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 February 29, 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 March 31, 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>
INDEX
LEHMAN CMO INC.
Cover
Index Page
PART I FINANCIAL INFORMATION
Item 1 - Financial Statements 2 - 7
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8
PART II OTHER INFORMATION
Item 1 - Legal Proceedings 9
Item 2 - Changes in Securities 9
Item 3 - Defaults Upon Senior Securities 9
Item 4 - Submission of Matters to a Vote of
Security Holders 9
Item 5 - Other Information 9
Item 6 - Exhibits and Reports on Form 8-K 9
SIGNATURES 10
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
LEHMAN CMO INC.
INDEX to FINANCIAL STATEMENTS
Statement of Operations for the three months
ended February 29, 1996 and February 28, 1995 3
Statement of Financial Condition as of
February 29, 1996 and November 30, 1995 4
Statement of Cash Flows for the three months
ended February 29, 1996 and February 28, 1995 5
Notes to Financial Statements 6 - 7
<PAGE>
<TABLE>
LEHMAN CMO INC.
STATEMENT of OPERATIONS
(Unaudited)
<CAPTION>
Three months ended
February 29, February 28,
1996 1995
<S> <C> <C> <C>
Revenues:
Interest ................................. $ 77 $ 51
-------- --------
Expenses:
Compensation ............................. 1,750 5,000
General and administrative ............... 6,484 62,885
-------- --------
8,234 67,885
-------- --------
Loss before income tax benefit ............... (8,157) (67,834)
Income tax benefit ........................... (3,757) (31,238)
-------- --------
Net loss ..................................... $ (4,400) $(36,596)
======== ========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
LEHMAN CMO INC.
STATEMENT of FINANCIAL CONDITION
ASSETS
<CAPTION>
February 29, November 30,
1996 1995
--------------------
(Unaudited)
<S> <C> <C>
Cash ................................................. $ 14,979 $ 14,901
Income taxes receivable from affiliate ............... 95,146 91,389
------- --------
$110,125 $106,290
======== ========
LIABILITIES and STOCKHOLDER'S EQUITY
Liabilities:
Payables to affiliates .............................. $ 42,656 $ 40,615
Other liabilities and accrued expenses ............... 1,009 566
-------- --------
Total liabilities .................... 43,665 41,181
-------- --------
Stockholder's equity:
Common stock, $1 par value; 100 shares
authorized, issued and outstanding ................ 100 100
Additional paid-in capital ............................ 50,655 44,904
Retained earnings ..................................... 15,705 20,105
-------- --------
Total stockholder's equity ........... 66,460 65,109
-------- --------
$110,125 $106,290
======== ========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
LEHMAN CMO INC.
STATEMENT of CASH FLOWS
(Unaudited)
<CAPTION>
Three months ended
February 29, February 28,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net loss ........................................... $ (4,400) $(36,596)
-------- --------
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 ...... (3,757) (31,238)
Payables to affiliates ...................... 2,041 59,133
Other liabilities and accrued expenses ...... 443 24
-------- --------
Total adjustments ........................ (1,273) 27,919
-------- --------
Net cash used in operating activities .... (5,673) (8,677)
-------- --------
Cash flows from financing activities:
Capital contributions by parent .................... 5,751 8,751
-------- --------
Cash provided by financing activities ...... 5,751 8,751
-------- --------
Net increase in cash ................................. 78 74
Cash at the beginning of the period .................. 14,901 14,595
-------- --------
Cash at the end of the period ............ $ 14,979 $ 14,669
======== ========
</TABLE>
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"),
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 three months
ended February 29, 1996. As of February 29, 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 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 Statement of
Financial Condition.
During the three months ended February 29, 1996, LCPI made capital
contributions to the Company of $5,751.
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.
<PAGE>
LEHMAN CMO INC.
NOTES to FINANCIAL STATEMENTS
----------
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 $5,000 for the three months ended February 29, 1996
and February 28, 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 February 29, 1996, 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
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 three months ended February
29, 1996 and February 28 1995.
During the three months ended February 29, 1996 and February 28, 1995,
the Company had no issuances of securities. As such, no related income
was recorded.
Interest income increased from $51 during the three months ended
February 28, 1995 to $77 during the three months ended February 29,
1996. Interest income reflects interest earned on interest bearing
deposits during the period.
General and administrative expenses includes management fees of $5,000
for the three months ended February 29, 1996 and February 28, 1995.
<PAGE>
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
<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: April 12, 1996 /S/ Neal Leonard
Neal Leonard
President
Date: April 12, 1996 /S/ David Goldfarb
David Goldfarb
Controller
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Statement of Financial Condition at February 29, 1996 (Unaudited) and
the Statement of Operations for the three months ended February 29, 1996
(Unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> FEB-29-1996
<CASH> 14,979
<RECEIVABLES> 95,146
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 0
<PP&E> 0
<TOTAL-ASSETS> 110,125
<SHORT-TERM> 0
<PAYABLES> 42,656
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 0
<COMMON> 100
0
0
<OTHER-SE> 66,360
<TOTAL-LIABILITY-AND-EQUITY> 110,125
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 77
<COMMISSIONS> 0
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 0
<COMPENSATION> 1,750
<INCOME-PRETAX> (8,157)
<INCOME-PRE-EXTRAORDINARY> (4,400)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,400)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
