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 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
incorporation or organization) Identification No.)
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 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 ABS CORPORATION AND SUBSIDIARY
Cover
Index Page
PART I FINANCIAL INFORMATION
Item 1 - Financial Statements 2 - 9
Item 2 - Management's Discussion and Analysis of
Financial Condition and Liquidity and
Capital Resources and Results of Operations 10 - 11
PART II OTHER INFORMATION
Item 1 - Legal Proceedings 12
Item 2 - Changes in Securities 12
Item 3 - Defaults Upon Senior Securities 12
Item 4 - Submission of Matters to a Vote of
Security Holders 12
Item 5 - Other Information 12
Item 6 - Exhibits and Reports on Form 8-K 12
SIGNATURES 13
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
LEHMAN ABS CORPORATION AND SUBSIDIARY
INDEX to CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Operations for the three months
ended February 29, 1996 and February 28, 1995 3
Consolidated Statement of Financial Condition as of
February 29, 1996 and November 30, 1995 4
Consolidated Statement of Cash Flows for the three months
ended February 29, 1996 and February 28, 1995 5
Notes to Consolidated Financial Statements 6 - 9
<PAGE>
<TABLE>
LEHMAN ABS CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENT of OPERATIONS
(Unaudited)
<CAPTION>
Three months ended
February 29, February 28,
1996 1995
<S> <C> <C> <C>
Revenues:
Trading .................................... $ 534,062 $1,131,541
Interest ................................... 376,047 537,511
---------- ----------
910,109 1,669,052
---------- ----------
Expenses:
Compensation ............................... 1,250 1,250
General and administrative ................. 232,403 421,967
---------- ----------
233,653 423,217
---------- ----------
Income before income tax provision ......... 676,456 1,245,835
Income tax provision ........................... 311,508 573,707
---------- ----------
Net income ..................................... $ 364,948 $ 672,128
========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
LEHMAN ABS CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENT of FINANCIAL CONDITION
ASSETS
<CAPTION>
February 29, November 30,
1996 1995
(Unaudited)
<S> <C> <C>
Cash ............................................... $ $ 99,245
Financial instruments owned, at fair value ......... 24,676,212 25,772,380
Receivables from brokers, dealers and
financial institutions .......................... 891,490 872,920
Due from others .................................... 105,811 105,077
Deferred registration costs, net of
accumulated amortization of $1,671,178
and $1,069,032 in 1996 and 1995, respectively ... 721,208 755,748
----------- -----------
$26,394,721 $27,605,370
=========== ===========
LIABILITIES and STOCKHOLDER'S EQUITY
Liabilities:
Financial instruments sold but not yet
purchased .................................... $ 192,706 $ 497,590
Issuance expenses payable ....................... 265,990 429,118
Payables to brokers, dealers and
financial institutions ....................... -- 29,800
Payables to affiliates .......................... 708,353 2,978,394
Other liabilities and accrued expenses .......... 1,211 --
----------- -----------
Total liabilities .............. 1,168,260 3,934,902
----------- -----------
Stockholder's equity:
Common stock, $0.25 par value;
1,000 shares authorized issued and outstanding 250 250
Additional paid-in capital ...................... 20,020,782 18,829,737
Retained earnings ............................... 5,205,429 4,840,481
----------- -----------
Total stockholder's equity ..... 25,226,461 23,670,468
----------- -----------
$26,394,721 $27,605,370
=========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
LEHMAN ABS CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENT of CASH FLOWS
(Unaudited)
<CAPTION>
Three months ended
February 29, 1996 February 28, 1995
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income ............................................................................. $ 364,948 $ 672,128
------------- -------------
Adjustments to reconcile net income to net cash used in operating activities:
Amortization .................................................................... 602,146 62,361
Effect of changes in operating assets and liabilities:
Financial instruments owned, at fair value ...................................... 1,096,168 47,390
Receivables from brokers, dealers and financial
institutions .................................................................. (18,570) (107,955)
Due from others ................................................................. (734) (725)
Deferred registration costs ..................................................... (567,606) (25,600)
Financial instruments sold but not yet purchased ................................ (304,884) (1,029,600)
Issuance expenses payable ....................................................... (163,128) 135,585
Payables to brokers, dealers and financial
institutions .................................................................. (29,800) (989,000)
Payables to affiliates .......................................................... (2,270,041) 291,788
Income taxes payable to affiliate ............................................... -- 771,793
Other liabilities and accrued expenses .......................................... 1,211 (18,414)
------------- -------------
Total adjustments ............................................................ (1,655,238) (862,377)
------------- -------------
Net cash used in operating activities ........................................ (1,290,290) (190,249)
------------- -------------
Cash flows from financing activities:
Capital contributions by parent ........................................................ 7,307,207 219,687,556
Capital distributions to parent ........................................................ (6,116,162) (219,541,165)
------------- -------------
Net cash provided by financing activities .................................... 1,191,045 146,391
------------- -------------
Net decrease in cash ..................................................................... (99,245) (43,858)
Cash at the beginning of the period ...................................................... 99,245 43,858
------------- -------------
Cash at the end of the period ................................................ $ $ --
-------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
LEHMAN ABS CORPORATION and SUBSIDIARY
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 limited
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 its income from trading and/or interest earned on
financial instruments owned and financial instruments sold but not yet
purchased. Trading income includes the profit (loss) from the issuance
and sale of securities and valuing financial instruments owned and
financial instruments sold but not yet purchased 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 collateralized by Receivables in the
principal amount not to exceed $5.08 billion. The Company has also
filed registration statements on Form S-3 for the issuance of $0.5
billion principal amount of Securities collateralized by Bonds. During
the three months ended February 29, 1996, the Company issued Short-Term
Card Account Trust 1995-1 totaling approximately $1.6 billion principal
amount, Lehman Home Equity Loan Trust 1996-1 totaling approximately
$146.2 million principal amount and Corporate Bond-Backed Certificates,
Series 1996-Wal-Mart totaling $20.0 million principal amount. As of
February 29, 1996, approximately $1.3 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 the 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 Statement of Financial
Condition.
During the three months ended February 29, 1996 LCPI contributed $7.3
million in capital to the Company, and the Company made capital
distributions to LCPI of $6.1 million.
<PAGE>
LEHMAN ABS CORPORATION and SUBSIDIARY
NOTES to CONSOLIDATED FINANCIAL STATEMENTS
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 Statement 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, instruments representing the right to receive certain
future interest payments on the underlying 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 Statement 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
securities.
All securities 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.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Management believes that the
estimates utilized in preparing its financial statements are reasonable
and prudent. Actual results could differ from these estimates.
3. Related Party Transactions:
All receivables used to collateralize the Securities are purchased from
and recorded at the 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.
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 $232,153 for the three months ended February 29,
1996, and $421,946 for the three months ended February 28, 1995 are the
principal component of general and administrative expenses in the
accompanying Consolidated Statement 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 $311,508 were paid by the Company to LCPI in accordance
with the terms of the Company's tax allocation agreement during the
three months ended February 29, 1996.
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 February 29, 1996 and November 30, 1995 the Company had interest
bearing deposits of $105,811 and $105,077, respectively, 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 $.2 million and
is reported as financial instruments sold but not yet purchased in the
Consolidated Statement of Financial Condition at February 29, 1996. 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.
<PAGE>
LEHMAN ABS CORPORATION and SUBSIDIARY
NOTES to CONSOLIDATED FINANCIAL STATEMENTS
5. Financial Instruments with Off-Balance Sheet Risk and Concentration of
Credit Risk (continued):
The fair value of the interest rate caps purchased is approximately
$1.9 million and is included in financial instruments owned in the
Consolidated Statement of Financial Condition at February 29, 1996. At
February 29, 1996, 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 Statement of Financial Condition.
Financial instruments owned principally represent subordinated interest
in pools of receivables and are carried at fair value, with the
remaining instruments representing the right to receive certain future
interest payments on the underlying receivables. These financial
instruments are generally non-rated or rated as non-investment grade by
recognized rating agencies. Changes in interest rates could potentially
have an adverse impact on the future cash flows for financial
instruments owned. In addition, for certain securities, defaults on
receivables underlying these instruments could have a greater than
proportional impact on their fair value since the payments of principal
and interest are subordinate to other securities issued in the same
series. These risks, among other risks, are incorporated in the
determination of fair value of financial instruments owned.
<PAGE>
LEHMAN ABS CORPORATION and SUBSIDIARY
NOTES to CONSOLIDATED FINANCIAL STATEMENTS
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 three months ended February 29, 1996 and February 28, 1995.
Financial Condition and Liquidity and Capital Resources
The Company's assets decreased from $27.6 million at November 30, 1995
to $26.4 million at February 29, 1996. Financial instruments owned at
February 29, 1996 aggregated $24.7 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 $23.7 million at November 30, 1995
to $25.2 million at February 29, 1996 as a result of net capital
contributions from LCPI and net income for the quarter. Capital
contributions from LCPI are made to fund securities retained by the
Company from new issuances and to fund its operating activities. The
Company continually monitors its capital position and makes capital
distributions to LCPI as excess funds are realized from securities
related transactions.
Results of Operations
During the three months ended February 29, 1996, the Company issued
Short-Term Card Account Trust 1995-1 totaling approximately $1.6
billion principal amount, Lehman Home Equity Loan Trust 1996-1 totaling
approximately $146.2 million principal amount and Corporate Bond-Backed
Certificates, Series 1996-Wal-Mart totaling $20.0 million principal
amount. During the three months ended February 28, 1995, the Company
issued Lehman Home Improvement Loan Trust 1995-2 totaling approximately
$66.8 million principal amount and issued Lehman Home Equity Loan Trust
1995-1 totaling approximately $128.1 million principal amount.
Trading revenues totaled $534,062 and $1,131,541 for the three months
ended February 29, 1996 and February 28, 1995, respectively. Trading
revenues are attributable to the issuance and sale of securities and
valuing financial instruments owned and financial instruments sold but
not yet purchased at market or fair value.
<PAGE>
LEHMAN ABS CORPORATION and SUBSIDIARY
NOTES to CONSOLIDATED FINANCIAL STATEMENTS
Item 2 Management's Discussion and Analysis of Financial Condition and
Liquidity and Capital Resources and Results of Operations (continued)
Interest income decreased from $537,511 for the three months ended
February 28, 1995 to $376,047 for the three months ended February 29,
1996. Interest income reflects interest earned on interest bearing
financial instruments owned and interest bearing depostis held with
trustees during the period. Management fees decreased from $421,946 for
the three months ended February 28, 1995 to $232,153 for the three
months ended February 29, 1996, reflecting the decreased trading and
operating activities of the Company. Management fees are the principal
component of general and administrative expenses in the accompanying
Consolidated Statement of Operations.
<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 ABS CORPORATION
(Registrant)
Date: April 12, 1996 /S/ Theodore P. Janulis
Theodore P. Janulis
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 Consolidated Statement of Financial Condition at February 29, 1996
(Unaudited) and the Consolidated 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> 0
<RECEIVABLES> 997,301
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 24,676,212
<PP&E> 0
<TOTAL-ASSETS> 26,394,721
<SHORT-TERM> 0
<PAYABLES> 974,343
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 192,706
<LONG-TERM> 0
<COMMON> 250
0
0
<OTHER-SE> 25,226,211
<TOTAL-LIABILITY-AND-EQUITY> 26,394,721
<TRADING-REVENUE> 534,062
<INTEREST-DIVIDENDS> 376,047
<COMMISSIONS> 0
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 0
<COMPENSATION> 1,250
<INCOME-PRETAX> 676,456
<INCOME-PRE-EXTRAORDINARY> 364,948
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 364,948
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
