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 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, 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 ABS CORPORATION and SUBSIDIARY
FORM 10-Q
FOR THE QUARTER ENDED FEBRUARY 28, 1997
INDEX
Part I. FINANCIAL INFORMATION Page Number
Item 1. Financial Statements - (unaudited)
Consolidated Statement of Operations -
Three Months Ended February 28, 1997
and February 29, 1996 ............................ 3
Consolidated Statement of Financial Condition -
February 28, 1997 and November 30, 1996 ........... 4
Consolidated Statement of Cash Flows -
Three Months Ended February 28, 1997
and February 29, 1996.............................. 5
Notes to Consolidated Financial Statements........... 6
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 ..................... 12
Signatures ......................................................... 13
Exhibit
<PAGE>
LEHMAN ABS CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENT of OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
--------------------------------------
February 28, 1997 February 29, 1996
Revenues:
<S> <C> <C>
Trading $ 534,062
Interest $ 505,390 376,047
-------------------- -----------------
505,390 910,109
-------------------- -----------------
Expenses:
Compensation 1,250 1,250
General and administrative 131,796 232,403
-------------------- -----------------
133,046 233,653
-------------------- -----------------
Income before income tax provision 372,344 676,456
Income tax provision 171,464 311,508
-------------------- -----------------
Net income $ 200,880 $ 364,948
==================== =================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
LEHMAN ABS CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENT of FINANCIAL CONDITION
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
Februay 28, November 30,
1997 1996
-------------------- --------------------
<S> <C> <C>
Cash $ 901,710 $ 268,832
Financial instruments owned 19,350,079 31,369,972
Receivables from brokers, dealers and
financial institutions 1,280,268 739,056
Due from others 108,752 108,027
Deferred registration costs, net of
accumulated amortization of $3,008,740
and $2,198,888 in 1997 and 1996, respectively 1,113,008 1,922,860
-------------------- --------------------
$ 22,753,817 $ 34,408,747
==================== ====================
</TABLE>
LIABILITIES and STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
Liabilities:
Financial instruments sold but not yet
purchased $ 10,762 $ 44,073
Issuance expenses payable 2,645 1,394
Payables to brokers, dealers and
financial institutions - 2,394,770
Payables to affiliates 3,790,495 3,660,939
-------------------- --------------------
Total liabilities 3,803,902 6,101,176
-------------------- --------------------
Stockholder's equity:
Common stock, $0.25 par value;
1,000 shares authorized issued and outstanding 250 250
Additional paid-in capital 9,235,275 18,793,811
Retained earnings 9,714,390 9,513,510
-------------------- --------------------
Total stockholder's equity 18,949,915 28,307,571
-------------------- --------------------
$ 22,753,817 $ 34,408,747
==================== ====================
</TABLE>
See notes to consolidated financial statements
<PAGE>
LEHMAN ABS CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENT of CASH FLOWS
(Unaudited)
<TABLE>
Three months ended
---------------------------------------------
February 28, February 29,
1997 1996
-------------------- --------------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 200,880 $ 364,948
Adjustments to reconcile net income to net cash
provided by (used in)operating activities:
Amortization 809,852 602,146
Net change in:
Financial instruments owned, at fair value 12,019,893 1,096,168
Receivables from brokers, dealers and financial
institutions (541,212) (18,570)
Due from others (725) (734)
Deferred registration costs - (567,606)
Financial instruments sold but not yet purchased (33,311) (304,884)
Issuance expenses payable 1,251 (163,128)
Payables to brokers, dealers and financial
institutions (2,394,770) (29,800)
Payables to affiliates 129,556 (2,270,041)
Other liabilities and accrued expenses - 1,211
-------------------- --------------------
Net cash provided by (used in) operating activities 10,191,414 (1,290,290)
-------------------- --------------------
Cash flows from financing activities:
Capital contributions by parent 21,246,257 7,307,207
Capital distributions to parent (30,804,793) (6,116,162)
-------------------- --------------------
Net cash (used in) provided by financing activities (9,558,536) 1,191,045
-------------------- --------------------
Net change in cash 632,878 (99,245)
Cash, beginning of the period 268,832 99,245
-------------------- --------------------
Cash, end of the period $ 901,710 $ -
==================== ====================
</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
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 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 Consolidated 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 consolidated financial statements included
in the Company's Annual Report on Form 10-K for the twelve months ended
November 30, 1996.
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 financial instruments and valuing financial instruments
owned and financial instruments sold but not yet purchased at 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 $11.33 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 government and
government agency obligations or corporate debt securities. During the
three months ended February 28, 1997, the Company issued Lehman Card
Account Trust 1996-1 totaling approximately $2.1 billion principal
amount, Champion Home Equity Loan Trust 1996-4 totaling $100 million
principal amount, Lehman Home Equity Loan Trust 1996-3 totaling
approximately $68.6 million principal amount and Provident Bank Home
Equity Loan Trust 1996-2 totaling $110 million principal amount. As of
February 28, 1997, approximately $2.9 billion was available for
issuance under the registration statements referred to above.
<PAGE>
LEHMAN ABS CORPORATION and SUBSIDIARY
NOTES to CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Organization (continued):
The Company has established trusts to issue securities collateralized
by receivables and other securities. 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 securityholders 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 28, 1997 LCPI contributed $21.2
million in capital to the Company, and the Company made capital
distributions to LCPI of $30.8 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 and are valued at fair value with unrealized gains
and losses reflected in the Consolidated Statement of Operations. Fair
value is determined based on relevant factors, such as, broker or
dealer price quotations and valuation pricing models which take into
account time value and volatility factors underlying the financial
instruments.
The Company uses the trade basis of accounting for recording trading
revenues.
<PAGE>
LEHMAN ABS CORPORATION and SUBSIDIARY
NOTES to CONSOLIDATED FINANCIAL STATEMENTS
----------
2. Summary of Significant Accounting Policies (continued):
Income taxes:
The Company's income 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 consolidated financial statements
are reasonable and prudent. Actual results could differ from these
estimates.
3. Related Party Transactions:
Receivables collateral purchased from affiliates and the resulting
Securities sold to affiliates are both 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 $130,783 for the three months ended February 28,
1997, and $232,153 for the three months ended February 29, 1996 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.
During the three months ended February 28, 1997 and February 29, 1996,
income taxes of $171,464 and $311,508, respectively, were paid by the
Company to LCPI in accordance with the terms of the Company's tax
allocation agreement.
<PAGE>
LEHMAN ABS CORPORATION and SUBSIDIARY
NOTES to CONSOLIDATED FINANCIAL STATEMENTS
----------
3. Related Party Transactions (continued):
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 28, 1997 and November 30, 1996 the Company had interest
bearing deposits of $108,752 and $108,027, 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. At
February 28, 1997 and November 30, 1996, the fair value of the interest
rate caps sold is $10,762 and $44,073, respectively, and is reported as
financial instruments sold but not yet purchased in the Consolidated
Statement of Financial Condition. 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. At February 28, 1997 and
November 30, 1996, the fair value of the interest rate caps purchased
is $633,908 and $868,938, respectively, and is reported as financial
instruments owned in the Consolidated Statement of Financial Condition.
At February 28, 1997, 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 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 Consolidated Statement of Financial
Condition.
<PAGE>
LEHMAN ABS CORPORATION and SUBSIDIARY
NOTES to CONSOLIDATED FINANCIAL STATEMENTS
----------
6. Fair Value of Financial Instruments (continued):
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 financial instruments,
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
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financial Condition
The Company's assets decreased from $34.4 million at November 30, 1996 to $22.8
million at February 28, 1997. Financial instruments owned at February 28, 1997
and November 30, 1996 aggregated $19.4 million and $31.4 million, respectively,
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 fair value.
Stockholder's equity decreased from $28.3 million at November 30, 1996 to $18.9
million at February 28, 1997 as a result of net capital distributions to LCPI,
partially offset by net income for the quarter. Capital contributions from LCPI
are made to fund securities retained by the Company from new issuances or to
fund operating activities including income taxes. 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
For the Three Months Ended February 28, 1997 and February 29, 1996
During the three months ended February 28, 1997, the Company issued Lehman Card
Account Trust 1996-1 totaling approximately $2.1 billion principal amount,
Champion Home Equity Loan Trust 1996-4 totaling $100 million principal amount,
Lehman Home Equity Loan Trust 1996-3 totaling approximately $68.6 million
principal amount and Provident Bank Home Equity Loan Trust 1996-2 totaling $110
million principal amount. 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.
The Company derives its income from trading and/or interest earned on financial
instruments owned and financial instruments sold but not yet purchased. Trading
revenues for the period ended February 29, 1996 are due primarily to revaluing
financial instruments owned on a fair value basis.
Management fees decreased to $130,783 for the three months ended February 28,
1997 from $232,153 for the three months ended February 29, 1996, reflecting the
decreased trading activities of the Company. Management fees are the principal
component of general and administrative expenses in the accompanying
Consolidated Statement of Operations.
<PAGE>
LEHMAN ABS CORPORATION and SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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:
3/19/97
3/27/97
3/27/97
<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 11, 1997 /S/Theodore P. Janulis
--------------------------
Theodore P. Janulis
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 Consolidated Statement of Financial Condition at February 28,
1997(Unaudited) and the Consolidated 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> 0000829281
<NAME> Lehman ABS Corp.
<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> 901,710
<RECEIVABLES> 1,389,020
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 19,350,079
<PP&E> 0
<TOTAL-ASSETS> 22,753,817
<SHORT-TERM> 0
<PAYABLES> 3,793,140
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 10,762
<LONG-TERM> 0
<COMMON> 250
0
0
<OTHER-SE> 18,949,665
<TOTAL-LIABILITY-AND-EQUITY> 22,753,817
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 505,390
<COMMISSIONS> 0
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 0
<COMPENSATION> 1,250
<INCOME-PRETAX> 372,344
<INCOME-PRE-EXTRAORDINARY> 200,880
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 200,880
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
