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 03-31-98
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, 1998.
Common Stock-$.01 Par Value Per Share
Authorized 15,000,000 Shares
5,185,887 Shares Outstanding
TABLE OF CONTENTS
Part I. Financial Information
Condensed Consolidated Statements of Financial Condition
Condensed Consolidated Statements of Operations
Condensed Consolidated Statements of Cash Flows
Notes to Condensed Consolidated Financial Statements
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Part II. Other Information
Legal Proceedings and Exhibits
LEXINGTON GLOBAL ASSET MANAGERS, INC.
AND SUBSIDIARIES
Item I. Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
3/31/1998 12/31/1997
(Unaudited)
Assets:
Cash and cash equivalents:
Cash $ 562,650 $ 193,383
Money market accounts 7,064,992 8,511,915
----------------- -----------------
7,627,642 8,705,298
----------------- -----------------
Receivables:
Investment advisory and management fees 1,216,449 1,233,377
Due from funds and other 1,027,909 596,333
----------------- -----------------
2,244,358 1,829,710
----------------- -----------------
Marketable securities 1,623,476 1,524,788
Prepaid expenses 1,789,212 1,708,122
Prepaid taxes 139,556 6,203
Fixed assets (net of accumulated depreciation
and amortization) 1,343,546 1,384,772
Intangible assets (net of accumulated amortization) 190,626 194,676
Deferred income taxes 1,803,521 1,938,213
Other assets 141,491 141,491
----------------- -----------------
Total assets $ 16,903,428 $ 17,433,273
================= =================
Liabilities:
Accounts payable and other accrued expenses $ 3,303,451 $ 4,437,585
Deferred income 1,827,119 1,626,123
Federal income taxes payable 882,215 863,667
Other liabilities 11,586 10,579
----------------- -----------------
Total liabilities 6,024,371 6,937,954
----------------- -----------------
Minority interest 405,688 405,058
Stockholders' Equity:
Common stock, $.01 par value; 15,000,000 authorized shares;
5,487,887 issued 54,879 54,879
Additional paid-in capital 21,708,142 21,708,142
Accumulated deficit (9,113,331) (9,345,918)
Deferred Compensation (1,503,821) (1,654,342)
Treasury stock at cost (672,500) (672,500)
----------------- -----------------
Total stockholders' equity 10,473,369 10,090,261
----------------- -----------------
Total liabilities and stockholders' equity $ 16,903,428 $ 17,433,273
================= =================
See accompanying notes to the condensed consolidated financial statements (Unaudited).
LEXINGTON GLOBAL ASSET MANAGERS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended March 31,
1998 1997
Revenues:
Investment advisory:
Mutual fund management fees (including approximately
$99,800 and $134,400 from related parties) $ 2,482,703 $ 2,731,467
Mutual fund commissions 29,116 18,649
Other management fees (including approximately
$714,700 and $637,800 from related parties) 1,892,446 1,635,045
Commissions income 23,373 32,613
Other income 192,058 205,591
---------------- ----------------
Total revenues 4,619,696 4,623,365
---------------- ----------------
Expenses:
Salaries and other compensation 2,435,789 2,263,748
Selling and promotional 223,898 238,984
Administrative and general 1,545,692 846,245
---------------- ----------------
Total expenses 4,205,379 3,348,977
---------------- ----------------
Income before income taxes and minority interest 414,317 1,274,388
Provision for income taxes
Current 46,408 53,033
Deferred 134,692 470,296
---------------- ----------------
Total provision 181,100 523,329
---------------- ----------------
Income before minority interest 233,217 751,059
Minority interest 630 12,095
---------------- ----------------
Net income $ 232,587 $ 738,964
================ ================
Earnings per share:
Basic earnings per share $0.04 $0.13
================ ================
Diluted earnings per share $0.04 $0.13
================ ================
Average shares outstanding during the period 5,181,854 5,486,776
================ ================
See accompanying notes to the condensed consolidated financial statements (Unaudited).
LEXINGTON GLOBAL ASSET MANAGERS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31,
1998 1997
Cash flows from operating activities:
Net income $ 232,587 $ 738,964
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 78,820 72,009
Amortization of deferred costs - 9,221
Deferred income taxes 134,692 470,296
Minority interest 630 12,095
Compensation expense - stock options 150,521 -
Change in assets and liabilities
Receivables (414,648) 15,824
Marketable securities (98,688) (61,563)
Prepaid expenses (81,090) (658,142)
Prepaid taxes (133,353) (17,169)
Accounts payable and accrued expenses (1,134,134) (649,740)
Federal income taxes payable 18,548 1,378
Deferred management fees 200,996 226,336
Other, net 1,007 22,410
--------------- ----------------
Net cash provided by (used in) operating activities (1,044,112) 181,919
Cash flows from investing activities:
Purchases of furniture, equipment and leasehold
improvements (33,544) (214,556)
--------------- ----------------
Net cash used in investing activities (33,544) (214,556)
Cash flows from financing activities:
Purchase of treasury stock - (130,000)
--------------- ----------------
Net cash used in financing activities - (130,000)
Net decrease in cash and cash equivalents (1,077,656) (162,637)
Cash and cash equivalents, beginning of period 8,705,298 7,529,824
--------------- ----------------
Cash and cash equivalents, end of period $ 7,627,642 $ 7,367,187
=============== ================
See accompanying notes to the condensed consolidated financial statements (Unaudited).
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 1997 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 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. During 1997,
the Company repurchased 313,000 shares of stock for a total of $2,280,375. Also,
during 1997, 233,000 treasury shares were issued under the Company's Restricted
Stock Award Plan. In the first quarter of 1998, the Company did not purchase any
of its common stock. Subsequent to the first quarter, the Company repurchased
95,000 shares of its common stock.
3. Changes in Accounting Principles
In June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". SFAS No. 131 establishes standards for the
way a public enterprise reports information about operating segments in its
annual and interim financial statements. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. Generally, financial information will be required to be reported on
the basis used by management for evaluating segment performance and for deciding
how to allocate resources to segments. SFAS No. 131 is effective for fiscal
years beginning after December 15, 1997 and need not be applied to interim
reporting in the initial year of adoption. The Company intends to adopt the
provisions of SFAS No. 131 in its December 31, 1998 annual consolidated
financial statements, however, management of the Company has not yet determined
what additional information, if any, will need to be reported.
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, 1997 is incorporated herein by reference and should
be read in conjunction with the following.
March 31, 1998 Compared to March 31, 1997
The consolidated net income for the three months ended March 31, 1998 was $0.2
million, or $0.04 per share, compared to $0.7 million, or $0.13 per share for
the first three months of 1997.
Total assets under management at March 31, 1998 were $3.7 billion compared to
$3.4 billion at December 31, 1997 and $3.3 billion at March 31, 1997. Each of
the Company's three primary served markets, (Mutual Funds, Private Client, and
Institutional), contributed approximately $0.1 billion to the growth in assets
from December 31, 1997. Both the Private Client and Institutional segments,
which are primarily invested in the U.S. bond and equity markets, experienced
growth in assets through superior performance results associated with the
relatively strong U.S. capital markets in 1997 and in the first quarter of 1998.
Mutual fund assets under management also grew primarily through appreciation of
domestic equity mutual funds.
Total revenues of $4.6 million are even with the first quarter of 1997.
Net mutual fund management fees, the Company's largest revenue source, decreased
$0.2 million to $2.5 million in the first quarter of 1998 compared to $2.7
million in the first quarter of 1997. These revenues decreased as a result of
the shift in assets under management from some of the Company's higher priced
products (emerging markets and precious metals) to some of the lower priced
products (domestic equity and fixed income) and to products with shared revenue
arrangements (sub-advisory relationships). This shift occurred as a result of
relative investment performance and changing investor preferences which toward
the end of the year favored U.S. capital markets over some of the foreign
markets, particularly the emerging markets.
Other management fees of $1.9 million are up $0.3 million from $1.6 million in
the first quarter of 1997. The West Coast operations accounted for the increase
due to continued increases in assets under management associated with the
continuing strength of the U.S. equity markets. Other income of $0.2 million is
even with the first quarter of 1997.
Total expenses of $4.2 million are $0.9 million above total expenses of $3.3
million in the first quarter of 1997. The total expense increase was primarily
due to administrative and general expenses of $1.5 million which are $0.7
million above the $0.8 million recorded in the first quarter of 1997. Of this
increase, $0.6 million derives from an administrative contract with Select
Advisors ("Select") for the Company's West Coast operations. This contract was
part of the reorganization of these operations, which occurred in 1996. Under
the administrative contract the Company pays fees to Select for administrative
and support services for the West Coast clients. Because the West Coast clients
are billed annually in advance, the expenses incurred for the administrative
contract are amortized evenly over a twelve-month period. The first quarter 1998
expenses includes amortization of the contract expense across the entire client
base. In the first quarter of 1997, the Company benefited from the fact that no
administrative fees were charged in 1997 for those accounts which entered into
or renewed advisory agreements in the first nine months of 1996; i.e., prior to
September 30, 1996, the date of the West Coast reorganization.
Total personnel costs of $2.4 million are $0.2 million higher than the $2.2
million recorded in the first quarter of 1997. The Company recognized
approximately $150,000 of expense associated with the issuance of restricted
stock to certain key executive employees. In addition, salaries increased $0.1
million due to annual salary increases.
Selling and promotional costs of $0.2 million remained relatively even with the
first quarter of 1997.
Pre-tax income of $0.4 million decreased $0.9 million from $1.3 million recorded
in the first quarter of 1997. The provision for state and federal taxes
decreased $0.4 million due to the decrease in taxable income. Due to taxable
temporary differences and lower profits, the Company did not use any NOLs in the
first quarter of 1998, yet the Company has remaining NOLs of approximately $2.7
million which are available to offset future taxable income which expire over
the period 2003 through 2012.
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 values 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 investments are in technology, including
computer equipment and telephones.
Historically, the Company has been cash self-sufficient. Cash flows from
operations have ranged between inflows of $3.7 million and $1.5 million over the
past three years. In the first quarter of 1998 the Company had cash outflows
from operations which amounted to $1.0 million. The major use of cash was the
payment of accrued expenses.
Net cash from investing activities have ranged between inflows of $0.5 million
and outflows of $0.5 million over the past three years. Outflows of cash from
investing activities were just marginally negative in the first quarter of 1998
representing the purchase of computer equipment.
Cash flows from financing activities consistently have been negative over the
past three years. On March 7, 1997, the Company announced a 750,000 share
repurchase program under which the Company may repurchase its stock from time to
time in the open market or through privately negotiated transactions at market
prices. The stock repurchase plan has a term of three years. During 1997, the
Company repurchased 313,000 shares of its stock for a total of $2,280,375. The
Company did not purchase any of its stock in the first quarter of 1998, but
subsequent to the first quarter purchased 95,000 shares for a total of $724,375.
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, 1998 the Company had $7.6 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, as a registered broker-dealer, had federal and state net capital
requirements at March 31, 1998 of $25,000. The aggregate net capital of LFD was
$0.3 million at March 31, 1998. LMC, MSR, and MSRI, as registered investment
advisors, must meet net capital requirements imposed at the Federal and state
levels.
Stockholders' equity on March 31, 1998 increased to $10.5 million from $10.1
million at December 31, 1997 primarily as a result of the Company's net income.
Management believes that the Company's liquid assets and its net cash provided
by operations will enable it to meet any foreseeable cash requirements.
Year 2000
The Company, like most commercial and financial institutions, is working to
ensure 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.
Some of the statements included within Management's Discussion and Analysis may
be considered to be forward looking statements which are subject to certain
risks and uncertainties. Factors which could cause the actual results to differ
materially from those suggested by such statements are described from time to
time in the Company's Annual Report on Form 10-K and other filings with the
Securities and Exchange Commission.
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)
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: 5-14-98