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, 1996
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
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)
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, 1996.
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.
<PAGE>
LEHMAN CMO INC.
FORM 10-Q
FOR THE QUARTER ENDED AUGUST 31, 1996
INDEX
Part I. FINANCIAL INFORMATION Page Number
Item 1. Financial Statements - (unaudited)
Statement of Operations -
Three and Nine Months Ended August 31, 1996
and 1995 ..................................................... 3
Statement of Financial Condition -
August 31, 1996 and November 30, 1995 ...................... 5
Statement of Cash Flows -
Nine Months Ended August 31, 1996
and 1995 .................................................. 6
Notes to Financial Statements................................. 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............ 10
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K .............................. 11
Signatures ............................................................... 12
<PAGE>
LEHMAN CMO INC.
STATEMENT of OPERATIONS
(Unaudited)
Three months ended
----------------------------------------------
August 31, August 31,
1996 1995
-------------------- ------------------
Revenues
Interest $ 79 $ 75
-------------------- ------------------
Expenses
Compensation 1,250 5,000
General and administrative 5,026 11,513
-------------------- ------------------
6,276 16,513
-------------------- ------------------
Loss before income tax benefit (6,197) (16,438)
Income tax benefit (2,854) (7,570)
-------------------- ------------------
Net loss $(3,343) $(8,868)
==================== ==================
See notes to financial statements.
<PAGE>
LEHMAN CMO INC.
STATEMENT of OPERATIONS
(Unaudited)
Nine months ended
----------------------------------------------
August 31, August 31,
1996 1995
-------------------- ------------------
Revenues
Interest $ 235 $ 203
-------------------- ------------------
Expenses
Compensation 4,250 15,000
General and administrative 16,514 23,097
-------------------- ------------------
20,764 38,097
-------------------- ------------------
Loss before income tax benefit (20,529) (37,894)
Income tax benefit (9,454) (17,450)
-------------------- ------------------
Net loss $(11,075) $(20,444)
==================== ==================
See notes to financial statements.
<PAGE>
LEHMAN CMO INC.
STATEMENT of FINANCIAL CONDITION
(Unaudited)
ASSETS
August 31, November 30,
1996 1995
-------------------- -------------
Cash $ 15,137 $ 14,901
Income taxes receivable from affiliate 100,843 91,389
-------------------- -------------
$115,980 $106,290
==================== =============
LIABILITIES and STOCKHOLDER'S EQUITY
Liabilities
Payables to affiliates $ 50,181 $ 40,615
Other liabilities and accrued expenses 1,013 566
-------------------- ---------------
51,194 41,181
-------------------- ---------------
Stockholder's equity
Common stock, $1 par value; 100 shares
authorized, issued and outstanding 100 100
Additional paid-in capital 55,656 44,904
Retained earnings 9,030 20,105
-------------------- ---------------
Total stockholder's equity 64,786 65,109
-------------------- ----------
$115,980 $106,290
==================== ==========
See notes to financial statements.
<PAGE>
LEHMAN CMO INC.
STATEMENT of CASH FLOWS
(Unaudited)
Nine months ended
-----------------------------------
August 31, August 31,
1996 1995
-------------------- -------------
Cash flows from operating activities
Net loss $(11,075) $(20,444)
Net change in:
Income taxes receivable from affiliate (9,454) (17,450)
Payables to affiliates 9,566 11,841
Other liabilities and accrued expenses 447 29
-------------------- -------------
Net cash used in operating activities (10,516) (26,024)
-------------------- -------------
Cash flows from financing activities
Capital contributions by parent 10,752 26,253
-------------------- -------------
Cash provided by financing activities 10,752 26,253
-------------------- -------------
Net change in cash 236 229
Cash, beginning of the period 14,901 14,595
-------------------- -------------
Cash, end of the period $15,137 $ 14,824
==================== ============
See notes to financial statements.
<PAGE>
LEHMAN CMO INC.
NOTES to FINANCIAL STATEMENTS
----------
1. Organization:
Lehman CMO Inc. (the "Company") is a limited 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"), a wholly owned
subsidiary of Lehman Brothers Holdings Inc. ("Holdings"). The Company's
financial statements have been prepared in accordance with the rules
and regulations of the Securities and Exchange Commission with respect
to the Form 10-Q and reflect all normal recurring adjustments which
are, in the opinion of management, necessary for a fair presentation of
the results for the interim periods presented. The Statement of
Financial Condition at November 30, 1995 was derived from the audited
financial statements. It is recommended that these financial statements
be read in conjunction with the audited financial statements included
in the Company's Annual Report on Form 10-K for the twelve months ended
November 30, 1995.
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, 1996. As of August 31, 1996, 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 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 Statement of
Financial Condition.
During the nine months ended August 31, 1996, LCPI made capital
contributions to the Company of $10,752.
<PAGE>
LEHMAN CMO INC.
NOTES to FINANCIAL STATEMENTS
----------
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)
provision on a separate return basis in accordance with a tax
allocation agreement between Holdings and its subsidiaries. The
(benefit) provision 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.
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, 1996
and 1995 are included in general and administrative expenses in the
accompanying Statement 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 August 31, 1996, the Company had
no material individual counterparty concentration of credit risk, or
any financial instruments with off-balance-sheet risk.
<PAGE>
LEHMAN CMO INC.
NOTES to FINANCIAL STATEMENTS
----------
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
Statement of Financial Condition.
<PAGE>
LEHMAN CMO INC.
NOTES to FINANCIAL STATEMENTS
----------
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, 1996 and August 31, 1995.
During the nine months ended August 31, 1996 and 1995, the Company
had no issuances of securities. As such, no related
income was recorded.
Interest income increased from $203 and $75 during the nine months
and quarter ended August 31, 1995 to $235 and $79 during the nine
months and quarter ended August 31, 1996. Interest income reflects
interest earned on interest bearing deposits during the period.
General and administrative expenses includes management fees of
$15,000 for the nine months ended August 31, 1996 and 1995.
<PAGE>
LEHMAN CMO INC.
----------
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
The following exhibits and reports on Form 8-K are filed as part of this
Quarterly Report, or where indicated, were heretofore filed and are hereby
incorporated by reference:
(a) Exhibits:
27. Financial Data Schedule
(b) Reports on Form 8-K:
None.
<PAGE>
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 11, 1996 /S/ Neal Leonard
Neal Leonard
President
Date: October 11, 1996 /S/ Dave Goldfarb
Dave Goldfarb
Controller
<PAGE>
Exhibit 27
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
LEHMAN CMO INC.
This schedule contains summary financial information extracted from the
Company's Statement of Financial Condition at August 31, 1996 (Unaudited) and
the Statement of Operations for the nine months ended August 31, 1996
(Unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000742454
<NAME> Lehman CMO Inc.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> AUG-31-1996
<CASH> 15,137
<RECEIVABLES> 100,843
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 0
<PP&E> 0
<TOTAL-ASSETS> 115,980
<SHORT-TERM> 0
<PAYABLES> 50,181
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 0
<COMMON> 100
0
0
<OTHER-SE> 64,686
<TOTAL-LIABILITY-AND-EQUITY> 115,980
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 235
<COMMISSIONS> 0
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 0
<COMPENSATION> 4,250
<INCOME-PRETAX> (20,529)
<INCOME-PRE-EXTRAORDINARY> (11,075)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,075)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
