FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended 03-31-99
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 March 31, 1999.
Common Stock-$.01 Par Value Per Share
Authorized 15,000,000 Shares
4,667,204 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
<TABLE>
LEXINGTON GLOBAL ASSET MANAGERS, INC.
AND SUBSIDIARIES
Item I. Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<S> <C> <C>
3/31/1999 12/31/1998
(Unaudited)
Assets:
Cash and cash equivalents:
Cash $ 221,085 $ 228,347
Money market accounts 9,022,730 8,209,827
------------ ------------
9,243,815 8,438,174
------------ ------------
Receivables:
Investment advisory and management fees 1,138,188 863,920
Due from funds and other 480,010 426,585
------------ ------------
1,618,198 1,290,505
------------ ------------
Trading securities 596,213 1,337,110
Prepaid expenses 1,968,839 1,859,517
Prepaid taxes 143,948 182,066
Fixed assets (net of accumulated depreciation
and amortization) 1,116,268 1,193,515
Intangible assets (net of accumulated amortization) 174,426 178,476
Assets associated with deferred compensation 870,935 834,309
Deferred income taxes 1,461,810 1,560,686
Other assets 8,608 8,608
------------ ------------
Total assets $ 17,203,060 $ 16,882,966
============ ============
Liabilities:
Accounts payable and other accrued expenses $ 3,810,081 $ 3,944,677
Deferred income 2,152,022 1,879,969
Deferred compensation 870,935 834,309
Federal income taxes payable 842,166 843,434
Other liabilities 13,129 11,391
------------ ------------
Total liabilities 7,688,333 7,513,780
------------ ------------
Minority interest 461,784 428,821
Stockholders' Equity:
Common stock, $.01 par value; 15,000,000
authorized shares; 5,487,887 issued 54,879 54,879
Additional paid-in capital 21,573,392 21,573,392
Accumulated deficit (8,448,483) (8,633,541)
Deferred Compensation (960,838) (1,118,758)
Treasury stock at cost (3,166,007) (2,935,607)
------------ ------------
Total stockholders' equity 9,052,943 8,940,365
------------ ------------
Total liabilities and stockholders' equity $ 17,203,060 $ 16,882,966
============ ============
</TABLE>
See accompanying notes to the condensed consolidated financial statements
(Unaudited).
<TABLE>
LEXINGTON GLOBAL ASSET MANAGERS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
<S> <C> <C>
Three Months Ended March 31,
1999 1998
---- ----
Revenues:
Investment advisory:
Mutual fund management fees (including approximately
$91,600 and $99,800 from related parties) $ 2,134,285 $ 3,011,800
Mutual fund commissions 10,160 29,116
Other management fees (including approximately
$847,700 and $714,700 from related parties) 2,134,253 1,892,446
Commissions income 36,306 23,373
Other income 138,623 192,057
-------------- --------------
Total revenues 4,453,627 5,148,792
-------------- --------------
Expenses:
Salaries and other compensation 2,234,718 2,435,789
Selling and promotional 116,981 223,898
Administrative and general 1,717,033 2,074,789
-------------- --------------
Total expenses 4,068,732 4,734,476
-------------- --------------
Income before income taxes and minority interest 384,895 414,316
Provision for income taxes
Current 67,998 46,408
Deferred 98,876 134,692
-------------- --------------
Total provision 166,874 181,100
-------------- --------------
Income before minority interest 218,021 233,216
Minority interest 32,963 630
-------------- --------------
Net income $ 185,058 $ 232,586
============== ==============
Earnings per share:
Basic earnings per share $0.04 $0.04
============== ==============
Diluted earnings per share $0.04 $0.04
============== ==============
Average shares outstanding during the period 4,710,105 5,181,854
============== ==============
</TABLE>
See accompanying notes to the condensed consolidated financial statements
(Unaudited).
<TABLE>
LEXINGTON GLOBAL ASSET MANAGERS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<S> <C> <C>
Three Months Ended March 31,
1999 1998
---- ----
Cash flows from operating activities:
Net income $ 185,058 $ 232,587
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 86,218 78,820
Deferred income taxes 98,876 134,692
Minority interest 32,963 630
Compensation expense - stock options 157,920 150,521
Change in assets and liabilities
Receivables (327,693) (414,648)
Trading securities 740,897 (98,688)
Prepaid expenses (109,322) (81,090)
Prepaid taxes 38,118 (133,353)
Accounts payable and accrued expenses (134,596) (1,134,134)
Federal income taxes payable (1,268) 18,548
Deferred management fees 272,053 200,996
Other, net 1,738 1,007
--------------- ---------------
Net cash provided by (used in) operating activities 1,040,962 (1,044,112)
Cash flows from investing activities:
Purchases of furniture, equipment and leasehold
improvements (4,921) (33,544)
--------------- ---------------
Net cash used in investing activities (4,921) (33,544)
Cash flows from financing activities:
Purchase of treasury stock (230,400) -
--------------- ---------------
Net cash used in financing activities (230,400) -
Net increase (decrease) in cash and cash equivalents 805,641 (1,077,656)
Cash and cash equivalents, beginning of period 8,438,174 8,705,298
--------------- ---------------
Cash and cash equivalents, end of period $ 9,243,815 $ 7,627,642
=============== ===============
</TABLE>
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.
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 consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain prior year amounts have been reclassified to conform with the current
year presentation.
2. Common Stock Buy-Back Program
On March 7, 1997 and September 17, 1998 the Board of Directors of the Company
authorized share repurchase programs of up to 750,000 shares for a total program
of up to 1,500,000 shares. Repurchases have been and will be made from time to
time in the open market or through privately negotiated transactions at market
price. The stock repurchase plans have terms of three years. During the first
quarter of 1999, the Company repurchased 64,000 shares of stock for a total of
$230,400. Subsequent to March 31, 1999, the Company repurchased 112,000 shares.
Since the inception of the Company's two share repurchase programs, the Company
has repurchased 1,021,350 shares of its common stock.
3. Disclosures about Segments of an Enterprise and Ralated 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 17
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.
<TABLE>
<S> <C> <C> <C> <C> <C>
Mutual Private
Three months ended March 31, 1999 Funds Institutional Accounts Other Total
- --------------------------------- ----- ------------- -------- ----- -----
Revenue $2,224,629 $1,021,369 $1,190,095 $17,534 $4,453,627
Salaries and other compensation 985,871 927,740 321,107 - 2,234,718
Selling and promotional 31,162 61,920 15,591 8,308 116,981
Administrative and general 681,593 244,155 729,376 61,909 1,717,033
Income (loss) before income taxes
and minority interest $526,003 ($212,446) $124,021 ($52,683) $384,895
Mutual Private
Three months ended March 31, 1998 Funds Institutional Accounts Other Total
- --------------------------------- ----- ------------- -------- ----- -----
Revenue $3,142,895 $1,008,880 $992,887 $4,130 $5,148,792
Salaries and other compensation 1,075,655 1,041,048 319,086 - 2,435,789
Selling and promotional 153,776 40,723 19,871 9,528 223,898
Administrative and general 928,990 353,508 729,095 63,196 2,074,789
Income (loss) before income taxes
and minority interest $984,474 ($426,399) ($75,165) ($68,594) $414,316
</TABLE>
LEXINGTON GLOBAL ASSET MANAGERS, INC.
AND SUBSIDIARIES
Management does not evaluate assets as a means to allocate resources and assess
performance. The Company is domicilied 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.
March 31, 1999 Compared to March 31, 1998
The consolidated net income for the three months ended March 31, 1999 was
$185,058, or $0.04 per share, compared to $232,587, or $0.04 per share for the
first three months of 1998.
Total assets under management at March 31, 1999 were $3.2 billion compared to
$3.7 billion at March 31, 1998. Mutual fund assets under management decreased
$0.6 billion to $1.4 billion from $2.0 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. Also contributing to the decline in mutual fund assets is a decrease of
$0.1 billion each in the Lexington Corporate Leaders Fund and the Lexington
Troika Dialog Russia Fund. Partially offsetting the decline is a $0.1 billion
increase in the Lexington GNMA Income Fund. Private account assets increased
$0.1 billion to $0.6 billion, while institutional assets stayed even at $1.1
billion.
Total revenues of $4.5 million decreased $0.7 million from the year earlier
period. Mutual fund revenues decreased $0.9 million from $3.0 million to $2.1
million with the decline in assets under management.
Mutual fund commissions of $10 thousand decreased $19 thousand from the $29
thousand recorded at March 31, 1998 because of a decrease in investor interest
in precious metals mutual funds, which are the Company's two products with sales
loads.
Other management fees increased from $1.9 million to $2.1 million. The Company's
private account business accounted for virtually all of this increase,
reflecting higher assets under management associated with the continuing
strength of the U.S. equity markets.
Commission income of $36 thousand slightly increased from the $23 thousand
recorded in the first quarter of 1998. Other income of $139 thousand decreased
$53 thousand from $192 thousand in 1998. The decrease is a result of lower
unrealized appreciation of marketable securities in 1999. Unrealized
appreciation stems from the Company's investments in a number of the funds
managed by the Company.
Total expenses decreased approximately $0.6 million from $4.7 million to $4.1
million due to administrative and general expenses, (which decreased $0.4
million from the first quarter of 1998 to $1.7 million), salaries and other
compensation, (which decreased $0.2 million to $2.2 million), and selling and
promotional expenses (which decreased $0.1 million to $0.1 million).
Administrative and general expenses declined primarily due to lower sub-advisory
fees which reflects lower mutual fund assets under management. Salaries and
other compensation declined due to lower bonus expense associated with lower
revenues and profits. Selling and promotional expenses decreased $0.1 million
due to lower advertising expenditures.
Income before taxes and minority interest of $385 thousand is $29 thousand less
than the $414 thousand recorded in the first quarter of 1998. The provision for
state and federal taxes slightly decreased to $167 thousand from $181 thousand
due to the decrease in taxable income.
Year 2000
The Company, like most commercial and financial institutions, is working to
ensure that its operating and processing systems will, along with those of its
service providers, continue to function when the Year 2000 arrives. The Company
has developed and implemented a comprehensive plan to prepare the Company's
computer systems and applications for the Year 2000, as well as to identify and
address any other Year 2000 operational issues which may affect the Company.
Progress reports on the Company's Year 2000 program are presented regularly to
the Company's Board of Directors and senior management.
The Company's Year 2000 program, which was commenced in June 1997 and is
administered by internal staff, consists of the following three components
relating to the Company's operations: (i) information technology ("IT") computer
systems and applications which may be impacted by the Year 2000 problem, (ii)
non-IT systems and equipment which include embedded technology which may be
impacted by the Year 2000 problem and (iii) third party vendors with which the
Company has significant relationships which could adversely affect the Company
if such parties fail to be Year 2000 compliant.
The general phases common to all three components of the Company's Year 2000
program are: (1) Awareness (the identification of the Year 2000 issues facing
the Company); (2) Assessment (the prioritization of the issues and the actions
to be taken); (3) Renovation (implementation of the specific actions determined
upon assessment, including repair, modification or replacement of items that are
determined not to be Year 2000 compliant); (4) Validation (testing of the new or
modified information systems, other systems, and equipment to verify the Year
2000 readiness); (5) Implementation (actual operation of such systems and
equipment and, if necessary, the actual implementation of any contingency plans
in the event Year 2000 problems occur, notwithstanding the Company's renovation
program).
The Company has completed an assessment of its Year 2000 readiness and has
completed the renovation of its internal systems. The renovation phase involved
the replacement of certain systems with purchased software, the renovation of
other systems, and the purchase of certain hardware and other devices, all of
which are Year 2000 compliant. The Company anticipates that the validation phase
should be completed by the end of May 1999. The implementation phase has
commenced (overlapping the validation phase) with systems being installed at the
completion of their validation testing. 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 $96,000 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 validation phase.
The Company expects to be Year 2000 compliant during the second quarter of 1999
and is in the process of preparing a contingency plan, which should be completed
by the second quarter of 1999.
Although the Company believes it is adequately addressing its Year 2000 issues,
the failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failure could materially affect the Company's results of
operations, liquidity and financial condition.
Effects of Inflation
The Company does not believe that inflation has had a significant impact on the
operations of the Company to date. The Company's assets consist primarily of
cash and investments which are monetary in nature. However, to the extent
inflation results in rising interest rates with the attendant adverse effects on
the securities markets and on the values of investments held in the Company's
accounts, inflation may adversely affect the Company's financial position and
results of operations. Inflation also may result in increased operating expenses
(primarily personnel-related costs) that may not be readily recoverable in the
fees charged by the Company.
Liquidity and Financial Condition
The Company's business typically does not require substantial capital
expenditures. The most significant investments are in technology, including
computer equipment and telephones.
Historically, the Company has been cash self-sufficient. Cash flows from
operations have ranged between inflows of $3.7 million and $1.5 million over the
past three years. In the first quarter of 1999 the Company had cash inflows from
operations of $1.0 million. The major source of this cash inflow was the
liquidation of a portion of the Company's trading securities and from net
income.
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 quarter of 1999
reflecting the purchase of computer equipment.
Cash flows from financing activities consistently have been negative over the
past three years. On March 7, 1997 and September 17, 1998, the Company announced
share repurchase programs under which the Company may repurchase up to 1,500,000
shares of its stock from time to time in the open market or through privately
negotiated transactions at market prices. The stock repurchase plans have three
year terms. Through December 31, 1998, the Company repurchased 845,350 shares of
its stock for a total of $4,634,244. In the first quarter of 1999, the Company
purchased 64,000 shares of its stock for a total of $230,400. Subsequent to
March 31, 1999, the Company repurchased 112,000 shares. The Company may in the
future issue debt securities or preferred stock or enter into loan or other
agreements that restrict the payment of dividends on and repurchase of the
Company's capital stock.
Historically, the Company has maintained a substantial amount of liquidity for
purposes of meeting regulatory requirements and potential business demands. At
March 31, 1999 the Company had $9.2 million of cash and cash equivalents.
Management believes the Company's cash resources, plus cash provided by
operations, are sufficient to meet the Company's foreseeable capital and
liquidity requirements. As a result of the holding company structure, the
Company's cash flows will depend primarily on dividends or other permissible
payments from its subsidiaries. The Company has no standby lines-of-credit or
other similar arrangements.
LFD, as a registered broker-dealer, had federal and state net capital
requirements at March 31, 1999 of $25,000. The aggregate net capital of LFD was
$0.3 million at March 31, 1999. LMC, MSR, and MSRI, as registered investment
advisors, must meet net capital requirements imposed at the Federal and state
levels.
Stockholders' equity on March 31, 1999 increased to $9.0 million from $8.9
million at December 31, 1998 primarily as a result of the Company's net income.
Management believes that the Company's liquid assets and its net cash provided
by operations will enable it to meet any foreseeable cash requirements.
Forward Looking Statements
Some of the statements included within Management's Discussion and Analysis may
be considered to be forward looking statements which are subject to certain
risks and uncertainties. Factors which could cause the actual results to differ
materially from those suggested by such statements are described from time to
time in the Company's Annual Report on Form 10-K and other filings with the
Securities and Exchange Commission.
Part II. Other Information
Item 1. Legal Proceedings
None
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits
No. 27 Financial Data Schedule (filed with the Securities and Exchange
Commission)
Other Items under Part II have been omitted since they are either not required
or are not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LEXINGTON GLOBAL ASSET MANAGERS, INC.
By: /s/Richard M. Hisey
_________________________
RICHARD M. HISEY
EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND TREASURER
Date: 5-12-99
<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 Dollars
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 9,243,815
<SECURITIES> 596,213
<RECEIVABLES> 1,618,198
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,830,852
<PP&E> 3,365,176
<DEPRECIATION> 2,248,908
<TOTAL-ASSETS> 17,203,060
<CURRENT-LIABILITIES> 3,810,081
<BONDS> 0
0
0
<COMMON> 54,879
<OTHER-SE> 8,998,064
<TOTAL-LIABILITY-AND-EQUITY> 17,203,060
<SALES> 0
<TOTAL-REVENUES> 4,453,627
<CGS> 0
<TOTAL-COSTS> 0
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<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 384,895
<INCOME-TAX> 166,874
<INCOME-CONTINUING> 185,058
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 185,058
<EPS-PRIMARY> .04
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</TABLE>
