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 03-31-1996
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.
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
DELAWARE 22-3395036
LEXINGTON GLOBAL ASSET MANAGERS, INC.
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 the latest practicable date.
Common Stock-$.01 Par Value Per Share
Authorized 15,000,000 Shares
5,487,887 Shares Issued and Outstanding
Part I. Financial Information
Item 1. Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, 1996 December 31, 1995
(Unaudited)
Assets:
Cash and cash equivalents:
Cash $ 1,393,969 $ 575,694
Money market accounts 3,065,030 5,039,323
----------------- ----------------
4,458,999 5,615,017
----------------- ----------------
Receivables:
Investment advisory and management fees 1,634,527 1,577,875
Due from funds and other 1,610,892 1,206,619
----------------- ----------------
3,245,419 2,784,494
----------------- ----------------
Marketable securities 1,084,703 932,282
Prepaid expenses 415,786 349,768
Prepaid taxes 42,752 42,365
Furniture, equipment and leasehold improvements (net of
accumulated depreciation and amortization) 1,537,455 1,434,802
Intangible assets (net of accumulated amortization) 242,848 252,387
Deferred income taxes 2,948,804 3,048,283
Other assets 304,982 314,203
----------------- ----------------
Total assets $ 14,281,748 $14,773,601
================= ================
Liabilities:
Accounts payable and other accrued expenses $ 3,061,265 $ 4,258,195
Capitalized lease obligations 131,060 157,019
Deferred income 1,661,752 1,592,531
Federal income taxes payable 1,088,946 979,184
Other liabilities 4,388 7,515
----------------- ----------------
Total liabilities 5,947,411 6,994,444
----------------- ----------------
Minority interest 443,376 432,136
Stockholders' Equity:
Common stock, $.01 par value; 15,000,000 authorized shares;
5,487,887 issued and outstanding 54,879 54,879
Additional paid-in capital 21,501,517 21,501,517
Accumulated deficit (13,665,435) (14,209,375)
----------------- ----------------
Total stockholders' equity 7,890,961 7,347,021
----------------- ----------------
Total liabilities and stockholders' equity $ 14,281,748 $14,773,601
================= ================
The accompanying notes are an integral part of the condensed
consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended March 31,
1996 1995
---- ----
Revenues:
Investment advisory:
Mutual fund management fees (including approximately
$117,474 and $121,738 from related parties) $ 2,693,518 $ 2,370,024
Mutual fund commissions 145,522 58,330
Other management fees (including approximately
$548,492 and $528,367 from related parties) 2,121,494 2,251,487
Commissions income 564,005 423,870
Other income 192,761 115,015
----------------- -----------------
Total revenues 5,717,300 5,218,726
----------------- -----------------
Expenses:
Salaries and other compensation 3,159,553 2,671,827
Selling and promotional 429,202 463,657
Administrative and general 1,366,558 1,125,620
----------------- -----------------
Total expenses 4,955,313 4,261,104
----------------- -----------------
Income before income taxes and minority interest 761,987 957,622
Provision for income taxes
Current 107,328 369,975
Deferred 99,479 77,119
----------------- -----------------
Total provision 206,807 447,094
----------------- -----------------
Income before minority interest 555,180 510,528
Minority interest 11,240 4,514
----------------- -----------------
Net income $ 543,940 $ 506,014
================= =================
Earnings per share
Net income per share $0.10 $0.09
================= =================
Average shares outstanding during the period 5,487,887 5,487,887
================= =================
The accompanying notes are an integral part of the condensed
consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31,
1996 1995
---- ----
Cash flows from operating activities:
Net income $ 543,940 $ 506,014
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 113,093 110,939
Unrealized (appreciation) depreciation on marketable
securities (48,615) 6,770
Deferred income taxes 99,479 77,119
Minority interest 11,240 4,514
Change in assets and liabilities
Receivables (460,925) (592,600)
Prepaid expenses (66,018) (67,929)
Prepaid taxes (387) 10,991
Accounts payable and accrued expenses (1,197,300) (939,850)
Federal income taxes payable 109,762 (270,567)
Deferred management fees 69,221 (145,202)
Other, net (3,127) 10,584
---------------- ----------------
Net cash provided by operating activities (829,637) (1,289,217)
Cash flows from investing activities:
Purchases of furniture, equipment and leasehold
improvements (196,985) (63,417)
Purchases of marketable securities (103,806) (112,727)
---------------- ----------------
Net cash used in investing activities (300,791) (176,144)
Cash flows from financing activities:
Principal payments under capital lease obligations (25,590) (5,990)
Dividends (500,000)
Capital contribution 75,000
---------------- ----------------
Net cash used in financing activities (25,590) (430,990)
Net decrease in cash and cash equivalents (1,156,018) (1,896,351)
Cash and cash equivalents, beginning of period 5,615,017 6,147,610
---------------- ----------------
Cash and cash equivalents, end of period $4,458,999 $4,251,259
================ ================
The accompanying notes are an integral part of the condensed
consolidated financial statements.
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 periods have been made.
The financial statements should be read in conjunction with the financial
statements and related notes in the Company's 1995 Annual Report on Form 10K.
The results of operations for the interim period presented are not necessarily
indicative of the results to be expected for the full year.
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, 1995 is incorporated herein by reference and should
be read in conjunction with the following.
March 31, 1996 Compared to March 31, 1995
The consolidated net income for the three months ended March 31, 1996 was $544
thousand, $0.10 per share, compared to $506 thousand, $0.09 per share for the
first three months of 1995.
Total revenues of $5.7 million are 9.6% ahead of the first quarter of 1995 when
the Company recorded revenues of $5.2 million.
The Company's core business (consisting of Lexington Management Corporation
("LMC") and Lexington Funds Distributor, Inc. ("LFD") ) delivered total revenues
of $3.8 million compared to $3.5 million in the first quarter of 1995, an
increase of 8.6%. The Company's other subsidiaries consist of Lexington Capital
Management Inc. ("LCM"); LCM's two wholly-owned subsidiaries, which are
Lexington Capital Management Associates, Inc. ("LCMA") and LCM Financial
Services, Inc. ("LFSI"); Lexington Plan Administrators, Inc. ("LPA"); Market
Systems Research Advisors, Inc. ("MSR"); MSR's wholly-owned subsidiary, Market
Systems Research, Inc. ("MSRI"); and Piedmont Asset Advisors L.L.C. ("PAA").
These subsidiaries generated total revenues of $1.9 million in the first quarter
which is $0.2 million above 1995's comparable figure of $1.7 million.
Net mutual fund management fees of $2.7 million are $0.3 million ahead of $2.4
million for the first quarter of 1995. The increase is primarily a function of
asset increases in three of the Lexington funds: Lexington Worldwide Emerging
Markets, Lexington Corporate Leaders Trust, and Lexington Strategic Silver Fund.
Strong performance has resulted in growth in these funds' assets through
appreciation and net cash inflows from increased investor demand. Mutual fund
commissions of $0.2 million are $0.1 million higher than the $0.1 million
recorded in the first quarter of 1995 due primarily to higher sales of the
Lexington Strategic Silver Fund.
Other management fees of $2.1 million are $0.2 million below the first quarter
of 1995 ($2.3 million) reflecting the impact of institutional and high net worth
account terminations.
Commissions income of $0.6 million is $0.2 million above the comparable 1995
figure of $0.4 million. This revenue is generated primarily by the Company's
California brokerage and insurance operations and the increase reflects higher
levels of new business for these operations.
Other income of $0.2 million is $0.1 million above the $0.1 million recorded in
the first quarter of 1995. The increase is attributable to higher investment
income and mutual fund administration fees at the Company's core business.
Total expenses of $5.0 million are $0.7 million above total expenses of $4.3
million for the first quarter of 1995. Total personnel costs of $3.2 million are
$0.5 million higher than the $2.7 million recorded in the first quarter of 1995
reflecting personnel additions and higher bonus accruals associated with the
revenue growth. Selling and promotional costs of $0.4 million are $0.1 million
below the $0.5 million for such costs in the first quarter of 1995 as a result
of timing differences in promotional programs. General and administrative costs
of $1.4 million are $0.3 million higher than the first quarter of 1995 ($1.1
million) due to various costs associated with the Company's public reporting
responsibilities.
Profit before tax amounted to $0.8 million, down $0.2 million from the $1.0
million recorded in the first quarter of 1995. (Profit before tax for the core
business amounted to $1.0 million for the first quarter of 1996 and 1995).
Provision for state and federal taxes declined $0.2 million to $0.2 million in
the first quarter versus $0.4 million in the prior year period due to timing
differences attributable to bonus payments.
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 value 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 capital investments are in technology,
including computer equipment and telephones.
Historically, the Company has been cash self-sufficient. Cash flows from
operations have ranged between $1.2 million and $4.5 million over the past three
years primarily as a result of the Company's net income. The Company's cash flow
from operations in the first quarter was negative as is usually the case in the
first quarter due to the payment of bonuses.
Net cash outflows from investing activities have ranged between $0.3 million and
$0.8 million over the past three years. For the first quarter of 1996, cash
outflows from investing activities was $0.3 million. The primary use of cash
over the recent past has been for the refurbishment and upgrading of the
Company's principal offices, which was completed in 1994. The principal use of
cash in the first quarter of 1996 was the purchase of computer equipment and the
purchase of marketable securities associated with the start-up of a new mutual
fund. It is expected that future investing activities will consist of more
routine furniture and equipment purchases, purchases of marketable securities
and, potentially, acquisitions. With the exception of acquisitions, the routine
investment activities are expected to result in smaller cash outflows from
investing activities in the near future.
Cash flows from financing activities consistently have been negative over the
past three years. The most significant outflow was the payment of a regular
quarterly dividend to Piedmont, the Company's former parent. The Company
experienced no outflow from financing activities in the first quarter of 1996
and does not anticipate declaring or paying cash dividends on the Common Stock
at any time in the foreseeable future. The Company may in the future issue debt
securities or preferred stock or enter into loan or other agreements that
restrict the payment of dividends on and repurchase of the Company's capital
stock.
Historically, the Company has maintained a substantial amount of liquidity for
purposes of meeting regulatory requirements and potential business demands. At
March 31, 1996, the Company had $4.5 million of cash and cash equivalents.
Management believes the Company's cash resources, plus cash provided by
operations, are 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 and LFSI, as registered broker-dealers, have federal and state net capital
requirements at March 31, 1996 of $55,000. The aggregate net capital of LFD and
LFSI was $0.8 million at March 31, 1996. LMC, LCM, LCMA, MSR and MSRI, as
registered investment advisors, must meet net capital requirements imposed at
the Federal and state levels. Because LCM does not have positive net worth, it
does not meet several state net capital requirements. The Company has provided
LCM with a guaranty in all states where additional evidence of financial
security is an acceptable alternative to the net capital requirements.
Stockholders' equity on March 31, 1996 increased to $7.9 million from $7.3
million at December 31, 1995. This increase reflects the Company's earnings for
the first quarter.
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
Company's overall financial condition remains strong.
Part II. Other Information
Item 6. Exhibits
Exhibit 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: 5-14-96