UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 1995
[ ] 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: 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
incorporation or organization) Identification No.)
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)
Securities registered pursuant to Section 12 (b) of
the Act:
Name of Each Exchange
Title of Each Class on which registered
None None
Securities registered pursuant to Section 12 (g) of
the Act:
None
(Title of class)
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 February 1, 1996.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION J (1) (a)
AND (b) OF FORM 10-K AND THEREFORE IS FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT CONTEMPLATED THEREBY.
<PAGE>
INDEX
LEHMAN CMO INC.
Cover Page
PART I
Item 1 - Business .......................................... 1
Item 2 - Properties ........................................ 1
Item 3 - Legal Proceedings ................................. 1
Item 4 - Submission of Matters to a Vote of Security Holders 1
PART II
Item 5 - Market for Registrant's Common Stock
and Related Stockholder Matters .............. 2
Item 6 - Selected Financial Data ........................... 2
Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 2
Item 8 - Financial Statements and Supplementary Data ....... 3
Item 9 - Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ....... 3
PART III
Item 10 - Directors and Executive Officers
of the Registrant ........................... 3
Item 11 - Executive Compensation ........................... 3
Item 12 - Security Ownership of Certain Beneficial
Owners and Management ....................... 3
Item 13 - Certain Relationships and Related Transactions ... 3
PART IV
Item 14 - Exhibits, Financial Statement Schedules,
and Reports on Form 8-K ..................... 4
Signatures .......................................................... 5
<PAGE>
PART I
ITEM 1 Business
Lehman CMO Inc. (the "Company") was incorporated in the State
of Maryland on March 14, 1984 as 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 profit
(loss) from the issuance and sale of securities and valuing
Bonds owned, if any, at market value.
The Bonds may be sold by the Company in one or more series on
terms to be determined at the time of the sale. Each series of
Bonds will consist of one or more sequences. The Bonds of each
series will be collateralized by "fully modified pass-through"
mortgage-backed certificates guaranteed as to the full and
timely payment of principal and interest by the Government
National Mortgage Association, which guaranty is backed by the
full faith and credit of the United States Government; by
guaranteed mortgage pass-through certificates issued and
guaranteed as to the full and timely payment of principal and
interest by the Federal National Mortgage Association; by
mortgage participation certificates issued and guaranteed as
to the full and timely payment of interest and the ultimate
payment of principal by the Federal Home Loan Mortgage
Corporation, or by a combination of such Certificates.
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
the principal amount not to exceed $5.5 billion. As of
November 30, 1995, approximately $816.0 million was available
for issuance under the registration statements referred to
above.
ITEM 2 Properties
The Company owns no physical properties.
ITEM 3 Legal Proceedings
There are no pending legal proceedings.
ITEM 4 Submission of Matters to a Vote of Security Holders
Pursuant to General Instruction J of Form 10-K, the
information required by Item 4 is omitted.
PART II
ITEM 5 Market for Registrant's Common Stock and Related
Stockholder Matters
The Company's sole class of capital stock is its $1.00 par
value common stock, which is all owned by LCPI. There is no
public market for such common stock.
ITEM 6 Selected Financial Data
Pursuant to General Instruction J of Form 10-K, the
information required by Item 6 is omitted.
ITEM 7 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 twelve
months ended November 30, 1995, eleven months ended November
30, 1994, and twelve months ended December 31, 1993,
respectively.
For the twelve months ended November 30, 1995 and eleven
months ended November 30, 1994:
No Bonds were issued during the twelve months ended November
30, 1995. As such, no related revenues were generated during
the twelve months ended November 30, 1995. Interest income
decreased from $1,823 during the eleven months ended November
30, 1994 to $306 during the twelve months ended November 30,
1995 as a result of a decrease in interest bearing deposits
during the period. General and administrative expenses
includes management fees of $20,000 during the twelve months
ended November 30, 1995 and $18,337 during the eleven months
ended November 30, 1994.
For the eleven months ended November 30, 1994 and twelve
months ended December 31, 1993:
No Bonds were issued during the eleven months ended November
30, 1994 and twelve months ended December 31, 1993. As such,
no related revenues were generated during either period.
Interest income decreased from $3,950 during the twelve months
ended December 31, 1993 to $1,823 during the eleven months
ended November 30, 1994 as a result of a decrease in interest
bearing deposits during the period. General and administrative
expenses includes management fees of $18,337 during the eleven
months ended November 30, 1994 and $20,000 during the twelve
months ended December 31, 1993.
<PAGE>
ITEM 8 Financial Statements and Supplementary Data
The financial statements required by this Item and included in
this Report are referenced in the index appearing on page F-1.
ITEM 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Not applicable.
PART III
ITEM 10 Directors and Executive Officers of the Registrant
Pursuant to General Instruction J of Form 10-K, the
information required by Item 10 is omitted.
ITEM 11 Executive Compensation
Pursuant to General Instruction J of Form 10-K, the
information required by Item 11 is omitted.
ITEM 12 Security Ownership of Certain Beneficial Owners and
Management
Pursuant to General Instruction J of Form 10-K, the
information required by Item 12 is omitted.
ITEM 13 Certain Relationships and Related Transactions
Pursuant to General Instruction J of Form 10-K, the
information required by Item 13 is omitted.
<PAGE>
PART IV
ITEM 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) and (2) Financial Statements and Schedules
See Index to Financial Statements appearing on Page F-1
(3) Exhibits
Not applicable
(b) Reports on Form 8-K: None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By: NEAL LEONARD
Neal Leonard
President
Date: February 23, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
SIGNATURE .................... POSITION DATE
NEAL LEONARD ................. President February 23, 1996
Neal Leonard
DAVID GOLDFARB ............... Controller February 23, 1996
David Goldfarb
BRIAN R. ZIPP ................ Director February 23, 1996
Brian R. Zipp
MICHAEL J. O'HANLON .......... Chairman and Director February 23, 1996
Michael J. O'Hanlon
<PAGE>
LEHMAN CMO INC.
INDEX to FINANCIAL STATEMENTS
Report of Independent Auditors ....................................... F-2
Statements of Operations for the twelve months ended November 30,
1995, eleven months ended November 30, 1994 and twelve months
ended December 31, 1993 ............................................ F-3
Statements of Financial Condition as of
November 30, 1995 and 1994 ......................................... F-4
Statements of Changes in Stockholder's Equity for the twelve months
ended November 30, 1995, eleven months ended November 30, 1994 and
twelve months ended December 31, 1993 .............................. F-5
Statements of Cash Flows for the twelve months ended November 30,
1995, eleven months ended November 30, 1994 and twelve months ended
December 31, 1993 .................................................. F-6
Notes to Financial Statements ................................. F-7 to F-9
Consent of Independent Auditors ...................................... F-10
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholder of
Lehman CMO Inc.
We have audited the accompanying statements of financial condition of Lehman CMO
Inc. as of November 30, 1995 and November 30, 1994, and the related statements
of operations, changes in stockholder's equity and cash flows for the year ended
November 30, 1995, for the eleven-month period ended November 30, 1994 and for
the year ended December 31, 1993. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 financial statements referred to above present fairly, in
all material respects, the financial position of Lehman CMO Inc. at November 30,
1995 and 1994, and the results of its operations and its cash flows for the year
ended November 30, 1995, for the eleven-month period ended November 30, 1994 and
for the year ended December 31, 1993, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
January 10, 1996
<PAGE>
LEHMAN CMO INC.
STATEMENTS of OPERATIONS
<TABLE>
<CAPTION>
Twelve Eleven Twelve
months months months
ended ended ended
November 30, November 30, December, 31
1995 1994 1993
<S> <C> <C> <C> <C>
Revenues:
Interest ......................... $ 306 $ 1,823 $ 3,950
-------- -------- --------
Expenses:
Compensation ..................... 20,000 18,337 20,000
General and administrative ....... 28,151 32,017 24,191
-------- -------- --------
48,151 50,354 44,191
-------- -------- --------
Loss before income tax benefit ....... (47,845) (48,531) (40,241)
Income tax benefit ................... (22,033) (22,234) (18,531)
-------- -------- --------
Net loss ............................. $(25,812) $(26,297) $(21,710)
======== ======== ========
</TABLE>
See notes to financial statements
LEHMAN CMO INC.
STATEMENTS OF FINANCIAL CONDITION
ASSETS
<TABLE>
<CAPTION>
November 30, November 30,
1995 1994
----------------------
<S> <C> <C> <C>
Cash .............................................. $ 14,901 $14,595
Income taxes receivable from affiliate ............ 91,389 69,356
-------- -------
$106,290 $83,951
======== =======
LIABILITIES and STOCKHOLDER'S EQUITY
Liabilities:
Payables to affiliates ............................ $ 40,615 $27,524
Other liabilities and accrued expenses ............ 566 510
-------- -------
Total liabilities ................. 41,181 28,034
-------- -------
Stockholder's equity:
Common stock, $1 par value; 100 shares
authorized, issued and outstanding ............ 100 100
Additional paid-in capital ........................ 44,904 9,900
Retained earnings ................................. 20,105 45,917
-------- -------
Total stockholder's equity ........ 65,109 55,917
-------- -------
$106,290 $83,951
======== =======
</TABLE>
See notes to financial statements
LEHMAN CMO INC.
STATEMENTS of CHANGES IN STOCKHOLDER'S EQUITY
for the twelve months ended November 30, 1995,
eleven months ended November 30, 1994 and
twelve months ended December 31, 1993
<TABLE>
<CAPTION>
Additional Total
Common Paid-in Retained Stock-
Stock Capital Earnings Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 .......... $100 $ 9,900 $ 207,258 $ 217,258
Net loss ............................ -- -- (21,710) (21,710)
---- ------- --------- ---------
Balance, December 31, 1993 .......... 100 9,900 185,548 195,548
Net loss ............................ -- -- (26,297) (26,297)
Capital distributions to parent ..... -- -- (113,334) (113,334)
---- ------- --------- ---------
Balance, November 30, 1994 .......... 100 9,900 45,917 55,917
Net loss ............................ -- -- (25,812) (25,812)
Capital contributions from parent ... -- 35,004 -- 35,004
---- ------- --------- ---------
Balance, November 30, 1995 .......... $100 $44,904 $ 20,105 $ 65,109
==== ======= ========= =========
</TABLE>
See notes to financial statements
<PAGE>
LEHMAN CMO INC.
STATEMENTS of CASH FLOWS
<TABLE>
<CAPTION>
Twelve months Eleven months Twelve months
Ended Ended Ended
November 30, November 30, December 31,
1995 1994 1993
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ........................................................................... $(25,812) $ (26,297) $ (21,710)
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 ..................................... (22,033) (22,234) (18,531)
Payables to affiliates ..................................................... 13,091 19,486 8,038
Other liabilities and accrued expenses ..................................... 56 (2,066) 1,144
-------- --------- ---------
Net cash used in operating activities ...................................... (34,698) (31,111) (31,059)
-------- --------- ---------
Cash flows from financing activities:
Capital contributions (distributions)
from/to parent ................................................................... 35,004 (113,334) --
-------- --------- ---------
Cash provided by (used in)
financing activities ......................................................... 35,004 (113,334) --
-------- --------- ---------
Net increase (decrease) in cash ........................................................ 306 (144,445) (31,059)
Cash at the beginning of the year ...................................................... 14,595 159,040 190,099
-------- --------- ---------
Cash at the end of the year .................................................... $ 14,901 $ 14,595 $ 159,040
======== ========= =========
</TABLE>
See notes to financial statements
<PAGE>
LEHMAN CMO INC.
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 twelve months ended November 30, 1995. As of
November 30, 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 twelve months ended November 30, 1995, LCPI made
capital contributions to the Company of $35,004. During the
eleven months ended November 30, 1994, the Company made capital
distributions to LCPI of $113,334.
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 the 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.
3. Related Party Transactions (continued)
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 $20,000 for the twelve months
ended November 30, 1995, $18,337 for the eleven months ended
November 30, 1994 and $20,000 for the twelve months ended
December 31, 1993 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 and LCPI.
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 November 30, 1995 and
1994, the Company had no material individual counterparty
concentration of credit risk, or any financial instruments with
off-balance-sheet 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 fiscal 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.
<PAGE>
6. Change of Fiscal Year-End (continued)
The following is selected financial data for the eleven-month
transition period ending November 30 and the comparable prior
year period.
<TABLE>
<CAPTION>
Eleven months ended
November 30, November 30,
1994 1993
-------------- ------------
(Unaudited)
<S> <C> <C> <C>
Revenues ..................................... $ 1,823 $ 3,627
Expenses ..................................... 50,354 38,867
-------- --------
Loss before income tax benefit ............... (48,531) (35,240)
Income tax benefit ........................... (22,234) (16,354)
-------- --------
Net loss ..................................... $(26,297) $(18,886)
======== ========
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-3 No. 33-11474) of Lehman CMO Inc. of our report dated January 10, 1996, with
respect to the financial statements of Lehman CMO Inc. included in this Annual
Report (Form 10-K) for the year ended November 30, 1995.
ERNST & YOUNG LLP
New York, New York
February 23, 1996
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This schedule contains summary financial information extracted from the
Statement of Financial Condition at November 30, 1995 and the Statement of
Operations for the twelve months ended November 30, 1995 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> NOV-30-1995
<CASH> 14,901
<RECEIVABLES> 91,389
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 0
<PP&E> 0
<TOTAL-ASSETS> 106,290
<SHORT-TERM> 0
<PAYABLES> 40,615
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 0
<COMMON> 100
0
0
<OTHER-SE> 65,009
<TOTAL-LIABILITY-AND-EQUITY> 106,290
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 306
<COMMISSIONS> 0
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 0
<COMPENSATION> 20,000
<INCOME-PRETAX> (47,845)
<INCOME-PRE-EXTRAORDINARY> (25,812)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (25,812)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
