Lexington Global Asset Managers, Inc. and Subsidiaries
ABOUT THE COMPANY
LEXINGTON GLOBAL ASSET MANAGERS, INC. is a financial services holding company
established in September of 1995 and incorporated in the State of Delaware.
Lexington is publicly owned and its common stock trades under the symbol LGAM on
the NASDAQ National Market System. Lexington offers, through its subsidiaries, a
variety of asset management and related services to retail investors,
institutions, and high net worth individuals. The Company's principal
subsidiaries include Lexington Management Corporation and Lexington Funds
Distributor, Inc. which market, promote, and distribute the Lexington family of
mutual funds. As of December 31, 1996, Lexington and its subsidiaries employed
96 persons.
FINANCIAL HIGHLIGHTS
(Dollars in Thousands except per share data)
1996 1995
---- ----
Operating Results
Total revenues $20,811 $21,286
Total expenses 17,684 18,965
Provision for taxes 1,270 700
Net income 2,475 1,579
Net income per share $0.45 $0.29
Financial Position
Total assets $16,078 $14,774
Stockholders' equity $ 9,822 7,347
TABLE OF CONTENTS
Letter to Stockholders 3
Business Description 5
Financial Report 8
Corporate Directory 25
Corporate and Stockholder Information 27
Lexington Global Asset Managers, Inc. and Subsidiaries
TO OUR STOCKHOLDERS
Calendar year 1996 was the first full year of operation for the newly formed
Lexington Global Asset Managers, Inc. ("LGAM") functioning as a stand alone
financial services company. It was a profitable year and a year of great
progress. We achieved our key business priorities for the year and believe we
have laid the groundwork for our continued future success.
Business Strategy
Our first priority in 1996 was to divest ourselves of businesses that did not
fit with our business strategy. We were successful in selling four of our West
Coast subsidiaries for a net gain of $0.5 million. At the same time, we kept one
of the West Coast operations, Lexington Capital Management, Inc. ("LCM") (a
private client, registered investment advisor subsidiary), and merged it into
Lexington Management Corporation ("LMC"), our core investment management
subsidiary. As a result, the Company is now able to realize the $2.2 million in
tax benefits associated with the net operating losses previously generated by
LCM.
Financial
For the year, we generated net income of $2.5 million ($.45 per share) and
shareholders' equity increased to $9.8 million. This was an increase of 56% and
34%, respectively, compared with 1995. Even with these gains, 1996 did not
provide a "clear" financial view of your new Company's earnings capability, as
reorganization expenses carried over from 1995 and costs associated with the
sale of the West Coast subsidiaries and several other one time charges impacted
1996 earnings.
New Products and Distribution
After more than three years of planning and research, LMC launched in 1996 the
first no-load open-end Russia mutual fund investing exclusively in Russia with
our strategic alliance partner, Troika Dialog Asset Management (Moscow).
The Russian market represents an exciting opportunity. To date, your Company is
the only firm with an open-end Russian mutual fund available to U.S. investors.
It demonstrates our willingness to combine our expertise with the expertise of
co-venture partners to develop unique investment opportunities for a wide range
of clients. In the last two years, LMC has launched four new mutual funds that
have been well received by the financial advisor and investor community.
We also have built new distribution through insurance company relationships, in
addition to the support we have received from the people whom we have been
working with previously. These channels have contributed over $350 million to
our assets under management as of December 31, 1996. The large retail wire
houses such as Smith Barney, Merrill Lynch, Prudential and Paine Webber have
launched "no load" mutual fund programs to compete with Schwab and Fidelity's
"no fee" programs.
LMC's funds are represented in all of these new programs. In addition,
separately managed private client accounts are now being offered in wrap
programs on an all inclusive fee basis, (i.e. management fee plus commission
expense) as well as the traditional mutual fund wrap programs.
The investment performance for our funds in 1996 was excellent. The Lexington
Growth and Income Fund ranked in the top 5% of the Lipper Growth and Income
category in 1996. Lexington Corporate Leaders Trust Fund gained its fifth "star"
from the Morningstar Inc. rating agency in February 1997. This domestic equity
fund has an outstanding long term performance record. The Lexington GNMA Fund
was ranked number two in the country in 1996. Our International Fund, Global
Fund, Small Cap Asia Growth Fund, and Ramirez Global Income Fund, all rank well
up in the top half of their respective Lipper categories.
Our objective is to establish ourselves as a leading U.S. firm with domestic and
international investment capabilities. To that end, we have continued to
strengthen our research capabilities by adding investment professionals in 1996.
Although, the foreign markets lagged the U.S. market in 1995 and 1996, we
believe that the acceptance of a global investing perspective, by both
individuals and institutions, will accelerate the growth of our non-U.S. equity
funds such as our International Fund, Worldwide Emerging Markets Fund, Small Cap
Asia Growth Fund, and Lexington Ramirez Global Income Fund. Rapidly growing
emerging economies around the world offer important investing opportunities for
our clients. As these markets grow, our assets under management will grow.
In closing, we recognize that the financial services industry is crowded and
competitive. Yet we believe that our investment capabilities, growing
distribution channels, strategic alliance partners and a well founded business
strategy will accomplish our growth objectives.
The Lexington Board of Directors has great confidence in our core asset
management business and the strength of our future operating plan. Accordingly,
the Board approved a 750,000 share repurchase program at the March 1997 Board of
Directors meeting. Our goal is to build value for you, our shareholders.
We would like to thank our employees for making 1996 a successful year. And we
thank you for your support.
Sincerely,
/s/ Stuart Smith Richardson /s/ Robert M. DeMichele
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Stuart Smith Richardson Robert M. DeMichele
Chairman President and Chief Executive Officer
Lexington Global Asset Managers, Inc. and Subsidiaries
BUSINESS DESCRIPTION
Lexington Global Asset Managers, Inc. (the "Company" or "Lexington") was
incorporated in Delaware in September 1995 as a holding company that offers,
through its subsidiaries, a variety of asset management and related services to
retail investors, institutions and private clients.
Prior to the spin-off of the Company on December 13, 1995 (the "Spin-off"), the
Company was a wholly-owned subsidiary of Piedmont Management Company Inc.
("Piedmont"). Pursuant to the spin-off, Piedmont contributed to the Company all
of its subsidiaries engaged in the asset management business.
The Company manages portfolios of equity, balanced, fixed income,
mortgage-backed and money market investments, which portfolios are designed to
meet a broad range of investment objectives.
INVESTMENT PROCESS
The investment process at Lexington begins and ends with the client. The
Company's investment philosophy is to preserve capital and achieve a superior
risk-adjusted rate of return on client assets. This philosophy drives the
investment process that includes a focus on top-grade research, worldwide
information sources and excellent technological support. These elements are
utilized by the Investment Policy Committee which consists of a group of
seasoned investment professionals who meet on a monthly basis to review all of
the critical factors involved in managing clients' assets.
Lexington firmly believes that a global perspective adds value in creating
portfolios. Worldwide diversification can provide superior risk-adjusted returns
when compared with portfolios with more narrow geographical orientations.
Careful analysis of worldwide liquidity, economic cycles and country
fundamentals considered in a broader geopolitical context can provide more
consistent and superior returns.
PRIMARY MARKETS
The Company's business strategy is targeted at three large market segments:
Mutual Funds
The mutual fund industry has expanded rapidly in the last five years. According
to the Investment Company Institute, the trade association for investment
companies, total assets of U.S. mutual funds have increased from $982 billion at
December 31, 1989 to $3.5 trillion at December 31, 1996, an average growth rate
of approximately 20% per year.
The mutual fund industry is highly competitive and is currently characterized by
a high degree of fragmentation and a large and rapidly increasing number of
product offerings. The Company believes that the mutual fund industry has become
similar to the consumer products business, where marketing strategies, product
development, business development, sales expertise and servicing are
increasingly important.
The Company's current strategies in the mutual fund market are to: (i) identify
emerging trends in order to develop new investment products; (ii) strengthen the
"brand name" awareness of the Lexington Funds both at the financial advisor
level and the retail investor level; (iii) broaden its efforts to offer
sub-advisory and administration services to other mutual funds; (iv) expand into
other distribution channels; and, (v) evaluate and pursue acquisition
opportunities.
Institutional Market
The market for institutional clients includes corporate, government and
multi-employee (Taft Hartley) pension plans, charitable endowments and
foundations, insurance company general accounts, and defined contribution and
401(k) plans. According to the 1996 Money Market Directory of Pension Funds
(including 401(k)) the institutional market represented over $3.5 trillion in
total assets under management, including defined benefit plan assets, endowments
and foundations.
The institutional market is extremely competitive with long lead times between
initial contact and acquisition of an account. Institutional investors
increasingly rely upon a competitive review process when selecting investment
advisory firms. The process often includes the assistance of independent
investment consultants, who analyze, rank and recommend advisors as well as
conduct searches for advisors on behalf of clients. Consultants typically
classify firms according to their investment style and place heavy emphasis upon
a demonstrated record of investment performance within a particular style. These
consultants often control access to prospective clients.
The Company's strategy in the institutional market is to target specialized
segments such as: (i) Taft Hartley and charitable foundations and endowments;
(ii) public retirement accounts; (iii) insurance company general accounts; and,
(iv) broker wrap accounts. In addition, the Company has formed joint management
arrangements with other investment advisory companies which offer specialized
products or services. By targeting specialized segments, management believes
that it can market directly to these segments and leverage upon the integrated
financial products and services that it offers.
Private Client Accounts
With the changing demographics of the United States, the aging of the "baby
boomer" generation and the accumulation of assets in retirement accounts, the
private client sector is a growing segment of the investment advisory industry.
The Company believes that the principal needs for private clients are investment
advice and asset management services because these clients, as they near
retirement, have a large amount of accumulated assets and require sophisticated
estate planning advice. According to a September 1996 Bernstein Research report,
there are approximately 2 million households in the United States that have
discretionary assets exceeding $1 million. This represents approximately 2.0% of
all U.S. households and total assets for this market segment exceed $4.4
trillion.
The Company's strategies in the private client sector are to: (i) integrate the
products and services offered to these clients by the Company's various
subsidiaries; (ii) design an integrated set of financial products and services
to meet the financial service needs of these individuals; and, (iii) excel in
customer service through utilization of the most current and sophisticated
investment planning, management and reporting techniques.
SUBSIDIARIES OF THE COMPANY
The subsidiaries of the Company can be divided into its core business (Lexington
Management Corporation and Lexington Funds Distributor, Inc.), which business
generates most of the Company's revenues and profits, and its other
subsidiaries, which generate the remainder of the Company's revenues and
profits.
LEXINGTON MANAGEMENT CORPORATION ("LMC")
LEXINGTON FUNDS DISTRIBUTOR, INC. ("LFD")
LMC and LFD, both located in Saddle Brook, New Jersey, are responsible for
managing, servicing, marketing and distributing the Lexington family of 18
mutual funds to financial intermediaries and the retail market. The Lexington
Funds are designed to provide a variety of investment options for retail
investors, financial planners and intermediaries, and for the defined benefit
and defined contribution marketplace, including the 401(k) market. The Lexington
Funds include money market, equity and fixed income funds. The geographical
orientation of the Lexington Funds range from domestic to international to
global. Certain funds specialize in specific industries or sectors, such as
precious metals and natural resources, but most are broadly diversified.
LMC serves the institutional investment needs of a diverse client base which
includes: corporate, public and Taft-Hartley employee benefit funds; endowments;
charitable foundations; and individuals.
The Company's private client business is also conducted primarily through LMC.
LMC targets accounts in this market with up to $5 million to invest. These
accounts typically include wealthy individuals and smaller institutional
accounts, including foundations, not-for-profit corporations, pension plans and
employee benefit plans.
OTHER SUBSIDIARIES
During the year, the Company had 7 subsidiaries in addition to LMC and LFD,
which were principally located in Gold River, California and New York, New York.
On September 30, 1996, the Company sold four of the California subsidiaries:
Lexington Capital Management Associates, Inc. ("LCMA"), LCM Financial Services,
Inc. ("LFSI"), Lexington Plan Administrators, Inc. ("LPA"), and LCMI Insurance
Services ("LCMII"), to a company formed by the CEO of the subsidiaries and the
U.S. unit of London Pacific Group Limited, Berkeley (USA) Holdings Limited. On
December 31, 1996, Lexington Capital Management ("LCM") was merged into LMC. At
December 31, 1996, the Company had 2 subsidiaries in addition to LMC and LFD:
Market Systems Research Advisors, Inc. ("MSR") and Piedmont Asset Advisors
L.L.C. ("PAA").
MSR, MSRI-New York, New York.
MSR provides professional portfolio management services to investors through the
use of proprietary quantitative price momentum stock selectivity models. MSR
offers investment advisory services to accounts within the Lexington
organization and to other clients. MSR publishes a monthly research report
through a subsidiary company, Market Systems Research, Inc. ("MSRI"), which is
marketed to other investment advisory companies.
PAA-New York, New York.
The Company owns 51% of PAA, an entity formed in 1994 which, until the third
quarter of 1996, served as a general partner of a limited investment partnership
engaged in the asset management business.
Lexington Global Asset Managers, Inc. and Subsidiaries
FINANCIAL REPORT
TABLE OF CONTENTS
Five Year Summary of Financial Data 9
Management's Discussion and Analysis 10
Management's Report on Financial Information 13
Consolidated Statements of Operations 14
Consolidated Statements of Financial Condition 15
Consolidated Statements of Changes in Stockholders' Equity
(Deficit) 16
Consolidated Statements of Cash Flows 17
Notes to Consolidated Financial Statements 18
Report of Independent Accountants 24
Lexington Global Asset Managers, Inc. and Subsidiaries
SELECTED FINANCIAL DATA
(Dollars in Thousands except per share data)
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Year Ended December 31,
Results of
Operations: 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Total Revenues $20,811 $21,286 $22,680 $18,070 $16,133
Total Expenses 17,684 18,965 17,576 15,963 14,524
Provision for Taxes 1,270 700 2,059 977 862
Net Income $2,475 $ 1,579 $ 2,990 $ 1,145 $ 731
Per Share
Data:
Shares Outstanding 5,487,887 5,487,887 5,487,887 5,487,887 5,487,887
Earnings Per Share $0.45 $0.29 $0.55 $0.21 $0.13
Financial
Position:
Total Assets $16,078 $14,774 $13,646 $10,867 $10,750
Total Liabilities 5,911 6,994 16,201 15,012 14,526
Total Stockholders' Equity (Deficit) 9,822 7,347 (2,908) (4,346) (3,990)
</TABLE>
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ASSET COMPOSITION BY MARKET(1)
(Dollars in Thousands)
(Unaudited)
Assets Under December 31,
Management: 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Mutual Funds $1,795,927 $1,517,260 $1,501,668 $1,309,267 $ 754,720
Institutional 1,047,244 1,134,080 1,472,122 1,549,777 1,460,009
Private Clients 360,226 428,434 421,204 460,756 456,841
------- ------- ------- ------- -------
Total $3,203,397 $3,079,774 $3,394,994 $3,319,800 $2,671,570
========== ========== ========== ========== ==========
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ASSET COMPOSITION BY TYPE OF INVESTMENT
(Dollars in Thousands)
(Unaudited)
December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Domestic Equity $1,329,087 $1,172,710 $1,096,988 $1,274,390 $1,178,722
Foreign Equity 807,962 699,842 696,882 578,008 165,243
------- ------- ------- ------- -------
Subtotal(2) 2,137,049 1,872,552 1,793,870 1,852,398 1,343,965
========= ========= ========= ========= =========
Precious Metals(3) 201,295 273,411 347,023 277,573 88,805
Fixed Income 668,841 712,830 976,104 977,396 965,422
Money Market Funds 196,212 220,981 277,997 212,433 273,378
------- ------- ------- ------- -------
Total $3,203,397 $3,079,774 $3,394,994 $3,319,800 $2,671,570
========== ========== ========== ========== ==========
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(1) Included in the institutional assets under management are invested
assets of descendants of Lunsford Richardson, Sr., their spouses, trusts, a
corporation in which they have interests and charitable organizations
established by such descendants (the "Richardson Family"), principal
stockholders of the Company, and certain other related persons, which assets at
December 31, 1996 were valued at approximately $696 million. The fees charged
for the management of such assets are based upon standard fee schedules and are
comparable with the fees charged to unaffiliated accounts.
(2) Excludes precious metal equities.
(3) Precious Metals includes precious metals and precious metal equities.
Lexington Global Asset Managers, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL STATEMENTS
The consolidated net income in 1996 was $2.5 million, $0.45 per share, compared
to net income of $1.6 million, $0.29 per share in 1995. Included in the 1996
results is a one-time pre-tax gain of $0.5 million ($0.09 per share) from the
sale of four of the Company's West Coast subsidiaries. On September 30, 1996,
the Company sold four of the California subsidiaries: LCMA, LFSI, LPA, and
LCMII, to a company formed by the CEO of the subsidiaries and the U.S. unit of
London Pacific Group Limited, Berkeley (USA) Holdings Limited. On December 31,
1996, LCM was merged into LMC. Included in the 1995 results were reorganization
costs of $2.2 million associated with the Company's Spin-off from Piedmont
Management Company. On a per share basis, these costs amounted to $0.40 for the
year.
A further discussion and analysis of results of operations follows.
1996 Compared with 1995
Total revenues of $20.8 million are 2.4% less than the $21.3 million recorded in
1995.
The revenue decrease primarily reflected the sale of four of the Company's West
Coast subsidiaries on September 30, 1996. These subsidiaries would have
contributed approximately $1.5 million in additional revenue for the fourth
quarter. Partially offsetting the effect of the sale is a 9.5% increase in
mutual fund management fees. This reflects the strong mutual fund asset growth
at the Company's Core Business (LMC/LFD). This business delivered $14.4 million
in revenues in 1996 versus $14.2 million in 1995, reflecting the $300 million,
18.4% increase in mutual fund assets under management. Asset growth was
strongest in domestic equity (+$0.2 billion) and international equity (+$0.1
billion), partially offset by precious metals which were down $0.1 billion. The
largest increase in mutual fund assets under management was in Lexington
Corporate Leaders Trust which increased by 56% or $137 million in assets under
management. In general, stronger investor demand and performance in a number of
the Lexington funds drove the increase in assets under management. Mutual fund
management fees increased from $9.8 million in 1995 to $10.7 million in 1996. In
particular, management fees associated with the Lexington Corporate Leaders
Trust Fund, SBL Fund Series D, and Lexington Growth & Income Fund, Inc. grew
significantly due to the asset increases noted above.
Other management fees experienced a $1.7 million decline from $9.1 million in
1995 to $7.4 million. This income primarily reflects private client management
fees at the West Coast operations, which, as mentioned above, were sold at the
end of the third quarter and contributed $1.2 million in other management fees
in the fourth quarter of 1995. This revenue line also includes LMC's
institutional asset management fees which declined by $0.8 million from 1995 due
to client terminations.
Commissions income of $1.7 million were even with 1995.
Other income of $0.7 million is $0.2 million above 1995, and is attributable to
higher investment income.
Expenses of $17.7 million decreased $1.3 million from $19.0 million in 1995. The
Company's Core Business incurred total expenses of $10.9 million which are $1.1
million below the $12.0 million for 1995, when the Company incurred one-time
reorganization expenses of $2.2 million due to the Spin-off. The Company's other
subsidiaries incurred expenses of $6.8 million for 1996 versus $7.0 million for
1995.
Total salaries and other compensation increased $0.7 million to $11.2 million
from $10.5 million as a result of: 1) the addition of investment and other
personnel; 2) higher commissions associated with increased revenues in the
Company's West Coast operations; and, 3) the fact that the prior year expenses
benefited from an employee benefit refund associated with a good experience
rating. Selling and promotional expenses of $1.2 million are down $0.7 million.
This is primarily due to the Company re-targeting its marketing efforts and
making greater use of public relations. Administrative and general expenses of
$5.2 million are $1.4 million lower than $6.6 million in 1995. The decrease
reflects $2.2 million in various professional fees incurred in 1995 associated
with the Spin-off and internal reorganization of the Company. Partially
offsetting the $2.2 million decline are the additional costs associated with the
Company's public reporting responsibilities.
The Company recorded a $0.5 million gain on the sale of LFSI, LPA, LCMA, and
LCMII which occurred on September 30, 1996.
Pre-tax income grew to $3.7 million in 1996 from $2.3 million in 1995, an
increase of 60.9% or $1.4 million. Provision for state and federal taxes
increased 88.7% from $0.7 million in 1995 to $1.3 million in 1996, due to higher
profits.
Overall, net income increased 56.3% from $1.6 million in 1995 to $2.5 million in
1996. Earnings per share were $0.45 in 1996 compared to $0.29 in 1995.
1995 Compared with 1994
Total revenues of $21.3 million for 1995 are 6.2% less than the $22.7 million
recorded in 1994.
The Company's Core business (consisting of LMC and LFD) delivered total revenues
of $14.2 million in 1995, which is $0.6 million below the $14.8 million recorded
in 1994. The Company's other subsidiaries generated total revenues of $7.1
million in 1995, which is $0.8 million less than the $7.9 million figure for
1994.
Net mutual fund management fees of $9.8 million are $0.3 million lower than
1994's $10.1 million reflecting lower average net assets in several
international and fixed income funds, which reflects higher returns and higher
investor interest in U.S. equity markets, which had a strong year. Mutual fund
commissions fell $0.4 million from $0.6 million in 1994 to $0.2 million in 1995
as a result of a lower level of load fund sales. Lexington's two load funds are
both precious metals products; precious metal products did not attract as much
investor interest in 1995 as they did in 1994.
Other management fees of $9.1 million are $0.6 million below 1994's $9.7
million. This income is primarily derived from the Company's other subsidiaries,
led by the California operations, which handles most of the Company's private
clients. The decline in revenues is due to a decline in billable assets under
management for the year which is primarily a function of account terminations.
Commissions income of $1.7 million is $0.3 million below the comparable 1994
figure of $2.0 million. This revenue is generated primarily by the Company's
California brokerage and insurance operations and decreased with lower levels of
new business.
Other income of $0.5 million is $0.2 million above the $0.3 million recorded in
1994. The increase is attributable to higher investment income and mutual fund
administration fees at the Company's Core Business.
Total expenses of $19.0 million are $1.4 million or 8.0% higher than the $17.6
million in total expenses in 1994. The Company's Core Business incurred total
expenses of $12.0 million which are $2.0 million or 20.0% above the $10.0
million in expense for 1994 primarily as a result of the Company's
reorganization and Spin-off. The Company's other subsidiaries incurred $7.0
million in expenses for 1995, $0.6 million less than the year earlier expenses
of $7.6 million.
Total salaries and other compensation expenses are down $0.5 million from $11.0
million in 1994 to $10.5 million in 1995, reflecting lower employee benefits
expenses and lower bonus accruals which are a result of lower revenues and
profits. Total selling and promotional expenses of $1.9 million are $0.1 million
below the year earlier expense of $2.0 million. Lower advertising expenditures
account for most of the variance and reflect the lower sales of precious metals,
foreign equities, and fixed income securities compared with U.S. equities.
Administrative and general expenses of $6.6 million are $2.0 million higher than
the comparable 1994 figure of $4.6 million. The increase reflects $2.2 million
in various professional fees associated with the Spin-off and internal
reorganization of the Company.
Effects of Inflation
The Company does not believe that inflation has had a significant impact on the
operations of the Company to date. The Company's assets consist primarily of
cash and investments which are monetary in nature. However, to the extent
inflation results in rising interest rates with the attendant adverse effects on
the securities markets and on the value of investments held in the Company's
accounts, inflation may adversely affect the Company's financial position and
results of operations. Inflation also may result in increased operating expenses
(primarily personnel-related costs) that may not be readily recoverable in the
fees charged by the Company.
Liquidity and Financial Condition
The Company's business typically does not require substantial capital
expenditures. The most significant investments are in technology, including
computer equipment and telephones.
Historically, the Company has been cash self-sufficient. Cash flows from
operations have ranged between $1.7 million and $4.5 million over the past three
years primarily as a result of the Company's net income.
Net cash from investing activities have ranged between inflows of $0.4 million
and outflows of $0.8 million over the past three years. The primary source of
cash in 1996 was the September 30 sale of four of the California subsidiaries.
The primary use of cash over the recent past has been for purchases of computer
equipment. It is expected that future investing activities will consist of more
routine furniture and equipment purchases, purchases of marketable securities
and, potentially, further acquisitions. With the exception of acquisitions, the
routine investment activities are expected to result in smaller cash outflows
from investing activities in the near future.
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 which ended in 1995.
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 approved on March 6, 1997 has a term of three years. 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
December 31, 1996 the Company had $7.5 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 December 31, 1996 of $5,000. The aggregate net capital of LFD
was $0.3 million at December 31, 1996. LMC, MSR and MSRI, as registered
investment advisors, must meet net capital requirements imposed at the Federal
and state levels.
Stockholders' equity on December 31, 1996 increased to $9.8 million from $7.3
million a year earlier 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. The
Company's overall financial condition remains strong.
Lexington Global Asset Managers, Inc. and Subsidiaries
MANAGEMENT'S REPORT
ON FINANCIAL INFORMATION
The Management of the Company is responsible for the financial information
appearing in this Annual Report. The consolidated financial statements were
prepared by Management in conformity with generally accepted accounting
principles and, where amounts must be based on estimates and judgments, they
represent the best estimates and judgments of Management. The remaining
financial information presented was prepared on the same basis and is consistent
with the financial statements.
The Company maintains a system of internal financial controls designed to
provide reasonable assurance as to the reliability of financial records and
protection of assets. Qualified personnel in the Company maintain and monitor
these financial controls on an ongoing basis.
The Company engages independent certified public accountants to audit its
financial statements and express an opinion thereon. The independent accountants
have full access to each member of management in conducting their audits. The
audits are conducted in accordance with generally accepted auditing standards
and include a review of the internal financial control structure, tests of
transactions and other auditing procedures considered necessary to express an
opinion on the financial statements.
The Audit Committee of The Board of Directors, consisting solely of Directors
who are not officers or employees of the Company, meet regularly with Management
and the independent accountants to review the work of each, discuss the results
of the independent accountants' audits and the quality of financial reporting by
the Company. The independent accountants meet alone with and have unrestricted
access to the Audit Committee to discuss any matters which they believe should
be brought before the Committee.
/s/Richard M. Hisey
- -------------------
Richard M. Hisey
Executive Vice President
Chief Financial Officer
Lexington Global Asset Managers, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31,
<TABLE>
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Revenues:
Investment advisory
Mutual fund management fees (including
approximately $430,252, $452,000 and
$496,000 from related parties) $10,723,805 $ 9,789,003 $10,092,248
Mutual fund commissions 215,656 175,434 592,507
Other management fees (including
approximately $2,102,000, $2,443,000
and $2,619,000 from related parties) 7,395,337 9,107,863 9,674,799
Commissions income 1,734,411 1,692,261 1,989,766
Other income 742,092 521,556 330,273
------- ------- -------
Total revenues 20,811,301 21,286,117 22,679,593
---------- ---------- ----------
Expenses:
Salaries and other compensation 11,241,242 10,492,925 11,032,675
Selling and promotional 1,231,927 1,893,083 1,989,949
Administrative and general 5,210,413 6,578,621 4,553,640
--------- --------- ---------
Total expenses 17,683,582 18,964,629 17,576,264
---------- ---------- ----------
3,127,719 2,321,488 5,103,329
Gain on sale of subsidiaries 529,881 - -
Provision for income taxes
Current 1,353,734 1,285,843 2,228,543
Deferred (83,559) (586,027) (169,113)
------- -------- --------
Total provision 1,270,175 699,816 2,059,430
--------- ------- ---------
Income before minority interest 2,387,425 1,621,672 3,043,899
Minority interest (87,227) 43,015 53,629
------- ------ ------
Net income $ 2,474,652 $ 1,578,657 $ 2,990,270
=========== =========== ===========
Earnings
per share
(Note 7):
Net income per share $0.45 $0.29 $0.55
===== ===== =====
Average shares outstanding during the period 5,487,887 5,487,887 5,487,887
========= ========= =========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
Lexington Global Asset Managers, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31,
<TABLE>
<S> <C> <C>
Assets:
1996 1995
---- ----
Cash and cash equivalents:
Cash $ 1,631,249 $ 575,694
Money market accounts 5,898,575 5,039,323
--------- ---------
7,529,824 5,615,017
--------- ---------
Receivables:
Investment advisory and management fees 1,161,473 1,577,875
Due from funds and other 868,649 1,206,619
------- ---------
2,030,122 2,784,494
--------- ---------
Marketable securities 1,205,350 932,282
Prepaid expenses 367,159 349,768
Prepaid taxes 11,900 42,365
Furniture, equipment and leasehold improvements
(net of accumulated depreciation and amortization) 1,347,324 1,434,802
Intangible assets (net of accumulated amortization) 210,875 252,387
Deferred income taxes 3,131,842 3,048,283
Other assets 243,120 314,203
------- -------
Total assets $16,077,516 $14,773,601
=========== ===========
Liabilities:
Accounts payable and other accrued expenses $ 1,027,123 $ 1,256,982
Accrued compensation 1,480,337 1,870,820
Accrued employee benefits 1,183,866 1,130,393
Capitalized lease obligations - 157,019
Deferred income 1,197,576 1,592,531
Federal income taxes payable 1,015,351 979,184
Other liabilities 6,681 7,515
----- -----
Total liabilities 5,910,934 6,994,444
--------- ---------
Minority interest 344,909 432,136
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 (11,734,723) (14,209,375)
----------- -----------
Total stockholders' equity 9,821,673 7,347,021
--------- ---------
Total liabilities and stockholders' equity $16,077,516 $14,773,601
=========== ===========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
Lexington Global Asset Managers, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY (DEFICIT)
Years Ended December 31,
<TABLE>
<S> <C> <C> <C> <C> <C>
Common Stock
-----------------
Total
Shares Additional Accumulated Stockholders'
Issued Amounts Paid-In Capital Deficit Equity (Deficit)
------ ------- --------------- ------- ----------------
Balance at December 31, 1993 5,487,887 $54,879 $11,125,665 $(15,526,302) $(4,345,758)
Net income 2,990,270 2,990,270
Dividends (1,752,000) (1,752,000)
Capital contribution 200,000 200,000
--------- ------ ---------- ---------- ----------
Balance at December 31, 1994 5,487,887 54,879 11,325,665 (14,288,032) (2,907,488)
Net income 1,578,657 1,578,657
Dividends (1,500,000) (1,500,000)
Capital contributions 76,000 76,000
Conversion of debt to equity 10,099,852 10,099,852
--------- ------ ---------- ----------- ----------
Balance at December 31, 1995 5,487,887 54,879 21,501,517 (14,209,375) 7,347,021
Net income 2,474,652 2,474,652
--------- ------- ----------- --------- ---------
Balance at December 31, 1996 5,487,887 $54,879 $21,501,517 ($11,734,723) $ 9,821,673
========= ======= =========== ============ ===========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<TABLE>
<S> <C> <C> <C>
Lexington Global Asset Managers, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
1996 1995 1994
---- ---- ----
Cash Flows
From
Operating
Activities:
Net income $ 2,474,652 $1,578,657 $ 2,990,270
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 425,974 429,807 378,719
Gain on sale of subsidiaries (529,881) - -
Loss on sale of marketable securities - 67,308 7,711
Unrealized (appreciation) depreciation
on marketable securities (104,567) (30,682) 51,747
Deferred income taxes (83,559) (586,027) (169,113)
Minority interest (87,227) 43,015 53,629
Change in assets and liabilities
Receivables 754,372 (779,783) 101,082
Prepaid expenses (17,391) (190,697) 40,979
Prepaid taxes 30,465 (4,969) 40,514
Accounts payable and accrued expenses (566,869) 1,092,218 721,606
Federal income taxes payable 36,167 445,799 533,385
Deferred income (394,955) (224,309) (143,493)
Other, net 48,823 (114,493) (124,618)
Net assets of subsidiaries sold (286,425) - -
-------- --------- ---------
Net cash provided by operating activities 1,699,579 1,725,844 4,482,418
Cash Flows
From
Investing
Activities:
Purchases of furniture, equipment and
leasehold improvements (425,803) (504,648) (728,291)
Purchases of intangibles (7,225) - -
Purchases of marketable securities (168,501) (349,792) (113,177)
Sales of marketable securities - 155,767 -
Sales of furniture and equipment 157,470 - -
Net proceeds from sale of subsidiaries 816,306 - -
------- ------- -------
Net cash used in investing activities 372,247 (698,673) (841,468)
Cash Flows
From
Financing
Activities:
Proceeds from issuance of debt - - 125,000
Principal payments under capital lease obligations (157,019) (135,764) (135,034)
Dividends - (1,500,000) (1,752,000)
Capital contribution - 76,000 200,000
------- ------ -------
Net cash used in financing activities (157,019) (1,559,764) (1,562,034)
-------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 1,914,807 (532,593) 2,078,916
Cash and cash equivalents, beginning of year 5,615,017 6,147,610 4,068,694
--------- --------- ---------
Cash and cash equivalents, end of year $ 7,529,824 $ 5,615,017 $ 6,147,610
=========== =========== ===========
Supplemental
Cash Flow
Disclosure:
Income taxes paid $ 1,665,849 $ 917,679 $ 1,486,374
Interest paid - $ 108,530 $ 337,398
Supplemental
Schedule
Of Non-Cash
Investing
Activities:
Conversion of debt to equity $10,099,852
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
Lexington Global Asset Managers, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Business
Lexington Global Asset Managers, Inc. (the "Company") serves as a holding
company for the following asset management subsidiaries (collectively referred
to as the "Subsidiaries"): Lexington Management Corporation (100% owned),
Lexington Funds Distributor, Inc. (100% owned), Market Systems Research Advisors
Inc. (65% owned) and Piedmont Asset Advisors (51% owned). The Subsidiaries are
engaged in the management, distribution, and administrative services for the
Lexington Family of Funds ("Funds") and for its institutional and private
clients. Lexington Management Corporation ("LMC") and Market Systems Research
Advisors Inc., ("MSR") are registered investment advisors under the Investment
Advisers Act of 1940, as amended. In addition, Lexington Funds Distributor
("LFD") is a registered broker-dealer under the Securities Exchange Act of 1934,
is a member of the National Association of Securities Dealers, Inc. ("NASD"),
and is therefore subject to various NASD regulations, including net capital
requirements.
On September 30, 1996, the Company sold four of its California
subsidiaries: Lexington Capital Management Associates, Inc. ("LCMA"), LCM
Financial Services Inc. ("LFSI"), Lexington Plan Administrators ("LPA"), and
LCMI Insurance Services ("LCMII"), to a company formed by the CEO of the
subsidiaries and the U.S. unit of London Pacific Group Limited, Berkeley (USA)
Holdings Limited. On December 31, 1996, Lexington Capital Management ("LCM") was
merged into LMC.
2. Basis of Presentation and Summary of Significant Accounting Policies
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and the Subsidiaries. All material intercompany transactions and
accounts have been eliminated.
Revenue Recognition
Investment management and advisory fees are recorded as income for the period in
which the services are performed. Commissions related to security transactions
are accrued on the trade date.
Receivables
Included in 1995 other receivables is a note receivable from an employee of one
of the divested subsidiaries of approximately $195,000 which was forgiven in
l996.
Furniture, Equipment, and Leasehold Improvements
Furniture, equipment, and leasehold improvements are stated at cost. Equipment
and furniture are depreciated on a straight-line basis over their estimated
useful lives ranging from five to twelve years. Leasehold improvements are
amortized on a straight-line basis over the remaining lease term.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) 123, "Accounting for Stock-Based
Compensation," effective for financial statements for fiscal years beginning
after December 15, 1995. SFAS 123 required the Company to adopt, at its
election, either: 1) the provisions in SFAS 123 which require the recognition of
compensation expense employee stock-based compensation plans; or 2) the
provisions in SFAS 123 which require the pro forma disclosure of net income and
earnings per share as if the recognition provisions of SFAS 123 had been
adopted. SFAS 123 explicitly provides that employers may continue to account for
their employee stock-based compensation plans using the accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25). The company adopted the disclosure requirements of SFAS 123
effective January 1, 1996 and continues to account for its employee stock-based
compensation plans under APB 25. Accordingly, the adoption of SFAS 123 had no
impact on the Company's financial position or results of operations. Had
compensation cost for the Company's stock option program been recognized based
on the fair value at the grant date consistent with the recognition provisions
of SFAS 123, the impact on the Company's net income and earnings per share would
not have been material. However, since the options vest over four years and
additional awards could be made in future years, the effects of applying SFAS
123 in 1996 are not likely to be representative of the effects on reported net
income and earnings per share for future years.
Employee and Retiree Benefit Plans
Certain subsidiaries sponsor various benefit plans including a 401(k) savings
plan and a defined benefit pension plan covering substantially all employees.
The Subsidiaries also provide retired employees the option of continuing health
and life insurance benefits through various welfare benefit plans in which the
retiree shares in the cost.
See Note 9 for further information on these employee and retiree benefit plans.
Income Taxes
The Company and its wholly owned subsidiaries are included in the consolidated
federal income tax return filed by the Company. For financial statement
purposes, federal income taxes are computed on a separate-return basis. Deferred
income tax assets and liabilities are computed for the differences between the
financial statement and tax bases of assets and liabilities based on enacted tax
laws and rates applicable to the periods in which the differences are expected
to reverse.
See Note 10 for further information.
3. Investments
Cash Equivalents
Cash equivalents consist of highly liquid investments. At December 31, 1996 and
1995, cash equivalents consist primarily of investments in Lexington Money
Market Trust, recorded at market value (which approximates cost).
Marketable Securities
Marketable securities are carried at market value and, at December 31, 1996
consist of investments in eight of the Funds: Lexington Global Fund, Lexington
Natural Resources Trust, Lexington Ramirez Global Income Fund, Lexington
International Fund, Lexington Emerging Markets Fund, Lexington Crosby Small Cap
Asia Growth Fund, Lexington SmallCap Value Fund, and Lexington Troika Dialog
Russia Fund. The cost of these securities was $1,060,788. At December 31, 1995,
marketable securities consisted of investments in seven of the Funds: Lexington
Global Fund, Lexington Natural Resources Trust, Lexington Ramirez Global Income
Fund, Lexington International Fund, Lexington Emerging Markets Fund, Lexington
Crosby Small Cap Asia Growth Fund and Lexington SmallCap Value Fund. The cost of
these securities was $892,288. The market value of these securities is
determined by multiplying the number of shares held in each Fund by its
respective net asset value as published daily in major newspapers.
Unrealized appreciation (depreciation) arises from the difference between the
cost and market value of investments and is recognized in operations currently.
4. Regulatory Requirements
The broker/dealer subsidiary is subject to rules and regulations of the
Securities and Exchange Commission which require maintenance of minimum net
capital and reserve accounts. At December 31, 1996, the amount of net capital
required for the subsidiary pursuant to such rules and regulations was $5,000.
The net capital of the broker/dealer subsidiary which met all requirements
aggregated $300,565 at December 31, 1996.
5. Intangible Assets
Intangible assets include goodwill, which represents the excess of the purchase
price over the fair value of net assets acquired and is amortized on a
straight-line basis over forty years. The goodwill arising from the original
acquisition of the LMC business by Piedmont Management Company ("Piedmont") in
1969 has been recorded on the books of the Company.
Accumulated amortization of goodwill amounted to approximately $452,000 and
$436,000 at December 31, l996 and l995, respectively.
6. Commitments and Contingencies
The Subsidiaries lease administrative offices under noncancellable operating
leases. The future minimum lease payments are follows:
1997 $ 571,000
1998 586,000
1999 611,000
2000 578,000
2001 578,000
Later Years 964,000
-------
$3,888,000
==========
Rent expense was approximately $941,000 in 1996; $1,140,000 in 1995; and
$944,000 in 1994.
7. Common and Preferred Stock
On December 13, 1995, the Company was recapitalized by adoption of restated
articles of incorporation authorizing 15,000,000 shares of common stock.
Piedmont distributed all of the Company's outstanding common stock as a dividend
to the holders of Piedmont common stock, on a one for one basis for each
outstanding share of Piedmont common stock. The accompanying consolidated
financial statements of the Company have been retroactively reclassified to give
effect to the recapitalization.
The Company has 5,000,000 shares of preferred
stock, $.01 par value authorized; no shares are issued and outstanding.
8. Incentive Plan
The Company has reserved 750,000 shares of common stock for issuance to key
employees under the Long Term Incentive Plan established in 1995. The plan
provides for the granting of stock options, stock appreciation rights and other
stock-based performance awards to employees. During 1995, 180,000 stock options
were granted, all at an exercise price of $4.75, the fair market value at date
of grant. No options were exercised or expired in 1996 and 1995, and 45,000 were
exercisable at December 31, 1996. No grants were made in 1996.
9. Employee and Retiree Benefit Plans
Effective with the December 13, 1995 Spin-off of 100% of the Common Stock of the
Company being distributed to Piedmont Management stockholders, LMC has assumed
the sponsorship of certain of Piedmont's employee benefit plans and their
related trusts and insurance contracts, and is solely responsible for all
liabilities and obligations under such plans. In addition, in exchange for
payment from Piedmont of approximately $740,000, LMC has assumed certain of
Piedmont's obligations to provide continuing medical and dental coverage to
certain of Piedmont's and The Reinsurance Corporation of New York's ("RECO")
employees, and retirement and postretirement medical and life insurance to
former RECO employees.
Savings Plan
LMC's and MSR's employees participate in the 401(k) savings plan sponsored by
LMC. The savings plan provides for voluntary participant contributions which may
not exceed 10% of each participant's annual salary. Additionally, for each
participant's voluntary contribution not exceeding 6% of the participant's
annual salary, LMC and MSR contribute an amount equal to 50% of the individual
participant's contribution.
LMC's and MSR's contributions fully vest to employees at the end of five years.
The annual amounts contributed by LMC and MSR to the Plan were $114,409 in 1996;
$88,395 in 1995; and $84,274 in 1994.
Retirement Plan
LMC sponsors a defined benefit plan which is part of a master
trust. The funding policy for the plan is to annually contribute the statutory
required minimum amount as actuarially determined. The net periodic pension cost
determined under Statement of Financial Accounting Standards No. 87 was $127,464
in 1996; $141,770 in 1995; and $171,700 in 1994. The funded status and net
pension liability for the Master Trust is provided in the table below.
Years ended December 31,
1996 1995
---- ----
Actuarial present value of benefit obligations:
Vested $4,851,900 $4,224,900
Non-vested 127,600 194,000
------- -------
Accumulated benefit obligation $4,979,500 4,418,900
========== ==========
Projected benefit obligation 5,603,100 5,504,400
Plan assets at fair value 4,848,000 4,475,200
Plan assets less than projected benefit obligation (755,100) (1,029,200)
Unrecognized prior service cost 60,600 66,400
Unrecognized net loss 191,300 422,700
Unrecognized net asset (216,100) (252,600)
-------- --------
Net pension liability $ (719,300) $(792,700)
========== =========
The development of the foregoing projected benefit obligations was based upon a
discount rate of 7.5% in 1996 and 7.25% in 1995; a 6% average rate of increase
in employee compensation was used for each year. The expected long-term rate of
return on assets was 10%. Plan assets are invested primarily in bonds, stocks,
short-term securities and cash equivalents.
LMC also maintains non-qualified supplemental benefit plans for certain
employees. These plans replace the portion of benefits that exceed the
limitations established by the Internal Revenue Code for tax qualified benefit
plans. The amount charged to expense relating to these plans was approximately
$116,600 in 1996; $51,600 in 1995; and $37,200 in 1994.
Postretirement Employee Benefits
Certain of the Subsidiaries provide retired employees the option of life and
medical insurance benefits.
As of January 1, 1992, the provisions of Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," were adopted. The Company elected the prospective transition approach
and is amortizing the transition obligation over a 20-year period.
Net periodic postretirement benefit costs for 1996 and 1995 included the
following components:
1996 1995
---- ----
Service cost $ 76,000 $ 47,000
Interest cost 96,000 53,000
Amortization of transition obligation over 20 years 29,000 27,000
------ ------
Net periodic postretirement benefit cost $201,000 $127,000
======== ========
The accumulated unfunded postretirement benefit obligation for the Company is
provided in the table below. The Company has accrued its estimated portion of
the unfunded postretirement benefit obligation (approximately $427,700 in 1996
and $282,000 in 1995).
Years ended
December 31,
1996 1995
---- ----
Retirees $ 735,000 $ 804,000
Eligible active participants 89,000 7,000
Other active participants 592,000 374,000
------- -------
Total $1,416,000 $1,185,000
========== ==========
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.5% in 1996 and 7.25% in 1995. The assumed health care cost
trend rate was 7.5% in each year. If the assumptions used in developing the
health care cost trend rate in each of the last two years were increased by 1%,
the effect on the accumulated postretirement benefit obligation would not be
material.
10. Income Taxes
A reconciliation of income tax expense computed at the U.S. statutory rate to
the effective rate reflected in the consolidated financial statements follows:
Years ended
December 31,
1996 1995 1994
---- ---- ----
Expected tax rate 34.00% 34.00% 34.00%
State and local taxes 6.50 (3.50) 10.50
Other (5.78) .01 (4.10)
----- ----- -----
Effective tax rate 34.72% 30.51% 40.40%
===== ===== =====
The tax effects of temporary differences that give rise to the net deferred tax
assets at December 31, 1996 and 1995 are as follows:
1996 1995
---- ----
Deferred tax asset:
Net operating loss carryforwards $2,203,641 $2,172,003
Deferred compensation 565,587 452,217
Retirement and postretirement 500,880 365,763
Other 169,397
-------- -------
Total deferred tax asset 3,270,108 3,159,380
========= =========
Deferred tax liability:
Deferred state taxes (93,302) (90,154)
Other (44,964) (20,943)
------- -------
Total deferred tax liability (138,266) (111,097)
-------- --------
Net deferred tax asset $3,131,842 $3,048,283
========== ==========
The Company believes it is more likely than not that the Company will generate
future taxable income to realize the benefits of the net deferred tax asset.
Accordingly, the Company has not provided a valuation allowance. The amount
ultimately realized, however, could be reduced if actual amounts of future
taxable income are reduced.
The Company has net operating loss carryforwards of approximately $6,303,026
which are available to offset future taxable income which expire over the period
1998 through 2008.
11. Debt
Prior to the Spin-off of the Company from Piedmont, $10,099,852 owed to Piedmont
and its subsidiary by certain subsidiaries of the Company were converted from
debt to equity of those subsidiaries.
As of December 31, 1996 there were no capitalized lease obligations. As of
December 31, 1995 amounts due on capitalized lease obligations were
approximately $157,000 due September 1999.
12. Subsequent Event (Unaudited)
On March 7, 1997, the Company announced 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 prices. The stock repurchase
plan approved on March 6, 1997 has a term of three years.
13. Quarterly Financial Data (Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
The unaudited quarterly financial data for 1996 and 1995 follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1996
- ----
Results of Operations:
Total revenues $5,717,300 $5,606,059 $5,565,017 $3,922,925
Total expenses 4,955,313 4,855,620 4,832,825 3,039,824
Provision for taxes 206,807 335,985 580,875 146,508
Net income 543,940 396,835 789,326 744,551
Net income per share $0.10 $0.07 $0.14 $0.14
Common stock price range:
High $4.906 $6.50 $5.50 $7.313
Low $3.625 $4.375 $4.25 $5.00
1995
- ----
Results of Operations:
Total revenues $5,218,727 $5,347,927 $5,440,059 $5,279,403
Total expenses 4,261,104 4,513,279 4,890,031 5,300,215
Provision for taxes 447,094 311,691 122,234 (181,203)
Net income 510,528 519,104 404,651 144,374
Net income per share $0.09 $0.10 $0.07 $0.03
Common stock price range:
High N/A N/A N/A $5.00
Low N/A N/A N/A $4.625
</TABLE>
Lexington Global Asset Managers, Inc. and Subsidiaries
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Lexington Global Asset Managers, Inc.:
We have audited the consolidated statements of financial condition of Lexington
Global Asset Managers, Inc. and Subsidiaries as of December 31, 1996 and 1995,
and the related consolidated statements of operations, changes in stockholders'
equity (deficit), and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Lexington Global Asset Managers, Inc. and Subsidiaries as of December 31, 1996
and 1995, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
New York, New York
February 19, 1997
Lexington Global Asset Managers, Inc.
CORPORATE DIRECTORY
OFFICERS AND DIRECTORS
Officers
- --------
Stuart Smith Richardson
Chairman of the Board
Lunsford Richardson, Jr.
Vice Chairman of the Board
Robert M. DeMichele
President
Chief Executive Officer
Richard M. Hisey
Executive Vice President
Chief Financial Officer
Lawrence Kantor
Executive Vice President
General Manager - Mutual Funds
Lisa Curcio
Secretary
Directors
- ---------
Sion A. Boney, III
President, Bristol-Myers Products
Robert M. DeMichele
President
Lexington Global Asset Managers, Inc.
Haynes G. Griffin
Chairman
Vanguard Cellular Systems, Inc.
William R. Miller
Retired
L. Richardson Preyer
Retired
Lunsford Richardson, Jr.
Vice Chairman
Lexington Global Asset Managers, Inc.
Peter L. Richardson
President
Smith Richardson Foundation, Inc.
Stuart Smith Richardson
Chairman
Lexington Global Asset Managers, Inc.
Carl H. Tiedemann
General Partner
Tiedemann Boltres Partners
Marion A. Woodbury
Retired
PRINCIPAL OFFICERS OF SUBSIDIARY COMPANIES
Lexington Management Corporation
- --------------------------------
Robert M. DeMichele
Chairman of the Board
Chief Executive Officer
Richard M. Hisey
Managing Director
and Chief Financial Officer
Lawrence Kantor
Managing Director
and Executive Vice President
Lisa Curcio
Senior Vice President and Secretary
Compliance Officer
Denis Jamison
Senior Vice President
Director of Fixed Income Investment Strategy
Richard J. Lavery
Senior Vice President
Mutual Fund Operations and Sales
Richard Saler
Senior Vice President
Director of International Equity Investment Strategy
Alan Wapnick
Senior Vice President
Director of Domestic Equity Investment Strategy
Market Systems Research Advisors, Inc.
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Robert M. DeMichele
Chairman of the Board
Frank A. Peluso
President
Richard M. Hisey
Chief Financial Officer
Lexington Global Asset Managers, Inc.
CORPORATE AND STOCKHOLDER
INFORMATION
Executive Offices
Lexington Global Asset Managers, Inc.
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
Principal Subsidiaries
Lexington Management Corporation
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
Lexington Funds Distributor, Inc.
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
Market Systems Research Advisors, Inc.
80 Maiden Lane
New York, New York 10038
Stockholder Information
The common stock of Lexington is traded on the NASDAQ National Market System
under the Symbol LGAM. As of December 31, 1996 there were 671 holders of record
of Common Stock. As of March 1, 1997 there were 668 holders of record of
Common Stock.
Stock Transfer Agent and Registrar
First Chicago Trust Company of New York
Stock Transfer Division
P.O. Box 2500
Jersey City, New Jersey 07303-2500
Telephone Response Center: (201) 324-0498
Annual Meeting
The 1996 Annual Meeting of stockholders of Lexington will be held at 9:15 A.M.
Thursday May 15, 1997 at the Executive Offices of the Company.
Stockholder Requests/Form 10-K
For information or assistance regarding your share-holdings, as well as to
receive, without charge, a copy of Form 10-K filed with the Securities and
Exchange Commission, please address your request to:
Richard M. Hisey
Lexington Global Asset Managers, Inc.
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
Independent Accountants
/s/ Coopers & Lybrand L.L.P.
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Coopers & Lybrand L.L.P.
1301 Avenue of the Americas
New York, New York 10019
