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, 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 October 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 ABS CORPORATION and SUBSIDIARY
FORM 10-Q
FOR THE QUARTER ENDED AUGUST 31, 1996
INDEX
Part I. FINANCIAL INFORMATION Page Number
Item 1. Financial Statements - (unaudited)
Consolidated Statement of Operations -
Three and Nine Months Ended August 31, 1996
and 1995 ...................................................... 3
Consolidated Statement of Financial Condition -
August 31, 1996 and November 30, 1995 .......................... 5
Consolidated Statement of Cash Flows -
Nine Months Ended August 31, 1996
and 1995 ...................................................... 6
Notes to Consolidated Financial Statements........................ 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............... 11
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ...............................13
Signatures ..............................................................14
<PAGE>
LEHMAN ABS CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENT of OPERATIONS
(Unaudited)
Three months ended
------------------------------------------
August 31, August 31,
1996 1995
-------------------- ---------------
Revenues
Trading $ 91,758
Interest $398,717 356,077
-------------------- ---------------
398,717 447,835
-------------------- ---------------
Expenses
Compensation 1,250 1,250
General and administrative 103,880 116,649
-------------------- ----------------
105,130 117,899
-------------------- ----------------
Income before taxes 293,587 329,936
Provision for income taxes 135,197 151,936
-------------------- ----------------
Net income $158,390 $178,000
==================== ================
See notes to consolidated financial statements.
<PAGE>
LEHMAN ABS CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENT of OPERATIONS
(Unaudited)
Nine Months ended
---------------------------------------------
August 31, August 31,
1996 1995
-------------------- ------------------
Revenues
Trading $ 830,045 $1,127,472
Interest 1,306,181 1,354,942
-------------------- ------------------
2,136,226 2,482,414
-------------------- ------------------
Expenses
Compensation 3,750 3,750
General and administrative 547,823 634,672
-------------------- ------------------
551,573 638,422
-------------------- ------------------
Income before taxes 1,584,653 1,843,992
Provision for income taxes 729,733 849,158
-------------------- ------------------
Net income $ 854,920 $ 994,834
==================== ==================
See notes to consolidated financial statements.
<PAGE>
LEHMAN ABS CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENT of FINANCIAL CONDITION
(Unaudited)
ASSETS
August 31, November 30,
1996 1995
---------------------------------
Cash $ 101,394 $ 99,245
Financial instruments owned, at fair value 22,440,769 25,772,380
Receivables from brokers, dealers and
financial institutions 842,472 872,920
Due from others 107,293 105,077
Deferred registration costs, net of accumulated
amortization of $2,038,109 and $1,069,032
in 1996 and 1995, respectively 871,519 755,748
------------------ -----------
$24,363, 447 $27,605,370
================ ==============
LIABILITIES and STOCKHOLDER'S EQUITY
Liabilities
Financial instruments sold but not yet
purchased $ 144,544 $ 497,590
Issuance expenses payable 1,394 429,118
Payables to brokers, dealers and
financial institutions 1,308,219 29,800
Payables to affiliates 1,190,049 2,978,394
--------------- -------------
Total liabilities 2,644,206 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 16,023,590 18,829,737
Retained earnings 5,695,401 4,840,481
------------------- -------------
Total stockholder's equity 21,719,241 23,670,468
------------------- -------------
$24,363,447 $27,605,370
==================== ==============
See notes to consolidated financial statements.
<PAGE>
LEHMAN ABS CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENT of CASH FLOWS
(Unaudited)
Nine months ended
------------------------
August 31, August 31,
1996 1995
---------- ----------
Cash flows from operating activities:
Net income $854,920 $ 994,834
Adjustments to reconcile net income to net
cash provided by (used in)operating activities:
mortization 969,077 142,350
Net change in:
Financial instruments owned, at fair value 3,331,611 3,806,671
Receivables from brokers, dealers and financial
institutions 30,448 (989,787)
Receivables from affiliate (551,247)
Due from others (2,216) (2,208)
Deferred registration costs (1,084,848) (129,048)
Financial instruments sold but not yet purchased (353,046) (2,138,991)
Issuance expenses payable (427,724) (114,243)
Payables to brokers, dealers and financial
institutions 1,278,419 1,492,327)
Payables to affiliates (1,788,345) 20,896
Income taxes payable to affiliate (985,195)
Other liabilities and accrued expenses (19,385)
------------- ---------
Net cash provided by (used in)
operating activities 2,808,296 (1,457,680)
------------ ----------
Cash flows from financing activities:
Capital contributions by parent 20,320,215 240,819,229
Capital distributions to parent (23,126,362) (239,120,129)
------------- ------------
Net cash (used in) provided by
financing activities (2,806,147) 1,699,100
-------------- ----------
Net change in cash 2,149 241,420
Cash, beginning of the period 99,245 43,858
------------- ---------
Cash, end of the period $ 101,394 $ 285,278
=============== =========
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"), 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 Consolidated 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 consolidated financial statements
included in the Company's Annual Report on Form 10-K for the twelve
months ended November 30, 1995.
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 $7.33 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 nine months ended August 31, 1996, the Company issued Delta Funding
Home Equity Loan Trust 1996-1 totaling approximately $225 million
principal amount, Banc One Home Equity Loan Trust 1996-A totaling
approximately $232.2 million principal amount, Lehman FHA Title 1 Loan
Trust 1996-3 totaling approximately $155.5 million principal amount,
Lehman Home Equity Loan Trust 1996-2 totaling approximately $122.1
million principal amount, Lehman FHA Title 1 Loan Trust 1996-2 totaling
approximately $279.3 million principal amount, Corporate Bond-Backed
Certificates, Series 1996-Wal-Mart-2 totaling approximately $30 million
principal amount, Corporate Bond-Backed Certificates, Series
1996-Wal-Mart totaling approximately $20 million principal amount,
Short-Term Card Account Trust 1995-1 totaling approximately $1.6
billion principal amount and Lehman Home Equity Loan Trust 1996-1
totaling approximately $146.2 million principal amount. As of August
31, 1996, approximately $1.8 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 nine months ended August 31, 1996 LCPI contributed $20.3
million in capital to the Company, and the Company made capital
distributions to LCPI of $23.1 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 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.
<PAGE>
LEHMAN ABS CORPORATION and SUBSIDIARY
NOTES to CONSOLIDATED FINANCIAL STATEMENTS
----------
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 $547,823 for the nine months ended August 31, 1996
and $634,672 for the nine months ended August 31, 1995 are recorded as
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 $729,733 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, 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.
<PAGE>
LEHMAN ABS CORPORATION and SUBSIDIARY
NOTES to CONSOLIDATED FINANCIAL STATEMENTS
----------
4. Due From Others:
At August 31, 1996 and November 30, 1995 the Company had interest
bearing deposits of $107,293 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 $.1 million and
is reported as financial instruments sold but not yet purchased in the
Consolidated Statement of Financial Condition at August 31, 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.
The fair value of the interest rate caps purchased is approximately
$1.7 million and is included in financial instruments owned in the
Consolidated Statement of Financial Condition at August 31, 1996. At
August 31, 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 and financial instruments sold but not yet
purchased 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 and interest rate cap
agreements. 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 and financial instruments sold but not yet purchased.
<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
Results of Operations
Set forth below is management's discussion and analysis of financial
condition and results of operations for the nine months and quarters
ended August 31, 1996 and August 31, 1995.
Financial Condition
The Company's assets aggregated $27.6 million at November 30, 1995
and $24.4 million at August 31, 1996. Financial instruments owned at
August 31, 1996 aggregated $22.4 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 decreased from $23.7 million at November 30,
1995 to $21.7 million at August 31, 1996 as a result of net capital
distribution to LCPI partially offset by net income for the nine
months ended August 31, 1996. 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 nine months ended August 31, 1996, the Company issued
Delta Funding Home Equity Loan Trust 1996-1 totaling approximately
$225 million principal amount, Banc One Home Equity Loan Trust 1996-A
totaling approximately $232.2 million principal amount, Lehman FHA
Title 1 Loan Trust 1996-3 totaling approximately $155.5 million
principal amount, Lehman Home Equity Loan Trust 1996-2 totaling
approximately $122.1 million principal amount, Lehman FHA Title 1
Loan Trust 1996-2 totaling approximately $279.3 million principal
amount, Corporate Bond-Backed Certificates, Series 1996-Wal-Mart-2
totaling approximately $30 million principal amount, Corporate
Bond-Backed Certificates, Series 1996-Wal-Mart totaling approximately
$20 million principal amount, Short-Term Card Account Trust 1995-1
totaling approximately $1.6 billion principal amount and Lehman Home
Equity Loan Trust 1996-1 totaling approximately $146.2 million
principal amount. 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
<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
Results of Operations
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.
Trading revenues totaled $830,045 and $1,127,472 for the nine months
ended August 31, 1996 and 1995, respectively, and $91,758 for the
three months ended August 31, 1995. Trading revenues are principally
attributable to the issuance and sale of securities and valuing
financial instruments owned, including interest rate cap agreements,
at market or fair value.
Interest income decreased from $1,354,942 for the nine months ended
August 31, 1995 to $1,306,181 for the nine months ended August 31,
1996. Interest income increased from $356,077 for the quarter ended
August 31, 1995 to $398,717 for the quarter ended August 31, 1996.
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 decreased from $634,672 for the nine
months ended August 31, 1995 to $547,823 for the nine months ended
August 31, 1996, reflecting the decreased operating activities of the
Company for the nine months ended August 31, 1996. Management fees
decreased from $116,649 for the three months ended August 31, 1995 to
$103,880 for the three months ended August 31, 1996 reflecting the
decreased operating activities of the Company for the third quarter
of 1996. Management fees are recorded as general and administrative
expenses in the accompanying Consolidated Statement of Operations.
<PAGE>
LEHMAN ABS CORPORATION and SUBSIDIARY
----------
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:
September 26, 1996
September 25, 1996
September 25, 1996
September 18, 1996
September 17, 1996
August 28, 1996
August 27, 1996
<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: October 11, 1996 /S/ Theodore P. Janulis
----------------------------
Theodore P. Janulis
President
Date: October 11, 1996 /S/ Dave Goldfarb
Dave Goldfarb
Controller
<PAGE>
Exhibit 27
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
LEHMAN ABS CORPORATION
This schedule contains summary financial information extracted from the
Company's Consolidated Statement of Financial Condition at August 31, 1996
(Unaudited) and the Consolidated Statement of Operations for the nine months
ended August 31, 1996 (Unaudited) and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<CIK> 0000829281
<NAME> Lehman ABS Corp.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> AUG-31-1996
<CASH> 101,394
<RECEIVABLES> 949,765
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 22,440,769
<PP&E> 0
<TOTAL-ASSETS> 24,363,447
<SHORT-TERM> 0
<PAYABLES> 2,499,662
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 144,544
<LONG-TERM> 0
<COMMON> 250
0
0
<OTHER-SE> 21,718,991
<TOTAL-LIABILITY-AND-EQUITY> 24,363,447
<TRADING-REVENUE> 830,045
<INTEREST-DIVIDENDS> 1,306,181
<COMMISSIONS> 0
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 0
<COMPENSATION> 3,750
<INCOME-PRETAX> 1,584,653
<INCOME-PRE-EXTRAORDINARY> 854,920
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 854,920
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
