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 09-30-96
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 the latest practicable date.
Common Stock-$.01 Par Value Per Share
Authorized 15,000,000 Shares
5,487,887 Shares Issued and Outstanding
Part I. Financial Information
Item 1. Financial Statements
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
<S> <C> <C>
9/30/96 12/31/95
(Unaudited)
Assets:
Cash and cash equivalents:
Cash $ 875,395 $ 575,694
Money market accounts 5,642,918 5,039,323
------------------- ------------------
6,518,313 5,615,017
------------------- ------------------
Receivables:
Investment advisory and management fees 1,342,040 1,577,875
Due from funds and other 1,046,557 1,206,619
------------------- ------------------
2,388,597 2,784,494
------------------- ------------------
Marketable securities 1,131,329 932,282
Prepaid expenses 335,253 349,768
Prepaid taxes 30,565 42,365
Furniture, equipment and leasehold improvements (net of
accumulated depreciation and amortization) 1,357,782 1,434,802
Intangible assets (net of accumulated amortization) 214,926 252,387
Deferred income taxes 2,823,336 3,048,283
Other assets 243,419 314,203
------------------- ------------------
Total assets $ 15,043,520 $ 14,773,601
=================== ==================
Liabilities:
Accounts payable and other accrued expenses $ 3,498,467 $ 4,258,195
Capitalized lease obligations - 157,019
Deferred income 1,128,104 1,592,531
Federal income taxes payable 980,051 979,184
Other liabilities 6,908 7,515
------------------- ------------------
Total liabilities 5,613,530 6,994,444
------------------- ------------------
Minority interest 352,867 432,136
Stockholders' Equity:
Common stock, $.01 par value; 15,000,000 authorized shares;
5,487,887 issued and outstanding 54,879 54,879
Additional paid-in capital 21,501,517 21,501,517
Accumulated deficit (12,479,273) (14,209,375)
------------------- ------------------
Total stockholders' equity 9,077,123 7,347,021
------------------- ------------------
Total liabilities and stockholders' equity $ 15,043,520 $ 14,773,601
=================== ==================
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATION (Unaudited)
<TABLE>
Three Months Nine Months
Ended Sept. 30, Ended Sept. 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Investment advisory:
Mutual fund management fees (including
approx. $118,571 $104,492 $376,531
and $352,290 from related parties $ 2,682,772 $ 2,512,916 $ 8,149,465 $ 7,390,216
Mutual fund commissions 16,839 35,058 206,365 152,140
Other management fees (including approx.
$581,017 $552,997 $1,713,069 and
$1,620,097 from related parties 2,159,268 2,332,869 6,397,947 6,878,544
Commissions income 533,338 417,612 1,691,057 1,262,357
Other income 172,800 141,604 443,542 323,455
--------------------------------------------------------------------
Total revenues 5,565,017 5,440,059 16,888,376 16,006,712
-------------------------------------------------------------------
Expenses:
Salaries and other compensation 2,993,037 2,599,722 9,311,640 7,938,970
Selling and promotional 329,886 453,676 1,157,685 1,647,109
Administrative and general 1,619,902 1,836,633 4,174,432 4,078,335
--------------------------------------------------------------------
Total expenses 4,942,825 4,890,031 14,643,757 13,664,414
-------------------------------------------------------------------
Income before income taxes and
minority interest 622,192 550,028 2,244,619 2,342,298
Gain on sale of subsidiaries 639,881 - 529,881 -
Provision for income taxes
Current 301,556 131,061 898,720 791,750
Deferred 279,319 (8,827) 224,947 89,269
---------------------------------------------------------------------
Total provision 580,875 122,234 1,123,667 881,019
--------------------------------------------------------------------
Income before minority interest 681,198 427,794 1,650,833 1,461,279
Minority interest (108,128) 23,143 (79,269) 26,996
---------------------------------------------------------------------
Net income $ 789,326 $ 404,651 $ 1,730,102 $ 1,434,283
===================================================================
Earnings per share
Net income per share $0.14 $0.07 $0.31 $0.26
====== ====== ====== =====
Avg. shares outstanding during the period 5,487,887 5,487,887 5,487,887 5,487,887
========= ========= ========= =========
The accompanying notes are an integral part of the condensed
consolidated financial statements.
</TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
Nine Months Ended Sept. 30,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,730,102 $ 1,434,283
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 346,647 318,190
Unrealized (appreciation) depreciation on marketable
securities (86,151) (41,110)
Deferred income taxes 224,947 89,269
Minority interest (79,269) 26,996
Change in assets and liabilities
Receivables 395,897 (486,064)
Prepaid expenses 14,515 (272,762)
Prepaid taxes 11,800 10,596
Accounts payable and accrued expenses (849,228) 566,400
Federal income taxes payable 867 30,873
Deferred management fees (464,427) (394,517)
Other, net 57,972 258,158
--------------- --------------
Net cash provided by operating activities 1,303,672 1,540,312
Cash flows from investing activities:
Purchases of furniture, equipment and leasehold
improvements (370,204) (446,183)
Purchase of intangibles (7,225) -
Purchases of marketable securities (112,896) (112,404)
Sales of marketable securities - 113,075
Sale of furniture and equipment 157,470 -
--------------- --------------
Net cash used in investing activities (332,855) (445,512)
Cash flows from financing activities:
Principal payments under capital lease obligations (67,521) (105,799)
Dividends - (1,500,000)
Capital contribution - 75,000
--------------- --------------
Net cash used in financing activities (67,521) (1,530,799)
Net increase / (decrease) in cash and cash equivalents 903,296 (435,999)
Cash and cash equivalents, beginning of period 5,615,017 6,147,610
--------------- --------------
Cash and cash equivalents, end of period $ 6,518,313 $ 5,711,611
=============== ==============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
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 necessary to present fairly the consolidated
financial position and the results of operations for the interim periods have
been made. The financial statement should be read in conjunction with the
financial statements and related notes in the Company's 1995 Annual Report on
Form 10K.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Management's Discussion and Analysis contained in the Company's Annual Report on
Form 10-K for December 31, 1995 is incorporated herein by reference and should
be read in conjunction with the following.
Nine Months Ended September 30, 1996 and 1995
The consolidated net income for the nine months ended September 30, 1996 was
$1.7 million, $0.31 per share, compared to $1.4 million, $0.26 per share for the
first nine months of 1995. On September 30, 1996, the Company sold or exchanged
five of its West Coast subsidiaries, two of which have been considered
immaterial, to a company formed by the CEO of the subsidiaries and the U.S. unit
of London Pacific Group Limited, Berkeley (USA) Holdings Limited ("Berkeley").
The Company realized a gain of $0.5 million, $0.09 per share, on the
transaction.
Total revenues of $16.9 million are 5.6% ahead of the $16.0 million in revenues
recorded in the first nine months of 1995.
The Company's core business (consisting of Lexington Management Corporation
("LMC") and Lexington Funds Distributor, Inc. ("LFD")) delivered total revenues
of $10.9 million compared to $10.7 million in the first nine months of 1995, an
increase of 1.9%. The Company's other subsidiaries consist of : Lexington
Capital Management Inc. ("LCM"); Market Systems Research Advisors, Inc. ("MSR");
MSR's wholly-owned subsidiary, Market Systems Research, Inc. ("MSRI"); and
Piedmont Asset Advisors LLC ("PAA"). On September 30, 1996, the Company sold the
following subsidiaries: Lexington Plan Administrators, Inc. ("LPA"); Lexington
Capital Management Associates, Inc. ("LCMA"); LCMI Insurance Services, Inc.
("LCMI"), and; Lexington Advisors II, Inc. ("LAII"). As part of the overall
transaction, the Company also exchanged its wholly-owned subsidiary LCM
Financial Services Inc. ("LFSI") for the minority interest in LCM held by LCM's
former Chief Executive Officer. Combined, all of these subsidiaries generated
$6.0 million in revenues in the first nine months of 1996 compared to $5.3
million in the year-earlier period. These disposed subsidiaries produced total
revenues of $2.3 million in the first nine months of this year compared to $1.6
million in the year-earlier period. In addition to the sale of the subsidiaries,
the Company has entered into an operating agreement with SAI Capital Holdings,
Inc. ("Select"), a subsidiary of Berkeley under which Select will provide back
office and support services to LCM in return for a portion of LCM's asset
management advisory fees. A further discussion of the factors producing the
revenue results follows. Net mutual fund management fees of $8.1 million are
$0.7 million or 9.5% ahead of $7.4 million for the year-earlier period. The
increase is primarily a function of asset increases in two of the Lexington
funds: Lexington Worldwide Emerging Markets and Lexington Corporate Leaders
Trust. Strong performance has resulted in growth in these funds' assets through
appreciation and net cash inflows from increased investor demand. Also
contributing to the increase in mutual fund management fees were increases in
assets in the Company's private label business and in the Lexington Strategic
Silver Fund and the Lexington Growth and Income Fund. Other management fees of
$6.4 million are $0.5 million below the corresponding figure for 1995 of $6.9
million. Most of this decrease relates to institutional accounts which
terminated during 1995, some of which were related to the spin-off of the
Company from its former parent, Piedmont Management Company Inc. Commissions
income of $1.7 million is $0.4 million above the comparable 1995 figure. This
increase reflects commissions earned on increased sales of loaded mutual fund
products through LFSI.
Total expenses of $14.6 million are $1.0 million higher than the first nine
months of 1995 when total expenses were $13.6 million. Personnel costs of $9.3
million are up $1.4 million over the comparable 1995 period. This increase
reflects: 1) the addition of investment and other personnel; 2) higher payouts
associated with the increased commissions income noted above; and, 3) the fact
that the prior year benefited from an employee benefit refund associated with a
good experience rating. Selling and promotional costs of $1.2 million are $0.4
million below the $1.6 million for such costs in the first nine months of 1995.
The decrease reflects lower overall advertising expenditures and
Item. 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation (Continued).
lower travel and entertainment expenditures. General and administrative costs of
$4.2 million are $0.1 million higher than the prior year figure due to costs
associated with the Company's public reporting responsibilities.
As discussed earlier, the Company recognized a gain of $0.5 million on the sale
or exchange of five of its west coast subsidiaries. The transaction closed on
September 30, 1996.
Profit before tax amounted to $2.9 million, up $0.6 million from the $2.3
million recorded through the third quarter of 1995. Provision for state and
federal taxes increased $0.2 million to $1.1 million from $0.9 million in the
year earlier period due to higher profits and to timing differences attributable
to bonus payments.
Three Months Ended September 30, 1996 and 1995
The consolidated net income for the three months ended September 30, 1996 was
$789 thousand compared to net income of $405 thousand in the third quarter of
1995. Total revenues of $5.6 million are $0.2 million ahead of the comparable
1995 figure of $5.4 million.
The Company's core business delivered total revenues of $3.5 million which is
$0.1 million below the prior year figure of $3.6 million. The Company's other
subsidiaries delivered total revenues of $2.1 million in the quarter which is
$0.3 million ahead of the third quarter of 1995 ($1.8 million).
Net mutual fund management fees of $2.7 million are $0.2 million higher than the
$2.5 million in mutual fund management fees recorded in the third quarter of
1995. Primary contributors to this revenue increase were the Lexington Growth &
Income Fund and Lexington Corporate Leaders Trust, which benefited from
increased investor interest and asset appreciation associated with the strong
U.S. equity markets to date in 1996. Other management fees of $2.2 million are
$0.1 million below the third quarter of 1995 ($2.3 million), reflecting account
terminations in the Company's high net worth and institutional business, some of
which were a result of the spin-off of the Company from its former parent,
Piedmont Management Company. Commissions income of $0.5 million is $0.1 million
above the $0.4 million recorded in the third quarter of 1995 due to higher
levels of new business in the Company's West Coast brokerage and insurance
operations.
Total expenses of $4.9 million are even with the third quarter of 1995.
Personnel costs of $3.0 million are $0.4 million above the comparable 1995
figure of $2.6 million. The higher costs reflect: 1) the addition of investment
personnel; and, 2) higher commissions associated with the higher commissions
income from the West Coast brokerage and insurance operations. Selling and
promotional costs of $0.3 million are $0.2 million below the 1995 third quarter
figure of $0.5 million. Advertising expenditures were lower in the quarter due
to more uncertain securities market conditions. General and administrative
expense of $1.6 million are $0.2 million below the $1.8 million recorded in the
third quarter of 1995. Most of the decrease is attributable to various costs
associated with the spin-off in the prior year.
Profit before tax amounts to $1.4 million for the three months which is $0.9
million above the third quarter of 1995 ($0.5 million). As discussed earlier,
the Company sold its West Coast subsidiaries in the third quarter. The gain
recognized on the sale in the third quarter was $0.6 million. Provision for
income taxes of $581 thousand is $459 thousand above the prior year period,
reflecting timing differences attributable to bonus payments and the deferred
tax effect from the use of LCM's net operating losses to offset the gain on sale
of its subsidiaries.
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 $1.2 million and $4.5 million over the past three
years primarily as a result of the Company's net income. The Company's cash flow
from operations through September 30, 1996 was $1.3 million. The primary sources
of cash were net income and working capital.
Net cash outflows from investing activities have ranged between $0.3 million and
$0.8 million over the past three years. Through September 30, 1996, cash
outflows from investing activities were $0.3 million. The primary use of cash
over the recent past has been for refurbishment and upgrading of the Company's
principal offices, which were completed in 1994. The principal use of cash
through the third quarter of 1996 was the purchase of computer equipment and the
purchase of marketable securities associated with the start-up of a new mutual
fund. It is expected that future investing activities will consist of more
routine furniture and equipment purchases, purchases of marketable securities,
and, potentially, acquisitions.
Cash flows from financing activities consistently have been negative over the
past three years. The most significant outflow was the payment of a regular
quarterly dividend to Piedmont, the Company's former parent. The Company
experienced a small outflow of $68 thousand through the third quarter of 1996.
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, 1996, the Company had $6.5 million of cash and cash equivalents.
Management believes the Company's cash resources, plus cash provided by
operations, are sufficient to meet the Company's foreseeable capital and
liquidity requirements. As a result of the holding company structure, the
Company's cash flows will depend primarily on dividends or other permissible
payments from its subsidiaries. The Company has no standby lines-of-credit or
other similar arrangements.
LFD, as a registered broker-dealer, has federal and state net capital
requirements at September 30, 1996 of $5,000. The net capital of LFD was $317
thousand at September 30, 1996. LMC, LCM, MSR, and MSRI, as registered
investment advisors, must meet net capital requirements imposed at the Federal
and state levels. Because LCM does not have positive net worth, it does not meet
several state net capital requirements. The Company has provided LCM with a
guaranty in all states where additional evidence of financial security is an
acceptable alternative to the net capital requirements. The Company has begun
the process of merging LCM into LMC.
Stockholders' equity on September 30, 1996 increased to $9.1 million from $7.3
million at December 31, 1995. This increase reflects the Company's earnings
through the third quarter.
Management believes that the Company's liquid assets and its net cash provided
by operations will enable it to meet any foreseeable cash requirements. The
Company's overall financial condition remains strong.
Part II. Other Information
Item 1. Legal Proceedings
None
Item 6. Exhibits and Reports on Form 8-K
1. (a) Exhibits. (27) Financial Data Schedule for the six months ended September
30, 1996
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.
11-14-96 By: /s/ Richard M. Hisey
- --------- -------------------------------------
Date Richard M. Hisey
Executive Vice President,
Chief Financial Officer and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC
Form 10-Q and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0001001540
<NAME> Lexington Global Asset Managers, Inc.
<MULTIPLIER> 1
<CURRENCY> US Dollar
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 6,518,313
<SECURITIES> 1,131,329
<RECEIVABLES> 2,388,597
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,242,163
<PP&E> 1,647,537
<DEPRECIATION> 289,755
<TOTAL-ASSETS> 15,043,520
<CURRENT-LIABILITIES> 3,498,467
<BONDS> 0
0
0
<COMMON> 54,879
<OTHER-SE> 9,022,244
<TOTAL-LIABILITY-AND-EQUITY> 15,043,520
<SALES> 0
<TOTAL-REVENUES> 16,888,376
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,853,769
<INCOME-TAX> 1,123,667
<INCOME-CONTINUING> 1,730,102
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,730,102
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
</TABLE>
