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 28, 1997
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, 1997.
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 FEBRUARY 28, 1997
INDEX
Part I. FINANCIAL INFORMATION Page Number
Item 1. Financial Statements - (unaudited)
Statement of Operations -
Three Months Ended February 28, 1997
and February 29, 1996............................ 3
Statement of Financial Condition -
February 28, 1997 and November 30, 1996 ......... 4
Statement of Cash Flows -
Three Months Ended February 28, 1997
and February 29, 1996............................ 5
Notes to Financial Statements...................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........... 9
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ....................... 10
Signatures .......................................................... 11
Exhibit
<PAGE>
LEHMAN CMO INC.
STATEMENT of OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
------------------------------------------------
February 28 1997 February 29 1996
------------------- ---------------------
<S> <C> <C>
Revenues:
Interest $ 77
-
------------------- ---------------------
Expenses:
Compensation 1,250 1,750
General and administrative 5,246 6,484
------------------- ---------------------
6,496 8,234
------------------- ---------------------
Loss before income tax benefit (6,496) (8,157)
Income tax benefit (2,991) (3,757)
------------------- ---------------------
Net loss $ (3,505) $ (4,400)
=================== =====================
</TABLE>
See notes to financial statements.
<PAGE>
LEHMAN CMO INC.
STATEMENT of FINANCIAL CONDITION
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
February 28 November 30
1997 1996
-------------------- --------------
<S> <C> <C>
Cash $ 14,967 15,163
Income taxes receivable from
affiliate 106,689 103,698
-------------------- -----------
$ 121,656 $ 118,861
==================== ===========
</TABLE>
LIABILITIES and STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
Liabilities:
Payables to affiliates $ 61,481 $ 56,432
Other liabilities and accrued $ 2,239 988
expenses
------------------- ---------
Total liabilities 63,720 57,420
-------------------- -----------
Stockholder's equity:
Common stock, $1 par value; 100 shares
authorized, issued and outstanding 100 100
Additional paid-in capital 55,656 55,656
Retained earnings 2,180 5,685
-------------------- -----------
Total stockholder's equity 57,936 61,441
-------------------- -----------
$ 121,656 $ 118,861
==================== ===========
</TABLE>
See notes to financial statements.
<PAGE>
LEHMAN CMO INC.
STATEMENT of CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
------------------------------
February 28 February 29
1997 1996
---------------- -------------
Cash flows from operating activities
<S> <C> <C>
Net loss $(3,505) $(4,400)
Net change in:
Income taxes receivable from affiliate (2,991) (3,757)
Payables to affiliates 5,049 2,041
Other liabilities and accrued expenses 1,251 443
---------------- -------------
Net cash used in operating activities (196) (5,673)
---------------- -------------
Cash flows from financing activities
Capital contributions by parent - 5,751
---------------- -------------
Cash provided by financing activities - 5,751
---------------- -------------
Net change in cash (196) 78
Cash, beginning of the period 15,163 14,901
---------------- -------------
Cash, end of the period $14,967 $14,979
================ =============
</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 common 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, 1996 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, 1996.
The Company derives its income from trading and/or interest earned on
securities owned and interest bearing deposits. Trading income includes
the profit (loss) from the issuance and sale of securities and valuing
securities owned, if any, at fair 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 28, 1997. As of February 28, 1997, 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 28, 1997, LCPI made no capital
contributions to the Company.
<PAGE>
LEHMAN CMO INC.
NOTES to FINANCIAL STATEMENTS
----------
2. Summary of Significant Accounting Policies:
Income Taxes:
The Company's loss 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:
Mortgage collateral purchased from affiliates and the resulting Bonds
sold to affiliates are all recorded at fair 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 28, 1997
and February 29, 1996 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 28, 1997, 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 the
Company to report the fair value of 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF ANCIAL
CONDITION AND RESULTS OF OPERATIONS
During the three months ended February 28, 1997 and February 29, 1996,
the Company had no issuances of securities. As such, no related income
was recorded.
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 28, 1997 and February 29, 1996.
<PAGE>
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: April 11, 1997 /S/ Neal Leonard
Neal Leonard
President
Date: April 11, 1997 /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 28, 1997 (Unaudited) and
the Statement of Operations for the three months ended February 28, 1997
(Unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000742454
<NAME> Lehman CMO Inc.
<MULTIPLIER> 1,000,000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 3-MOS
<EXCHANGE-RATE> 1
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> FEB-28-1997
<CASH> 14,967
<RECEIVABLES> 106,689
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 0
<PP&E> 0
<TOTAL-ASSETS> 121,656
<SHORT-TERM> 0
<PAYABLES> 61,481
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 0
<COMMON> 100
0
0
<OTHER-SE> 57,836
<TOTAL-LIABILITY-AND-EQUITY> 121,656
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 0
<COMMISSIONS> 0
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 0
<COMPENSATION> 1,250
<INCOME-PRETAX> (6,496)
<INCOME-PRE-EXTRAORDINARY> (3,505)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,505)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
