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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, 1999
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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
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
51 Madison Avenue, New York, New York 10010
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 576-6456
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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
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Yes X No
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NYLIFE STRUCTURED ASSET MANAGEMENT COMPANY LTD.
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INDEX
Page No.
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Part I - Financial Information (Unaudited)
Item 1. Financial Statements
Statement of Financial Position as of
March 31, 1999, and December 31, 1998 3
Statement of Operations and Retained Earnings
(Accumulated Deficit) for the Three Months
Ended March 31, 1999 and 1998 4
Statement of Changes in Members' Capital for
the Three Months Ended March 31, 1999 5
Statement of Cash Flows for the Three
Months Ended March 31, 1999 and 1998 6
Notes to the Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 10
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 11
Exhibits Index 12
Signatures 13
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<TABLE>
<CAPTION>
NYLIFE STRUCTURED ASSET MANAGEMENT COMPANY LTD.
STATEMENT OF FINANCIAL POSITION
March 31, December 31,
1999 1998
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(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,134,087 $ 11,090,211
Segregated cash and cash equivalents 1,504,930 7,018,453
Segregated investments in U.S. government securities 21,169,688 22,342,580
Monitoring revenue and interest receivables 202,655 609,999
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Total current assets 24,011,360 41,061,243
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Total assets $ 24,011,360 $ 41,061,243
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LIABILITIES AND MEMBERS' CAPITAL
CURRENT LIABILITIES
Notes payable (Note 2) $ 18,964,834 $ 20,600,090
Interest payable (Note 2) 210,432 238,735
Accounts payable and accrued liabilities 526,472 568,507
Monitoring fees payable - 344,963
Due to Servicer - 95,450
Due to affiliates (Note 3) - 110,753
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Total current liabilities 19,701,738 21,958,498
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Total liabilities 19,701,738 21,958,498
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MEMBERS' CAPITAL
Contributed capital 6,000,000 6,000,000
Distributions to members (19,286,983) (4,586,983)
Retained earnings 17,596,605 17,689,728
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Total members' capital 4,309,622 19,102,745
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Total liabilities and members' capital $ 24,011,360 $ 41,061,243
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</TABLE>
See accompanying notes to the financial statements.
3
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<TABLE>
<CAPTION>
NYLIFE STRUCTURED ASSET MANAGEMENT COMPANY LTD.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS (ACCUMULATED DEFICIT)
For the Three Months Ended
March 31,
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1999 1998
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INCOME (Unaudited) (Unaudited)
<S> <C> <C>
Interest $ 354,423 $ 383,078
Monitoring revenue - 4,050,568
Gain on sale of security alarm monitoring contracts - 7,142,034
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Total income 354,423 11,575,680
EXPENSES
Interest expense 439,009 767,039
General and administrative 8,537 202,880
Monitoring fees - 1,264,809
Consulting fees - 71,354
Asset management fee to affiliate - 113,552
Equity return fee to affiliate - 54,346
Bad debt expense - 202,718
Valuation adjustment of security alarm monitoring contracts - 490,358
Amortization of debt issuance costs paid to affiliates - 147,349
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Total expenses 447,546 3,314,405
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Net income (loss) (93,123) 8,261,275
Retained earnings (accumulated deficit) at beginning of period 17,689,728 (1,215,906)
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Retained earnings at end of period $ 17,596,605 $ 7,045,369
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See accompanying notes to the financial statements.
4
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<TABLE>
<CAPTION>
NYLIFE STRUCTURED ASSET MANAGEMENT COMPANY LTD.
STATEMENT OF CHANGES IN MEMBERS' CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
NYLIFE NYLIFE Total
SFD Holding Depositary Members'
Inc. Corp. Capital
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<S> <C> <C> <C>
Balance at December 31, 1998 $ 15,918,517 $ 3,184,228 $ 19,102,745
Distribution to members (12,201,000) (2,499,000) (14,700,000)
Net loss (77,599) (15,524) (93,123)
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Balance at March 31, 1999 $ 3,639,918 $ 669,704 $ 4,309,622
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</TABLE>
See accompanying notes to the financial statements.
5
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<TABLE>
<CAPTION>
NYLIFE STRUCTURED ASSET MANAGEMENT COMPANY LTD.
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
For the Three Months Ended March 31,
1999 1998
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(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (93,123) $ 8,261,275
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain on sale of security alarm monitoring contracts - (7,142,034)
Valuation adjustment of security alarm monitoring contracts - 490,358
Amortization of debt issuance costs - 147,349
Bad debt expense - 202,718
Changes in assets and liabilities:
Increase in monitoring revenue and interest receivables 407,344 683,990
(Decrease) increase in due from Servicer (95,450) 68,700
Increase in other receivables - 234,638
Decrease in monitoring fees payable to Servicer (344,963) (248,723)
(Decrease) increase in accounts payable and accrued liabilities (42,035) 1,169,658
Decrease in due to affiliates (110,753) (53,476)
Decrease in unearned revenue - (895,931)
Decrease in interest payable (28,303) (177,786)
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Net cash provided by (used in) operating activities (307,283) 2,740,736
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Cash flows from investing activities:
Proceeds from sale of security alarm monitoring contracts - net
of disposal costs - 14,865,349
Purchase price refunds - investment in security alarm
monitoring contracts - 36,800
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Net cash provided by investing activities - 14,902,149
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Cash flows from financing activities:
Principal payments on Notes (1,635,256) (12,975,891)
Distribution to members (14,700,000) -
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Net cash used in financing activities (16,335,256) (12,975,891)
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Net increase (decrease) in cash and cash equivalents (16,642,539) 4,666,994
Cash and cash equivalents (including segregated cash and
cash equivalents) at beginning of period 40,451,244 12,211,825
Cash and cash equivalents (including segregated cash and
cash equivalents) at end of period $ 23,808,705 $ 16,878,819
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Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 467,312 $ 944,825
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</TABLE>
See accompanying notes to the financial statements.
6
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NYLIFE STRUCTURED ASSET MANAGEMENT COMPANY LTD.
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 1999
(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. 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 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 consisted 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 these Notes to the Financial Statements to "Servicer" shall mean
Protection One Alarm Monitoring, Inc. ("Protection One").
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ACTIVITIES IN 1999
As mentioned in Note 2, during 1998 SAMCO sold all of its security alarm
monitoring contracts to Protection One. In 1999, SAMCO's sole source of revenue
will be interest income from its cash and cash equivalents. SAMCO's remaining
obligations include accrued liabilities, ongoing general and administrative
expenses and the debt service on the Series C Notes until their maturity on
August 16, 1999. SAMCO's March 31, 1999 cash and cash equivalents balance of
$23.8 million, in addition to investment interest and principal payments to be
received in 1999, is substantially in excess of its remaining obligations.
On March 10, 1999, SAMCO distributed $14.7 million to its Members. In addition,
after the payment of accrued liabilities, ongoing operating expenses and the
remaining obligations on the Series C Notes, SAMCO expects to return
approximately $2.1 million to its Members during 1999.
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 the Contracts and related assets which
constituted the collateral securing SAMCO's Series A Notes. 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 $8.0 million on the sale of the
Series A Contracts.
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. 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 $3.8 million on the sale of the
Series B Contracts.
DISPOSITION OF ASSETS AND DEFEASANCE OF SERIES C NOTES
On December 17, 1998, SAMCO sold to Protection One, as successor by merger to
WestSec, its remaining security alarm monitoring contracts and related assets,
including those which constituted the collateral securing SAMCO's Series C
Notes. The purchase price for the contracts and related assets was $29.5
million. SAMCO recognized a gain of approximately $4.8 million on the sale of
its remaining Contracts. The transaction was consummated pursuant to a
Settlement Agreement dated December 17, 1998 between SAMCO and WestSec which
resolved litigation between the parties.
A portion of the proceeds of the sale were used to purchase United States
Government obligations which were deposited with United States Trust Company of
New York (the "Trustee") pursuant to section 7.1(b) of the Indenture. The
securities had an aggregate value sufficient to pay principal and interest to
the Series C Noteholders on the then
8
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remaining distribution dates of February 16, 1999, May 17, 1999 and at maturity
on August 16, 1999.
On March 19, 1999, SAMCO obtained a release of the lien of the Security
Agreement as required by Section 7.1(b) of the Indenture and was therefore
relieved of its obligations under the Series C Notes, the Indenture and the
Security Agreement.
INTEREST PAYABLE and NOTES PAYABLE in the Statement of Financial Position at
March 31, 1999 and December 31, 1998 include amounts relating to the Series C
Notes as follows:
<TABLE>
<CAPTION>
3/31/99 12/31/98
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<S> <C> <C>
Interest payable $ 210,432 $ 238,735
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Notes payable - current $18,964,834 $20,600,090
Notes payable - non-current -0- -0-
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Total $18,964,834 $20,600,090
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NOTE 3 - RELATED PARTIES
DUE TO AFFILIATES in the Statement of Financial Position at December 31, 1998
includes the asset management fee payable to SFD Holding of $78,867 and the
equity return fee payable to SFD Holding of $31,886.
NOTE 4 - SUBSEQUENT EVENTS
DISTRIBUTION TO SERIES C NOTEHOLDERS
On May 17, 1999, SAMCO will distribute $988,040 to the Series C Noteholders
which includes interest at an annualized rate of 9.00% and the required
quarterly principal repayment of 1.25%. Subsequent to this distribution, the
outstanding principal amount of the Series C Notes will be $18,402,334.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES - 1999
At March 31, 1999 the Company has $23.8 million of cash and cash equivalents.
Of this amount, $21.2 million of United States Government securities have been
deposited with the Trustee for the specific purpose of paying the remaining
principal and interest to the Series C Noteholders on May 17, 1999 and at
maturity on August 16, 1999.
SAMCO sold all of its security alarm monitoring contracts to Protection One in
1998. In 1999, SAMCO's sole source of revenue is interest income from its cash
and cash equivalents. SAMCO's remaining obligations include accrued
liabilities, ongoing general and administrative expenses and the debt service on
the Series C Notes until their maturity on August 16, 1999. SAMCO's March 31,
1999 cash and cash equivalents balance of $23.8 million, in addition to
investment interest and principal payments to be received in 1999, is
substantially in excess of its remaining obligations.
On March 10, 1999, SAMCO distributed $14.7 million to its Members. After the
payment of accrued liabilities, ongoing operating expenses and the remaining
obligations on the Series C Notes, SAMCO expects to return approximately $2.1
million to its Members during 1999.
RESULTS OF OPERATIONS - 1999
As mentioned above, SAMCO sold all of its security alarm monitoring contracts to
Protection One in 1998. As a result, SAMCO derived 100% of its income from
interest income on short-term investments for the three months ended March 31,
1999.
Interest expense decreased in the current quarter compared to the 1998 quarter
as the Series A and B Notes have matured and the Company continued to pay down
scheduled and additional principal on the Series C Notes.
The Company's operating expenses included general and administrative expenses,
including (i) audit and tax fees, (ii) printing and mailing of quarterly and
annual reports to investors, and (iii) legal fees. The Company's other expenses
included interest expense and state franchise taxes.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
10
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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) REPORTS ON FORM 8-K:
None.
11
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INDEX TO EXHIBITS
EXHIBIT DESCRIPTION
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(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**
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* Previously filed.
** Filed herewith.
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 7, 1999.
NYLIFE Structured Asset Management
Company Ltd.
/s/ Kevin M. Micucci
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By: Kevin M. Micucci
Manager and President
(Principal Executive, Financial
and Accounting Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 23,808,705
<SECURITIES> 0
<RECEIVABLES> 202,655
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 24,011,360
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 24,011,360
<CURRENT-LIABILITIES> 736,904
<BONDS> 18,964,834
0
0
<COMMON> 0
<OTHER-SE> 4,309,622
<TOTAL-LIABILITY-AND-EQUITY> 24,011,360
<SALES> 0
<TOTAL-REVENUES> 354,423
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,537
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 439,009
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (93,123)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
