes,
settles and finances customer and proprietary securities transactions.
These activities expose the Company to off-balance sheet risk in the
event that customers or other parties fail to satisfy their
obligations.
In accordance with industry practice, securities transactions
are recorded on settlement date, generally five business days after
trade date. Should a customer or broker fail to deliver cash or
securities as agreed, the Company may be required to purchase or sell
securities at unfavorable market prices.
The Company extends credit to customers, collateralized by
cash and securities, and subject to regulatory and internal
requirements. Customer margin transactions include sales of securities
not yet purchased, option contracts and commodity futures contracts.
The Company continually monitors margin requirements and requests
customers to deposit additional collateral or reduce positions when
necessary. Such transactions expose the Company to risk in the event
that margin requirements are insufficient to fully cover customer
losses.
The Company borrows and lends securities to finance
transactions and facilitate the settlement process, utilizing both
firm proprietary positions and customer margin securities held as
collateral. The Company deposits or receives cash equal to 102% of the
market value of securities exchanged and monitors the adequacy of
collateral levels on a daily basis. The Company periodically borrows
from banks and a clearing organization on a collateralized basis,
utilizing firm and customer margin securities in compliance with
Securities and Exchange Commission rules. Should the counterparty fail
to return customer securities pledged, the Company is subject to the
risk of acquiring the securities at prevailing market prices in order
to satisfy its customer obligations. The Company sells securities it
does not currently own, and is obligated to subsequently purchase such
securities at prevailing market prices. The Company is exposed to risk
of loss if prices of the securities increase prior to closing the
transactions.
13. REGULATORY REQUIREMENTS
The Company's broker-dealer subsidiaries must maintain
separate accounts for the exclusive benefit of customers in accordance
with Securities and Exchange Commission Rule 15c3-3 and comply with
segregation requirements under Section 4d(2) of the Commodity Exchange
Act, as determined by periodic computations. The rules allow the
47
broker-dealers to maintain the required amounts in cash or in
qualified securities.
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 March 31, 1994, the broker-dealer subsidiaries had
aggregate net capital, as defined, of $105,335 which exceeded required
net capital by $99,219.
14. BUSINESS SEGMENT INFORMATION
The Company, through its subsidiaries, operates predominately
in a single business segment-the securities industry. Within this
segment, the Company is primarily engaged in securities brokerage,
investment advisory and investment banking activities.
48
QUARTERLY FINANCIAL DATA
(Dollars in thousands except per share amounts)
(Unaudited)
Quarter ended*
1994 Mar. 31 Dec. 31 Sept. 30 June 30
Revenues $96,294 $103,125 $106,767 $91,348
Expenses 85,347 86,803 88,025 78,145
Earnings before income taxes 10,947 16,322 18,742 13,203
Income taxes 4,280 6,433 7,382 5,071
Net earnings $ 6,667 $ 9,889 $ 11,360 $ 8,132
Earnings per share:
Primary $ .55 $ .81 $ .94 $ .68
Fully diluted $ .45 $ .65 $ .74 $ .57
1993 Mar. 31 Dec. 31 Sept. 30 June 30
Revenues $92,257 $ 85,143 $ 77,728 $81,219
Expenses 78,209 73,871 66,508 68,776
Earnings before income taxes 14,048 11,272 11,220 12,443
Income taxes 5,338 4,227 4,376 4,839
Net earnings $ 8,710 $ 7,045 $ 6,844 $ 7,604
Earnings per share:
Primary $ .74 $ .61 $ .60 $ .66
Fully diluted $ .68 $ .55 $ .54 $ .61
* Adjusted to reflect the 5-for-4 stock split paid September 1993.
49
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by this item is contained under the
caption "Election of Directors" on pages 1 through 4 of the Company's
definitive proxy statement for the 1994 Annual Meeting of
Stockholders. Such information is incorporated herein by reference to
the proxy statement. See Part I, Item 4A of this Report for
information regarding certain executive officers of the Company.
Item 11. Executive Compensation.
The information required by this item is contained under the
caption "Executive Compensation" on pages 6 through 7 of the Company's
definitive proxy statement for the 1994 Annual Meeting of
Stockholders. Such information is incorporated herein by reference to
the proxy statement.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The information required by this item is contained under the
caption "Security Ownership of Management and Principal Stockholders"
on page 5 of the Company's definitive proxy statement for the 1994
Annual Meeting of Stockholders. Such information is incorporated
herein by reference to the proxy statement.
Item 13. Certain Relationships and Related Transactions.
The information required by this item is contained under the
caption "Certain Transactions" on pages 10 through 11 of the Company's
definitive proxy statement for the 1994 Annual Meeting of
Stockholders. Such information is incorporated herein by reference to
the proxy statement.
50
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K.
(a) Documents filed as a part of the report:
1. The following consolidated financial statements are
included in Item 8 of this Report:
Page Number in
this Report
Report of Independent
Accountants 33
Consolidated Statements
of Earnings 34
Consolidated Statements
of Financial Condition 35
Consolidated Statements of
Changes in Stockholders'
Equity 36
Consolidated Statements
of Cash Flows 37
Notes to Consolidated
Financial Statements 38 - 47
2. Financial Statement Schedules (included on pages S-1 to
S-7 of this Report):
Report of Independent Accountants on
Financial Statement Schedules
Schedule III - Condensed Financial Statement of
Registrant
Schedule IX - Short-Term Borrowings
Schedule X - Supplemental Income Statement
Information
All other schedules to the consolidated financial statements
for which provision is made in the accounting regulations of
the Securities and Exchange Commission are not applicable or
are not required and therefore have been omitted.
51
3. Exhibits
3.1 - Articles of Incorporation of the Company,
as amended (incorporated by reference to
Form 10-Q for the quarter ended June 30,
1988)
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)
4.1 - The Company hereby agrees, pursuant to
Item 601(b)(4)(iii)(A) of Regulation S-K,
to furnish to the Commission upon request
a copy of each instrument with respect to
the rights of holders of long-term debt
of the Company or its subsidiaries.
10.1.1 - Limited Partnership Agreement of 7 East
Redwood Street Limited Partnership dated
October 13, 1978 and amendment thereto
dated January 1982 (incorporated by
reference to Form S-1 Registration
Statement (No. 2-84659) filed with the
Commission on June 21, 1983)
10.1.2 - Amendment dated April 26, 1984 to Limited
Partnership Agreement of 7 East Redwood
Street Limited Partnership (incorporated
by reference to the Company's Annual
Report on Form 10-K for the year ended
March 31, 1984)
10.2.1 - Lease dated September 11, 1987 between
Baltimore Center Associates Limited
Partnership and Legg Mason Tower, Inc.
with respect to the Company's premises at
111 South Calvert Street, Baltimore,
Maryland (incorporated by reference to
Form 10-Q for the quarter ended
September 30, 1987)
10.2.2 - First Amendment of Agreement of Lease
dated August 1, 1988 with respect to
lease dated September 11, 1987
(incorporated by reference to the
Company's Annual Report on Form 10-K for
the year ended March 31, 1989)
10.2.3 - Second Amendment of Agreement of Lease
dated December 19, 1988 with respect to
52
lease dated September 11, 1987
(incorporated by reference to the
Company's Annual Report on Form 10-K for
the year ended March 31, 1989)
10.2.4 - Third Amendment of Agreement of Lease
dated as of October 1, 1990 with respect
to lease dated September 11, 1987
(incorporated by reference to the
Company's Annual Report on Form 10-K for
the year ended March 31, 1991)
10.2.5 - Fourth Amendment of Agreement of Lease
dated August 3, 1992 with respect to
lease dated September 11, 1987
(incorporated by reference to the
Company's Annual Report on Form 10-K for
the year ended March 31, 1993)
10.2.6 - Lease dated July 30, 1991 with respect to
a portion of the Company's premises at
7 East Redwood Street, Baltimore,
Maryland (incorporated by reference to
the Company's Annual Report on Form 10-K
for the year ended March 31, 1993)
10.2.7 - Lease dated October 12, 1992 with respect
to a portion of the Company's premises at
7 East Redwood Street, Baltimore,
Maryland (incorporated by reference to
the Company's Annual Report on Form 10-K
for the year ended March 31, 1993)
10.3 - Legg Mason, Inc. 1981 Stock Option Plan,
as amended through January 26, 1988
(incorporated by reference to the
Company's Annual Report on Form 10-K for
the year ended March 31, 1988)*
10.4 - Legg Mason, Inc. 1981 Incentive Stock
Option Plan, as amended through June 2,
1988 (incorporated by reference to the
Company's Annual Report on Form 10-K for
the year ended March 31, 1988)*
10.5 - Legg Mason, Inc. 1988 Non-Employee
Director Stock Option Plan (incorporated
by reference to the Company's Annual
Report on Form 10-K for the year ended
March 31, 1993)*
53
10.6 - Legg Mason Wood Walker, Incorporated
Deferred Compensation/Phantom Stock Plan
(incorporated by reference to
Registration No. 33-28609 on Form S-8)*
10.7.1 - Legg Mason, Inc. 1991 Omnibus Long-Term
Compensation Plan (incorporated by
reference to the definitive proxy
statement for the Company 1991 Annual
Meeting of Stockholders)*
10.7.2 - Form of Option Agreement under Legg
Mason, Inc. 1991 Omnibus Long-Term
Compensation Plan (incorporated by
reference to the Company's Annual Report
on Form 10-K for the year ended March 31,
1993)*
11.1 - Statement regarding computation of per
share earnings, filed herewith
21.1 - Subsidiaries of the Company, filed
herewith
23.1 - Consent of independent accountants, filed
herewith
_______________
*These exhibits are management contracts or compensatory plans or
arrangements.
(b) No reports on Form 8-K were filed during the quarter
ended March 31, 1994.
54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ Raymond A. Mason
Raymond A. Mason, Chairman
of the Board, President and
Chief Executive Officer
Date: June 28, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant in the capacities and on the dates indicated.
Signature Title Date
/s/ Raymond A. Mason Chairman of the Board, June 28, 1994
Raymond A. Mason President and Chief
Executive Officer
(Principal Executive
Officer)
/s/ F. Barry Bilson Vice President-Finance June 28, 1994
F. Barry Bilson (Principal Financial
Officer)
/s/ Eileen O'Rourke Controller (Principal June 28, 1994
Eileen M. O'Rourke Accounting Officer)
/s/ John J. Curley, Jr. Director June 28, 1994
John F. Curley, Jr.
55
/s/ James W. Brinkley Director June 28, 1994
James W. Brinkley
/s/ Edmund J. Cashman, Jr. Director June 28, 1994
Edmund J. Cashman, Jr.
/s/ Charles A. Bacigalupo Director June 28, 1994
Charles A. Bacigalupo
/s/ Harry M. Ford, Jr. Director June 28, 1994
Harry M. Ford, Jr.
/s/ Kenneth S. Battye Director June 28, 1994
Kenneth S. Battye
/s/ Joseph W. Sener, Jr. Director June 28, 1994
Joseph W. Sener, Jr.
/s/ Nicholas J. St. George Director June 28, 1994
Nicholas J. St. George
/s/ Richard J. Himelfarb Director June 28, 1994
Richard J. Himelfarb
Director
James E. Ukrop
/s/ John B. Levert, Jr. Director June 28, 1994
John B. Levert, Jr.
56
/s/ Harold L. Adams Director June 28, 1994
Harold L. Adams
/s/ John E. Koerner, III Director June 28, 1994
John E. Koerner, III
/s/ Roger W. Schipke Director June 28, 1994
Roger W. Schipke
Director
W. Curtis Livingston
/s/ Edward I. O'Brien Director June 28, 1994
Edward I. O'Brien
/s/ Peter F. O'Malley Director June 28, 1994
Peter F. O'Malley