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 09-30-99
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 September 30, 1999.
Common Stock-$.01 Par Value Per Share
Authorized 15,000,000 Shares
4,427,372 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
Part I. Financial Information
Item I. Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
9/30/1999 12/31/1998
(Unaudited)
Assets:
Cash and cash equivalents:
Cash $ 558,489 $ 228,347
Money market accounts 8,892,278 8,209,827
------------ ------------
9,450,767 8,438,174
------------ ------------
Receivables:
Investment advisory and management fees 1,177,306 863,920
Due from funds and other 398,799 426,585
------------ ------------
1,576,105 1,290,505
------------ ------------
Securities at fair value 658,351 1,337,110
Prepaid expenses 1,896,257 1,859,517
Prepaid taxes 65,749 182,066
Fixed assets (net of accumulated depreciation
and amortization) 976,153 1,193,515
Intangible assets (net of accumulated amortization) 166,326 178,476
Assets associated with deferred compensation 950,361 834,309
Deferred income taxes 1,867,229 1,560,686
Other assets 9,556 8,608
------------ ------------
Total assets $ 17,616,854 $ 16,882,966
============ ============
Liabilities:
Accounts payable and other accrued expenses $ 4,789,244 $ 3,944,677
Deferred income 2,206,166 1,879,969
Deferred compensation 950,361 834,309
Federal income taxes payable 675,061 843,434
Other liabilities - 11,391
------------ ------------
Total liabilities 8,620,832 7,513,780
------------ ------------
Minority interest 556,241 428,821
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 (8,533,318) (8,633,541)
Deferred compensation (666,667) (1,118,758)
Treasury stock at cost (3,948,504) (2,935,607)
------------ ------------
Total stockholders' equity 8,439,781 8,940,365
------------ ------------
Total liabilities and stockholders' equity $ 17,616,854 $ 16,882,966
============ ============
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 Sept. 30, Nine Months Ended Sept. 30,
1999 1998 1999 1998
Revenues:
Investment advisory:
Mutual fund management fees (including approx.
$72,000, $92,000, $242,000, and $278,000
respectively from related parties) $ 2,385,485 $ 2,590,728 $ 6,777,591 $ 8,610,051
Mutual fund commissions 3,585 11,304 18,938 60,252
Other management fees (including approximately
$871,000, $761,000, $2,590,000, and
$2,245,000 respectively from related parties) 2,346,044 1,989,241 6,671,836 5,746,944
Commissions income 30,692 28,604 104,835 80,580
Other income/(loss) 36,063 (114,693) 437,436 16,033
------------ ------------ ------------ ------------
Total revenues 4,801,869 4,505,184 14,010,636 14,513,860
------------ ------------ ------------ ------------
Expenses:
Salaries and other compensation 3,146,363 2,131,241 7,774,649 6,887,635
Selling and promotional 279,806 269,358 598,949 775,031
Administrative and general 1,922,470 1,890,591 5,350,616 5,883,028
------------ ------------ ------------ ------------
Total expenses 5,348,639 4,291,190 13,724,214 13,545,694
------------ ------------ ------------ ------------
Income (loss) before income taxes & minority int (546,770) 213,994 286,422 968,166
Provision for income taxes
Current 59,838 199,553 365,322 319,597
Deferred (378,421) (83,279) (306,543) 135,745
------------ ------------ ------------ ------------
Total provision (318,583) 116,274 58,779 455,342
------------ ------------ ------------ ------------
Income (loss) before minority interest (228,187) 97,720 227,643 512,824
Minority interest 70,856 8,703 127,419 16,773
------------ ------------ ------------ ------------
Net income (loss) $ (299,043) $ 89,017 $ 100,224 $ 496,051
============ ============ ============ ============
Earnings per share:
Basic earnings (loss) per share ($0.07) $0.02 $0.02 $0.10
============ ============ ============ ============
Diluted earnings (loss) per share ($0.07) $0.02 $0.02 $0.10
============ ============ ============ ============
Average shares outstanding during the period 4,454,258 4,982,511 4,579,403 5,088,603
============ ============ ============ ============
See accompanying notes to the condensed consolidated financial
statements (Unaudited).
LEXINGTON GLOBAL ASSET MANAGERS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended Sept. 30,
1999 1998
---- ----
Cash flows from operating activities:
Net income $ 100,224 $ 496,051
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 253,932 249,450
Deferred income taxes (306,543) 135,746
Minority interest 127,419 16,773
Compensation expense - stock options 478,092 466,351
--------------- ----------------
552,900 868,320
Change in assets and liabilities
Receivables (285,600) 160,068
Securities at fair value 678,759 387,647
Prepaid expenses (36,740) (16,190)
Prepaid taxes 116,317 (5,577)
Accounts payable and accrued expenses 844,567 (909,437)
Federal income taxes payable (168,373) 26,305
Deferred income 326,197 215,861
Other, net (12,338) 139,276
--------------- ----------------
Net cash provided by operating activities 2,115,913 1,362,324
Cash flows from investing activities:
Purchases of furniture, equipment and leasehold
improvements (24,420) (64,015)
Cash flows from financing activities:
Dividends and other - (147,000)
Purchase of treasury stock (1,078,900) (2,249,173)
--------------- ----------------
Net cash used in financing activities (1,078,900) (2,396,173)
Net Increase (decrease) in cash and cash equivalents 1,012,593 (1,097,864)
Cash and cash equivalents, beginning of period 8,438,174 8,705,298
--------------- ----------------
Cash and cash equivalents, end of period $ 9,450,767 $ 7,607,434
=============== ================
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 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 nine months of 1999, the Company repurchased 307,500 shares of
stock for a total of $1,078,900. Under the second program, the Company has
repurchased a total of 402,850 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
Nine months ended September 30, 1999 Funds Institutional Accounts Other Total
- ------------------------------------ ----- ------------- -------- ----- -----
Revenue $7,002,788 $3,133,037 $3,792,980 $81,831 $14,010,636
Salaries and other compensation 3,428,019 3,160,370 1,186,260 - 7,774,649
Selling and promotional 215,792 259,708 88,608 34,841 598,949
Administrative and general 1,973,492 925,237 2,175,088 276,799 5,350,616
Income (loss) before income taxes
and minority interest $1,385,485 ($1,212,278) $343,024 ($229,809) $286,422
Nine months ended September 30, 1998
- -------------------------------------
Revenue $8,562,975 $2,787,344 $3,151,107 $12,434 $14,513,860
Salaries and other compensation 3,017,347 2,949,793 920,495 - 6,887,635
Selling and promotional 474,745 188,392 71,197 40,697 775,031
Administrative and general 2,468,202 970,405 2,244,155 200,266 5,883,028
Income (loss) before income taxes
and minority interest $2,602,681 ($1,321,246) ($84,740) ($228,529) $968,166
Three months ended September 30, 1999
- -------------------------------------
Revenue $2,357,448 $1,012,105 $1,330,059 $102,257 $4,801,869
Salaries and other compensation 1,548,669 1,106,877 490,817 0 3,146,363
Selling and promotional 106,007 118,469 42,496 12,834 279,806
Administrative and general 737,294 311,500 720,773 152,903 1,922,470
Income (loss) before income taxes
and minority interest ($34,522) ($524,741) $75,973 ($63,480) ($546,770)
Three months ended September 30, 1998
- -------------------------------------
Revenue $2,500,385 $890,882 $1,109,833 $4,084 $4,505,184
Salaries and other compensation 917,714 913,621 299,906 0 2,131,241
Selling and promotional 195,149 40,656 24,046 9,507 269,358
Administrative and general 741,553 308,073 768,866 72,099 1,890,591
Income (loss) before income taxes
and minority interest $645,969 ($371,468) $17,015 ($77,522) $213,994
Management does not evaluate balance sheet 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.
Nine Months Ended September 30, 1999 and 1998
- ---------------------------------------------
The consolidated net income for the nine months ended September 30, 1999 was
$0.1 million, or $0.02 per share, compared to $0.5 million, or $0.10 per share
for the first nine months of 1998.
Total assets under management at September 30, 1999 were even with September 30,
1998 at $3.2 billion. Mutual fund assets under management decreased
approximately $0.2 billion to $1.5 billion from $1.7 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 also showed a $0.1 billion increase to $1.1 billion.
Year-to-date revenues of $14.0 million are $0.5 million below last year. Mutual
fund revenues decreased $1.8 million from $8.6 million to $6.8 million. Of this
decline, $1.3 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 $0.9 million increase, due to higher assets under
management in the private account and institutional segments. There was also a
$0.4 million increase in other income, primarily as a result of unrealized
appreciation of $0.1 million at September 30, 1999 versus unrealized
depreciation of $0.3 million at September 30, 1998.
Total year-to-date expenses of $13.7 million increased $0.2 million from
September 30, 1998. The increase is due to salaries and other compensation,
which increased $0.9 million to $7.8 million, as a result of expenses associated
with the reorganization of the firm's Executive Committee and the resulting
restructuring of responsibility for the mutual fund group. In addition, bonus
expense increased, reflecting the increasingly competitive environment for top
quality personnel. Offsetting the increase in salaries and other compensation is
a decrease in administrative and general expense (which decreased $0.5 million
to $5.4 million), and selling and promotional expenses (which decreased $0.2
million to $0.6 million). Administrative and general expenses declined primarily
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.
Income before taxes and minority interest of $0.3million is $0.7 million below
the $1.0 million recorded in the first nine months of 1998. The provision for
state and federal taxes decreased to $0.1 million from $0.5 million due to the
decrease in taxable income.
Three Months Ended September 30, 1999 and 1998
- ----------------------------------------------
The consolidated net loss for the three months ended September 30, 1999 was
$299,043 or ($0.07) per share, compared to net income of $89,017 or $0.02 per
share for the third quarter of 1998.
Total revenues of $4.8 million are $0.3 million above the third quarter of 1998.
Other management fees increased $0.4 million, which is associated with higher
assets under management in the private account and institutional segments. Other
income increased approximately $0.1 million as a result of unrealized
appreciation/(depreciation), which was relatively flat in the third quarter of
1999 versus unrealized depreciation of $0.2 million in the third quarter of
1998. The unrealized appreciation/depreciation stems from investments in a
number of the products managed by the Company. Mutual fund revenues decreased
$0.2 million to $2.4 million with the decline in assets under management. Of
this decline, $0.4 million is due to the termination of a sub-advisory
relationship.
The total expenses for the quarter of $5.3 million increased $1.0 million, due
entirely to salaries and other compensation, which increased $1.0 million, as a
result of the restructuring costs and bonus increase referred to above. Selling
and promotional fees remained level at $0.3 million, as did general and
administrative expenses, which was at $1.9 million.
The loss before tax and minority interest amounted to $0.5 million, down
approximately $0.7 million from the income before tax and minority interest of
$0.2 million recorded in the third quarter of 1998. The provision for state and
federal taxes decreased $0.4 million in the third quarter due to lower 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 the awareness, assessment, renovation, and validation
phases related to all internal and external systems that have been deemed
mission critical. 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 will continue to be 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 $127,000 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 all mission critical systems
validated for Year 2000 readiness. The Company has a contingency plan in place.
Testing and validation of the contingency plan will continue through year-end.
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.
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 nine months of 1999 the Company had cash inflows
from operations of $2.1 million. The major source of this cash inflow was the
liquidation of a portion of the Company's trading securities and from an
increase in accounts payable and accrued expenses.
Net cash from investing activities has 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 nine 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 nine months of 1999, the Company
purchased 307,500 shares of its stock for a total of $1,078,900. 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, 1999 the Company had $9.5 million of cash and cash equivalents.
Management believes the Company's cash resources, plus cash provided by
operations, is 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 September 30, 1999 of $25,000. The aggregate net capital of LFD
was $0.3 million at September 30,1999.
Stockholders' equity on September 30, 1999 decreased to $8.4 million from $8.9
million at December 31, 1998 primarily as a result of the Company's purchase of
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.
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 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: 11-12-99