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 06-30-1997
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 June 30, 1997.
Common Stock-$.01 Par Value Per Share
Authorized 15,000,000 Shares
5,299,887 Shares Issued and Outstanding
LEXINGTON GLOBAL ASSET MANAGERS, INC.
AND SUBSIDIARIES
Part I. Financial Information
Item I. Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
6/30/97 12/31/96
(Unaudited) (Audited)
Assets:
Cash and cash equivalents:
Cash $ 198,563 $ 1,631,249
Money market accounts 6,326,477 5,898,575
---------------- ----------------
6,525,040 7,529,824
---------------- ----------------
Receivables:
Investment advisory and management fees 1,446,708 1,161,473
Due from funds and other 787,158 868,649
---------------- ----------------
2,233,866 2,030,122
---------------- ----------------
Marketable securities 1,657,789 1,205,350
Prepaid expenses 1,352,409 367,159
Prepaid taxes 10,359 11,900
Furniture, equipment and leasehold improvements (net of
accumulated depreciation and amortization) 1,470,427 1,347,324
Intangible assets (net of accumulated amortization) 202,776 210,875
Deferred income taxes 2,565,318 3,131,842
Other assets 207,716 243,120
---------------- ----------------
Total assets $16,225,700 $ 16,077,516
================ ================
Liabilities:
Accounts payable and other accrued expenses $ 3,085,624 $ 3,691,326
Deferred income 1,495,414 1,197,576
Federal income taxes payable 1,014,444 1,015,351
Other liabilities 4,781 6,681
---------------- ----------------
Total liabilities 5,600,263 5,910,934
---------------- ----------------
Minority interest 369,644 344,909
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 (10,063,978) (11,734,723)
---------------- ----------------
Total paid-in capital and accumulated deficit 11,492,418 9,821,673
Less cost of treasury stock (188,000 shares) 1,236,625 -
---------------- ----------------
Total stockholders' equity 10,255,793 9,821,673
---------------- ----------------
Total liabilities and stockholders' equity $ 16,225,700 $ 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 June 30, Six Months Ended June 30,
1997 1996 1997 1996
Revenues:
Investment advisory:
Mutual fund management fees (including approx.
$152,236 $140,486 $286,624 and
$257,960 from related parties) $2,761,027 $2,773,175 $5,492,494 $5,466,693
Mutual fund commissions 10,426 44,004 29,075 189,526
Other management fees (including approximately
$637,402 $583,560 $1,275,175 and
$1,132,052 from related parties) 1,706,455 2,117,185 3,341,500 4,238,679
Commissions income 36,858 593,714 69,471 1,157,719
Other income 230,890 77,981 436,481 270,742
--------------- -------------- --------------- ---------------
Total revenues 4,745,656 5,606,059 9,369,021 11,323,359
--------------- -------------- --------------- ---------------
Expenses:
Salaries and other compensation 2,107,335 3,159,050 4,371,083 6,318,603
Selling and promotional 326,141 398,598 565,125 827,800
Administrative and general 1,156,898 1,297,972 2,003,142 2,664,532
--------------- -------------- --------------- ---------------
Total expenses 3,590,374 4,855,620 6,939,350 9,810,935
--------------- -------------- --------------- ---------------
Income before income taxes and minority interest 1,155,282 750,439 2,429,671 1,512,424
Provision for income taxes
Current 114,633 489,836 167,666 597,162
Deferred 96,228 (153,851) 566,524 (54,372)
--------------- -------------- --------------- ---------------
Total provision 210,861 335,985 734,190 542,790
--------------- -------------- --------------- ---------------
Income before minority interest 944,421 414,454 1,695,481 969,634
Minority interest 12,639 17,619 24,735 28,859
--------------- -------------- --------------- ---------------
Net income $ 931,782 $ 396,835 $ 1,670,746 940,775
=============== ============== =============== ===============
Earnings per share
Net income per share $0.17 $0.07 $0.30 $0.17
=============== ============== =============== ===============
Average shares outstanding during the period 5,400,041 5,487,887 5,443,169 5,487,887
=============== ============== =============== ===============
The accompaning notes are an integral part of the condensed consolidated financial statements.
LEXINGTON GLOBAL ASSET MANANGERS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30,
1997 1996
Cash flows from operating activities:
Net income $ 1,670,746 $ 940,775
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 161,596 224,344
Unrealized appreciation on marketable securities (192,759) (103,116)
Deferred income taxes 566,524 (54,372)
Minority interest 24,735 28,859
Change in assets and liabilities
Receivables (203,744) (16,841)
Prepaid expenses (985,250) (119,123)
Prepaid taxes 1,541 5,477
Accounts payable and accrued expenses (605,702) (605,698)
Federal income taxes payable (907) 141,128
Deferred management fees 297,838 49,443
Other, net 24,282 (2,473)
----------------- -----------------
Net cash provided by operating activities 758,900 488,403
Cash flows from investing activities:
Purchases of furniture, equipment and leasehold
improvements (267,379) (313,882)
Purchases of marketable securities (259,680) (108,538)
----------------- -----------------
Net cash used in investing activities (527,059) (422,420)
Cash flows from financing activities:
Principal payments under capital lease obligations - (45,901)
Purchase of treasury stock (1,236,625) -
----------------- -----------------
Net cash used in financing activities (1,236,625) (45,901)
Net increase / (decrease) in cash and cash equivalents (1,004,784) 20,082
Cash and cash equivalents, beginning of period 7,529,824 5,615,017
----------------- -----------------
Cash and cash equivalents, end of period $ 6,525,040 $ 5,635,099
================= =================
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. In the second quarter, the Company repurchased 168,000 shares of
its stock.
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.
June 30, 1997 Compared to June 30, 1996
As anticipated, the Company's results in the first half 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 six months ended June 30,
1997 was $1.7 million, $0.30 per share, compared to $0.9 million, $0.17 per
share for the first six months of 1996.
Total assets under management at June 30, 1997 were $3.4 billion compared to
$3.2 billion at December 31, 1996 and June 30, 1996. Total revenues of $9.4
million are 16.8% below the first half of 1996 when the Company recorded
revenues of $11.3 million. The West Coast operations recorded $1.6 million in
revenues in the first half of 1997 and $3.5 million in the first half of 1996.
Excluding the West Coast operations, total revenues of $7.8 million are even
with the first half of 1996.
Net mutual fund management fees, the Company's largest revenue source, were even
with the first half of 1996 at $5.5 million. Mutual fund assets under management
have increased during the first half to $2.0 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) and to products with shared revenue
arrangements (sub-advisory relationships).
Other management fees of $3.3 million are down $0.9 million from $4.2 million in
the prior year period. The disposed West Coast operations account for $0.8
million of this decline. Similarly, commissions income declined to $0.1 million
in the first half of 1997 from $1.2 million the first half of 1996 as a result
of the disposal of the West Coast operations. Other income of $0.4 million is
$0.1 million ahead of the first half of 1996 primarily reflecting earnings on
the Company's investment accounts.
Total expenses of $7.0 million are $2.8 million below total expenses of $9.8
million in the first half of 1996. Virtually all of the decline is attributable
to the disposed and reorganized West Coast operations which recorded total
expenses of $0.8 million in the first half of 1997 compared to $3.4 million in
the prior year period.
Total personnel costs of $4.4 million are $1.9 million lower than the $6.3
million recorded in the first half of 1996. A $2.0 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 $0.6 million are $0.2
million below the $0.8 million in such costs in the year earlier, 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 $2.0 million are $0.7 million less than the prior year's figure of $2.7
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 $2.4 million, up $0.9 million from the $1.5
million recorded in the first half of 1996. The provision for state and federal
taxes increased $0.2 million to $0.7 million in the first half versus $0.5
million in the prior year period due to the increase in profit before tax. The
Company has net operating loss carryforwards of approximately $5.3 million which
are available to offset future taxable income which expire over the period 1998
through 2008.
Three Months Ended June 30, 1997 and 1996
The consolidated net income for the three months ended June 30, 1997 was $0.9
million, compared to $0.4 million for the second quarter of 1996.
Total revenues of $4.7 million are 16.1% below the second quarter of 1996 when
the Company recorded revenues of $5.6 million. The West Coast operations
recorded $0.8 million in revenues in the second quarter of 1997 and $1.7 million
in the second quarter of 1996. Excluding the West Coast operations, total
revenues of $3.9 million are even with the second quarter of 1996.
Net mutual fund management fees were even with the second quarter of 1996 at
$2.8 million. Although assets under management are $0.2 billion higher at June
30, 1997 than at June 30, 1996, the growth in assets has occurred primarily in
lower fee products. Other management fees of $1.7 million are down $0.4 million
from $2.1 million in the prior year period. The disposed West Coast operations
account for all of this decline. Similarly, commissions income declined from
$0.5 million in the second quarter of 1996 to $37,000 in the second quarter of
1997 as a result of the disposal of the West Coast operations. Other income of
$0.2 million is $0.1 million ahead of $0.1 million in the second quarter of 1996
and primarily reflects earnings on the Company's investment accounts.
Total expenses of $3.6 million are $1.3 million below total expenses of $4.9
million in the second quarter of 1996. Virtually all of the decline is
attributable to the disposed and reorganized West Coast operations which
recorded total expenses of $0.5 million in the second quarter of 1997 compared
to $1.7 million in the prior year period.
Total personnel cost of $2.1 million are $1.1 million lower than the $3.2
million recorded in the second quarter of 1996. One million of this decline is
attributable to the reorganized West Coast operations. Selling and promotional
costs of $0.3 million are $0.1 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 $1.2 million are $0.1 million less
than the prior year's figure of $1.3 million.
Profit before tax amounted to $1.2 million, up $0.4 million from the $0.8
million recorded in the second quarter of 1996. The provision for state and
federal taxes decreased $0.1 million to $0.2 million in the second quarter
versus $0.3 million in the prior year period due to temporary book/tax
differences having the effect of reducing taxes.
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 $0.8 million in the first half of 1997; the major source
of this cash was the Company's net income.
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
half of 1997, cash outflows from investing activities was $0.5 million. The
principal uses of cash for investing activities in the first half of 1997 were
the purchase of computer equipment and purchases of various securities related
to the development of a new product for the Company.
Cash flows from financing activities consistently have been negative over the
past three years. The Company does not at this time pay a dividend on its common
stock. 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 half of 1997 of $1.2 million consisted of the
purchase of 188,000 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
June 30, 1997, the Company had $6.5 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 as a registered broker-dealer, has federal and state net capital
requirements at June 30, 1997 of $5,000. The aggregate net capital of LFD was
$0.3 million at June 30, 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 June 30, 1997 increased to $10.3 million from $9.8
million at December 31, 1996. This increase reflects the Company's earnings for
the first half, less the purchase of the Company's stock recorded as treasury
shares.
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 15, 1997 Annual Meeting of Stockholders
(b) Matters voted on and number of affirmative/negative votes:
1. Election of Directors:
William R. Miller, Lunsford Richardson, Jr., L. Richardson Preyer
For All Directors: 5,279,658 Withheld Authority: 51,943
2. Ratification of the selection of KPMG Peat Marwick L.L.P. as the
independent auditors for the current calendar year.
Votes: For Against Abstain
5,325,409 1,464 4,728
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(27) Financial Data Schedule for the six months ended June 30, 1997.
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: 8-13-97