<PAGE>
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 March 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
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Commission file number 33-43870
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NYLIFE STRUCTURED ASSET MANAGEMENT COMPANY LTD.
(Exact name of registrant as specified in its charter)
TEXAS 13-3641944
----- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
51 MADISON AVENUE, NEW YORK, NEW YORK 10010
------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 576-6456
--------------
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
----- -----
Yes X No
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NYLIFE Structured Asset Management Company Ltd
INDEX
Page No.
--------
Part I - Financial Information (Unaudited)
Statement of Financial Position as of
March 31, 1996, and December 31, 1995 3
Statement of Operations and Retained
Earnings for the Three Months Ended
March 31, 1996, and 1995 4
Statement of Changes in Members' Capital for
the Three Months Ended March 31, 1996 and
the Year Ended December 31, 1995 5
Statement of Cash Flows for the Three
Months Ended March 31, 1996 and 1995 6
Notes to the Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II - Other Information 12
Signatures 13
<PAGE>
NYLIFE STRUCTURED ASSET MANAGEMENT COMPANY LTD.
STATEMENT OF FINANCIAL POSITION
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------------- -----------------
<S> (Unaudited)
CURRENT ASSETS <C> <C>
Cash and cash equivalents $ 6,518,739 $ 6,527,623
Segregated cash and cash equivalents 5,306,377 5,399,963
Monitoring revenue and interest receivables
(net of allowance of $854,849 and $777,516, respectively) 2,201,074 2,760,630
Due from Westinghouse 21,762 -
----------------- -----------------
Total current assets 14,047,952 14,688,216
----------------- -----------------
Investment in security alarm monitoring contracts (Note 2)
(net of accumulated amortization of $25,797,997 and $22,965,463, respectively) 45,551,934 48,424,894
Debt issuance costs paid to affiliates
(net of accumulated amortization of $3,798,400 and $3,572,284, respectively) 2,555,026 2,781,142
----------------- -----------------
Total assets $ 62,154,912 $ 65,894,252
----------------- -----------------
----------------- -----------------
<CAPTION>
LIABILITIES AND MEMBERS' CAPITAL
CURRENT LIABILITIES
Monitoring fees payable to Westinghouse $ 932,076 $ 943,869
Accounts payable and accrued liabilities 381,535 334,493
Due to affiliates (Note 3) 199,834 204,690
Due to Westinghouse - 14,351
Unearned revenue 3,009,114 3,129,618
Interest payable (Note 2) 613,756 658,924
Notes payable (Note 2) 3,970,891 3,970,891
----------------- -----------------
Total current liabilities 9,107,206 9,256,836
----------------- -----------------
Notes payable (Note 2) 50,140,473 52,886,655
----------------- -----------------
Total liabilities 59,247,679 62,143,491
----------------- -----------------
MEMBERS' CAPITAL
Contributed capital 6,000,000 6,000,000
Distributions to members (632,753) (632,753)
Accumulated deficit (2,460,014) (1,616,486)
----------------- -----------------
Total members' capital 2,907,233 3,750,761
----------------- -----------------
Total liabilities and members' capital $ 62,154,912 $ 65,894,252
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to the financial statements.
3
<PAGE>
NYLIFE STRUCTURED ASSET MANAGEMENT COMPANY LTD.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
For the three For the three
months ended months ended
March 31, March 31,
1996 1995
<S> ----------------- -----------------
INCOME (Unaudited) (Unaudited)
<C> <C>
Monitoring revenue $ 5,931,216 $ 6,563,131
Interest 101,049 108,923
----------------- -----------------
Total income 6,032,265 6,672,054
----------------- -----------------
EXPENSES
Monitoring fees 2,001,986 2,197,912
Interest expense 1,244,648 1,445,387
General and administrative 88,069 77,413
Consulting fees 71,354 71,354
Asset management fee to affiliate 145,483 163,050
Equity return fee to affiliate 54,346 54,346
Bad debt expense 211,257 283,384
Amortization of security alarm monitoring
contracts 2,832,534 2,362,151
Amortization of debt issuance costs paid
to affiliates 226,116 373,650
----------------- -----------------
Total expenses 6,875,793 7,028,647
----------------- -----------------
Net loss (843,528) (356,593)
(Accumulated deficit) retained earnings at
beginning of period (1,616,486) 507,263
----------------- -----------------
(Accumulated deficit) retained earnings at
end of period $ (2,460,014) $ 150,670
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to the financial statements.
4
<PAGE>
NYLIFE STRUCTURED ASSET MANAGEMENT COMPANY LTD.
STATEMENT OF CHANGES IN MEMBERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 1995,
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
NYLIFE Total
Depositary Members'
NAFCO Inc. Corp. Capital
------------ ------------ -----------
<S> <C> <C> <C>
Balance at January 1, 1995 4,895,429 979,081 5,874,510
Net loss (1,769,720) (354,029) (2,123,749)
------------ ------------ -----------
Balance at December 31, 1995 3,125,709 625,052 3,750,761
Net loss (702,912) (140,616) (843,528)
------------ ------------ -----------
Balance at March 31, 1996 $ 2,422,797 $ 484,436 $ 2,907,233
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
See accompanying notes to the financial statements.
5
<PAGE>
NYLIFE STRUCTURED ASSET MANAGEMENT COMPANY LTD.
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
For the three For the three
months ended months ended
March 31, 1996 March 31, 1995
-------------------- --------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (843,528) $ (356,593)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Amortization of security alarm monitoring contracts 2,832,534 2,362,151
Amortization of debt issuance costs 226,116 373,650
Bad debt expense 211,257 283,384
Changes in assets and liabilities:
Decrease (increase) in monitoring revenue and interest
receivables 348,299 (21,150)
Increase in due from Westinghouse (21,762) -
(Decrease) increase in monitoring fees payable to Westinghouse (11,793) 42,386
Increase in accounts payable and accrued liabilities 47,042 18,619
Decrease in due to affiliates (4,856) (4,766)
(Decrease) increase in due to Westinghouse (14,351) 515,751
Decrease in unearned revenue (120,504) (97,073)
Decrease in interest payable (45,168) (60,822)
-------------------- --------------------
Net cash provided by operating activities 2,603,286 3,055,537
-------------------- --------------------
Cash flows from investing activities:
Purchase price refunds - investment in security alarm
monitoring contracts 40,426 579,927
-------------------- --------------------
Net cash provided by investing activities 40,426 579,927
-------------------- --------------------
Cash flows from financing activities:
Principal payments on Notes (2,746,182) (2,530,536)
-------------------- --------------------
Net cash used in financing activities (2,746,182) (2,530,536)
-------------------- --------------------
Net (decrease) increase in cash and cash equivalents (102,470) 1,104,928
Cash and cash equivalents (including segregated cash and
cash equivalents) at beginning of period 11,927,586 10,880,686
-------------------- --------------------
Cash and cash equivalents (including segregated cash and
cash equivalents) at end of period $ 11,825,116 $ 11,985,614
-------------------- --------------------
-------------------- --------------------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 1,289,816 $ 1,506,208
-------------------- --------------------
-------------------- --------------------
</TABLE>
See accompanying notes to the financial statements.
6
<PAGE>
NYLIFE STRUCTURED ASSET MANAGEMENT COMPANY LTD.
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
NOTE 1 - ORGANIZATION
NYLIFE Structured Asset Management Company Ltd. (the "Company" or "SAMCO") is a
limited liability company formed under the laws of the State of Texas on October
18, 1991. The entity offers its equity investors limited liability protection
while providing them with flow through tax treatment.
SAMCO has two members. The principal member is NAFCO Inc. ("NAFCO"). The other
member is NYLIFE Depositary Corporation ("NDC"). Both members are Delaware
corporations and wholly owned subsidiaries of NYLIFE Inc. (a direct wholly owned
subsidiary of New York Life Insurance Company, "New York Life"). Certain
directors and officers of NAFCO have been designated as managers of SAMCO. A
manager is similar to a director of a corporation, and may designate one or more
persons as officers of the limited liability company.
SAMCO has issued secured five year floating rate notes and secured five year
fixed rate notes (the "Notes"), in order to finance the acquisition of security
alarm monitoring contracts (the "Contracts"). Such Contracts consist of the
obligations and payment rights with respect to monitoring services, and in
certain instances repair and maintenance services, for security alarm systems in
residential homes and light commercial businesses. Security alarm monitoring is
the process of notifying designated parties (either individuals or public
authorities) if an unauthorized entry, fire, medical or other emergency signal
from a customer alarm system is received at a central monitoring station.
These interim financial statements should be read in conjunction with the
Company's Annual Report on Form 10-K.
NOTE 2 - INVESTMENT IN SECURITY ALARM MONITORING CONTRACTS AND
NOTES PAYABLE
INVESTMENT IN SECURITY ALARM MONITORING CONTRACTS in the Statement of Financial
Position at March 31, 1996 includes Contracts collateralizing Series A, B, and C
Notes as follows:
<TABLE>
<CAPTION>
Series A Series B Series C Total(*)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Investment in security alarm monitoring contracts $23,000,000 $8,665,057 $41,401,352 $73,066,409
Less: Purchase price refunds 2,274,740 890,055 2,221,003 5,385,798
Accumulated amortization (**) 4,894,459 1,940,675 6,860,800 13,695,934
Accumulated attrition (**) 5,062,992 1,564,844 4,298,628 10,926,464
----------- ---------- ----------- -----------
Net investment $10,767,809 $4,269,483 $28,020,921 $43,058,213
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
</TABLE>
(*) Excludes 5,035 Contracts acquired from the June 30, 1993, November 30, 1993,
and February 28, 1994 acquisitions which are NOT collateral for any series of
Notes and therefore are not subject to the Indenture. Net investment in these
contracts at March 31, 1996 is $2,493,721.
7
<PAGE>
(**) These amounts are combined and classified as amortization in the financial
statements.
INTEREST PAYABLE and NOTES PAYABLE in the Statement of Financial Position at
March 31, 1996 include amounts relating to Series A, B, and C Notes as follows:
<TABLE>
<CAPTION>
Series A Series B Series C Total
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest payable $172,407 $69,296 $372,053 $613,756
-------- ------- -------- --------
-------- ------- -------- --------
Notes payable - current $ 1,250,000 $ 470,891 $ 2,250,000 $ 3,970,891
Notes payable - non-current 13,950,114 5,638,512 30,551,847 50,140,473
----------- ---------- ----------- -----------
Total $15,200,114 $6,109,403 $32,801,847 $54,111,364
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
</TABLE>
NOTE 3 - RELATED PARTIES
DUE TO AFFILIATES in the Statement of Financial Position at March 31, 1996 and
December 31, 1995 includes (i) the asset management fee of $145,483 and $149,150
payable to NAFCO and (ii) the equity return fee of $54,346 and $54,346 payable
to NAFCO, and (iii) general and administrative expenses of $5 and
$1,194, respectively.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's net loss for the three months ended March 31, 1996 is due
primarily to higher amortization expense, a non-cash charge against earnings, as
a result of the attrition of certain contracts during the quarter.
Attrition, which is the loss of customers, results in decreased cash flow. In
order to control the Company's exposure to attrition and the resulting loss of
revenue, the Company has received from Westinghouse certain attrition
guarantees. These guarantees generally provide for the replacement of
Contracts, with either cash or Contracts, by Westinghouse if attrition exceeds
certain levels. As of March 31, 1996, approximately 50% of the Series A
Contracts and 100% of the Series B and Series C Contracts owned by the Company
are covered by attrition guarantees by Westinghouse.
The Company's revenues from Contracts have been sufficient to pay the
Westinghouse Basic Monitoring Fee, scheduled principal and interest on the
Notes, third party operating expenses, taxes of the Company's Members (but only
Member's taxes in respect of any allocations of taxable income from the
Company), subordinated fees, to establish necessary reserves, if any, and to
continue to make additional principal payments. The Company expects this trend
to continue in 1996. Including the distribution to be paid on May 15, 1996, the
Company has paid additional principal of $6,070,632, $2,169,708 and $9,131,401
to the Series A, Series B, and Series C Noteholders, respectively.
Series A and Series B Notes bear interest on the outstanding principal at a per
annum floating rate of 2.50 percentage points above the minimum denomination
five-year certificate of deposit average rate (the "Benchmark CD Rate"), as
reported by the Bank Rate Monitor in its last report of the immediately
preceding calendar quarter, but in no event less than 9% per annum or more than
11% per annum. At March 31, 1996, the Benchmark CD Rate was 5.07%.
Accordingly, the outstanding principal on the Series A and Series B Notes will
earn interest at 9% per annum through August 15, 1996.
Debt Service and Interest Coverage ratios are calculated based on the number of
"active" accounts at the end of the period. An active account is one where the
customer's alarm system is being monitored. Generally, accounts are monitored
until they become 70 days delinquent. The Debt Service and Interest Coverage
ratios for each Series of Notes at March 31, 1996 continue to be strong as
indicated below:
9
<PAGE>
<TABLE>
<CAPTION>
Series A Series B Series C
-------- -------- -------
<S> <C> <C> <C>
Number of contracts collateralizing
Notes at issuance 33,029 11,463 52,840
------ ------- ------
------ ------- ------
Number of active accounts at 3/31/96 22,220 8,393 44,144
------ ------- ------
------ ------- ------
Debt Service Coverage (at 9%) 1.72 1.86 2.03
---- ---- ----
---- ---- ----
Debt Service Coverage (at 11%) 1.54 1.67 --
---- ---- ----
---- ---- ----
Interest Coverage (at 9%) 3.36 3.53 3.65
---- ---- ----
---- ---- ----
Interest Coverage (at 11%) 2.75 2.89 --
---- ---- --
---- ---- --
</TABLE>
At maturity, the Company is obligated to repay the then outstanding principal
balance of the Notes. The options available to the Company include (i) a sale
of the underlying Contracts to Westinghouse (in accordance with the terms of a
contract repurchase option), (ii) a sale of the Contracts to a third party, or
(iii) a refinancing of the Contracts. The Company will be first obligated to
repay such outstanding principal balance in 1998 when the Series A Notes are to
be repaid.
The Company does not anticipate acquiring additional Contracts. As of March 31,
1996, the Company had no capital commitments.
Should Westinghouse become unable to perform any of its contractual obligations
with respect to the Company in the future, there can be no assurance that any
third parties will be available or, even if available, that agreements could be
reached with such third parties for comparable services and at comparable cost.
Such a situation could materially adversely impact the Company.
RESULTS OF OPERATIONS
For the three months ended March 31, 1996 and 1995, SAMCO derived 98% of its
income from monitoring revenues and the balance from interest income on short
term investments.
The decrease in the Company's monitoring revenues for the three months ending
March 31, 1996 compared to the corresponding period in 1995 is due to attrition
of contracts during 1995 and the first three months of 1996. During the first
quarter of 1995, the Series C contracts were covered under the Westinghouse
guarantees of 0% attrition. These guarantees expired in 1995, and subsequent
attrition of Series C Contracts resulted in an increase in Contract
amortization expense. Monitoring fee expense has decreased with the decrease
in monitoring revenue. Interest expense has decreased as the Company continues
to pay down scheduled and additional principal. The bad debt expense of
$211,257 on the Company's Statement of Operations represents actual revenue loss
on attrited Contracts and the potential revenue loss on Contracts with balances
greater than 90 days past due as of quarter end.
The Company's operating expenses include monitoring fees, general and
administrative expenses, including (i) lockbox bank fees, (ii) audit and tax
fees, (iii) printing and mailing of quarterly and annual reports to investors,
(iv) trustee fees, (v) legal and consulting fees, and (vi)
10
<PAGE>
subordinated fees and expenses. The Company's other expenses include bad debt
expense, interest expense and amortization of (i) Contracts and (ii) debt
issuance costs.
Most of the Contracts owned by the Company have a three year term, provide for
automatic renewal and allow the Company to increase the customers' monitoring
fee at certain times after the initial term. Presently the Company has no
intention of increasing monitoring fees in the immediate future.
11
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PART II. OTHER INFORMATION
None
12
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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 on May 14, 1996.
NYLIFE Structured Asset Management
Company Ltd.
/s/ Kevin M. Micucci
----------------------
By: Kevin M. Micucci
Manager and President
(Principal Executive,
Financial and Accounting Officer)
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FIRST
QUARTER FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 11,825,116
<SECURITIES> 0
<RECEIVABLES> 2,201,074
<ALLOWANCES> 854,849
<INVENTORY> 0
<CURRENT-ASSETS> 14,047,952
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 62,154,912
<CURRENT-LIABILITIES> 9,107,206
<BONDS> 50,140,473
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 62,154,912
<SALES> 0
<TOTAL-REVENUES> 6,032,265
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,875,793
<LOSS-PROVISION> 211,257
<INTEREST-EXPENSE> 1,244,648
<INCOME-PRETAX> (843,528)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (843,528)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
