<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, 1998
------------------
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 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
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
Part I - Financial Information (Unaudited)
Item 1. Financial Statements
Statement of Financial Position as of
September 30, 1998, and December 31, 1997 3
Statement of Operations and Retained Earnings
(Accumulated Deficit) for the Three and Nine
Months Ended September 30, 1998 and 1997 4
Statement of Changes in Members' Capital for
the Year Ended December 31, 1997 and the Nine
Months Ended September 30, 1998 5
Statement of Cash Flows for the Nine
Months Ended September 30, 1998 and 1997 6
Notes to the Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-13
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 14
Part II- Other Information
Item 6. Exhibits and Reports on Form 8-K 15
Exhibit Index 16
Signatures 17
</TABLE>
2
<PAGE>
NYLIFE STRUCTURED ASSET MANAGEMENT COMPANY LTD.
STATEMENT OF FINANCIAL POSITION
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
CURRENT ASSETS (Unaudited)
Cash and cash equivalents $ 13,977,044 $ 7,633,845
Segregated cash and cash equivalents 1,546,422 4,577,980
Security alarm monitoring contracts held for sale (Note 2) 21,592,930 -
Monitoring revenue and interest receivables
(net of allowance of $694,958 and $1,143,444, respectively) 609,328 1,715,726
Due from WestSec 229,100 141,709
Other receivables 25,046 234,638
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Total current assets 37,979,870 14,303,898
------------- ------------
Security alarm monitoring contracts held for sale (Note 2) - 34,179,666
Debt issuance costs paid to affiliates
(net of accumulated amortization of $6,185,744 and $5,757,712, respectively) 167,682 595,714
------------- ------------
Total assets $ 38,147,552 $ 49,079,278
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------------- ------------
LIABILITIES AND MEMBERS' CAPITAL
CURRENT LIABILITIES
Monitoring fees payable $ 281,029 $ 639,503
Accounts payable and accrued liabilities 3,357,995 319,919
Due to affiliates (Note 3) 120,048 260,552
Unearned revenue 1,256,648 2,471,743
Interest payable (Note 2) 415,278 472,414
Notes payable (Note 2) 21,442,490 18,465,882
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Total current liabilities 26,873,488 22,630,013
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Notes payable (Note 2) - 22,297,924
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Total liabilities 26,873,488 44,927,937
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MEMBERS' CAPITAL
Contributed capital 6,000,000 6,000,000
Distributions to members (4,586,983) (632,753)
Retained earnings (accumulated deficit) 9,861,047 (1,215,906)
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Total members' capital 11,274,064 4,151,341
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Total liabilities and members' capital $ 38,147,552 $ 49,079,278
------------- ------------
------------- ------------
</TABLE>
See accompanying notes to the financial statements.
3
<PAGE>
NYLIFE STRUCTURED ASSET MANAGEMENT COMPANY LTD.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS (ACCUMULATED DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
-------------------------------------------------------
1998 1997 1998 1997
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INCOME
Monitoring revenue $3,077,707 $ 4,872,229 $10,793,349 $15,184,159
Interest 108,241 93,013 325,157 277,011
Gain on sale of security alarm monitoring contracts 2,092,932 - 9,234,966 -
---------- ----------- ----------- -----------
Total income 5,278,880 4,965,242 20,353,472 15,461,170
EXPENSES
Monitoring fees 1,018,499 1,639,502 3,510,779 5,093,282
Interest expense 711,305 976,458 2,086,892 3,022,304
General and administrative 195,026 117,886 601,960 360,435
Consulting fees 65,104 71,354 201,563 214,062
Asset management fee to affiliate 81,329 119,916 292,114 374,583
Equity return fee to affiliate 37,608 54,346 146,301 163,039
Bad debt expense 122,233 214,809 440,765 658,797
Valuation adjustment of security alarm monitoring contracts 590,488 899,505 1,568,114 3,581,896
Amortization of debt issuance costs paid to affiliates 133,334 263,494 428,031 764,540
---------- ----------- ----------- -----------
Total expenses 2,954,926 4,357,270 9,276,519 14,232,938
---------- ----------- ----------- -----------
Net income 2,323,954 607,972 11,076,953 1,228,232
Retained earnings (accumulated deficit) at beginning
of period 7,537,093 (3,456,189) (1,215,906) (4,076,449)
---------- ----------- ----------- -----------
Retained earnings (accumulated deficit) at end of period $9,861,047 $(2,848,217) $ 9,861,047 $(2,848,217)
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
</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, 1997,
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NYLIFE NYLIFE Total
SFD Holding Depositary Members'
Inc. Corp. Capital
----------- ---------- -----------
<S> <C> <C> <C>
Balance at January 1, 1997 $1,075,822 $ 214,976 $ 1,290,798
Net income 2,383,690 476,853 2,860,543
---------- ---------- -----------
Balance at December 31, 1997 3,459,512 691,829 4,151,341
Net income 9,230,425 1,846,528 11,076,953
Distribution to members (3,295,060) (659,170) (3,954,230)
---------- ---------- -----------
Balance at September 30, 1998 $9,394,877 $1,879,187 $11,274,064
---------- ---------- -----------
---------- ---------- -----------
</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
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended September 30,
1998 1997
-------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 11,076,953 $ 1,228,232
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain on sale of security alarm monitoring contracts (9,234,966) -
Amortization of security alarm monitoring contracts 1,568,114 3,581,896
Amortization of debt issuance costs 428,031 764,540
Bad debt expense 440,765 658,797
Changes in assets and liabilities:
Decrease (increase) in monitoring revenue and interest receivables 665,633 (466,876)
Increase in due from WestSec (87,391) (122,107)
Decrease (increase) in other receivables 209,592 (144,000)
Decrease in monitoring fees payable to WestSec (358,474) (167,583)
Increase (decrease) in accounts payable and accrued liabilities 3,038,076 (32,373)
Decrease in due to affiliates (140,504) (13,197)
Decrease in unearned revenue (1,215,095) (217,256)
Decrease in interest payable (57,136) (63,798)
------------------ ------------------
Net cash provided by operating activities 6,333,598 5,006,275
------------------ ------------------
Cash flows from investing activities:
Proceeds from sale of security alarm monitoring contracts - net
of disposal costs 20,216,789 -
Purchase price refunds - investment in security alarm
monitoring contracts 36,800 200,627
------------------ ------------------
Net cash provided by investing activities 20,253,589 200,627
------------------ ------------------
Cash flows from financing activities:
Principal payments on Notes (19,321,316) (5,505,003)
Distribution to members (3,954,230) -
------------------ ------------------
Net cash used in financing activities (23,275,546) (5,505,003)
------------------ ------------------
Net increase (decrease) in cash and cash equivalents 3,311,641 (298,101)
Cash and cash equivalents (including segregated cash and
cash equivalents) at beginning of period 12,211,825 11,441,927
------------------ ------------------
Cash and cash equivalents (including segregated cash and
cash equivalents) at end of period $ 15,523,466 $ 11,143,826
------------------ ------------------
------------------ ------------------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 2,144,029 $ 3,086,101
------------------ ------------------
------------------ ------------------
</TABLE>
See accompanying notes to the financial statements.
6
<PAGE>
NYLIFE STRUCTURED ASSET MANAGEMENT COMPANY LTD.
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
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. A limited liability company offers its equity investors limited
liability protection while providing them with flow through tax treatment.
SAMCO has two members. The principal member is NYLIFE SFD Holding Inc. ("SFD
Holding"), formerly NAFCO Inc. 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 of a limited
liability company is similar to a director of a corporation, and may designate
one or more persons as officers of the limited liability company.
On January 15, 1992, SFD Holding and NDC (collectively, the "Members") purchased
membership interests in SAMCO of 83.33% and 16.67%, respectively. SFD Holding
made an initial capital contribution to SAMCO of 500 shares of $1 par value,
non-voting, non-convertible, 24.39% cumulative preferred stock of NYLIFE Bridge
Investor Inc. ("NBII"), a subsidiary of SFD Holding prior to its liquidation on
June 30, 1993. The preferred stock was originally valued by SAMCO at $5,000,000
which represents SFD Holding's recorded carrying value for the preferred stock.
NDC made an initial capital contribution of $1,000,000 in cash. SAMCO had no
operations prior to January 15, 1992.
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.
All references in this Form 10-Q to "Servicer" shall mean Westinghouse with
regard to all time periods through December 31, 1996, WestSec, Inc. ("WestSec")
with regard to the period January 1, 1997 through November 24, 1997 and
Protection One, Inc. subsequent to November 24, 1997.
These interim financial statements should be read in conjunction with the
Company's Annual Report on Form 10-K.
7
<PAGE>
NOTE 2 - SECURITY ALARM MONITORING CONTRACTS AND NOTES PAYABLE
DISPOSITION OF ASSETS AND MATURITY OF SERIES A NOTES
In February 1998, SAMCO sold to WestSec for $15,107,145, the Contracts and
related assets which constituted the collateral securing SAMCO's Series A Notes.
The transaction was consummated pursuant to the Operational Services Agreement
("OSA") and the Consent, Assignment, Assumption, and Modification Agreement (the
"Consent Agreement"). A portion of the proceeds of the sale were used to pay
all outstanding principal and accrued interest on the Series A Notes on February
17, 1998, the maturity date of such Notes. SAMCO recognized a gain of
approximately $7.1 million on the sale of the Contracts.
Concurrent with the sale, SAMCO and WestSec instructed The Chase Manhattan Bank
to reduce the WestSec letter of credit (the "LC") to $54,338,000 in accordance
with its terms.
DISPOSITION OF ASSETS AND MATURITY OF SERIES B NOTES
In August 1998, SAMCO sold to WestSec the Contracts and related assets which
constituted the collateral securing SAMCO's Series B Notes. The transaction was
consummated pursuant to the OSA and the Consent Agreement. The purchase price
of the Series B Contracts is currently in dispute. The Consent Agreement
obligates WestSec to pay the greater of fair market value, as determined by an
independent appraisal firm, or 30 times the recurring monthly revenue ("RMR") of
the Contracts purchased. In the absence of a third-party appraisal specific to
the Series B Contracts on the closing date, WestSec paid SAMCO $4,722,490 which
represented the floor price of 30 times RMR.
SAMCO subsequently drew on a Letter of Credit from Chase Manhattan Bank in the
amount of $2,343,658 which represents (i) the difference between the value of
the Series B Contracts using a multiple of 41 times RMR pursuant to a valuation
of the Series A Contracts in February 1998 by KPMG Peat Marwick LLP and (ii) the
value of so called "person reassignment accounts" (see Note 4) at 41 times RMR.
A portion of the proceeds of the sale were used to pay all outstanding principal
and accrued interest on the Series B Notes on August 17, 1998, the maturity date
of such Notes. SAMCO recognized a gain of approximately $2.1 million on the
sale of the Series B Contracts.
The carrying amount of SECURITY ALARM MONITORING CONTRACTS HELD FOR SALE in the
Statement of Financial Position at September 30, 1998 includes Contracts
collateralizing the Series C Notes as follows:
<TABLE>
<CAPTION>
Series C(*)
-----------
<S> <C>
Carrying amount $19,905,898
</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. The carrying amount of
these contracts at September 30, 1998 is $1,687,032.
8
<PAGE>
INTEREST PAYABLE and NOTES PAYABLE in the Statement of Financial Position at
September 30, 1998 relate to Series C Notes as follows:
<TABLE>
<CAPTION>
Series C
--------
<S> <C>
Interest payable $415,278
-----------
-----------
Notes payable - current $21,442,490
Notes payable - non-current -
-----------
Total $21,442,490
-----------
-----------
Maturity date 8/15/99
-----------
-----------
</TABLE>
NOTE 3 - RELATED PARTIES
DUE TO AFFILIATES in the Statement of Financial Position at September 30, 1998
and December 31, 1997 includes (i) the asset management fee payable to SFD
Holding of $81,329 and $115,567, respectively (ii) the equity return fee
payable to SFD Holding of $37,608 and $54,346, respectively, and (iii) $1,111
and $90,639 of professional fees paid by SFD Holding on SAMCO's behalf,
respectively.
NOTE 4 - LEGAL PROCEEDINGS
On March 2, 1998, WestSec filed a state court action against SAMCO in Dallas
County, Texas seeking a determination that it does not have to purchase from
SAMCO what WestSec calls "person reassignment accounts," and that it is entitled
to costs and reasonable attorneys fees. These accounts, WestSec argues, are
"accounts that are with a customer who (1) had an account owned by SAMCO which
was terminated due to the relocation of the customer and (2) entered into a new
security alarm contract with WEC or WestSec at the customer's new location
within 120 days after terminating his or her account at the prior location."
WestSec contends that such accounts are not included within the collateral
securing SAMCO's Notes.
SAMCO contends that it owns these disputed accounts and that either WestSec is
obligated to purchase them under Section 9.1 of the OSA or SAMCO is entitled to
sell them to any party. The dispute is currently confined to approximately
2,323 accounts relating to the Series A Notes that matured on February 15, 1998.
Unless resolved, however, the dispute is likely to extend to other similar
accounts relating to the Series B and C Notes.
SAMCO has answered WestSec's complaint and filed appropriate counter-claims
asserting that (i) SAMCO owns and WestSec is obligated to purchase the accounts
in dispute, and/or (ii) WestSec acquired those accounts in material breach of
its contractual obligations to SAMCO, which has been damaged by the lost value
of those accounts. In addition, SAMCO also seeks lost revenue for those
accounts, as well as costs and reasonable attorneys fees.
9
<PAGE>
Each party has served on the other document production requests and written
interrogatories. The court ordered the parties to participate in a mediation on
October 7, 1998. The parties are currently evaluating a settlement proposal put
forth by the mediator.
Notwithstanding the foregoing, all payments required to have been made to date
to the holders of the SAMCO Notes have been paid on a timely basis in accordance
with the terms thereof.
NOTE 5- LETTER OF CREDIT
In February 1998, SAMCO received $886,277 from The Chase Manhattan Bank pursuant
to its draw upon the LC. This amount relates to the approximately 2,323 "person
reassignment accounts" in Series A which SAMCO contends it sold to WestSec on
February 17, 1998. This gain has been deferred and is included in ACCOUNTS
PAYABLE AND ACCRUED LIABILITIES in SAMCO's Statement of Financial Position
pending the outcome of the litigation described in Note 4.
In July 1998, the LC was reduced to $49,245,000 in accordance with its terms.
In August 1998 SAMCO received $2,343,658 from The Chase Manhattan Bank pursuant
to its draw upon the LC. Of this amount, $587,739 relates to the approximately
610 "person reassignment accounts" in Series B which SAMCO contends it sold to
WestSec on August 17, 1998. The remaining $1,745,919 represents the difference
between the value of the Series B Contracts using a multiple of 41 times RMR
(pursuant to a valuation of the Series A Contracts in February 1998 by KPMG Peat
Marwick LLP) and the 30 times RMR paid by WestSec. The receipt of these funds
has been deemed a deferred gain and is included in ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES in SAMCO's Statement of Financial Position pending the outcome of
the litigation described in Note 4.
NOTE 6 - SUBSEQUENT EVENTS
DISTRIBUTION TO SERIES C NOTEHOLDERS
On November 15, 1998, SAMCO will distribute $1,360,659 to the Series C
Noteholders which includes (i) interest at an annualized rate of 9.00%, (ii) the
required quarterly principal repayment of 1.25%, and (iii) additional principal
repayment of 0.62%. Subsequent to this distribution, the outstanding principal
amount of the Series C Notes will be $20,600,092.
In October 1998, the LC was reduced to $38,635,000 in accordance with its terms.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash from operating activities for the nine months ended
September 30, 1998 increased from the corresponding 1997 period by approximately
$1.3 million. This increase included 1998 deferred gains of approximately $2.6
million resulting from SAMCO's draws on the LC in March and August 1998.
Excluding deferred gains, net cash from operations decreased by approximately
$1.3 million from the corresponding 1997 period. This decrease resulted
primarily from lower monitoring revenues that more than offset reduced interest
expense. Net monitoring revenues decreased primarily because of the sale of
approximately 31% of SAMCO's contracts (which collateralized the Series A Notes)
in February 1998. During the first nine months of 1998, the Company paid
scheduled and additional principal of $11,695,361, $4,520,521 and $3,105,451 to
the Series A, Series B, and Series C Noteholders, respectively.
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 the Servicer certain attrition
guarantees. These guarantees provide for the replacement of Contracts, with
replacement Contracts, by the Servicer if attrition exceeds certain levels. As
of September 30, 1998, approximately 67% of the Series C Contracts owned by the
Company are covered by attrition guarantees by the Servicer.
The Company's revenues from Contracts have been sufficient to pay the Servicer
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
through the maturity of the Series C Notes.
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 the Series C Notes at September 30, 1998 are not meaningful as the
Notes will mature on August 15, 1999.
CONTRACT REPURCHASE - SERIES A, SERIES B, AND SERIES C NOTES
At maturity, SAMCO is obligated to repay the then outstanding principal balance
of the Notes. Pursuant to the Consent Agreement, as each series of Notes
mature, WestSec shall purchase all of the Contracts securing such series of
Notes for an amount equal to the greater of (i) the fair market value of such
Contracts as determined by an nationally recognized independent valuation firm
jointly selected by WestSec and SAMCO; or (ii) thirty (30) times the recurring
monthly fees and charges payable by customers pursuant to such Contracts.
Westinghouse has agreed that if the purchase price payable by WestSec for a
particular Series of Notes is less than the amount of all principal and accrued
and unpaid interest on such series of Notes, upon notice from SAMCO to
Westinghouse, Westinghouse will remit to SAMCO, at the same time the WestSec
price is
11
<PAGE>
required to be paid, in immediately available funds, the amount in excess of the
WestSec price so that the total paid to SAMCO will equal the amount of all
principal and accrued and unpaid interest on such Series of Notes. Such notice
shall be given by SAMCO to Westinghouse at least five business days prior to the
stated maturity date of each Series of Notes.
DISPOSITION OF ASSETS AND MATURITY OF SERIES A NOTES
In February 1998, SAMCO sold to WestSec for $15,107,145, the Contracts and
related assets which constituted the collateral securing SAMCO's Series A Notes.
The transaction was consummated pursuant to the OSA and the Consent Agreement.
A portion of the proceeds of the sale were used to pay all outstanding principal
and accrued interest on the Series A Notes on February 17, 1998, the maturity
date of such Notes.
Concurrent with the sale, SAMCO and WestSec instructed The Chase Manhattan Bank
to reduce the LC to $54,338,000 in accordance with its terms. In July and
October 1998, the LC was reduced to $49,245,000 and $38,635,000, respectively in
accordance with its terms.
DISPOSITION OF ASSETS AND MATURITY OF SERIES B NOTES
In August 1998, SAMCO sold to WestSec the Contracts and related assets which
constituted the collateral securing SAMCO's Series B Notes. The transaction was
consummated pursuant to the Operational Services Agreement ("OSA") and the
Consent, Assignment, Assumption, and Modification Agreement (the "Consent
Agreement"). The purchase price of the Series B Contracts is currently in
dispute. The Consent Agreement obligates WestSec to pay the greater of fair
market value, as determined by an independent appraisal firm, or 30 times the
recurring monthly revenue ("RMR") of the Contracts purchased. In the absence of
a third-party appraisal specific to the Series B Contracts on the closing date,
WestSec paid SAMCO $4,722,490 which represented the floor price of 30 times RMR.
SAMCO subsequently drew on a Letter of Credit from Chase Manhattan Bank in the
amount of $2,343,658 which represents (i) the difference between the value of
the Series B Contracts using a multiple of 41 times RMR pursuant to a valuation
of the Series A Contracts in February 1998 by KPMG Peat Marwick LLC and (ii) the
value of so called "person reassignment accounts" (see Note 4) at 41 times RMR.
A portion of the proceeds of the sale were used to pay all outstanding principal
and accrued interest on the Series B Notes on August 17, 1998, the maturity date
of such Notes. SAMCO recognized a gain of approximately $2.1 million on the
sale of the Series B Contracts.
The Company does not anticipate the purchase of additional Contracts. As of
September 30, 1998, the Company had no material capital commitments.
Should WestSec 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 have a materially adverse impact on the Company.
RESULTS OF OPERATIONS
12
<PAGE>
The Company had net income of $11.1 million for the nine months ended September
30, 1998 as compared to net income of $1.2 million for the corresponding 1997
period resulting primarily from the gain on sale of the Series A and B Contracts
of approximately $9.2 million. Excluding the effect of the gain on sale, net
income for the 1998 period was $1.9 million, approximately $700,000 higher than
the corresponding period in 1997.
Excluding the gain on sale of security alarm monitoring contracts, SAMCO derived
97% of its income for the period from monitoring revenues and the balance from
interest income.
The decrease in the Company's monitoring revenues for the period ended September
30, 1998 compared to the corresponding period in 1997 is a result of (i) the
attrition of Contracts in 1997 and the first nine months of 1998 and (ii) the
sale of approximately 31% of SAMCO's contracts in February 1998. Accordingly,
the related monitoring fee expense has decreased. Net monitoring revenue
(monitoring revenue less monitoring expenses) decreased approximately $2.8
million from the 1997 to the 1998 period. Attrition expense (which is reported
under the caption VALUATION ADJUSTMENT OF SECURITY ALARM CONTRACTS on the
Company's Statement of Operations) decreased by approximately $2.0 million
reflecting the sale of the Series A contracts. Interest expense decreased in
the first nine months of 1998 by approximately $935,000 compared to the
corresponding 1997 period as the Company paid off the Series B Notes in
August and continues to pay down scheduled and additional principal on the
Series C Notes. General and administrative expenses for the nine months
ended September 30, 1998 increased by approximately $240,000 as a result of
legal costs incurred in defending the litigation described in Note 4 to the
Financial Statements. Amortization of debt issuance costs decreased in the
first nine months of 1998 by approximately $765,000 compared to the
corresponding 1997 period as the costs associated with Series A and B were
fully amortized as of December 31, 1997 and June 30, 1998, respectively. The
bad debt expense of $441,000 on the Company's Statement of Operations for the
first nine months of 1998 represents actual revenue loss on attrited
Contracts and the potential revenue loss on Contracts with balances greater
than 90 days past due as of September 30, 1998.
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 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. The Company has no intention of
increasing monitoring fees in the immediate future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
A list of Exhibits required by Item 601 of Regulation S-K and filed as part
of this report is set forth in the Index to Exhibits.
(b) REORTS ON FORM 8-K:
The Company filed a report on Form 8-K dated August 17, 1998, which is
incorporated by reference. The contents of the report are as follows:
In August 1998, SAMCO sold to WestSec the security alarm monitoring
contracts and related assets which constituted the collateral securing
SAMCO's Series B Notes. A portion of the proceeds of the sale were used to
pay all outstanding principal and accrued interest on the Series B Notes on
August 17, 1998, the maturity date of such Notes.
14
<PAGE>
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION
(3) ARTICLES OF INCORPORATION AND BY-LAWS
3.1 Articles of Organization of Company. *
3.2 Amended Regulations of Company. *
3.3 Amendment to Articles of Organization of Company. *
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES:
4.1 Indenture. *
4.2 Form of Global Note, included as Exhibit A to Exhibit 4.1. *
4.3 Form of Definitive Note, included as Exhibit B to Exhibit 4.1. *
4.4 Form of Security Agreement, included as Exhibit C to Exhibit 4.1. *
4.5 Form of First Supplemental Indenture. *
4.6 Form of Second Supplemental Indenture. *
(27) FINANCIAL DATA SCHEDULE**
* Previously filed.
** Filed herewith.
15
<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 5, 1998.
NYLIFE Structured Asset Management
Company Ltd.
/s/ Kevin M. Micucci
--------------------
By: Kevin M. Micucci
Manager and President
(Principal Executive, Financial
and Accounting Officer)
16
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 15,523,466
<SECURITIES> 0
<RECEIVABLES> 1,031,156
<ALLOWANCES> 0
<INVENTORY> 21,592,930
<CURRENT-ASSETS> 38,147,552
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 38,147,552
<CURRENT-LIABILITIES> 26,873,488
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 11,274,064
<TOTAL-LIABILITY-AND-EQUITY> 38,147,552
<SALES> 0
<TOTAL-REVENUES> 20,353,472
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,189,627
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,086,892
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,076,953
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
