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 06-30-99
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, 1999.
Common Stock-$.01 Par Value Per Share
Authorized 15,000,000 Shares
4,534,872 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
Part I. Financial Information
Item I. Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
6/30/1999 12/31/1998
(Unaudited)
Assets:
Cash and cash equivalents:
Cash $ 585,452 $ 228,347
Money market accounts 8,724,058 8,209,827
------------ -----------
9,309,510 8,438,174
------------ -----------
Receivables:
Investment advisory and management fees 1,182,592 863,920
Due from funds and other 663,187 426,585
------------ -----------
1,845,779 1,290,505
------------ -----------
Trading securities 688,063 1,337,110
Prepaid expenses 1,977,711 1,859,517
Prepaid taxes 8,208 182,066
Fixed assets (net of accumulated depreciation
and amortization) 1,046,557 1,193,515
Intangible assets (net of accumulated amortization) 170,376 178,476
Assets associated with deferred compensation 975,308 834,309
Deferred income taxes 1,488,808 1,560,686
Other assets 9,401 8,608
------------ -----------
Total assets $ 17,519,721 $ 16,882,966
============ ===========
Liabilities:
Accounts payable and other accrued expenses $ 4,014,979 $ 3,944,677
Deferred income 2,321,511 1,879,969
Deferred compensation 975,308 834,309
Federal income taxes payable 717,685 843,434
Other liabilities 15,554 11,391
------------ -----------
Total liabilities 8,045,037 7,513,780
------------ -----------
Minority interest 485,384 428,821
Stockholders' Equity:
Common stock, $.01 par value; 15,000,000 authorized shares;
5,487,887 issued 54,879 54,879
Additional paid-in capital 21,533,391 21,573,392
Accumulated deficit (8,234,274) (8,633,541)
Deferred compensation (826,752) (1,118,758)
Treasury stock at cost (3,537,944) (2,935,607)
------------ -----------
Total stockholders' equity 8,989,300 8,940,365
------------ -----------
Total liabilities and stockholders' equity $ 17,519,721 $ 16,882,966
============ ===========
See accompanying notes to the condensed consolidated financial statements
(Unaudited).
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
1999 1998 1999 1998
Revenues:
Investment advisory:
Mutual fund management fees (including
$78,807, $86,936, $170,369, and $186,740
respectively from related parties) $ 2,261,596 $ 3,007,621 $ 4,395,881 $ 6,019,422
Mutual fund commissions 5,193 19,832 15,353 48,948
Other management fees (including $847,667,
$769,699, $1,718,904, and $1,484,338
respectively from related parties) 2,187,764 2,018,337 4,322,017 3,910,783
Commissions income 37,837 28,603 74,143 51,976
Other income/(loss) 262,750 (61,331) 401,373 130,726
------------ ------------ ------------ ------------
Total revenues 4,755,140 5,013,062 9,208,767 10,161,855
------------ ------------ ------------ ------------
Expenses:
Salaries and other compensation 2,393,568 2,320,607 4,628,286 4,756,395
Selling and promotional 191,135 271,734 308,116 495,632
Administrative and general 1,722,140 2,080,866 3,439,173 4,155,655
------------ ------------ ------------ ------------
Total expenses 4,306,843 4,673,207 8,375,575 9,407,682
------------ ------------ ------------ ------------
Income before income taxes and
minority interest 448,297 339,855 833,192 754,173
Provision for income taxes
Current 237,486 73,636 305,484 120,044
Deferred (26,998) 84,332 71,878 219,024
------------ ------------ ------------ ------------
Total provision 210,488 157,968 377,362 339,068
------------ ------------ ------------ ------------
Income before minority interest 237,809 181,887 455,830 415,105
Minority interest 23,600 7,440 56,563 8,071
------------ ------------ ------------ ------------
Net income $ 214,209 $ 174,447 $ 399,267 $ 407,034
============ ============ ============ ============
Earnings per share:
Basic earnings per share $0.05 $0.03 $0.09 $0.08
============ ============ ============ ============
Diluted earnings per share $0.05 $0.03 $0.08 $0.08
============ ============ ============ ============
Average shares outstanding during the period:
Basic 4,576,658 5,103,634 4,643,013 5,142,528
============ ============ ============ ============
Diluted 4,684,908 5,200,138 4,726,794 5,236,964
============ ============ ============ ============
See accompanying notes to the condensed consolidated financial statements
(Unaudited).
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30,
1999 1998
---- ----
Cash flows from operating activities:
Net income $ 399,267 $ 407,034
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 170,960 163,552
Deferred income taxes 71,878 219,024
Minority interest 56,563 8,070
Compensation expense - stock options 318,006 308,430
Change in assets and liabilities
Receivables (555,274) 182,843
Trading securities 649,047 40,253
Prepaid expenses (118,194) (298,303)
Prepaid taxes 173,858 284
Accounts payable and accrued expenses 70,302 (1,042,746)
Federal income taxes payable (125,749) -
Deferred income 441,542 391,670
Other, net 3,370 442
--------------- ----------------
Net cash provided by operating activities 1,555,576 380,553
Cash flows from investing activities:
Purchases of furniture, equipment and leasehold
improvements (15,902) (41,106)
Cash flows from financing activities:
Purchase of treasury stock (668,338) (928,750)
--------------- ----------------
Net cash used in financing activities (668,338) (928,750)
--------------- ----------------
Net increase (decrease) in cash and cash equivalents 871,336 (589,303)
Cash and cash equivalents, beginning of period 8,438,174 8,705,298
--------------- ----------------
Cash and cash equivalents, end of period $ 9,309,510 $ 8,115,995
=============== ================
See accompanying notes to the condensed consolidated financial
statements (Unaudited).
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 1998 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. During 1998, the Company completed
the share repurchase program. On September 17, 1998, the Board of Directors
authorized a second share repurchase program of up to 750,000 shares, which has
a term of three years. Repurchases have been and will be made from time to time
in the open market or through privately negotiated transactions at market price.
During the first half of 1999, the Company repurchased 200,000 shares of stock
for a total of $668,338. Subsequent to June 30, 1999, the Company repurchased
95,000 shares. Under the second program, the Company has repurchased a total of
390,350 shares.
3. Disclosures about Segments of an Enterprise and Related Information
The Company and its subsidiaries are principally engaged in a variety of asset
management and related services to retail investors, institutions and private
accounts. The Company operates in three business segments: Mutual Funds,
Institutional, and Private Accounts. The mutual fund segment, through its
subsidiaries, markets, promotes, and distributes the Lexington family of 15
mutual funds providing a variety of investment choices. The institutional
segment for investment management services includes corporate, government and
multi-employee pension plans, charitable endowments and foundations, insurance
company general accounts and defined contribution and 401(k) plans. The private
account segment offers equity, fixed income and balanced fund alternatives,
tailored to the individual investment objectives of its private clients.
Mutual Private
Six months ended June 30, 1999 Funds Institutional Accounts Other Total
- ------------------------------ ----- ------------- -------- ----- -----
Revenue $4,645,340 $2,120,932 $2,462,921 ($20,426) $9,208,767
Salaries and other compensation 1,879,350 2,053,493 695,443 0 4,628,286
Selling and promotional 98,758 141,239 46,112 22,007 308,116
Administrative and general 1,352,476 508,486 1,454,315 123,896 3,439,173
Income (loss) before income taxes
and minority interest $1,314,756 ($582,286) $267,051 ($166,329) $833,192
Six months ended June 30, 1998
Revenue $6,062,590 $2,049,641 $2,041,274 $8,350 $10,161,855
Salaries and other compensation 2,099,634 2,036,172 620,589 0 4,756,395
Selling and promotional 269,555 147,736 47,151 31,190 495,632
Administrative and general 1,889,867 662,332 1,475,289 128,167 4,155,655
Income (loss) before income taxes
and minority interest $1,803,534 ($796,599) ($101,755) ($151,007) $754,173
Three months ended June 30, 1999
Revenue $2,420,711 $1,099,563 $1,272,826 ($37,960) $4,755,140
Salaries and other compensation 893,479 1,125,753 374,336 0 2,393,568
Selling and promotional 67,596 79,319 30,521 13,699 191,135
Administrative and general 670,883 264,331 724,939 61,987 1,722,140
Income (loss) before income taxes
and minority interest $788,753 ($369,840) $143,030 ($113,646) $448,297
Three months ended June 30, 1998
Revenue $2,919,695 $1,040,761 $1,048,387 $4,220 $5,013,063
Salaries and other compensation 1,023,979 995,124 301,503 0 2,320,606
Selling and promotional 115,779 107,013 27,280 21,662 271,734
Administrative and general 960,877 308,824 746,194 64,971 2,080,866
Income (loss) before income taxes
and minority interest $819,060 ($370,200) ($26,590) ($82,413) $339,857
Management does not evaluate assets as a means to allocate resources and assess
performance. The Company is domiciled in the United States and does not have any
international operations.
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, 1998 is incorporated herein by reference and should
be read in conjunction with the following.
Six Months Ended June 30, 1999 and 1998
The consolidated net income for the six months ended June 30, 1999 was $0.4
million, or $0.09 basic earnings per share and $0.08 diluted earnings per share,
compared to $0.4 million, or $0.08 basic and diluted earnings per share for the
first six months of 1998.
Total assets under management at June 30, 1999 were $3.3 billion compared to
$3.5 billion at June 30, 1998. Mutual fund assets under management decreased
approximately $0.4 billion to $1.5 billion from $1.9 billion in the year earlier
period. The decrease is mainly attributable to the termination of a sub-advisory
relationship with one of the Company's larger accounts in the fourth quarter of
1998. Assets under management in this relationship were approximately $400
million. Private account assets increased $0.1 billion to $0.6 billion, while
institutional assets stayed even at $1.1 billion.
Year-to-date revenues of $9.2 million are $1.0 million below last year. Mutual
fund revenues decreased $1.6 million from $6.0 million to $4.4 million. Of this
decline, $0.9 million is a result of the termination of a sub-advisory
relationship with one of the Company's larger accounts in the fourth quarter of
1998. Also contributing to the decline are the Company's emerging markets funds,
which, compared to the prior year period, experienced a decrease in average net
assets in an environment of continuing strength in the U.S. capital markets.
Other management fees shows a $0.4 million increase, due to higher assets under
management in the private account segment. There was also a $0.3 million
increase in other income, primarily as a result of unrealized appreciation of
$0.1 million at June 30, 1999 versus unrealized depreciation of $0.1 million at
June 30, 1998.
Total year-to-date expenses of $8.4 million decreased $1.0 million from the
first half of 1998 due to administrative and general expenses (which decreased
approximately $0.7 million to $3.4 million), selling and promotional expenses
(which decreased $0.2 million to $0.3 million), and salaries and other
compensation (which decreased approximately $0.1 million to $4.6 million).
Administrative and general expenses primarily declined due to lower sub-advisory
fees and trail commissions, reflecting lower assets under management. Selling
and promotional expenses decreased $0.2 million due to lower advertising
expenditures. And finally, salaries and other compensation declined due to lower
bonus expense associated with lower revenues and profits.
Income before taxes and minority interest of $833 thousand is $79 thousand above
the $754 thousand recorded in the first half of 1998. The provision for state
and federal taxes slightly increased to $377 thousand from $339 thousand due to
the increase in taxable income.
Three Months Ended June 30, 1999 and 1998
The consolidated net income for the three months ended June 30, 1999 was
$214,209 or $0.05 per share, compared to $174,447 or $0.03 per share for the
second quarter of 1998.
Total revenues of $4.8 million are $0.3 million below the second quarter of
1998. Mutual fund revenues decreased $0.7 million to $2.3 million with the
decline in assets under management. Of this decline, $0.5 million is due to the
termination of a sub-advisory relationship. Partially offsetting the decline is
an increase of $0.2 million in other management fees associated with higher
assets under management in the private account segment, and a $0.3 million
increase in other income. The increase in other income is a result of unrealized
appreciation, which totaled $0.1 million in the second quarter of 1999 versus
unrealized depreciation of $0.2 million in the second quarter of 1998. The
unrealized appreciation/depreciation stems from investments in a number of the
products managed by the Company.
The total expenses for the quarter of $4.3 million showed a decrease of $0.4
million, due almost entirely to administrative and general expenses. These
expenses decreased $0.4 million primarily due to a decline in sub-advisory fees
and trail commissions, which is attributable to lower mutual fund assets under
management. Selling and promotional expenses decreased $0.1 million from the
second quarter of 1998 to $0.2 million. This decrease is attributable to lower
advertising expenditures. Salaries and other compensation expense increased $0.1
million to $2.4 million due to market appreciation of the assets segregated for
the purposes of meeting the Company's deferred compensation liability.
Profit before tax and minority interest amounted to $0.4 million, up $0.1
million from the $0.3 million recorded in the second quarter of 1998. The
provision for state and federal taxes increased $53 thousand to $0.2 million in
the second quarter due to higher taxable income.
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 prepare the Company's
computer systems and applications for the Year 2000, as well as to identify and
address any other Year 2000 operational issues which may affect the Company.
Progress reports on the Company's Year 2000 program are presented regularly to
the Company's Board of Directors and senior management.
The Company's Year 2000 program, which was commenced in June 1997 and is
administered by internal staff, consists of the following three components
relating to the Company's operations: (i) information technology ("IT") computer
systems and applications which may be impacted by the Year 2000 problem, (ii)
non-IT systems and equipment which include embedded technology which may be
impacted by the Year 2000 problem and (iii) third party vendors with which the
Company has significant relationships which could adversely affect the Company
if such parties fail to be Year 2000 compliant.
The general phases common to all three components of the Company's Year 2000
program are: (1) Awareness (the identification of the Year 2000 issues facing
the Company); (2) Assessment (the prioritization of the issues and the actions
to be taken); (3) Renovation (implementation of the specific actions determined
upon assessment, including repair, modification or replacement of items that are
determined not to be Year 2000 compliant); (4) Validation (testing of the new or
modified information systems, other systems, and equipment to verify the Year
2000 readiness); (5) Implementation (actual operation of such systems and
equipment and, if necessary, the actual implementation of any contingency plans
in the event Year 2000 problems occur, notwithstanding the Company's renovation
program).
The Company has completed an assessment of its Year 2000 readiness and has
completed the renovation of its internal systems. The renovation phase involved
the replacement of certain systems with purchased software, the renovation of
other systems, and the purchase of certain hardware and other devices, all of
which are Year 2000 compliant. The validation phase related to these
applications has been completed. The implementation phase has begun and is an
ongoing task. Excluding normal system upgrades, the Company estimates that total
costs for conversion and testing of new or modified IT systems and applications
will aggregate approximately $174,000, of which an aggregate of $112,000 has
been incurred to date.
The Company is keeping apprised of the progress of outside vendors' plans to
become Year 2000 compliant. All outside vendors are in the implementation phase.
The Company is deemed generally compliant with no critical systems as
non-compliant and has drafted a contingency plan, which it is refining and will
test in the third quarter.
Although the Company believes it is adequately addressing its Year 2000 issues,
the failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failure could materially affect the Company's results of
operations, liquidity and financial condition.
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 six months of 1999 the Company had cash inflows
from operations of $1.6 million. The major sources of this cash inflow were the
liquidation of a portion of the Company's trading securities and net income.
Net cash from investing activities have ranged between inflows of $0.5 million
and outflows of $0.3 million over the past three years. Outflows of cash from
investing activities were just marginally negative in the first six months of
1999 reflecting the purchase of computer equipment.
Cash flows from financing activities have been consistently negative over the
past three years. The principal use of cash in financing activities has been the
repurchase of the Company's stock under the previously announced stock buy-back
programs. On March 7, 1997 the Company announced a share repurchase program
under which the Company may repurchase up to 750,000 shares of its stock from
time to time in the open market or through privately negotiated transactions at
market prices. During 1998, the Company completed the share repurchase program.
On September 17, 1998, the Board of Directors authorized a second share
repurchase program of up to 750,000 shares, which has a term of three years.
Through December 31, 1998, the Company repurchased 845,350 shares of its stock
for a total of $4,634,244. In the first half of 1999, the Company purchased
200,000 shares of its stock for a total of $668,338. Subsequent to June 30,
1999, the Company repurchased 95,000 shares. 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, 1999 the Company had $9.3 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 June 30, 1999 of $25,000. The aggregate net capital of LFD was
$0.3 million at June 30, 1999.
Stockholders' equity on June 30, 1999 increased to $9.0 million from $8.9
million at December 31, 1998 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.
Forward Looking Statements
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 4. Submission of Matters to a Vote of Security Holders
(a) Date of Meeting: May 13, 1999 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
For All Directors: 4,520,032 Withheld Authority: 16,081
2. Ratification of the selection of KPMG LLP as the independent
auditors for the current calendar year.
Votes: For Against Abstain
4,531,145 1,330 3,638
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: 8-12-99