FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended 03-31-00
OR
|_| TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 0-26868
LEXINGTON GLOBAL ASSET MANAGERS, INC.
DELAWARE 22-3395036
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
PARK 80 WEST PLAZA TWO
SADDLE BROOK, NJ 07663
201-845-7300
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 ____
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes ____ No ____
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of March 31, 2000.
Common Stock-$.01 Par Value Per Share
Authorized 15,000,000 Shares
4,505,038 Shares Outstanding
TABLE OF CONTENTS
Part I. Financial Information
Condensed Consolidated Statements of Financial Condition
Condensed Consolidated Statements of Operations
Condensed Consolidated Statements of Cash Flows
Notes to Condensed Consolidated Financial Statements
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Part II. Other Information
Legal Proceedings and Exhibits
-------------------
LEXINGTON GLOBAL ASSET MANAGERS, INC.
AND SUBSIDIARIES
Item I. Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
3/31/00 12/31/99
------- --------
(Unaudited)
Assets:
Cash and cash equivalents:
Cash $ 1,192,622 $ 1,262,379
Money market accounts 7,598,594 8,616,274
------------ ------------
8,791,216 9,878,653
------------ ------------
Receivables:
Investment advisory and management fees 1,745,807 1,339,294
Due from funds and other 838,374 468,413
------------ ------------
2,584,181 1,807,707
------------ ------------
Trading securities, at market value 1,580,166 1,061,227
Prepaid expenses 1,199,345 1,411,688
Prepaid taxes 3,295 5,433
Fixed assets (net of accumulated depreciation
and amortization) 876,633 931,576
Intangible assets (net of accumulated amortization) 158,226 162,276
Assets associated with deferred compensation 1,065,786 1,013,895
Deferred tax asset, net 1,498,911 1,756,238
Other assets 10,056 9,562
------------ ------------
Total assets $ 17,767,815 $ 18,038,255
============ ============
Liabilities:
Accounts payable and other accrued expenses $ 4,102,634 $ 4,848,923
Deferred income 2,293,950 2,134,972
Deferred compensation 1,065,786 1,013,895
Federal income taxes payable 704,909 794,016
------------ ------------
Total liabilities 8,167,279 8,791,806
------------ ------------
Minority interest 540,655 473,156
Stockholders' Equity:
Preferred stock, $.01 par value; 5,000,000 authorized shares;
-0- issued and outstanding
Common stock, $.01 par value; 15,000,000 authorized shares; 5,487,887 issued,
4,505,038 and 4,494,038, respective54,879tstanding54,879
Additional paid-in capital 21,533,392 21,533,392
Accumulated deficit (8,233,389) (8,359,891)
Deferred compensation (346,494) (506,580)
Treasury stock, at cost (3,948,507) (3,948,507)
------------ ------------
Total stockholders' equity 9,059,881 8,773,293
------------ ------------
Total liabilities and stockholders' equity $ 17,767,815 $ 18,038,255
============ ============
See accompanying notes to the condensed consolidated financial statements
(Unaudited).
LEXINGTON GLOBAL ASSET MANAGERS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended March 31,
2000 1999
---- ----
Revenues:
Investment advisory:
Mutual fund management fees (including approximately
$98,158 and $91,600 from related parties) $ 2,771,358 $ 2,130,851
Mutual fund commissions 5,675 10,160
Other management fees (including approximately
$928,668 and $847,700 from related parties) 2,452,760 2,137,687
Commissions income 9,948 36,306
Other income 413,332 138,623
-------------- --------------
Total revenues 5,653,073 4,453,627
-------------- --------------
Expenses:
Salaries and other compensation 2,304,433 2,271,344
Selling and promotional 246,763 121,881
Administrative and general 2,574,254 1,675,507
-------------- --------------
Total expenses 5,125,450 4,068,732
-------------- --------------
Income before income taxes and minority interest 527,623 384,895
Provision for income taxes
Current 76,294 67,998
Deferred 257,328 98,876
-------------- --------------
Total provision 333,622 166,874
-------------- --------------
Income before minority interest 194,001 218,021
Minority interest 67,499 32,963
-------------- --------------
Net income $ 126,502 $ 185,058
============== ==============
Earnings per share:
Basic earnings per share $0.03 $0.04
============== ==============
Diluted earnings per share $0.03 $0.04
============== ==============
Basic weighted average shares outstanding 4,501,049 4,710,105
============== ==============
Diluted weighted average share and common
stock equivalents outstanding 4,764,214 4,769,898
============== ==============
See accompanying notes to the condensed consolidated financial statements
(Unaudited).
LEXINGTON GLOBAL ASSET MANAGERS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31,
2000 1999
---- ----
Cash flows from operating activities:
Net income $ 126,502 $ 185,058
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 84,078 86,218
Deferred income taxes 257,327 98,876
Minority interest 67,499 32,963
Compensation expense for restricted shares awarded 160,086 157,920
(Increase) decrease in operating assets:
Receivables (776,474) (327,693)
Trading securities, at market value (518,939) 740,897
Prepaid expenses 212,343 (109,322)
Prepaid taxes 2,138 38,118
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses (746,289) (134,596)
Federal income taxes payable (89,107) (1,268)
Deferred income 158,978 272,053
Other, net (494) 1,738
--------------- ---------------
Net cash provided by (used in) operating activities (1,062,352) 1,040,962
Cash flows from investing activities:
Purchases of furniture, equipment and leasehold
improvements (25,085) (4,921)
--------------- ---------------
Net cash used in investing activities (25,085) (4,921)
Cash flows from financing activities:
Purchase of treasury stock - (230,400)
--------------- ---------------
Net cash used in financing activities - (230,400)
Net increase (decrease) in cash and cash equivalents (1,087,437) 805,641
Cash and cash equivalents, beginning of period 9,878,653 8,438,174
--------------- ---------------
Cash and cash equivalents, end of period $ 8,791,216 $ 9,243,815
=============== ===============
See accompanying notes to the condensed consolidated financial
statements (Unaudited).
LEXINGTON GLOBAL ASSET MANAGERS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Basis of Presentation:
The interim financial information presented is unaudited. In the opinion of
Company management, all adjustments, (consisting only of normal recurring
accruals), necessary to present fairly the condensed consolidated financial
position and the results of operations for the interim period have been made.
The financial statements should be read in conjunction with the financial
statements and related notes in the Company's 1999 Annual Report on Form 10-K.
The results of operations for the interim period presented are not necessarily
indicative of the results to be expected for the full year.
Prior year numbers have been reclassified to conform to current year
presentation.
2. Merger with ReliaStar Financial Corporation
On February 29, 2000, the Company announced that it has signed a definitive
agreement for ReliaStar Financial Corporation ("ReliaStar") to acquire the
Company in a stock-and-cash transaction. Under the merger agreement, as amended,
the Company will become a ReliaStar subsidiary, and will operate in conjunction
with Pilgrim Capital Corporation, which manages, markets and distributes open-
and closed-end mutual funds and structured finance products. Completion of the
acquisition is subject to normal closing conditions, including approval by the
Company's shareholders, fund directors and fund shareholders, and various
regulatory approvals. The transaction is expected to close in the third quarter
of 2000. Upon closing of the acquisition, Company shareholders will be entitled
to 0.231 shares of ReliaStar common stock and $3.306 in cash in exchange for
each share of Company common stock they hold, subject to adjustment based on
ReliaStar's common stock price and the Company's assets under management.
Specifically, if ReliaStar's average share price over a five-day pricing period
shortly before completion of the merger is greater than $31.625, then the value
of the merger consideration will be fixed at $10.611 per Lexington share. On
April 30, 2000, ReliaStar agreed to be acquired by the ING Group for a per-share
payment of $54.00 in cash to ReliaStar's shareholders. The acquisition of
ReliaStar is currently expected to close late in the third quarter of 2000.
Because the ING Group has agreed to acquire ReliaStar for $54.00 per share, it
is assumed that the $10.611 fixed price will be applicable to ReliaStar's
acquisition of Lexington, subject to further adjustment based on Lexington's
assets under management. If Lexington's assets under management three days
before the completion of the merger differ by more than 10% from Lexington's
assets under management on December 31, 1999, then the merger consideration will
be increased or reduced, as the case may be, depending on the actual size of the
variance. Changes in assets under management related solely to changes in the
market value of the assets under management will be ignored when calculating any
adjustment. Lexington's total assets under management at December 31, 1999 were
$3,573 million. At March 31, 2000, total assets under management amounted to
$3,643 million. The change in assets under management was comprised of $126
million in market appreciation, offset partially by net cash outflows of $56
million.
3. Disclosures about Segments of an Enterprise and Related Information
The Company and its subsidiaries are principally engaged in a variety of asset
management and related services to retail investors, institutions and private
accounts. The Company operates in three business segments: Mutual Funds,
Institutional, and Private Accounts. The mutual fund segment, through its
subsidiaries, markets, promotes, and distributes the Lexington family of 15
mutual funds providing a variety of investment choices. The institutional
segment for investment management services includes corporate, government and
multi-employee pension plans, charitable endowments and foundations, insurance
company general accounts and defined contribution and 401(k) plans. The private
account segment offers equity, fixed income and balanced fund alternatives,
tailored to the individual investment objectives of its private clients.
LEXINGTON GLOBAL ASSET MANAGERS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
3. Disclosures about Segments of an Enterprise and Related Information (Continued)
Mutual Private
Three months ended March 31, 2000 Funds Institutional Accounts Other Total
- --------------------------------- ----- ------------- -------- ----- -----
Revenue $3,029,603 $1,100,444 $1,393,908 $129,118 $5,653,073
Salaries and other compensation 760,203 1,012,115 532,115 - 2,304,433
Selling and promotional 64,121 124,020 45,633 12,989 246,763
Administrative and general 1,442,244 481,023 588,715 62,272 2,574,254
Income (loss) before income taxes
and minority interest $763,035 ($516,714) $227,445 $53,857 $527,623
Three months ended March 31, 1999
Revenue $2,224,629 $1,021,369 $1,190,095 $17,534 $4,453,627
Salaries and other compensation 1,004,184 946,053 321,107 - 2,271,344
Selling and promotional 36,062 61,920 15,591 8,308 121,881
Administrative and general 658,380 225,842 729,376 61,909 1,675,507
Income (loss) before income taxes
and minority interest $526,003 ($212,446) $124,021 ($52,683) $384,895
Included in the above table are acquisition expenses of approximately $0.8
million allocated based upon the impacted segments.
Management does not evaluate balance sheet assets as a means to allocate
resources and assess performance. The Company is domiciled in the United States
and does not have any international operations.
4. Taxes
The Company's effective tax rate for the quarter ended March 31, 2000 and March
31, 1999 was 43% and 43% respectively excluding non-deductible acquisition
expenses of approximately $250 thousand recorded in the quarter ended March 31,
2000.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Management's Discussion and Analysis contained in the Company's Annual Report on
Form 10-K for December 31, 1999 is incorporated herein by reference and should
be read in conjunction with the following.
Three Months Ended March 31, 2000 and 1999
The consolidated net income for three months ended March 31, 2000 was $126,502
or $0.03 per share, compared to $185,058 or $0.04 per share in the first quarter
of 1999. Revenues for the quarter amounted to $5.7 million, which are $1.2
million above the first quarter of 1999. Total expenses of $5.1 million are
approximately $1.0 million above the $4.1 million recorded in the first quarter
of 1999. Of the $1.0 million increase, approximately $800,000 reflects costs
associated with the Company's acquisition by ReliaStar Financial Corporation.
Excluding these costs, net income for the quarter would have amounted to
approximately $690,000, or $0.15 basic earnings per share and $0.14 diluted
earnings per share.
Total assets under management at March 31, 2000 were $3.6 billion compared to
$3.2 billion at March 31, 1999. Mutual fund assets under management increased
approximately $0.2 billion to $1.7 billion from $1.4 billion in the year earlier
period. The increase is mainly attributable to strong performance or growth in
several products, most notably the Lexington Worldwide Emerging Markets Fund
which increased in size by $115 million, the Lexington Troika Dialog Russia
Fund, which increased $64 million, the Lexington GNMA Income Fund, which
increased $45 million, and the Lexington Emerging Markets Fund, which increased
$24 million from March 31, 1999. Private account assets increased approximately
$0.1 billion to $0.8 billion, while institutional assets also showed a $0.1
billion increase to $1.2 billion.
Total revenues of $5.7 million increased $1.2 million from the year earlier
period. Mutual fund revenues increased approximately $0.6 million to $2.8
million with the increase in assets under management. Other management fees
increased $0.3 million, which is associated with higher assets under management
in the private account and institutional segments. Other income increased $0.3
million as a result of unrealized appreciation. The unrealized appreciation
stems from investments in a number of products managed by the Company.
Total expenses increased approximately $1.0 million to $5.1 million from $4.1
million due to higher administrative and general and selling and promotional
expenses. Administrative and general expenses increased $0.9 million to $2.6
million in the first quarter of 2000 compared to $1.7 million in the first
quarter of 1999. Of the $0.9 million increase, $0.8 million reflects costs
associated with the acquisition of the Company by ReliaStar Financial
Corporation. These costs consist primarily of employee retention payments and
legal costs. (Additional acquisition related costs are expected to be incurred
in future quarters.) Also causing an increase are sub-advisory fees of $0.1
million, which reflect the increase in assets under management. Selling and
promotional expenses increased $0.1 million due to increased travel expenses, as
a result of two additional marketing representatives, and an increase in
advertising expenditures. Salaries and other compensation remained even at $2.3
million. The deferred tax provision was impacted by non-deductible acquisition
expenses of approximately $250 thousand for the three months ended March 31,
2000
Effects of Inflation
The Company does not believe that inflation has had a significant impact on the
operations of the Company to date. The Company's assets consist primarily of
cash and investments, which are monetary in nature. However, to the extent
inflation results in rising interest rates with the attendant adverse effects on
the securities markets and on the values of investments held in the Company's
accounts, inflation may adversely affect the Company's financial position and
results of operations. Inflation also may result in increased operating expenses
(primarily personnel-related costs) that may not be readily recoverable in the
fees charged by the Company.
Liquidity and Financial Condition
The Company's business typically does not require substantial capital
expenditures. The most significant investments are in technology, including
computer equipment.
Historically, the Company has been cash self-sufficient. Cash flows from
operations have ranged between inflows of $3.7 million and $2.4 million over the
past three years. In the first three months of 2000 the Company had cash
outflows from operations of $1.1 million. The major use of cash was the payment
of normal operating expenses, merger related expenses, and an investment in the
Company's trading securities.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued).
Net cash from investing activities has ranged between outflows of $0.1 million
and $0.3 million over the past three years. Outflows of cash from investing
activities were just marginally negative in the first three months of 2000
reflecting the purchase of computer equipment.
Cash flows from financing activities have been consistently negative over the
past three years. The principal use of cash in financing activities has been the
repurchase of the Company's stock under the stock buy-back programs. As part of
the pending transaction with ReliaStar, this program has been suspended.
Historically, the Company has maintained a substantial amount of liquidity for
purposes of meeting regulatory requirements and potential business demands. At
March 31, 2000 the Company had $8.8 million of cash and cash equivalents.
Management believes the Company's cash resources, plus cash provided by
operations, is sufficient to meet the Company's foreseeable capital and
liquidity requirements. As a result of the holding company structure, the
Company's cash flows will depend primarily on dividends or other permissible
payments from its subsidiaries. The Company has no standby lines-of-credit or
other similar arrangements.
LFD, as a registered broker-dealer, had federal and state net capital
requirements at March 31, 2000 of $25,000. The aggregate net capital of LFD was
$0.3 million at March 31, 2000.
Stockholders' equity on March 31, 2000 increased to $9.1 million from $8.8
million at December 31, 1999, primarily as a result of net income and deferred
compensation amortization.
Management believes that the Company's liquid assets and its net cash provided
by operations will enable it to meet any foreseeable cash requirements.
The recent acquisition of the Company by ReliaStar will precipitate numerous
actions which will cause the Company to incur additional costs as discussed in
the Company's 1999 annual report under risk factors. In the aggregate, these
costs will substantially reduce shareholders' net equity.
Forward Looking Statements
Some of the information presented in this 10-Q, including, but not limited to
the Company's expectations regarding the definitive merger agreement, constitute
forward-looking statements within the meaning of the private Securities
Litigation Reform Act of 1995. Although the Company believes that its
expectations are based on reasonable assumptions within the bounds of its
knowledge, there can be no assurance that actual results will not differ
materially from the Company's expectations. Factors which could cause the actual
results to differ materially from expectations include failure to reach
agreement on material terms, failure to receive required corporate, regulatory
and contractual approvals or consents and other factors discussed from time to
time in the Company's Annual Report on Form 10-K and other filings with the
Securities and Exchange Commission.
Part II. Other Information
Item 1. Legal Proceedings
None
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits
No. 27 Financial Data Schedule (filed with the Securities and Exchange
Commission)
Other Items under Part II have been omitted since they are either not required
or are not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LEXINGTON GLOBAL ASSET MANAGERS, INC.
By: /s/Richard M. Hisey
--------------------
RICHARD M. HISEY
EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND TREASURER
Date: 05-12-00