<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 September 30, 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.
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(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
----- -----
<PAGE>
NYLIFE Structured Asset Management Company Ltd.
INDEX
Page No.
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Part I - Financial Information (Unaudited)
Item 1. Financial Statements
Statement of Financial Position as of
September 30, 1996, and December 31, 1995 3
Statement of Operations and (Accumulated
Deficit) Retained Earnings for the Three and
Nine Months Ended September 30, 1996, and 1995 4
Statement of Changes in Members' Capital for
the Nine Months Ended September 30, 1996 and
the Year Ended December 31, 1995 5
Statement of Cash Flows for the Nine
Months Ended September 30, 1996 and 1995 6
Notes to the Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II - Other Information 12
Signatures 13
2
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NYLIFE STRUCTURED ASSET MANAGEMENT COMPANY LTD.
STATEMENT OF FINANCIAL POSITION
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
CURRENT ASSETS (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 6,959,027 $ 6,527,623
Segregated cash and cash equivalents 4,474,291 5,399,963
Monitoring revenue and interest receivables
(net of allowance of $973,638 and $777,516, respectively) 2,011,572 2,760,630
Due from Westinghouse 37,919 -
------------ ------------
Total current assets 13,482,809 14,688,216
------------ ------------
Investment in security alarm monitoring contracts (Note 2)
(net of accumulated amortization of $30,555,652 and $22,965,463, respectively) 40,794,279 48,424,894
Debt issuance costs paid to affiliates
(net of accumulated amortization of $4,414,956 and $3,572,284, respectively) 1,938,470 2,781,142
------------ ------------
Total assets $ 56,215,558 $ 65,894,252
------------ ------------
------------ ------------
LIABILITIES AND MEMBERS' CAPITAL
CURRENT LIABILITIES
Monitoring fees payable to Westinghouse $ 735,100 $ 943,869
Accounts payable and accrued liabilities 307,727 334,493
Due to affiliates (Note 3) 191,252 204,690
Due to Westinghouse - 14,351
Unearned revenue 2,880,377 3,129,618
Interest payable (Note 2) 575,027 658,924
Notes payable (Note 2) 3,970,891 3,970,891
------------ ------------
Total current liabilities 8,660,374 9,256,836
------------ ------------
Notes payable (Note 2) 45,667,302 52,886,655
------------ ------------
Total liabilities 54,327,676 62,143,491
------------ ------------
MEMBERS' CAPITAL
Contributed capital 6,000,000 6,000,000
Distributions to members (632,753) (632,753)
Accumulated deficit (3,479,365) (1,616,486)
------------ ------------
Total members' capital 1,887,882 3,750,761
------------ ------------
Total liabilities and members' capital $ 56,215,558 $ 65,894,252
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to the financial statements.
3
<PAGE>
NYLIFE STRUCTURED ASSET MANAGEMENT COMPANY LTD.
STATEMENT OF OPERATIONS AND (ACCUMULATED DEFICIT) RETAINED EARNINGS
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
INCOME (Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Monitoring revenue $ 5,616,713 $ 6,223,803 $ 17,365,133 $ 19,095,402
Interest 95,763 103,057 294,055 321,808
------------- ------------- ------------- -------------
Total income 5,712,476 6,326,860 17,659,188 19,417,210
EXPENSES
Monitoring fees 1,901,024 2,269,206 5,887,721 6,453,320
Interest expense 1,149,338 1,355,738 3,580,896 4,196,986
General and administrative 114,641 99,871 277,557 295,614
Consulting fees 71,354 71,354 214,062 214,062
Asset management fee to affiliate 136,905 154,647 422,857 476,615
Equity return fee to affiliate 54,346 54,346 163,039 163,039
Bad debt expense 185,212 243,336 543,074 657,347
Amortization of security alarm
monitoring contracts 2,387,708 3,096,399 7,590,189 7,923,273
Amortization of debt issuance costs 321,214 337,350 842,672 1,029,434
------------- ------------- ------------- -------------
Total expenses 6,321,742 7,682,247 19,522,067 21,409,690
------------- ------------- ------------- -------------
Net loss (609,266) (1,355,387) (1,862,879) (1,992,480)
(Accumulated deficit) retained earnings
at beginning of period (2,870,099) (129,830) (1,616,486) 507,263
------------- ------------- ------------- -------------
(Accumulated deficit) at end of period $ (3,479,365) $ (1,485,217) $ (3,479,365) $ (1,485,217)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</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 NINE MONTHS ENDED SEPTEMBER 30, 1996
(Unaudited)
NYLIFE NYLIFE Total
SFD Depositary Members'
Holding Inc. Corp. Capital
------------ ---------- --------
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 (1,552,337) (310,542) (1,862,879)
----------- ----------- -----------
Balance at September 30, 1996 $ 1,573,372 $ 314,510 $ 1,887,882
----------- ----------- -----------
----------- ----------- -----------
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 nine For the nine
months ended months ended
September 30, 1996 September 30, 1995
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities: (Unaudited) (Unaudited)
Net loss $ (1,862,879) $ (1,992,480)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Amortization of security alarm monitoring contracts 7,590,189 7,923,273
Amortization of debt issuance costs 842,672 1,029,434
Bad debt expense 543,074 657,347
Changes in assets and liabilities:
Decrease (increase) in monitoring revenue and interest receivables 205,984 (557,854)
Increase in due from Westinghouse (37,919) -
(Decrease) increase in monitoring fees payable to Westinghouse (208,769) 190,687
(Decrease) increase in accounts payable and accrued liabilities (26,766) 46,228
Decrease in due to affiliates (13,438) (13,169)
Decrease in due to Westinghouse (14,351) (86,346)
Decrease in unearned revenue (249,241) (216,876)
Decrease in interest payable (83,897) (86,797)
------------- -------------
Net cash provided by operating activities 6,684,659 6,893,447
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Cash flows from investing activities:
Purchase price refunds - investment in security alarm
monitoring contracts 40,426 752,501
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Net cash provided by investing activities 40,426 752,501
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Cash flows from financing activities:
Principal payments on Notes (7,219,353) (7,489,568)
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Net cash used in financing activities (7,219,353) (7,489,568)
------------- -------------
Net (decrease) increase in cash and cash equivalents (494,268) 156,380
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 $ 11,433,318 $ 11,037,066
------------- -------------
------------- -------------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 3,616,697 $ 4,283,783
------------- -------------
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</TABLE>
See accompanying notes to the financial statements.
6
<PAGE>
NYLIFE STRUCTURED ASSET MANAGEMENT COMPANY LTD.
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 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 NYLIFE Holding Inc. (formerly
NAFCO Inc. "SFD Holding"). 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 SFD Holding 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 September 30, 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 (**) 5,278,135 2,130,948 7,856,557 15,265,640
Accumulated attrition (**) 5,822,293 1,758,208 6,270,556 13,851,057
----------- ---------- ----------- -----------
Net investment $ 9,624,832 $3,885,846 $25,053,236 $38,563,914
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
</TABLE>
7
<PAGE>
(*) 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 September 30, 1996 is $2,230,365.
(**) These amounts are combined and classified as amortization in the financial
statements.
INTEREST PAYABLE and NOTES PAYABLE in the Statement of Financial Position at
September 30, 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 $ 162,364 $ 64,584 $ 348,079 $ 575,027
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Notes payable - current $ 1,250,000 $ 470,891 $ 2,250,000 $ 3,970,891
Notes payable - non-current 12,760,113 5,121,944 27,785,245 45,667,302
----------- ----------- ----------- -----------
Total $14,010,113 $ 5,592,835 $30,035,245 $49,638,193
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
NOTE 3 - RELATED PARTIES
DUE TO AFFILIATES in the Statement of Financial Position at September 30, 1996
and December 31, 1995 includes (i) the asset management fee of $136,906 and
$149,150, respectively, payable to SFD Holding and (ii) the equity return fee of
$54,346 and $54,346, respectively, payable to SFD Holding, and (iii) general and
administrative expenses of and $1,194 for 1995.
NOTE 4 - SUBSEQUENT EVENTS
It was reported in the November 12, 1996 edition of the Wall Street Journal
that Westinghouse Electric Company ("Westinghouse") intends to spin off its
industrial operation into a new company. With regards to Westinghouse's
industrial business unit, the report said "one old-line business unit, a
hodgepodge that includes a burglar alarm business, is expected to be sold off
before the end of the year." The Company is in the process of evaluating this
information and its effects on the Company.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the nine months ended
September 30, 1996 decreased $208,788 to $6,684,659 from the corresponding 1995
period. This decrease resulted from the attrition of contracts during the period
subsequent to September 30, 1995.
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 1997. Including the distribution to be paid on November 15,
1996, the Company has paid additional principal of $6,493,133, $2,409,957 and
$10,529,101 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 September 30, 1996, the Benchmark CD Rate was 5.6%.
Accordingly, the outstanding principal on the Series A and Series B Notes will
earn interest at 9% per annum through February 15, 1997.
The Series C Notes bear interest on the outstanding principal at a per annum
rate of 9%.
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 September 30, 1996 continue to be strong as
indicated below:
Series A Series B Series C
-------- -------- --------
Number of contracts collateralizing
Notes at issuance 33,029 11,463 52,840
------ ------ ------
------ ------ ------
Number of active accounts at 9/30/96 21,121 8,014 41,580
------ ------ ------
------ ------ ------
Debt Service Coverage (at 9%) 1.68 1.83 1.97
------ ------ ------
------ ------ ------
Debt Service Coverage (at 11%) 1.52 1.65 --
------ ------ ------
------ ------ ------
Interest Coverage (at 9%) 3.41 3.63 3.67
------ ------ ------
------ ------ ------
Interest Coverage (at 11%) 2.79 2.97 --
------ ------ ------
------ ------ ------
9
<PAGE>
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
September 30, 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
The Company's net loss for the nine months ended September 30, 1996 is due
primarily to high amortization expense, a non-cash charge against earnings, as a
result of the attrition of certain contracts during the period. 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
September 30, 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.
For the three and nine months ended September 30, 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 and nine months
ending September 30, 1996 compared to the corresponding periods in 1995 is due
to attrition of contracts during 1995 and the first nine months of 1996. During
the first and second quarters 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 $185,212 and $243,336 for the three months ended September 30, 1996 and 1995,
respectively, and the bad debt expense of $543,074 and $657,347 for the nine
months ended September 30, 1996 and 1995, respectively, 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.
10
<PAGE>
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) 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
<PAGE>
PART II. OTHER INFORMATION
None
12
<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 on November 12, 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 THIRD
QUARTER FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 11,433,318
<SECURITIES> 0
<RECEIVABLES> 2,011,572
<ALLOWANCES> 973,638
<INVENTORY> 0
<CURRENT-ASSETS> 13,482,809
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 56,215,558
<CURRENT-LIABILITIES> 8,660,374
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 56,215,558
<SALES> 0
<TOTAL-REVENUES> 17,659,188
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 19,522,067
<LOSS-PROVISION> 543,074
<INTEREST-EXPENSE> 3,580,896
<INCOME-PRETAX> (1,862,879)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,862,879)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
