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, 1995
or
[ ] 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: 0-16527
LEHMAN ABS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3447441
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
200 Vesey Street, 20th Floor, New York, New York 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 1,000 shares of common stock outstanding (all
owned indirectly by Lehman Brothers Holdings Inc.) as of
October 1, 1995.
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.
INDEX
LEHMAN ABS CORPORATION AND SUBSIDIARY
Cover
Index Page
PART I FINANCIAL INFORMATION
Item 1 - Financial Statements 2 - 10
Item 2 - Management's Discussion and Analysis
of Financial Condition and Liquidity
and Capital Resources and Results of
Operations 11 - 12
PART II OTHER INFORMATION
Item 1 - Legal Proceedings 13
Item 2 - Changes in Securities 13
Item 3 - Defaults Upon Senior Securities 13
Item 4 - Submission of Matters to a Vote of
Security Holders 13
Item 5 - Other Information 13
Item 6 - Exhibits and Reports on Form 8-K 13
SIGNATURES 14
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
LEHMAN ABS CORPORATION AND SUBSIDIARY
INDEX to CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Operations for the three months
ended August 31, 1995 and 1994 3
Consolidated Statements of Operations for the nine months
ended August 31, 1995 and eight months ended
August 31, 1994 4
Consolidated Statements of Financial Condition as of
August 31, 1995 and November 30, 1994 5
Consolidated Statements of Cash Flows for the nine months
ended August 31, 1995 and eight months ended
August 31, 1994 6
Notes to Consolidated Financial Statements 7 - 10
<TABLE>
LEHMAN ABS CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENTS of OPERATIONS
(Unaudited)
<CAPTION>
Three months ended
August 31, August 31,
1995 1994
<S> <C> <C>
Revenues:
Trading 91,758 351,233
Interest 356,077 1,252,659
447,835 1,603,892
Expenses:
Compensation 1,250 1,250
General and administrative 116,649 410,508
117,899 411,758
Income before income tax
provision 329,936 1,192,134
Income tax provision 151,936 548,977
Net income $ 178,000 643,157
</TABLE>
See notes to consolidated financial statements
<TABLE>
LEHMAN ABS CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENTS of OPERATIONS
(Unaudited)
<CAPTION>
Nine Eight
Months Months
ended ended
August 31, August 31,
1995 1994
<S> <C> <C>
Revenues:
Trading $ 1,127,472 431,710
Interest 1,354,942 1,839,859
2,482,414 2,271,569
Expenses:
Compensation 3,750 3,333
General and administrative 634,672 585,378
638,422 588,711
Income before income tax provision 1,843,992 1,682,858
Income tax provision 849,158 774,957
Net income $ 994,834 907,901
</TABLE>
See notes to consolidated financial statements
<TABLE>
LEHMAN ABS CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENTS of FINANCIAL CONDITION
ASSETS
<CAPTION>
August 31, November 30,
1995 1994
(Unaudited)
<S> <C> <C> <C>
Cash $ 285,278 43,858
Financial instruments owned, at fair value 23,623,090 27,429,761
Receivables from brokers, dealers
and financial institutions 1,173,184 183,397
Receivables from affiliate 551,247 -
Due from others 104,344 102,136
Deferred registration costs, net
of accumulated amortization of
$900,975 and $758,625 in 1995 and 1994,
respectively 279,467 292,769
$ 26,016,610 28,051,921
LIABILITIES and STOCKHOLDER'S EQUITY
Liabilities:
Financial instruments sold but
not yet purchased 793,916 2,932,907
Issuance expenses payable 632,156 746,399
Payables to brokers, dealers
and financial institutions 309,638 1,801,965
Payables to affiliates 459,443 438,547
Income taxes payable to affiliate - 985,195
Other liabilities and accrued expenses - 19,385
Total liabilities 2,195,153 6,924,398
Stockholder's equity:
Common stock, $0.25 par value;
1,000 shares authorized
issued and outstanding 250 250
Additional paid-in capital 21,681,868 19,982,768
Retained earnings 2,139,339 1,144,505
Total stockholder's equity 23,821,457 21,127,523
$ 26,016,610 28,051,921
</TABLE>
See notes to consolidated financial statements
<TABLE>
LEHMAN ABS CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENTS of CASH FLOWS
(Unaudited)
<CAPTION>
Nine Eight
Months Months
ended ended
August 31, August 31,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income $ 994,834 $ 907,901
Adjustments to reconcile net income to net
cash used in operating activities:
Amortization 142,350 535,762
Effect of changes in operating assets
and liabilities:
Financial instruments owned , at fair
value 3,806,671 (7,337,818)
Receivables from brokers, dealers and
financial institutions (989,787) (87,744)
Receivables from affiliate (551,247) (1,417,817)
Due from others (2,208) (20,403,074)
Deferred registration costs (129,048) (344,828)
Financial instruments sold but not yet
purchased (2,138,991) 3,421,209
Issuance expenses payable (114,243) 388,845
Payables to brokers, dealers and financial
institutions (1,492,327) 2,440,793
Payables to affiliates 20,896 522,772
Income taxes payable to affiliate (985,195) 847,774
Other liabilities and accrued expenses (19,385) 80,344
Total adjustments (2,452,514) (21,353,782)
Net cash used in operating activities (1,457,680) (20,445,881)
Cash flows from financing activities:
Capital contributions by parent 240,819,229 37,478,064
Capital distributions to parent (239,120,129) (17,050,154)
Cash provided by financing activities 1,699,100 20,427,910
Net increase (decrease) in cash 241,420 (17,971)
Cash at the beginning of the period 43,858 17,971
Cash at the end of the period 285,278 0
</TABLE>
See notes to consolidated financial statements
1. Organization:
The consolidated financial statements include the
accounts of Lehman ABS Corporation and Lehman Asset
Backed Caps Inc., its wholly owned subsidiary (together,
the "Company"). Lehman ABS Corporation was incorporated
in the State of Delaware on January 29, 1988 as a special
purpose finance corporation organized for the purpose of
issuing and selling securities (the "Securities")
primarily collateralized by purchased receivables arising
from loans or financings (the "Receivables"). 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").
Lehman Asset Backed Caps Inc. was incorporated in the
State of Delaware on June 15, 1994 for the purpose of
entering into interest rate cap agreements and related
support agreements in connection with securitization
transactions.
The Company derives 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 at market or fair value.
The Company has filed registration statements on Form S-3
with the Securities and Exchange Commission which permit
the Company to issue, from time to time, securities in
the principal amount not to exceed $3.83 billion. During
the nine months ended August 31, 1995, the Company issued
Lehman Home Equity Loan Trust 1995-1 totaling
approximately $128.1 million principal amount, Lehman
Home Improvement Loan Trust 1995-2 totaling approximately
$66.8 million principal amount, Lehman FHA Title I Loan
Trust 1995-3 totaling approximately $85.0 million
principal amount, Lehman FHA Title I Loan Trust 1995-4
totaling approximately $110 million principal amount,
and Lehman Home Equity Loan Trust 1995-5 totaling
approximately $55 million principal amount. As of August
31, 1995, approximately $1.1 billion was available for
issuance under the registration statements referred to
above.
The Company has established trusts to issue securities
collateralized by receivables. The Company has
surrendered to trusts all future economic interests in
the Securities issued to date together with the related
collateral. According to the terms of the trust
agreements, the bondholders can look only to the related
collateral for repayment of both principal and interest.
In accordance with generally accepted accounting
principles, the Securities and related collateral have
been removed from the accompanying Consolidated
Statements of Financial Condition.
During the nine months ended August 31, 1995 LCPI
contributed $240.8 million in capital to the Company, and
the Company made capital distributions to LCPI of $239.1
million.
2. Summary of Significant Accounting Policies:
Deferred registration costs:
Deferred registration costs relate to filing fees and
other direct costs paid by the Company in connection with
filings for the registration of Securities which were or
are to be issued by the Company. These costs are
deferred in anticipation of future revenues upon the
issuance of securities from the respective shelf that has
been established. Amortization of the costs is based
upon the percentage of issued Securities to the
respective shelf from which the Securities are issued and
is included as a component of net trading revenue in the
accompanying Consolidated Statements of Operations.
Financial instruments owned and financial instruments
sold but not yet purchased:
Financial instruments owned and financial instruments
sold but not yet purchased principally represent
subordinated interests in pools of receivables and
interest rate cap agreements. Financial instruments
owned and financial instruments sold but not yet
purchased are valued at market or fair value, as
appropriate, with the related profit (loss) recorded in
the Consolidated Statements of Operations. Market value
is generally based on listed market prices. If listed
market prices are not available, fair value is determined
based on other relevant factors, including broker or
dealer price quotations, and valuation pricing models
which take into account time value and volatility factors
underlying the financial instruments.
All security transactions are recorded in the
accompanying financial statements on a trade date basis.
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 provision on a separate
return basis in accordance with the terms of a tax
allocation agreement between Holdings and its
subsidiaries. The 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 receivables used to collateralize the Securities are
purchased from and recorded at an affiliate's carrying
value, which for such 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 $634,672 for the nine months ended
August 31, 1995, and $578,730 for the eight months ended
August 31, 1994 are included in general and
administrative expenses in the accompanying Consolidated
Statements of Operations. The Agreement is renewable
each year unless expressly terminated or renegotiated by
the parties.
Compensation expense represents amounts allocated to the
Company by LCPI for compensation paid to a common
director of the Company.
Income taxes of $1,834,353 were paid by the Company to
LCPI in accordance with the terms of the Company's tax
allocation agreement during the nine months ended August
31, 1995.
The Company believes that amounts arising through related
party transactions, including the fees referred to above,
are reasonable and approximate the amounts that would
have been recorded if the Company operated as an
unaffiliated entity.
4. Due From Others:
At August 31, 1995 and November 30, 1994 the Company had
interest bearing deposits of $104,344 and $102,136 with
an independent trustee in accordance with the terms of a
securitization transaction.
5. Financial Instruments with Off-Balance Sheet Risk and
Concentration of Credit Risk:
The Company's activities are principally conducted with
financial institutions. In connection with the terms of
securitization transactions, the Company has sold
interest rate caps with a notional amount of $1.32
billion, maturing in the year 2000, to trusts. The fair
value of the interest rate caps sold is approximately
$0.8 million and is included in financial instruments
sold but not yet purchased in the Consolidated Statements
of Financial Condition at August 31, 1995. In addition,
the Company has purchased interest rate caps, from an
affiliate, with a notional amount of $1.32 billion,
maturing in the year 2000. The fair value of the
interest rate caps purchased is approximately $3.7
million and is included in financial instruments owned in
the Consolidated Statements of Financial Condition at
August 31, 1995. At August 31, 1995, the Company had no
other material individual counterparty concentration of
credit risk.
6. 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
Consolidated Statements of Financial Condition.
7. Change of Fiscal Year-End:
During 1994, the Company changed its 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. In
conjunction with the decision to change its year-end, the
Company is reporting its third quarter 1994 results on
the basis of its new fiscal year.
PART I - FINANCIAL INFORMATION, continued
Item 2 Management's Discussion and Analysis of Financial
Condition and Liquidity and Capital Resources and Results
of Operations
Set forth below is management's discussion and analysis
of financial condition and liquidity and capital
resources and results of operations for the nine months
and quarter ended August 31, 1995 and eight months and
quarter ended August 31, 1994.
Financial Condition and Liquidity and Capital Resources
The Company's assets aggregated $28.1 million at November
30, 1994 and $26.0 million at August 31, 1995. Financial
instruments owned at August 31, 1995 aggregated $23.6
million and represent the portion of issued securities
retained by the Company as well as the fair value of
interest rate cap agreements purchased from an affiliate.
These securities are carried at market or fair value, as
appropriate.
Stockholder's equity increased from $21.1 million at
November 30, 1994 to $23.8 million at August 31, 1995 as
a result of capital contributions from LCPI and net
income for the nine months ended August 31, 1995.
Capital contributions from LCPI are made to fund
securities retained by the Company from new issuances.
The Company continually monitors its capital position and
makes capital distributions to LCPI as excess funds are
realized from securities related transactions.
Operating Results
During the nine months ended August 31, 1995, the Company
issued Lehman Home Equity Loan Trust 1995-1 totaling
approximately $128.1 principal amount, Lehman Home
Improvement Loan Trust 1995-2 totaling approximately
$66.8 million principal amount, Lehman FHA Title I Loan
Trust 1995-3 totaling approximately $85.0 million
principal amount, Lehman FHA Title I Loan Trust 1995-4
totaling approximately $110 million principal amount, and
Lehman Home Equity Loan Trust 1995-5 totaling
approximately $55 million principal amount. During the
eight months ended August 31, 1994, the Company issued
Lehman Home Equity Loan Trust 1994-1 totaling
approximately $208.5 million principal amount, Lehman
Card Account Trust 1994-1 totaling approximately $1.1
billion principal amount, and Lehman Home Equity Loan
Trust 1994-2 totaling approximately $52.2 million
principal amount, and Lehman Card Account Trust 1994-2
totaling approximately $267.8 million principal amount.
In addition, the Company issued approximately $353
million principal amount of mortgage pass-through
certificates in private placements during 1994.
Trading gains totaled $1,127,472 for the nine months
ended August 31, 1995, principally attributable to the
issuance and sale of securities and valuing financial
instruments owned at market or fair value. Trading gains
totaled $91,758 for the three months ended August 31,
1995, principally attributable to valuing financial
instruments owned, including interest
PART I - FINANCIAL INFORMATION, continued
Item 2 Management's Discussion and Analysis of Financial
Condition and Liquidity and Capital Resources and Results
of Operations
rate cap agreements, at market or fair value. Trading
gains totaled $431,710 and $351,233 for the eight months
and quarter ended August 31, 1994, principally
attributable to the issuance and sale of securities.
Interest income decreased from $1,839,859 and $1,252,659
for the eight months and quarter ended August 31, 1994 to
$1,354,942 and $356,077 for the nine months and quarter
ended August 31, 1995, principally due to a decline in
interest bearing deposits with independent trustees as
well as a decline in financial instruments owned.
Interest income is derived from the portion of issued
securities retained by the Company and from interest
earned on receivables held by the Company prior to the
issuance and sale of the related securities. Management
fees increased from $578,730 for the eight months ended
August 31, 1994 to $634,672 for the nine months ended
August 31, 1995, reflecting the increased operating
activities of the Company for the nine months ended
August 31, 1995. Management fees decreased from $404,044
for the three months ended August 31, 1994 to $116,649
for the three months ended August 31, 1995, reflecting
the decreased operating activities of the Company for the
third quarter. Management fees are included in general
and administrative expenses in the accompanying
Consolidated Statements of Operations.
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
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 ABS CORPORATION
(Registrant)
Date: October 12, 1995 /S/ Theodore P. Janulis
Theodore P. Janulis
President
Date: October 12, 1995 /S/ David Goldfarb
David Goldfarb
Controller
