UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 0R 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File Number: 1-6817
LEHMAN CMO INC.
(Exact name of registrant as specified in its charter)
Maryland 77-2022794
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
200 Vesey Street, 20th Floor, New York, NY 10285
(Address of principal executive offices) (Zip Code)
212-526-5594
(Registrant's telephone number, including area code)
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 ___
Registrant had 100 shares of common stock outstanding (all
owned indirectly by Lehman Brothers Holdings Inc.) as of
October 1, 1995.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL
INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND THEREFORE IS
FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT
CONTEMPLATED THEREBY.
INDEX
LEHMAN CMO INC.
Cover
Index Page
PART I FINANCIAL INFORMATION
Item 1 - Financial Statements 2 - 9
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of
Operations 10
PART II OTHER INFORMATION
Item 1 - Legal Proceedings 11
Item 2 - Changes in Securities 11
Item 3 - Defaults Upon Senior Securities 11
Item 4 - Submission of Matters to a Vote of
Security Holders 11
Item 5 - Other Information 11
Item 6 - Exhibits and Reports on Form 8-K 11
SIGNATURES 12
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
LEHMAN CMO INC.
INDEX to FINANCIAL STATEMENTS
__________
Statements of Operations for the three months
ended August 31, 1995 and 1994 3
Statements of Operations for the nine months ended August
31, 1995 and eight months ended August 31, 1994 4
Statements of Financial Condition as of
August 31, 1995 and November 30, 1994 5
Statements of Cash Flows for the nine months ended August
31, 1995 and eight months ended August 31, 1994 6
Notes to Financial Statements 7 - 9
<TABLE>
LEHMAN CMO INC.
STATEMENTS of OPERATIONS
(Unaudited)
<CAPTION>
Three months ended
August 31, August 31,
1995 1994
<S> <C> <C> <C>
Revenues:
Interest $ 75 465
Expenses:
Compensation 5,000 5,000
General and administrative 11,513 6,626
16,513 11,626
Loss before income tax benefit (16,438) (11,161)
Income tax benefit (7,570) (5,140)
Net loss $ (8,868) (6,021)
</TABLE>
See notes to financial statements.
<TABLE>
LEHMAN CMO INC.
STATEMENTS of OPERATIONS
(Unaudited)
<CAPTION>
Nine Eight
months Months
ended ended
August 31, August 31,
1995 1994
<S> <C> <C> <C>
Revenues:
Interest 203 1,265
Expenses:
Compensation 15,000 13,333
General and administrative 23,097 21,354
38,097 34,687
Loss before income tax benefit (37,894) (33,422)
Income tax benefit (17,450) (15,391)
Net loss $ (20,444) (18,031)
</TABLE>
See notes to financial statements.
<TABLE>
LEHMAN CMO INC.
STATEMENTS of FINANCIAL CONDITION
ASSETS
<CAPTION>
August 31, November 30,
1995 1994
(Unaudited)
<S> <C> <C>
Cash $ 14,824 14,595
Income taxes receivable from affiliate 86,806 69,356
101,630 83,951
LIABILITIES and STOCKHOLDER'S EQUITY
Liabilities:
Payables to affiliates $ 39,365 27,524
Other liabilities and accrued expenses 539 510
Total liabilities 39,904 28,034
Stockholder's equity:
Common stock, $1 par value;100 shares
authorized, issued and outstanding 100 100
Additional paid-in capital 36,153 9,900
Retained earnings 25,473 45,917
Total stockholder's equity 61,726 55,917
$ 101,630 83,951
</TABLE>
see notes to financial statements
<TABLE>
LEHMAN CMO INC.
STATEMENTS of CASH FLOWS
(Unaudited)
<CAPTION>
Nine Eight
months months
ended ended
August 31, August 31,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (20,444) (18,031)
Adjustments to reconcile net loss to net
cash used in operating activities:
Effect of changes in operating assets
and liabilities:
Income taxes receivable from affiliate ( 17,450) (15,391)
Payables to affiliates 11,841 12,570
Other liabilities and accrued expenses 29 (1,559)
Total adjustments (5,580) (4,380)
Net cash used in operating activities (26,024) (22,411)
Cash flows from financing activities:
Capital contributions by parent 26,253 -
Cash provided by financing activities 26,253 -
Net increase (decrease) in cash 229 (22,411)
Cash at the beginning of the period 14,595 159,040
Cash at the end of the period 14,824 136,629
</TABLE>
See notes to financial statements.
1. Organization:
Lehman CMO Inc. (the "Company") is a special purpose
finance corporation organized for the purpose of
issuing and selling Mortgage-Backed Sequential Pay
Bonds (the "Bonds") collateralized primarily by pass-
through mortgage-backed certificates and/or mortgage
loans (the "Certificates"). All of the outstanding
capital stock is owned by Lehman Commercial Paper Inc.
("LCPI"), an indirect wholly owned subsidiary of Lehman
Brothers Holdings Inc. ("Holdings").
The Company derives its income from trading and/or
interest earned on securities owned. Trading income
includes the profit (loss) from the issuance and sale
of securities and valuing securities owned, if any, at
market value.
The Company has filed registration statements on Form S-
3 with the Securities and Exchange Commission (the
"Commission") which permit the Company to issue, from
time to time, Bonds in principal amount not to exceed
$5.5 billion. No Bonds have been issued for the nine
months ended August 31, 1995. As of August 31, 1995,
approximately $816 million was available for issuance
under the registration statements referred to above.
The Company has issued Bonds collateralized by
Certificates. The Company has surrendered all future
economic interests in the Bonds, Certificates and
Collateral. According to the terms of the various
trust agreements, the Bond and Certificate holders can
look only to the related collateral for repayment of
both principal and interest. In accordance with
generally accepted accounting principles, the Bonds and
Certificates have been removed from the accompanying
Statements of Financial Condition.
During the nine months ended August 31, 1995, LCPI made
capital contributions to the Company of $26,253.
2. Summary of Significant Accounting Policies:
Income Taxes:
The Company is included in the consolidated U.S.
federal income tax return of Holdings and in combined
state and local returns with other affiliates of
Holdings. The Company computes its income tax benefit
on a separate return basis in accordance with a tax
allocation agreement between Holdings and its
subsidiaries. The benefit for income taxes is greater
than that calculated by applying the statutory federal
income tax rate principally due to state and local
taxes.
3. Related Party Transactions:
All Certificates used to collateralize the Bonds are
purchased from and recorded at an affiliate's carrying
value, which for broker/dealer affiliates represents
market value.
Certain directors and officers of the Company are also
directors and officers of Lehman Brothers Inc., LCPI,
and/or other affiliates of the Company.
Pursuant to a management agreement (the "Agreement"),
the Company is charged a management fee for various
services rendered on its behalf by LCPI. The Agreement
provides for an allocation of costs based upon the
level of activity processed by LCPI on behalf of the
Company. Management fees of $15,000 for the nine
months ended August 31, 1995 and $13,333 for the eight
months ended August 31, 1994 are included in general
and administrative expenses in the accompanying
Statements of Operations. The Agreement is renewable
each year unless expressly terminated or renegotiated
by the parties.
Compensation expense includes amounts allocated to the
Company by LCPI for compensation paid to certain common
officers and directors of the Company.
The Company believes that amounts arising through
related party transactions, including fees referred to
above, are reasonable and approximate the amounts that
would have been recorded if the Company operated as an
unaffiliated entity.
4. Financial Instruments with Off-Balance Sheet Risk and
Concentration of Credit Risk:
The Company's activities are principally conducted with
brokers, dealers and financial institutions. At August
31, 1995, the Company had no material individual
counterparty concentration of credit risk.
5. Fair Value of Financial Instruments:
Statement of Financial Accounting Standards (SFAS) No.
107, "Disclosures About Fair Value of Financial
Instruments," requires disclosure of the fair values of
most on- and off-balance sheet financial instruments,
for which it is practicable to estimate that fair
value. The scope of SFAS No. 107 excludes certain
financial instruments, such as trade receivables and
payables when the carrying value approximates the fair
value, employee benefit obligations and all non-
financial instruments, such as fixed assets. The fair
value of the Company's assets and liabilities which
qualify as financial instruments under SFAS No. 107
approximate the carrying amounts presented in the
Statements of Financial Condition.
6. Change of Fiscal Year-End:
During 1994, the Company changed its year-end from
December 31 to November 30. Such a change to a non-
calendar cycle shifts certain year-end administrative
activities to a time period that conflicts less with
the business needs of Holdings' institutional
customers. In conjunction with the decision to change
its year-end, the Company is reporting its third
quarter 1994 results on the basis of its new fiscal
year.
PART I - FINANCIAL INFORMATION, continued
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
Set forth below is management's discussion and analysis
of financial condition and results of operations for
the nine months ended August 31, 1995 and eight monhts
ended August 31, 1994.
During the nine months ended August 31, 1995 and eight
months ended August 31, 1994, the Company had no
issuances of securities. As such, no related income
was recorded.
Interest income decreased from $1,265 and $465 during
the eight months and quarter ended August 31, 1994 to
$203 and $75 during the nine months and quarter ended
August 31, 1995 principally due to a decrease in
interest bearing deposits.
General and administrative expenses includes management
fees of $15,000 for the nine months ended August 31,
1995 and $13,333 for the eight months ended August 31,
1994.
PART II - OTHER INFORMATION
The following items have been omitted as inapplicable
or not required under general instruction H(2)(a) and
(b) of Form 10-Q:
Item 1 - Legal Proceedings
Item 2 - Changes in Securities
Item 3 - Defaults Upon Senior Securities
Item 4 - Submission of Matters to a Vote of
Security Holders
Item 5 - Other Information
Item 6 - Exhibits and Reports on Form 8-K
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.
LEHMAN CMO INC.
(Registrant)
Date: October 12, 1995 /S/ Neal Leonard
Neal Leonard
President
Date: October 12, 1995 /S/ David Goldfarb
David Goldfarb
Controller
