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 May 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 July 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 MAY 31, 1996
INDEX
Part I. FINANCIAL INFORMATION Page Number
Item 1. Financial Statements - (unaudited)
Statement of Operations -
Three and Six Months Ended May 31, 1996
and 1995 .................................. 3
Statement of Financial Condition -
May 31, 1996 and November 30, 1995 ........ 5
Statement of Cash Flows -
Six Months Ended May 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
----------------------------------
May 31, May 31,
1996 1995
--------------- ---------------
Revenues:
Interest $ 79 $ 77
--------------- ---------------
Expenses:
Compensation 1,250 5,000
General and administrative 5,004 (51,301)
--------------- ---------------
6,254 (46,301)
--------------- ---------------
(Loss) income before income tax
(benefit)
provision (6,175) 46,378
Income tax (benefit) provision (2,843) 21,358
--------------- ---------------
Net (loss) income $ (3,332) $ 25,020
=============== ===============
See notes to financial statements.
<PAGE>
LEHMAN CMO INC.
STATEMENT of OPERATIONS
(Unaudited)
Six months ended
----------------------------------
May 31, May 31,
1996 1995
--------------- ---------------
Revenues:
Interest $ 156 $ 128
--------------- ---------------
Expenses:
Compensation 3,000 10,000
General and administrative 11,488 11,584
--------------- ---------------
14,488 21,584
--------------- ---------------
Loss before income tax benefit (14,332) (21,456)
Income tax benefit (6,600) (9,880)
--------------- ---------------
Net loss $ (7,732) $ (11,576)
============== ===============
See notes to financial statements.
<PAGE>
LEHMAN CMO INC.
STATEMENT of FINANCIAL CONDITION
(Unaudited)
ASSETS
May 31, November 30,
1996 1995
-------------- --------------
Cash $ 15,058 $ 14,901
Income taxes receivable from affiliate 97,989 91,389
-------------- --------------
$ 113,047 $ 106,290
============== ==============
LIABILITIES and STOCKHOLDER'S EQUITY
Liabilities:
Payables to affiliates $ 43,906 $ 40,615
Other liabilities and accrued expenses 1,012 566
-------------- --------------
Total liabilities 44,918 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 12,373 20,105
-------------- --------------
Total stockholder's equity 68,129 65,109
-------------- --------------
$113,047 $ 106,290
============== ==============
See notes to financial statements.
<PAGE>
LEHMAN CMO INC.
STATEMENT of CASH FLOWS
(Unaudited)
Six months ended
---------------------------------
May 31, May 31,
1996 1995
-------------- --------------
Cash flows from operating activities
Net loss $ (7,732) $ (11,576)
Net change in:
Income taxes receivable from affiliate (6,600) (9,880)
Payables to affiliates 3,291 4,077
Other liabilities and accrued expenses 446 28
-------------- --------------
Net cash used in operating activities (10,595) (17,351)
-------------- --------------
Cash flows from financing activities
Capital contributions by parent 10,752 17,502
-------------- --------------
Cash provided by financing activities 10,752 17,502
-------------- --------------
Net change in cash 157 151
Cash, beginning of the period 14,901 14,595
-------------- --------------
Cash, end of the period $ 15,058 $ 14,746
============== ==============
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 six months ended
May 31, 1996. As of May 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 six months ended May 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 $10,000 for the six months ended May 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. General and
administrative expenses for the quarter ended May 31, 1995 include a
reimbursement of $57,607 of intercompany expenses previously charged to
the Company.
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 May 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 six months ended May 31,
1996 and 1995.
During the six months ended May 31, 1996 and 1995, the Company had no
issuances of securities. As such, no related income was recorded.
Interest income increased from $128 and $77 during the six months and
quarter ended May 31, 1995 to $156 and $79 during the six months and
quarter ended May 31, 1996. Interest income reflects interest earned on
interest bearing deposits during the period.
General and administrative expenses includes management fees of $10,000
for the six months ended May 31, 1996 and 1995. General and
administrative expenses for the quarter ended May 31, 1995 include a
reimbursement of $57,607 of intercompany expenses previously charged to
the Company.
<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: July 10, 1996 /S/ Neal Leonard
Neal Leonard
President
Date: July 10, 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 May 31, 1996 (Unaudited) and the
Statement of Operations for the six months ended May 31, 1996 (Unaudited) and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1996
<PERIOD-END> MAY-31-1996
<CASH> 15,058
<RECEIVABLES> 97,989
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 0
<PP&E> 0
<TOTAL-ASSETS> 113,047
<SHORT-TERM> 0
<PAYABLES> 43,906
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 0
<COMMON> 100
0
0
<OTHER-SE> 68,029
<TOTAL-LIABILITY-AND-EQUITY> 113,047
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 156
<COMMISSIONS> 0
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 0
<COMPENSATION> 3,000
<INCOME-PRETAX> (14,332)
<INCOME-PRE-EXTRAORDINARY> (7,732)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,732)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
