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 03-31-97
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, 1997.
Common Stock-$.01 Par Value Per Share
Authorized 15,000,000 Shares
5,467,887 Shares Issued and Outstanding
LEXINGTON GLOBAL ASSET MANAGERS, INC.
AND SUBSIDIARIES
Item I. Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
3/31/97 12/31/96
(Unaudited) (Audited)
Assets:
Cash and cash equivalents:
Cash $ 1,265,650 $ 1,631,249
Money market accounts 6,101,537 5,898,575
----------------- -----------------
7,367,187 7,529,824
----------------- -----------------
Receivables:
Investment advisory and management fees 1,265,769 1,161,473
Due from funds and other 748,529 868,649
----------------- -----------------
2,014,298 2,030,122
----------------- -----------------
Marketable securities 1,266,913 1,205,350
Prepaid expenses 1,025,301 367,159
Prepaid taxes 29,069 11,900
Furniture, equipment and leasehold improvements (net of
accumulated depreciation and amortization) 1,493,919 1,347,324
Intangible assets (net of accumulated amortization) 206,826 210,875
Deferred income taxes 2,661,546 3,131,842
Other assets 207,716 243,120
----------------- -----------------
Total assets $ 16,272,775 $ 16,077,516
================= =================
Liabilities:
Accounts payable and other accrued expenses $ 3,041,586 $ 3,691,326
Deferred income 1,423,912 1,197,576
Federal income taxes payable 1,016,729 1,015,351
Other liabilities 2,907 6,681
----------------- -----------------
Total liabilities 5,485,134 5,910,934
----------------- -----------------
Minority interest 357,004 344,909
Stockholders' Equity:
Common stock, $.01 par value; 15,000,000 authorized shares;
5,487,887 issued 54,879 54,879
Additional paid-in capital 21,501,517 21,501,517
Accumulated deficit (10,995,759) (11,734,723)
----------------- -----------------
Total paid-in capital and accumulated deficit 10,560,637 9,821,673
Less cost of treasury stock (20,000 shares) 130,000 -
----------------- -----------------
Total stockholders' equity 10,430,637 9,821,673
----------------- -----------------
Total liabilities and stockholders' equity $ 16,272,775 $ 16,077,516
================= =================
The accompanying notes are an integral part of the condensed consolidated financial statements.
LEXINGTON GLOBAL ASSET MANAGERS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended March 31,
1997 1996
Revenues:
Investment advisory:
Mutual fund management fees (including approximately
$134,388 and $117,474 from related parties) $ 2,731,467 $ 2,693,518
Mutual fund commissions 18,649 145,522
Other management fees (including approximately
$637,773 and $548,492 from related parties) 1,635,045 2,121,494
Commissions income 32,613 564,005
Other income 205,591 192,761
---------------- ----------------
Total revenues 4,623,365 5,717,300
---------------- ----------------
Expenses:
Salaries and other compensation 2,263,748 3,159,553
Selling and promotional 238,984 429,202
Administrative and general 846,245 1,366,558
---------------- ----------------
Total expenses 3,348,977 4,955,313
---------------- ----------------
Income before income taxes and minority interest 1,274,388 761,987
Provision for income taxes
Current 53,033 107,328
Deferred 470,296 99,479
---------------- ----------------
Total provision 523,329 206,807
---------------- ----------------
Income before minority interest 751,059 555,180
Minority interest 12,095 11,240
---------------- ----------------
Net income $ 738,964 $ 543,940
================ ================
Earnings per share:
Net income per share $0.13 $0.10
================ ================
Average shares outstanding during the period 5,486,776 5,487,887
================ ================
The accompanying notes are an integral part of the condensed consolidated financial statements.
LEXINGTON GLOBAL ASSET MANAGERS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31,
1997 1996
Cash flows from operating activities:
Net income $ 738,964 $ 543,940
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 81,230 113,093
Unrealized (appreciation) depreciation on marketable
securities (56,523) (48,615)
Deferred income taxes 470,296 99,479
Minority interest 12,095 11,240
Change in assets and liabilities
Receivables 15,824 (460,925)
Prepaid expenses (658,142) (66,018)
Prepaid taxes (17,169) (387)
Accounts payable and accrued expenses (649,740) (1,197,300)
Federal income taxes payable 1,378 109,762
Deferred management fees 226,336 69,221
Other, net 22,410 (3,127)
--------------- ----------------
Net cash provided by (used in) operating activities 186,959 (829,637)
Cash flows from investing activities:
Purchases of furniture, equipment and leasehold
improvements (214,556) (196,985)
Purchases of marketable securities (5,040) (103,806)
--------------- ----------------
Net cash used in investing activities (219,596) (300,791)
Cash flows from financing activities:
Principal payments under capital lease obligations - (25,590)
Purchase of treasury stock (130,000) -
--------------- ----------------
Net cash used in financing activities (130,000) (25,590)
Net decrease in cash and cash equivalents (162,637) (1,156,018)
Cash and cash equivalents, beginning of period 7,529,824 5,615,017
--------------- ----------------
Cash and cash equivalents, end of period $ 7,367,187 $ 4,458,999
=============== ================
The accompanying notes are an integral part of the condensed consolidated financial statements.
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 1996 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.
2. Common Stock Buy-Back Program
On March 7, 1997 the Board of Directors of Lexington Global Asset Managers,
Inc. authorized a share repurchase program of up to 750,000 shares. Repurchases
will be made from time to time in the open market or through privately
negotiated transactions at market price. The stock repurchase plan has a term of
three years. In the first quarter of 1997, the Company repurchased 20,000 shares
of its stock at $6.50 per share.
3. Changes in Accounting Principles
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 (SFAS 128) "Earnings per Share" which
will be effective commencing with the Company's financial statements for the
year ended December 31, 1997. Upon adoption of the standard, the Company will
present "basic" earnings per share and "diluted" earnings per share. Basic
earnings per share excludes dilution and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. The computation of diluted earnings per share as
required under the new standard, gives effect to all dilutive potential common
shares that were outstanding during the period. The adoption of this standard
would not have a material effect on the Company's earnings per share since
diluted earnings per share is computed in a manner similar to the Company's
current computation of earnings per share.
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, 1996 is incorporated herein by reference and should
be read in conjunction with the following.
March 31, 1997 Compared to March 31, 1996
As anticipated, the Company's results in the first quarter reflect a smaller
more profitable business after the sale of most of its West Coast operations in
the third quarter of 1996. The remaining West Coast subsidiary, Lexington
Capital Management, Inc., was merged into Lexington Management Corporation
("LMC") on December 31, 1996. The consolidated net income for the three months
ended March 31, 1997 was $0.7 million, $0.13 per share, compared to $0.5
million, $0.10 per share for the first three months of 1996.
Total assets under management at March 31, 1997 were $3.3 billion compared to
$3.2 billion at December 31, 1996 and $3.3 billion at March 31, 1996. Total
revenues of $4.6 million are 19.3% below the first quarter of 1996 when the
Company recorded revenues of $5.7 million. The West Coast operations recorded
$1.7 million in revenues in the first quarter of 1996 and $0.8 million in the
first quarter of 1997. Excluding the West Coast operations, total revenues of
$3.8 million are down $0.2 million or 5.0% from the first quarter of 1996. The
decrease is primarily attributable to mutual fund commissions which are down
over $100,000 year-to-year reflecting lower sales of the Company's precious
metals mutual fund products, two of which carry sales charges.
Net mutual fund management fees, the Company's largest revenue source, were even
with the first quarter of 1996 at $2.7 million. Mutual fund assets under
management have increased during the first quarter to $1.9 billion from the year
earlier number of $1.8 billion. However, underlying the growth in assets under
management is a shift from some of the Company's higher priced products
(precious metals and emerging markets) to some of the lower priced products
(domestic equity and fixed income).
Other management fees of $1.6 million are down $0.5 million from $2.1 million in
the prior year period. The disposed West Coast operations account for $0.4
million of this decline. Similarly, commissions income declined from $0.6
million in the first quarter of 1996 to $33,000 in the first quarter of 1997 as
a result of the disposal of the West Coast operations. Other income of $0.2
million is even with the prior year and primarily reflects earnings on the
Company's investment accounts.
Total expenses of $3.3 million are $1.7 million below total expenses of $5.0
million in the first quarter of 1996. Virtually all of the decline is
attributable to the disposed and reorganized West Coast operations which
recorded total expenses of $0.3 million in the first quarter of 1997 compared to
$1.7 million in the prior year period.
Total personnel costs of $2.3 million are $0.9 million lower than the $3.2
million recorded in the first quarter of 1996. A $1.0 million decline in West
Coast personnel expenses was partially offset by a $0.1 million increase in
LMC's personnel costs; LMC added personnel to support and service its remaining
West Coast revenue stream. Selling and promotional costs of $0.2 million are
$0.2 million below the $0.4 million in such costs in the year earlier quarter,
reflecting LMC's greater use of public relations to market its mutual funds,
thereby reducing advertising and sales literature costs. General and
administrative costs of $0.8 million are $0.6 million less than the prior year's
figure of $1.4 million. Most of the decrease is attributable to the disposed
West Coast operations; the remainder reflects the absence of certain legal and
audit fees associated with the Company's reorganization which were recorded in
the first quarter of 1996.
Profit before tax amounted to $1.3 million, up $0.5 million from the $0.8
million recorded in the first quarter of 1996. The provision for state and
federal taxes increased $0.3 million to $0.5 million in the first quarter versus
$0.2 million in the prior year period due to the increase in profit before tax.
The Company has net operating loss carryforwards of approximately $5.9 million
which are available to offset future taxable income which expire over the period
1998 through 2008.
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 $1.7 million and $4.5 million over the past three
years primarily as a result of the Company's net income. Cash flow from
operations amounted to $0.2 million in the first quarter of 1997.
Net cash flows from investing activities have ranged between inflows of $0.4
million and outflows of $0.8 million over the past three years. For the first
quarter of 1997, cash outflows from investing activities was $0.2 million. The
principal use of cash in the first quarter of 1997 was the purchase of computer
equipment.
Cash flows from financing activities consistently have been negative over the
past three years. The most significant outflow has been the payment of a regular
quarterly dividend to Piedmont, the Company's former parent. Net cash outflows
from financing activities in the first quarter of 1997 of $0.1 million consisted
of the purchase of 20,000 shares of the Company's stock recorded as treasury
shares, which occurred in conjunction with the Company's previously announced
share buyback program. 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, 1997, the Company had $7.4 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 as registered broker-dealer, has federal and state net capital requirements
at March 31, 1997 of $5,000. The aggregate net capital of LFD was $0.3 million
at March 31, 1997. Lexington Management Corporation, Market Systems Research
Advisors, Inc. and Market Systems Research Inc., as registered investment
advisors, must meet net capital requirements imposed at the federal and state
levels.
Stockholders' equity on March 31, 1997 increased to $10.4 million from $9.8
million at December 31, 1996. 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 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)
(B) Report on Form 8-K
The Registrant filed a Form 8-K on March 12, 1997 reporting under Item
4, changing Registrant's certifying accountant, which is incorporated by
references.
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: 5-15-96