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 June 30, 1996
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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
INDEX
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Page No.
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Part I - Financial Information (Unaudited)
Item 1. Financial Statements
Statement of Financial Position as of
June 30, 1996, and December 31, 1995 3
Statement of Operations and (Accumulated
Deficit) Retained Earnings for the Three and
Six Months Ended June 30, 1996, and 1995 4
Statement of Changes in Members' Capital for
the Six Months Ended June 30, 1996 and
the Year Ended December 31, 1995 5
Statement of Cash Flows for the Six
Months Ended June 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
NYLIFE STRUCTURED ASSET MANAGEMENT COMPANY LTD.
STATEMENT OF FINANCIAL POSITION
ASSETS
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June 30, December 31,
1996 1995
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Current assets (Unaudited)
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Cash and cash equivalents $ 6,519,870 $ 6,527,623
Segregated cash and cash equivalents 5,039,259 5,399,963
Monitoring revenue and interest receivables
(net of allowance of $896,035 and $777,516,
respectively) 2,150,171 2,760,630
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Total current assets 13,709,300 14,688,216
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Investment in security alarm monitoring
contracts (Note 2)
(net of accumulated amortization of
$28,167,944 and $22,965,463, respectively) 43,181,987 48,424,894
Debt issuance costs paid to affiliates
(net of accumulated amortization of
$4,093,742 and $3,572,284, respectively) 2,259,684 2,781,142
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Total assets $ 59,150,971 $ 65,894,252
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LIABILITIES AND MEMBERS' CAPITAL
Current liabilities
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Monitoring fees payable to Westinghouse $ 799,654 $ 943,869
Accounts payable and accrued liabilities 296,436 334,493
Due to affiliates (Note 3) 194,815 204,690
Due to Westinghouse 30,976 14,351
Unearned revenue 2,973,715 3,129,618
Interest payable (Note 2) 599,830 658,924
Notes payable (Note 2) 3,970,891 3,970,891
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Total current liabilities 8,866,317 9,256,836
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Notes payable (Note 2) 47,787,506 52,886,655
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Total liabilities 56,653,823 62,143,491
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Members' capital
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Contributed capital 6,000,000 6,000,000
Distributions to members (632,753) (632,753)
Accumulated deficit (2,870,099) (1,616,486)
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Total members' capital 2,497,148 3,750,761
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Total liabilities and
members' capital $ 59,150,971 $ 65,894,252
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See accompanying notes to the financial statements.
3
NYLIFE STRUCTURED ASSET MANAGEMENT COMPANY LTD.
STATEMENT OF OPERATIONS AND (ACCUMULATED DEFICIT) RETAINED EARNINGS
For the Three Months Ended For the Six Months Ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
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Income (Unaudited) (Unaudited) (Unaudited) (Unaudited)
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Monitoring revenue $ 5,817,204 $ 6,308,468 $ 11,748,420 $ 12,871,599
Interest 97,243 109,828 198,292 218,751
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Total income 5,914,447 6,418,296 11,946,712 13,090,350
Expenses
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Monitoring fees 1,984,711 1,986,202 3,986,697 4,184,114
Interest expense 1,186,910 1,395,861 2,431,558 2,841,248
General and administrative 74,847 118,330 162,916 195,743
Consulting fees 71,354 71,354 142,708 142,708
Asset management fee to affiliate 140,469 158,918 285,952 321,968
Equity return fee to affiliate 54,347 54,347 108,693 108,693
Bad debt expense 146,605 130,627 357,862 414,011
Amortization of security alarm
monitoring contracts 2,369,947 2,464,723 5,202,481 4,826,874
Amortization of debt issuance costs 295,342 318,434 521,458 692,084
------------ ----------- ------------ ------------
Total expenses 6,324,532 6,698,796 13,200,325 13,727,443
------------ ----------- ------------ ------------
Net loss (410,085) (280,500) (1,253,613) (637,093)
(Accumulated deficit) retained earnings
at beginning of period (2,460,014) 150,670 (1,616,486) 507,263
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(Accumulated deficit) at end of period $ (2,870,099) $ (129,830) $ (2,870,099) $ (129,830)
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See accompanying notes to the financial statements.
4
NYLIFE STRUCTURED ASSET MANAGEMENT COMPANY LTD.
STATEMENT OF CHANGES IN MEMBERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 1995,
AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
NYLIFE Total
Depositary Members'
NAFCO Inc. Corp. Capital
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Balance at January 1, 1995 4,895,429 979,081 5,874,510
Net loss (1,769,720) (354,029) (2,123,749)
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Balance at December 31, 1995 3,125,709 625,052 3,750,761
Net loss (1,044,636) (208,977) (1,253,613)
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Balance at June 30, 1996 $ 2,081,073 $ 416,075 $ 2,497,148
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See accompanying notes to the financial statements.
5
NYLIFE STRUCTURED ASSET MANAGEMENT COMPANY LTD.
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
For the six For the six
months ended months ended
June 30, 1996 June 30, 1995
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Cash flows from operating activities:
Net loss $ (1,253,613) $ (637,093)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Amortization of security alarm
monitoring contracts 5,202,481 4,826,874
Amortization of debt issuance costs 521,458 692,084
Bad debt expense 357,862 414,011
Changes in assets and liabilities:
Decrease (increase) in monitoring revenue
and interest receivables 252,597 (372,922)
Decrease in monitoring fees payable to
Westinghouse (144,215) (63,147)
(Decrease) increase in accounts
payable and accrued liabilities (38,057) 28,801
Decrease in due to affiliates (9,875) (8,899)
Increase (decrease) in due to Westinghouse 16,625 (83,221)
Decrease in unearned revenue (155,903) (78,879)
Decrease in interest payable (59,094) (66,503)
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Net cash provided by operating activities 4,690,266 4,651,106
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Cash flows from investing activities:
Purchase price refunds - investment in
security alarm
monitoring contracts 40,426 748,228
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Net cash provided by investing activities 40,426 748,228
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Cash flows from financing activities:
Principal payments on Notes (5,099,149) (5,738,472)
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Net cash used in financing activities (5,099,149) (5,738,472)
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Net decrease in cash and cash equivalents (368,457) (339,138)
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 $ 11,559,129 $ 10,541,548
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Supplemental disclosure of cash flow
information:
Cash paid during the period for
interest $ 2,490,653 $ 2,907,752
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See accompanying notes to the financial statements.
6
NYLIFE STRUCTURED ASSET MANAGEMENT COMPANY LTD.
NOTES TO THE FINANCIAL STATEMENTS
JUNE 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 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 June 30, 1996 includes Contracts collateralizing Series A, B, and C
Notes as follows:
Series A Series B Series C Total(*)
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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 (**) 5,070,061 2,025,830 7,404,744 14,500,635
Accumulated attrition (**) 5,515,078 1,697,514 5,127,987 12,340,579
----------- ---------- ----------- -----------
Net investment $ 10,140,121 $ 4,051,658 $ 26,647,618 $ 40,839,397
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7
(*) 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 June 30, 1996 is $2,342,590.
(**) These amounts are combined and classified as amortization in the financial
statements.
INTEREST PAYABLE and NOTES PAYABLE in the Statement of Financial Position at
June 30, 1996 include amounts relating to Series A, B, and C Notes as follows:
Series A Series B Series C Total
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Interest payable $168,671 $67,627 $363,532 $599,830
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Notes payable -
current $ 1,250,000 $ 470,891 $ 2,250,000 $ 3,970,891
Notes payable -
non-current 13,304,364 5,364,547 29,118,595 47,787,506
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Total $14,554,364 $5,835,438 $31,368,595 $51,758,397
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NOTE 3 - RELATED PARTIES
DUE TO AFFILIATES in the Statement of Financial Position at June 30, 1996 and
December 31, 1995 includes (i) the asset management fee of $140,469 and
$149,150, respectively, payable to NAFCO and (ii) the equity return fee of
$54,346 and $54,346, respectively, payable to NAFCO, and (iii) general and
administrative expenses of and $1,194 for 1995.
8
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 six months ended June 30, 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 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 June 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.
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 August 15, 1996,
the Company has paid additional principal of $6,302,382, $2,294,588 and
$9,902,151 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 June 30, 1996, the Benchmark CD Rate was 5.44%. Accordingly,
the outstanding principal on the Series A and Series B Notes will earn interest
at 9% per annum through November 15, 1996.
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 June 30, 1996 continue to be strong as
indicated below:
9
Series A Series B Series C
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Number of contracts collateralizing
Notes at issuance 33,029 11,463 52,840
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Number of active accounts at 6/30/96 21,557 8,227 43,124
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Debt Service Coverage (at 9%) 1.70 1.86 2.03
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Debt Service Coverage (at 11%) 1.53 1.67 --
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Interest Coverage (at 9%) 3.38 3.61 3.72
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Interest Coverage (at 11%) 2.77 2.95 --
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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 June 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
For the three and six months ended June 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 six months
ending June 30, 1996 compared to the corresponding periods in 1995 is due to
attrition of contracts during 1995 and the first six 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 $146,605
and $130,627 for the three months ended June 30, 1996 and 1995, respectively,
and the bad debt expense of $357,862 and $414,011 for the six months ended June
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
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
PART II. OTHER INFORMATION
None
12
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
August 13, 1996.
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)
13