EX-99.6 10 dex996.txt UNAUDITED PRO FORMA COMBINED FINANCIAL STMTS. Exhibit 99.6 Unaudited Pro Forma Combined Financial Statements The following unaudited pro forma combined financial statements give effect to the acquisition by Legg Mason, Inc. ("Legg Mason") of Private Capital Management, L.P. and certain affiliated entities ("PCM-L.P.") and Carnes Capital Corporation ("CCC"), (collectively, "PCM"), in a transaction accounted for as a purchase. The unaudited pro forma combined balance sheet presents the combined financial position of Legg Mason and PCM as of June 30, 2001 assuming the acquisition had occurred as of that date. Such pro forma information is based upon the historical balance sheets of Legg Mason and PCM as of June 30, 2001. The unaudited pro forma combined statements of earnings are presented for the year ended March 31, 2001 and the three months ended June 30, 2001 assuming the acquisition occurred on April 1, 2000. The unaudited pro forma combined statement of earnings for the year ended March 31, 2001 combines the historical statements of earnings of Legg Mason for the year ended March 31, 2001 and PCM for the year ended December 31, 2000 (consisting of Private Capital Management, Inc. ("PCM, Inc.") for the six months ended June 29, 2000, PCM-L.P. for the six months ended December 31, 2000, and CCC for the year ended December 31, 2000). The unaudited pro forma combined statement of earnings for the three months ended June 30, 2001 reflects the period from April 1, 2001 to June 30, 2001 for Legg Mason and PCM. Revenues and net earnings of approximately $20.9 million and $18.4 million, respectively, of PCM for the period from January 1, 2001 to March 31, 2001 have been excluded from the unaudited pro forma combined financial statements. The acquisition of PCM by Legg Mason was completed on August 1, 2001. As such, the unaudited pro forma combined financial statements reflect the application of Statement of Financial Accounting Standards ("SFAS") No. 141 -- "Business Combinations" and SFAS No. 142 -- "Goodwill and Other Intangible Assets" to this transaction. SFAS Nos. 141 and 142 are applicable for all business combinations consummated after June 30, 2001. Additionally, the unaudited pro forma combined financial statements as of and for the three months ended June 30, 2001 include the effect of Legg Mason adopting SFAS Nos. 141 and 142 as of April 1, 2001, for all prior business combinations. The unaudited pro forma combined financial statements are provided for informational purposes only and are not necessarily indicative of the financial position or results of operations had the transactions assumed occurred on such dates, nor are they indicative of the results of operations or financial position that may occur. The unaudited pro forma combined financial statements should be read in conjunction with the historical financial statements and notes thereto of Legg Mason, PCM-L.P., PCM, Inc. and CCC. -1- Legg Mason, Inc. Unaudited Pro Forma Combined Balance Sheet June 30, 2001 (Dollars in thousands)
PCM PCM PCM-L.P. CCC Eliminations Combined --------------------------------------------------------------------------------------------------------------------------------- Assets Cash and cash equivalents $ 4,620 $ 1,315 $ - $ 5,935 Cash and securities segregated for regulatory purposes - Receivables: Customers 20,857 1,069 (39) 21,887 Brokers, dealers and clearing organizations - Others - Securities borrowed - Financial instruments owned, at fair value - Investment securities, at fair value 1,510 1,510 Investments of finance subsidiaries - Equipment and leasehold improvements, net 4 1,739 1,743 Intangible assets, net - Goodwill - Other 7,857 127 7,984 --------------------------------------------------------------------------------------------------------------------------------- $ 33,338 $ 5,760 $ (39) $ 39,059 ================================================================================================================================= Liabilities and Stockholders' Equity Liabilities Payables: Customers $ - $ - $ - $ - Brokers and dealers - Securities loaned - Short-term borrowings - Financial instruments sold, but not yet purchased, at fair value - Accrued compensation Other 388 222 (39) 571 Notes payable of finance subsidiaries - Long - term debt - --------------------------------------------------------------------------------------------------------------------------------- 388 222 (39) 571 --------------------------------------------------------------------------------------------------------------------------------- Stockholders' Equity Common stock - - - - Shares exchangeable into common stock - Additional paid-in capital - Deferred compensation and employee note receivable - Employee stock trust - Deferred compensation employee stock trust - Retained earnings 32,950 5,538 38,488 Accumulated other comprehensive income (loss), net - --------------------------------------------------------------------------------------------------------------------------------- 32,950 5,538 - 38,488 --------------------------------------------------------------------------------------------------------------------------------- $ 33,338 $ 5,760 $ (39) $ 39,059 ================================================================================================================================= Legg Mason Pro Forma Pro Forma As Reported Adjustments Combined --------------------------------------------------------------------------------------------------------------------------------- Assets Cash and cash equivalents $ 741,104 $(262,178) (a) $ 484,861 Cash and securities segregated for regulatory purposes 1,973,746 1,973,746 Receivables: Customers 1,070,639 1,092,526 Brokers, dealers and clearing organizations 183,614 183,614 Others 116,964 116,964 Securities borrowed 276,468 276,468 Financial instruments owned, at fair value 147,598 147,598 Investment securities, at fair value 13,332 14,842 Investments of finance subsidiaries 103,045 103,045 Equipment and leasehold improvements, net 70,832 131 (b) 72,706 Intangible assets, net 66,747 345,000 (b) 411,747 Goodwill 88,612 331,869 (b) 420,481 Other 155,373 3,035 (c) 158,558 (7,834) (d) --------------------------------------------------------------------------------------------------------------------------------- $ 5,008,074 $ 410,023 $ 5,457,156 ================================================================================================================================= Liabilities and Stockholders' Equity Liabilities Payables: Customers $ 2,909,911 $ - $ 2,909,911 Brokers and dealers 19,640 19,640 Securities loaned 259,621 259,621 Short-term borrowings 128,349 128,349 Financial instruments sold, but not yet purchased, at fair value 29,560 29,560 Accrued compensation 108,434 108,434 Other 129,961 24,654 (d) 155,186 Notes payable of finance subsidiaries 104,320 104,320 Long - term debt 350,259 423,857 (e) 774,116 --------------------------------------------------------------------------------------------------------------------------------- 4,040,055 448,511 4,489,137 --------------------------------------------------------------------------------------------------------------------------------- Stockholders' Equity Common stock 6,345 - 6,345 Shares exchangeable into common stock 10,255 10,255 Additional paid-in capital 343,700 343,700 Deferred compensation and employee note receivable (38,634) (38,634) Employee stock trust (87,801) (87,801) Deferred compensation employee stock trust 87,801 87,801 Retained earnings 654,083 (32,488) (d) 654,083 (6,000) (f) Accumulated other comprehensive income (loss), net (7,730) (7,730) --------------------------------------------------------------------------------------------------------------------------------- 968,019 (38,488) 968,019 --------------------------------------------------------------------------------------------------------------------------------- $ 5,008,074 $ 410,023 $ 5,457,156 =================================================================================================================================
See Notes to Unaudited Pro Forma Combined Financial Statements. -2- Legg Mason, Inc. Unaudited Pro Forma Combined Statement of Earnings for the three months ended June 30, 2001 (Dollars in thousands, except per share amounts)
PCM PCM PCM-L.P. CCC Eliminations Combined -------- -------- ------------ --------- REVENUES -------- Investment advisory and related fees $ 25,134 $ - $ - $ 25,134 Commissions - 2,761 - 2,761 Principal transactions - - - - Investment banking - - - - Interest 47 598 - 645 Other - 120 (120) - -------- -------- ----------- --------- Total revenues 25,181 3,479 (120) 28,540 Interest expense Customer interest - - - - Debt interest - - - - -------- -------- ----------- --------- Total interest expense - - - - -------- -------- ----------- --------- Net revenues 25,181 3,479 (120) 28,540 NON-INTEREST EXPENSES --------------------- Compensation and benefits 329 804 - 1,133 Communications and technology 10 128 - 138 Occupancy 52 137 - 189 Floor brokerage and clearing fees - 292 - 292 Intangible amortization expense - - - - Other 234 272 (120) 386 -------- -------- ----------- --------- Total non-interest expenses 625 1,633 (120) 2,138 Earnings before income taxes 24,556 1,846 - 26,402 Income tax provision - - - - -------- -------- ----------- --------- Net earnings $ 24,556 $ 1,846 $ - $ 26,402 ======== ======== =========== ========= Earnings per common share: Basic Diluted Weighted average shares (in thousands): Basic Diluted Legg Mason Pro Forma Pro Forma As Reported Adjustments Combined ---------------- ----------- -------- REVENUES -------- Investment advisory and related fees $ 169,453 $ - $ 194,587 Commissions 83,343 - 86,104 Principal transactions 33,246 - 33,246 Investment banking 20,404 - 20,404 Interest 54,743 (808) (a) 54,580 Other 19,811 - 19,811 ------------ ---------- ---------- Total revenues 381,000 (808) 408,732 Interest expense Customer interest 26,017 - 26,017 Debt interest 8,661 9,045 (b) 17,706 ------------ ---------- ---------- Total interest expense 34,678 9,045 43,723 ------------ ---------- ---------- Net revenues 346,322 (9,853) 365,009 NON-INTEREST EXPENSES --------------------- Compensation and benefits 213,619 3,603 (c) 218,355 Communications and technology 26,181 - 26,319 Occupancy 14,855 - 15,044 Floor brokerage and clearing fees 2,476 - 2,768 Intangible amortization expense 1,812 4,139 (d) 5,951 Other 28,036 - 28,422 ------------ ---------- ---------- Total non-interest expenses 286,979 7,742 296,859 Earnings before income taxes 59,343 (17,595) 68,150 Income tax provision 23,982 3,400 (e) 27,382 ------------ ---------- ---------- Net earnings $ 35,361 $ (20,995) $ 40,768 ============ ========== ========== Earnings per common share: Basic $ 0.55 $ 0.63 Diluted 0.52 0.60 Weighted average shares (in thousands): Basic 64,650 64,650 Diluted 68,005 68,005
See Notes to Unaudited Pro Forma Combined Financial Statements. -3- Legg Mason, Inc. Pro Forma Combined Statement of Earnings (Unaudited) for the year ended March 31, 2001 (Dollars in thousands, except per share amounts)
PCM PCM, Inc. PCM-L.P. CCC Combined ----------------- ------------------- ------------- ---------------- REVENUES Investment advisory and related fees $ 34,435 $ 33,265 $ - $ 67,700 Commissions - - 6,954 6,954 Principal transactions - - - - Investment banking - - - - Interest 132 183 636 951 Other - - - - ----------------- ------------------- ------------- ---------------- Total revenues 34,567 33,448 7,590 75,605 Interest expense Customer interest - - - - Debt interest - - - - ----------------- ------------------- ------------- ---------------- Total interest expense - - - - ----------------- ------------------- ------------- ---------------- Net revenues 34,567 33,448 7,590 75,605 NON-INTEREST EXPENSES Compensation and benefits 15,643 740 2,740 19,123 Communications and technology - - 253 253 Occupancy - - - - Floor brokerage and clearing fees - - 1,029 1,029 Intangible amortization expense - - - - Other 788 466 1,759 3,013 ----------------- ------------------- ------------- ---------------- Total non-interest expenses 16,431 1,206 5,781 23,418 Earnings before income taxes 18,136 32,242 1,809 52,187 Income tax provision - - - - ----------------- ------------------- ------------- ---------------- Net earnings $ 18,136 $ 32,242 $ 1,809 $ 52,187 ================= =================== ============= ================ Earnings per common share: Basic Diluted Weighted average shares (in thousands): Basic Diluted Legg Mason Proforma Pro Forma As Reported Adjustments Combined ------------------ ----------------- ------------------- REVENUES Investment advisory and related fees $ 653,992 $ - $ 721,692 Commissions 358,562 - 365,516 Principal transactions 124,556 - 124,556 Investment banking 65,877 - 65,877 Interest 282,201 (1,016) (a) 282,136 Other 51,065 - 51,065 ------------------ ------------------ ------------------- Total revenues 1,536,253 (1,016) 1,610,842 Interest expense Customer interest 168,889 - 168,889 Debt interest 6,500 39,097 (b) 45,597 ------------------ ------------------ ------------------- Total interest expense 175,389 39,097 214,486 ------------------ ------------------ ------------------- Net revenues 1,360,864 (40,113) 1,396,356 NON-INTEREST EXPENSES Compensation and benefits 804,776 (8,297) (c) 815,602 Communications and technology 102,764 - 103,017 Occupancy 51,670 - 51,670 Floor brokerage and clearing fees 7,709 - 8,738 Intangible amortization expense 12,387 16,556 (d) 28,943 Other 115,738 - 118,751 ------------------ ------------------ ------------------- Total non-interest expenses 1,095,044 8,259 1,126,721 Earnings before income taxes 265,820 (48,372) 269,635 Income tax provision 109,590 1,473 (e) 111,063 ------------------ ------------------ ------------------- Net earnings $ 156,230 $ (49,845) $ 158,572 ================== ================== =================== Earnings per common share: Basic $ 2.45 $ 2.49 Diluted 2.30 2.33 Weighted average shares (in thousands): Basic 63,793 63,793 Diluted 67,916 67,916
See Notes to Combined Pro Forma Financial Statements. -4- Notes to the Unaudited Pro Forma Combined Financial Statements Note 1. Basis of Presentation On August 1, 2001, Legg Mason, Inc. ("Legg Mason") completed its acquisition of Private Capital Management, L.P. and certain affiliated entities ("PCM-L.P.") whereby it acquired the business operations of PCM- L.P., and Carnes Capital Corporation ("CCC"), (collectively, "PCM"). Under the terms of the agreement, Legg Mason paid $682 million at closing, plus acquisition costs of approximately $1 million. The transaction also includes two contingent payments on the third and fifth anniversaries of the closing based on PCM's revenue growth, with the aggregate purchase price to be no more than $1.382 billion. As part of the transaction, a contractual revenue sharing arrangement was entered into whereby PCM will distribute to Legg Mason a fixed percentage of operating revenues. The remaining portion will generally be available to fund operating costs (excluding amortization of acquired intangible assets). Additionally, prior to closing, PCM recorded a final distribution to the extent net worth exceeded $6 million. PCM-L.P. is a registered investment advisor that specializes in the management of equity assets for individuals and institutions. PCM-L.P. was formed on June 29, 2000, when Private Capital Management, Inc. ("PCM, Inc.") (an S Corporation) contributed its investment advisory business and certain operating assets of approximately $7.4 million to PCM-L.P. for a partnership interest in PCM-L.P. CCC is a broker-dealer registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934. CCC generates its revenues principally by providing securities brokerage services to clients of PCM. The unaudited pro forma combined balance sheet presents the combined financial position of Legg Mason and PCM as of June 30, 2001 assuming the acquisition had occurred as of that date. Such pro forma information is based upon the historical balance sheets of Legg Mason and PCM as of June 30, 2001. The unaudited pro forma combined statements of earnings are presented for the year ended March 31, 2001 and the three months ended June 30, 2001 assuming the acquisition occurred on April 1, 2000. The unaudited pro forma combined statement of earnings for the year ended March 31, 2001 combines the historical statements of earnings of Legg Mason for the year ended March 31, 2001 and PCM for the year ended December 31, 2000 (consisting of PCM, Inc. for the six months ended June 29, 2000, PCM-L.P. for the six months ended December 31, 2000 and CCC for the year ended December 31, 2000). The unaudited pro forma combined statement of earnings for the three months ended June 30, 2001 reflects the period from April 1, 2001 to June 30, 2001 for Legg Mason and PCM. Note 2. Accounting Policies The acquisition of PCM by Legg Mason was completed on August 1, 2001. As such, the unaudited pro forma combined financial statements reflect the application of Statement of Financial Accounting Standards ("SFAS") No. 141 -- "Business Combinations" and SFAS No. 142 -- "Goodwill and Other Intangible Assets" to this transaction. The provisions of SFAS Nos. 141 and 142 are applicable for all business combinations consummated after June 30, 2001. Assuming the transaction occurred as of June 30, 2001, a summary of the net assets acquired is as follows (in thousands): Current assets, net $ 4,257 Fixed assets 1,874 Trade name 47,000 Asset management contracts 298,000 Goodwill 331,869 ------------- Total purchase price, including acquisition costs $ 683,000 ------------- Additionally, the unaudited pro forma combined financial statements as of and for the three months ended June 30, 2001 include the effect of Legg Mason's early adoption of SFAS Nos. 141 and 142 as of April 1, 2001 for all prior business combinations. The following table reflects the pro forma combined results for the year ended March 31, 2001 adjusted as though the adoption of SFAS Nos. 141 and 142 occurred as of the beginning of the year: -5-
Net Basic Diluted Earnings Earnings per Earnings (in thousands) Share/(1)/ per Share/(1)/ --------------- ---------------- --------------- Combined pro forma - as reported $ 158,572 $ 2.49 $ 2.33 Goodwill amortization 4,586 .07 .07 Indefinite-life intangible amortization 1,039 .02 .02 --------------- ---------------- --------------- Combined pro forma - as adjusted $ 164,197 $ 2.57 $ 2.42 --------------- ---------------- ---------------
/(1)/ Column totals may not add due to rounding. Note 3. Debt Issuance On July 2, 2001, Legg Mason issued $425 million principal amount of senior notes, due in July 2008, which bear interest at 6.75%. The notes were sold at a discount to yield 6.80%. Additionally, on June 6, 2001, Legg Mason issued $567 million principal amount at maturity of zero-coupon convertible notes for proceeds of approximately $250 million. The discounted price reflects a yield to maturity of 2.75% per year. The proceeds from the convertible notes and a portion of the proceeds from the senior notes were used to fund the PCM acquisition. Note 4. Earnings Per Common Share The pro forma combined basic and diluted earnings per share for the periods presented are based on the weighted average number of Legg Mason shares as of the end of each applicable period. Note 5. PCM Eliminations The PCM eliminations include investment consulting fees charged to PCM-L.P. by the subsidiary of CCC. Note 6. Pro forma Adjustments The pro forma combined balance sheet has been prepared to reflect the acquisition of PCM by Legg Mason for an aggregate cash purchase price of $683 million. At closing, PCM provided $6 million in net assets. Pro forma adjustments are made to the balance sheet to reflect: (a) The payment of the cash purchase price of $683 million. The cash purchase price was funded with a portion of the net cash proceeds of approximately $421 million from the public offering of the senior notes described in Note 3 above and available cash, resulting in a net reduction in cash of approximately $262 million. (b) Allocation of the purchase price to the estimated fair value of the net assets at acquisition date (see Note 2) consisting of a write up to fixed assets of $131 thousand, recognition of intangible assets of $345 million comprising amortizable management contracts of $298 million and indefinite life intangible assets for trade name of $47 million, and goodwill of $332 million. (c) The debt issuance costs of approximately $3.0 million related to the senior notes described in Note 3 above. (d) Adjustment to reduce the net assets of PCM to $6 million provided at closing in accordance with the terms of the purchase agreement. (e) The issuance of $425 million senior notes, net of discount, as described in Note 3 above. (f) Elimination of net equity of PCM. Pro forma adjustments are made to the statements of earnings to reflect: (a) Reduction in interest income related to the reduction in the cash balance. -6- (b) Increase in interest expense related to the issuance on June 6, 2001 of $567 million principal amount at maturity convertible notes at an effective yield of 2.75%, plus the issuance on July 2, 2001 of $425 million senior notes with an effective yield of 6.80%, assuming the debt was issued as of April 1, 2000. (c) Adjustment to the operating expenses to reflect the contractual revenue sharing and compensation arrangement entered into as part of the transaction as described in Note 1. (d) Amortization of intangible assets related to the $298 million of management contracts over a weighted average period of 18 years. (e) Adjustment to income taxes on a combined basis to reflect the estimated effective tax rate of approximately 39% for PCM. Previously, no income taxes were recorded by PCM. The pro forma combined financial statements do not include integration costs, or other transactions or events that the combined entity may undertake or experience as a result of the acquisition. As such, any restructuring charges, anticipated increases in revenues, or unexpected cost savings, are not presented in the pro forma combined financial statements. Note 7. Performance Fees PCM's investment advisory and related fees in the proforma combined statements of earnings include performance fees of $6.0 million and $12.7 million for the three months ended June 30, 2001 and the year ended March 31, 2001, respectively. -7-