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 09-30-1997
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 September
30, 1997. Common Stock-$.01 Par Value Per Share Authorized 15,000,000 Shares
5,174,887 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
9/30/97 12/31/96
(Unaudited)
Assets:
Cash and cash equivalents:
Cash $ 1,725,720 $ 1,631,249
Money market accounts 5,443,602 5,898,575
---------------- ----------------
7,169,322 7,529,824
---------------- ----------------
Receivables:
Investment advisory and management fees 1,360,728 1,161,473
Due from funds and other 655,687 868,649
---------------- ----------------
2,016,415 2,030,122
---------------- ----------------
Marketable securities 1,753,174 1,205,350
Prepaid expenses 1,501,552 367,159
Prepaid taxes 6,203 11,900
Furniture, equipment and leasehold improvements (net of
accumulated depreciation and amortization) 1,423,425 1,347,324
Intangible assets (net of accumulated amortization) 198,726 210,875
Deferred income taxes 2,091,717 3,131,842
Other assets 207,716 243,120
---------------- ----------------
Total assets $ 16,368,250 $ 16,077,516
================ ================
Liabilities:
Accounts payable and other accrued expenses $ 3,803,583 $ 3,691,326
Deferred income 1,477,717 1,197,576
Federal income taxes payable 851,025 1,015,351
Other liabilities 8,399 6,681
---------------- ----------------
Total liabilities 6,140,724 5,910,934
---------------- ----------------
Minority interest 386,653 344,909
Stockholders' Equity:
Common stock, $.01 par value; 15,000,000 authorized shares;
5,487,887 issued 54,879 54,879
Additional paid-in capital 21,501,516 21,501,517
Accumulated deficit (9,435,147) (11,734,723)
---------------- ----------------
Total paid-in capital and accumulated deficit 12,121,248 9,821,673
Less cost of treasury stock (313,000 shares) 2,280,375 -
---------------- ----------------
Total stockholders' equity 9,840,873 9,821,673
---------------- ----------------
Total liabilities and stockholders' equity $ 16,368,250 $ 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 Sept. 30, Nine Months Ended Sept. 30,
1997 1996 1997 1996
Revenues:
Investment advisory:
Mutual fund management fees (including approx.
$177,922, $118,571, $464,546, and
$376,531 from related parties) $ 2,951,283 $ 2,682,772 $ 8,443,777 $ 8,149,465
Mutual fund commissions 9,406 16,839 38,481 206,365
Other management fees (including approximately
$693,538 $581,017 $1,968,713 and
$1,713,069 from related parties) 1,788,396 2,159,268 5,129,896 6,397,947
Commissions income 51,670 533,338 121,141 1,691,057
Other income 221,931 172,800 658,412 443,542
--------------- -------------- --------------- ---------------
Total revenues 5,022,686 5,565,017 14,391,707 16,888,376
--------------- -------------- --------------- ---------------
Expenses:
Salaries and other compensation 2,197,855 2,993,037 6,568,937 9,311,640
Selling and promotional 232,277 329,886 797,402 1,157,685
Administrative and general 1,403,256 1,619,902 3,406,399 4,174,432
--------------- -------------- --------------- ---------------
Total expenses 3,833,388 4,942,825 10,772,738 14,643,757
--------------- -------------- --------------- ---------------
Income before income taxes and minority interest 1,189,298 622,192 3,618,969 2,244,619
Gain on sale of subsidiaries - 639,881 - 529,881
Provision for income taxes
Current 293,036 301,556 237,530 898,720
Deferred 250,429 279,319 1,040,125 224,947
--------------- -------------- --------------- ---------------
Total provision 543,465 580,875 1,277,655 1,123,667
--------------- -------------- --------------- ---------------
Income before minority interest 645,833 681,198 2,341,314 1,650,833
Minority interest 17,009 (108,128) 41,744 (79,269)
--------------- -------------- --------------- ---------------
Net income $ 628,824 $ 789,326 $ 2,299,570 $ 1,730,102
=============== ============== =============== ===============
Earnings per share
Net income per share $0.12 $0.14 $0.43 $0.31
=============== ============== =============== ===============
Average shares outstanding during the period 5,231,409 5,487,887 5,371,806 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)
Nine Months Ended Sept. 30,
1997 1996
Cash flows from operating activities:
Net income $ 2,299,570 $ 1,730,102
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 243,802 346,647
Unrealized appreciation on marketable securities (274,079) (86,151)
Deferred income taxes 1,040,125 224,947
Minority interest 41,744 (79,269)
Change in assets and liabilities
Receivables 13,707 395,897
Prepaid expenses (1,134,393) 14,515
Prepaid taxes 5,697 11,800
Accounts payable and accrued expenses 112,257 (849,228)
Federal income taxes payable (164,326) 867
Deferred management fees 280,141 (464,427)
Other, net 27,902 57,972
----------------- -----------------
Net cash provided by operating activities 2,492,147 1,303,672
Cash flows from investing activities:
Purchases of furniture, equipment and leasehold
improvements (298,529) (370,204)
Purchases of intangibles - (7,225)
Purchases of marketable securities (273,745) (112,896)
Sale of furniture and equipment - 157,470
----------------- -----------------
Net cash used in investing activities (572,274) (332,855)
Cash flows from financing activities:
Principal payments under capital lease obligations - (67,521)
Purchase of treasury stock (2,280,375) -
----------------- -----------------
Net cash used in financing activities (2,280,375) (67,521)
Net increase / (decrease) in cash and cash equivalents (360,502) 903,296
Cash and cash equivalents, beginning of period 7,529,824 5,615,017
----------------- -----------------
Cash and cash equivalents, end of period $ 7,169,322 $ 6,518,313
================= =================
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
Lexington Global Asset Managers, Inc. (the "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 the Company authorized a share
repurchase program of up to 750,000 shares. Repurchases are to 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
three quarters of 1997, the Company repurchased 313,000 shares of its stock for
a total of $2,280,375.
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.
September 30, 1997 Compared to September 30, 1996
As anticipated, the Company's results in the first nine months 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 nine months
ended September 30, 1997 was $2.3 million, $0.43 per share, compared to $1.7
million, $0.31 per share for the first nine months of 1996. Included in the 1996
figures is a one time gain of $0.5 million ($0.09 per share) associated with the
sale of the Company's non-asset management West Coast subsidiaries in the third
quarter.
Total assets under management at September 30, 1997 were $3.8 billion compared
to $3.2 billion at both December 31, 1996 and September 30, 1996. Total revenues
of $14.4 million are 14.8% below the first nine months of 1996 when the Company
recorded revenues of $16.9 million. The West Coast operations recorded $2.5
million in revenues in the first nine months of 1997 and $5.3 million in the
first nine months of 1996. Excluding the West Coast operations, total revenues
of $11.9 million increased $0.3 million compared to the first nine months of
1996.
Net mutual fund management fees, the Company's largest revenue source, increased
$0.3 million to $8.4 million in the first nine months of 1997 compared to $8.1
million in the first nine months of 1996. Mutual fund assets under management
have increased during the first nine months to $2.2 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 $5.1 million are down $1.3 million from $6.4 million in
the nine months ended September 30, 1996. The disposed West Coast operations
account for $1.2 million of this decline. Similarly, commissions income declined
to $0.1 million in the first nine months of 1997 from $1.7 million in the first
nine months of 1996 as a result of the disposal of the West Coast operations.
Other income of $0.7 million is $0.2 million ahead of the first nine months of
1996 primarily reflecting earnings on the Company's investment accounts.
Total expenses of $10.8 million are $3.9 million below total expenses of $14.7
million in the first nine months of 1996. Virtually all of the decline is
attributable to the disposed and reorganized West Coast operations which
recorded total expenses of $1.4 million in the first nine months of 1997
compared to $5.1 million in the prior year period.
Total personnel costs of $6.6 million are $2.7 million lower than the $9.3
million recorded in the first nine months of 1996. A $3.0 million decline in
West Coast personnel expenses was partially offset by a $0.2 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 $0.8 million are
$0.4 million below the $1.2 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 $3.4 million are $0.8 million less than the prior year's
figure of $4.2 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 $3.6 million, up $0.8 million from the $2.8
million recorded in the first nine months of 1996. The provision for state and
federal taxes increased $0.2 million to $1.3 million in the first nine months
versus $1.1 million in the prior year period due to the increase in profit
before tax. The Company has net operating loss carryforwards of approximately
$5.6 million which are available to offset future taxable income which expire
over the period 1998 through 2008.
Three Months Ended September 30, 1997 and 1996
The consolidated net income for the three months ended September 30, 1997 was
$0.6 million, compared to $0.8 million for the third quarter of 1996. Included
in the 1996 figure is a one-time gain of $0.6 million associated with the sale
of the Company's non-asset management West Coast subsidiaries in the third
quarter.
Total revenues of $5.0 million are 10.7% below the third quarter of 1996 when
the Company recorded revenues of $5.6 million. The West Coast operations
recorded $0.9 million in revenues in the third quarter of 1997 and $1.9 million
in the third quarter of 1996. Excluding the West Coast operations, total
revenues of $4.1 million are $0.4 million ahead of the
prior year period.
Net mutual fund management fees of $3.0 million are $0.3 million above $2.7
million in the prior year period. Assets under management are $429 million
higher at September 30, 1997 than at September 30, 1996. Other management fees
of $1.8 million are down $0.4 million from $2.2 million in the prior year
period. The disposed West Coast operations account for all of this decline.
Similarly, commissions income of $0.1 million declined from $0.5 million in the
third quarter of 1996 as a result of the disposal of the West Coast operations.
Other income of $0.2 million is even with the third quarter of 1996.
Total expenses of $3.8 million are $1.1 million below total expenses of $4.9
million in the third quarter of 1996. Virtually all of the decline is
attributable to the disposed and reorganized West Coast operations which
recorded total expenses of $0.6 million in the third quarter of 1997 compared to
$1.7 million in the prior year period.
Total personnel costs of $2.2 million are $0.8 million lower than the $3.0
million recorded in the third quarter of 1996. The decline of $0.8 million is
attributable to the reorganized West Coast operations. Selling and promotional
costs of $0.2 million are $0.1 million below the $0.3 million in such costs in
the three months ended September 30, 1996, 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 $1.4 million are
$0.2 million less than the prior year's figure of $1.6 million due to the
write-off of a loan recorded by Piedmont Asset Advisors in the third quarter of
1996.
Profit before tax amounted to $1.2 million, down $0.1 million from the $1.3
million recorded in the third quarter of 1996. The provision for state and
federal taxes decreased $37,000 in the third quarter of 1997 due to a decrease
in profit before taxable income.
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 $2.5 million in the first nine months 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
nine months of 1997, cash outflows from investing activities was $0.6 million.
The principal uses of cash for investing activities in the first nine months of
1997 were the purchase of computer equipment and
purchases of various securities.
Cash flows from financing activities consistently have been negative over the
past three years. Historically, the most significant outflow has been the
payment of a regular quarterly dividend to Piedmont Management Company, the
Company's former parent. The Company does not at this time pay a dividend on its
common stock. Net cash outflows from financing activities in the first nine
months of 1997 of $2.3 million consisted of the purchase of 313,000 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
September 30, 1997, the Company had $7.2 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.
Lexington Funds Distributor, Inc. as a registered broker-dealer, has federal and
state net capital requirements at September 30, 1997 of $5,000. The aggregate
net capital of LFD was $0.3 million at September 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 September 30, 1997 was even with December 31, 1996 at
$9.8 million. Stockholders' equity reflects the Company's earnings for the first
nine months, 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.
Year 2000
The Company, like most commercial and financial institutions, is working to
assure that its operating and processing systems will along with those of its
service providers, continue to function when the year 2000 arrives. The Company
has developed and implemented a comprehensive plan to complete all internal
system conversions by the end of 1998. A significant part of the plan involves
upgrading current software to newer versions which are fully Year 2000
compliant. To date most of the Company's current software systems are fully
compliant. Based on this plan, it is estimated that incremental expenses to the
Company for the Year 2000 project will be nominal. In addition, the Company is
keeping apprised of the progress of outside vendors' plans to become Year 2000
compliant. Based on their progress, we feel confident that the outside vendors
will achieve compliance in 1998.
Part II. Other Information
Item 1. Legal Proceedings
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(27) Financial Data Schedule for the nine months ended September 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: 11-12-97