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 06-30-1996
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 close of the period covered by this report.
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
6/30/96 12/31/95
(Unaudited)
Assets:
Cash and cash equivalents:
Cash $ 903,586 $ 575,694
Money market accounts 4,731,513 5,039,323
----------------- -----------------
5,635,099 5,615,017
----------------- -----------------
Receivables:
Investment advisory and management fees 1,506,794 1,577,875
Due from funds and other 1,294,541 1,206,619
----------------- -----------------
2,801,335 2,784,494
----------------- -----------------
Marketable securities 1,143,936 932,282
Prepaid expenses 468,891 349,768
Prepaid taxes 36,888 42,365
Furniture, equipment and leasehold improvements (net of
accumulated depreciation and amortization) 1,555,582 1,434,802
Intangible assets (net of accumulated amortization) 239,582 252,387
Deferred income taxes 3,102,654 3,048,283
Other assets 295,943 314,203
----------------- -----------------
Total assets $ 15,279,910 $ 14,773,601
================= =================
Liabilities:
Accounts payable and other accrued expenses $ 3,631,299 $ 4,258,195
Capitalized lease obligations 132,315 157,019
Deferred income 1,641,974 1,592,531
Federal income taxes payable 1,120,312 979,184
Other liabilities 5,221 7,515
----------------- -----------------
Total liabilities 6,531,121 6,994,444
----------------- -----------------
Minority interest 460,994 432,136
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 (13,268,601) (14,209,375)
----------------- -----------------
Total stockholders' equity 8,287,795 7,347,021
----------------- -----------------
Total liabilities and stockholders' equity $ 15,279,910 $ 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 June 30, Six Months Ended June 30,
1996 1995 1996 1995
Revenues:
Investment advisory:
Mutual fund management fees (including approx.
$140,486 $126,060 $257,960 and
$247,798 from related parties) $2,773,175 $2,507,276 $5,466,693 $4,877,300
Mutual fund commissions 44,004 58,752 189,526 117,082
Other management fees (including approximately
$583,560 $538,733 $1,132,052 and
$1,067,100 from related parties) 2,117,185 2,294,188 4,238,679 4,545,675
Commissions income 593,714 420,875 1,157,719 844,745
Other income 77.981 66,836 270,742 181,851
-------------- -------------- -------------- --------------
Total revenues 5,606,059 5,347,927 11,323,359 10,566,653
-------------- -------------- -------------- --------------
Expenses:
Salaries and other compensation 3,159,050 2,667,421 6,318,603 5,339,248
Selling and promotional 398,598 729,776 827,800 1,193,433
Administrative and general 1,297,972 1,116,082 2,664,532 2,241,702
-------------- -------------- -------------- --------------
Total expenses 4,855,620 4,513,279 9,810,935 8,774,383
-------------- -------------- -------------- --------------
Income before income taxes and minority
interest 750,439 834,648 1,512,424 1,792,270
Provision for income taxes
Current 489,836 290,892 597,162 660,689
Deferred (153,851) 20,799 (54,372) 98,096
-------------- -------------- -------------- --------------
Total provision 335,985 311,691 542,790 758,785
-------------- -------------- -------------- --------------
Income before minority interest 414,454 522,957 969,634 1,033,485
Minority interest 17,619 (661) 28,859 3,853
-------------- -------------- -------------- --------------
Net income $ 396,835 $ 523,618 $ 940,775 $1,029,632
============== ============== ============== ==============
Earnings per share
Net income per share $0.07 $0.10 $0.17 $0.19
============== ============== ============== ==============
Average shares outstanding during the period 5,487,887 5,487,887 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)
Six Months Ended June 30,
1996 1995
---- ----
Cash flows from operating activities:
Net income $ 940,775 $ 1,029,632
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 224,344 207,392
Unrealized (appreciation) depreciation on marketable
securities (103,116) 52,706
Deferred income taxes (54,372) 98,096
Minority interest 28,859 3,853
Change in assets and liabilities
Receivables (16,841) (633,491)
Prepaid expenses (119,123) (172,455)
Prepaid taxes 5,477 10,345
Accounts payable and accrued expenses (605,698) (447,371)
Federal income taxes payable 141,128 (325,544)
Deferred management fees 49,443 (226,836)
Other, net (2,473) 269,316
--------------- ----------------
Net cash provided by operating activities 488,403 (134,357)
Cash flows from investing activities:
Purchases of furniture, equipment and leasehold
improvements (313,882) (367,636)
Purchases of marketable securities (108,538) (216,831)
--------------- ----------------
Net cash used in investing activities (422,420) (584,467)
Cash flows from financing activities:
Principal payments under capital lease obligations (45,901) -
Dividends - (1,000,000)
Capital contribution - 75,000
--------------- ----------------
Net cash used in financing activities (45,901) (925,000)
Net increase / (decrease) in cash and cash equivalents 20,082 (1,643,824)
Cash and cash equivalents, beginning of period 5,615,017 6,147,610
--------------- ----------------
Cash and cash equivalents, end of period $ 5,635,099 $ 4,503,786
=============== ================
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.
2. Subsequent Events:
On July 31, 1996, the registrant signed an agreement to sell four of its West
Coast subsidiaries (Lexington Capital Management Associates, Inc., Lexington
Plan Administrators, Inc., LCM Financial Services, Inc., and LCMI Insurance
Services, Inc.). The subsidiaries are being sold to a company formed by the CEO
of the subsidiaries and the U.S. unit of London Pacific Group Limited, Berkeley
(USA) Holdings Limited.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Six Months Ended June 30, 1996 and 1995
The consolidated net income for the six months ended June 30, 1996 was $941
thousand, $0.17 per share, compared to $1.0 million, $0.19 per share for the
first six months of 1995. On July 31, 1996, subsequent to the close of the
second quarter, the Company announced an agreement to sell four of its West
Coast subsidiaries, two of which have been considered immaterial, to a company
formed by the CEO of the subsidiaries and the U.S. unit of London Pacific
Group Limited, Berkeley (USA) Holdings Limited. The Company has recorded
expenses associated with this transaction in the second quarter and the Company
expects to realize a gain on the transaction in the third quarter.
Total revenues of $11.3 million are 6.6% ahead of the first half of 1995 when
the Company recorded revenues of $10.6 million.
The Company's core business (consisting of Lexington Management Corporation
("LMC") and Lexington Funds Distributor, Inc. ("LFD")) delivered total revenues
of $7.4 million compared to $7.1 million in the first half of 1995, an increase
of 4.2%. 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 $3.9 million in the first half
which is $0.4 million above 1995's comparable figure of $3.5 million. A further
discussion of the factors producing these results follows.
Net mutual fund management fees of $5.5 million are $0.6 million ahead of $4.9
million for the first half of 1995. The increase is primarily a function of
asset increases in two of the Lexington funds: Lexington Worldwide Emerging
Markets and Lexington Corporate Leaders Trust. Strong performance has resulted
in growth in these funds' assets through appreciation and net cash inflows from
increased investor demand. Also contributing to the increase in mutual fund
management fees were increases in assets in the Company's private label fund
business and in the Lexington Strategic Silver Fund. Again, strong relative
performance and increased investor demand generated these asset increases.
Mutual fund commissions of $0.2 million are $0.1 million higher than the $0.1
million recorded in the first half of 1995 due primarily to higher sales of the
Lexington Strategic Silver Fund.
Other management fees of $4.2 million are $0.3 million below the first half of
1995 ($4.5 million) reflecting the impact of institutional and high net worth
account terminations, some of which were associated with the spin-off of the
Company from Piedmont Management Company in December of 1995.
Commissions income of $1.2 million is $0.4 million above the comparable 1995
figure of $0.8 million. This revenue is generated primarily by the Company's
West Coast brokerage and insurance operations and the increase reflects higher
levels of new business in these operations.
Other income of $0.3 million is $0.1 million above the $0.2 million recorded in
the first half of 1995. The increase is attributable to higher investment income
and mutual fund administration fees at the Company's core business.
Total expenses of $9.8 million are $1.0 million above total expenses of $8.8
million for the first half of 1995. Total personnel costs of $6.3 million are
$1.0 million higher than the $5.3 million recorded in the first half of 1995.
This increase is primarily a result of three factors: 1) the addition of
investment personnel; 2) higher commissions associated with increased revenues
in the Company's West Coast operations; and, 3) the fact that the 1995 period
benefitted from an employee benefit refund associated with a good experience
rating. Selling and promotional costs of $0.8 million are $0.4 million below the
$1.2 million for such costs in the first half of 1995. The decrease reflects
lower overall advertising expenditures, some of which may be considered
temporary depending on investor demand and is also reflective of lower travel
and entertainment expenditures in the Company's institutional and high net worth
segments. General and administrative costs of $2.7 million are $0.5 million
ahead of $2.2 million for the comparable 1995 period. The increase reflects
various costs associated with the Company's public reporting responsibilities as
well as various costs associated with the Company's announced agreement to sell
four of its West Coast subsidiaries as discussed earlier.
Profit before tax amounted to $1.5 million, down $0.3 million from the $1.8
million recorded in the first half of 1995. Provision for state and federal
taxes declined $0.3 million to $0.5 million from $0.8 million in the year
earlier period due to the lower profits and to timing differences attributable
to bonus payments.
Three Months Ended June 30, 1996 and 1995
The consolidated net income for the three months ended June 30, 1996 was $397
thousand compared to net income of $524 thousand in the second quarter of 1995.
Total revenues of $5.6 million are $0.3 million ahead of the comparable 1995
figure of $5.3 million.
The Company's core business delivered total revenues of $3.6 million which is
even with the prior year figure of $3.6 million. The Company's other
subsidiaries delivered total revenues of $2.0 million in the quarter which is
$0.3 million ahead of the second quarter of 1995 ($1.7 million).
Net mutual fund management fees of $2.8 million are $0.3 million higher than the
$2.5 million in mutual fund management fees recorded in the second quarter of
1995. Primary contributors to this revenue increase were the Lexington Worldwide
Emerging Markets Fund and Lexington Corporate Leaders Trust, which benefitted
from increased investor interest and asset appreciation. Other management fees
of $2.1 million are $0.2 million below the second quarter of 1995 ($2.3
million), reflecting account terminations in the Company's high net worth and
institutional business, some of which is a result of the spin-off of the Company
from its former parent, Piedmont Management Company. Commissions income of $0.6
million is $0.2 million above the $0.4 million recorded in the second quarter
of 1995 due to higher levels of new business in the Company's West Coast
brokerage and insurance operations.
Total expenses of $4.9 million are $0.4 million above the $4.5 million recorded
in the second quarter of 1995. Personnel costs of $3.2 million are $0.5 million
above the comparable 1995 figure of $2.7 million. The higher costs reflect: 1)
the addition of investment personnel; 2) higher commissions associated with the
higher commissions income from the West Coast brokerage and insurance
operations; and, 3) the fact that the 1995 period benefitted from an employee
benefit refund associated with a good experience rating. Selling and promotional
costs of $0.4 million are $0.3 million below the 1995 second quarter figure of
$0.7 million. Advertising expenditures were lower in the quarter due to more
uncertain securities market conditions. General and administrative expenses of
$1.3 million are $0.2 million over the $1.1 million recorded in the second
quarter of 1995. Most of the increase is attributable to various costs
associated with the sale of four of the Company's West Coast subsidiaries.
Profit before tax amounts to $0.7 million for the three months which is $0.1
million below the second quarter of 1995 ($0.8 million). Provision for income
taxes of $336 thousand is $24 thousand above the prior year period, reflecting
timing differences attributable to bonus payments.
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 half of 1996 was $0.5 million. The primary sources
of cash were net income and working capital.
Net cash outflows from investing activities have ranged between $0.3 million and
$0.8 million over the past three years. For the first half of 1996, cash
outflows from investing activities were $0.4 million. The primary use of cash
over the recent past has been for the refurbishment and upgrading of the
Company's principal offices, which were completed in 1994. The principal use of
cash in the first half 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 a small outflow of $46 thousand in the first half of 1996. 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
June 30, 1996, the Company had $5.6 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 June 30, 1996 of $55,000. The aggregate net capital of LFD and
LFSI was $0.7 million at June 30, 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 June 30, 1996 increased to $8.3 million from $7.3
million at December 31, 1995. This increase reflects the Company's earnings for
the first half.
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 4. Submission of Matters to a Vote of Security Holders
(a) Date of Meeting: May 17, 1996 Annual Meeting of Stockholders
(b) Matters voted on and number of affirmative/negative votes:
1. Election of Directors:
Peter L. Richardson, Stuart S. Richardson, Carl H. Tiedemann, Marion A. Woodbury
For All Directors: 5,037,624 Withheld Authority: 5,039
2. Ratification of the selection of Coopers & Lybrand L.L.P. as the
independent auditors for the current calendar year.
Votes: For Against Abstain
5,041,393 720 550
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(27) Financial Data Schedule for the six months ended June 30, 1996.
(b) Reports on Form 8-K:
The registrant filed Form 8-K dated August 13, 1996 reporting under Item 5.
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: 8-13-96