Legg Mason revises profit downward for recent quarters

Accounting changes blamed

analyst sees no setback to firm


June 04, 1999|By Bill Atkinson | Bill Atkinson,SUN STAFF

Legg Mason Inc. said yesterday that it revised downward its profit for its fiscal year and its last three quarters because of an accounting change that affected its deferred compensation stock plan.

The revision reduced net earnings for the fiscal year that ended March 31 by 6.5 percent, from $95.5 million, or $1.62 per diluted share, to $89.3 million, or $1.55 per diluted share. Stockholders' equity was reduced to $554 million from $590 million.

In the fourth quarter, the change reduced net earnings by 7.5 percent, from $26.7 million to $24.8 million. Legg's earnings were up 17.4 percent for the full year, compared with the year-ago quarter.

F. Barry Bilson, senior vice president of finance, said the changes were driven by a "peculiar accounting situation where you end up with this phantom charge against earnings that has no impact on operations or cash flow."

The revision was made to conform to a new rule by the governing body of the accounting profession. The rule requires that if shares of company stock held by a trust for a deferred compensation plan rise in value, the company has to book it as an expense against earnings.

Legg's deferred compensation stock plan, which has about 1.5 million shares, has risen to a value of about $48 million, Bilson said. Legg should have recorded increases as a charge against earnings since Sept. 30, 1998, when the rule took effect. The total after-tax charge to earnings for the fiscal year that ended March 31, was $6.2 million.

Legg officials were not aware of the rule change, Bilson said.

"Had we been aware of it we would have amended the plan at that point in time," Bilson said. "It was an oversight."

Bilson said that if the deferred compensation stock plan had decreased in value, Legg would have had to restate its profit upward.

He said that the company has amended the plan so that after the fiscal first quarter ending June 30, changes in the value of the stock held by the plan trust will not affect the company's earnings and stockholders' equity will be substantially restored.

Michael Flanagan, an independent brokerage analyst at Financial Service Analytics in Philadelphia, said the rule is a "large measure of accounting nonsense."

"There is absolutely no economic impact on Legg Mason," he said. "I am not taking the issue seriously and I hope the market doesn't."

Shares of Legg Mason closed at $32.4375, down 31.25 cents.

Pub Date: 6/04/99

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