<PAGE>
UNITED STATES
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K405
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1998 Commission File No. 33-76642
RAY ELLISON MORTGAGE ACCEPTANCE CORP.
-------------------------------------
(Exact name of registrant as specified in its charter)
Incorporated in Texas 74-2337351
---------------------------- ------------------------------
State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
70 N.E. Loop 410, Suite 545 San Antonio, Texas 78216
-------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (210) 342-1085
--------------
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
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
filing requirements for the past 90 days.
Yes X No
--- ----
Aggregate market value of voting stock held by non-affiliates of the
registrant at March 19, 1999:
None
Number of shares of Common Stock outstanding at March 19, 1999:
10,000 shares
<PAGE>
Item 1. Business
Ray Ellison Mortgage Acceptance Corp. ("REMAC") was incorporated in
the State of Texas on October 1, 1984 and is a wholly-owned subsidiary
of Ray Ellison Mortgage Investment Corp. ("REMIC"). Ray Ellison
Industries, Inc. is the parent company of REMIC and the ultimate
corporate parent of REMAC. REMAC's principal office is located at 70 NE
Loop 410, Suite 545, San Antonio, Texas 78216. Its telephone number
is (210)342-1085.
REMAC was organized for the purpose of facilitating the financing of
long-term residential mortgage loans and does not intend to engage in any
business or investment activities other than issuing and selling
GNMA-Collateralized Bonds and acquiring, owning, holding, pledging and
dealing with GNMA securities to be pledged as collateral for such Bonds,
together with any activities incidental to the foregoing. Substantially all
of the assets of REMAC consist of the GNMA securities pledged to secure
specific series of its GNMA-Collateralized Bonds. REMAC's term of existence
is not limited under its Articles of Incorporation.
Article Three of REMAC's Articles of Incorporation limits the nature of
the business to be conducted by REMAC to (a) issuing and selling its
GNMA-Collateralized Bonds, notes or other obligations which a Texas
corporation is authorized to issue, which Bonds shall be rated by a
nationally recognized investment rating agency and given that agency's
highest bond rating, (b) buying, selling, holding, transferring, pledging,
assigning, refinancing or otherwise dealing in GNMA securities, and (c)
doing anything else required or suitable and convenient to accomplish the
foregoing.
Item 2. Properties
The Company neither owns nor leases any buildings or real estate.
Item 3. Legal Proceedings
The Company is not involved in any pending litigation, nor is the Company
aware of any proceedings contemplated by governmental authorities.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
Item 5. Market for the Registrant's Common Stock and Related Security
Holder Matters
All of REMAC's outstanding common stock is owned by Ray Ellison Mortgage
Investment Corp. Accordingly, there is no market for its common stock.
During the year ended December 31, 1995, the Company declared and paid
$2,000,000 in cash dividends. REMAC did not pay any dividends in 1996 or 1997.
On March 2, 1998, the Company declared and paid a dividend of $5,000,000.
<TABLE>
Item 6. Selected Financial Data
<CAPTION>
In Thousands of Dollars
---------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Interest Income $17,657 $29,785 $30,701 $35,245 $30,928
Interest Expense 17,510 29,250 30,186 34,757 30,524
Total Assets 114,910 390,153 434,009 459,002 476,666
Bonds Payable 101,907 365,130 418,427 429,652 491,864
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation.
Year ended December 31, 1998
As of December 31, 1998, the Company has completed the issuance of
ninety-one Series of its GNMA-Collateralized Bonds (Bonds). Each Series of Bonds
has been assigned a bond rating of AAA by Standard & Poors Ratings Group.
Proceeds from the sale of each Series of Bonds have been used by the Company to
purchase GNMA (Government National Mortgage Association) securities from
affiliated companies. The GNMA securities purchased are pledged as collateral
for one or more Series of the Company's Bonds.
From time to time, the Company has substituted or deposited additional GNMA
securities to below-market Bond Series in accordance with the Indentures under
which the Bonds are issued. Management anticipates that such substitution or
deposit of additional GNMA securities in these Bond Series will defer
redemptions in the Bond series affected.
Additionally, from time to time the Company has substituted or withdrawn
GNMA securities securing above-market Bond Series to the extent permitted by the
Indentures. Management anticipates that such substitutions or withdrawals of
GNMA securities will accelerate redemptions in the Bond Series affected.
As of December 31, 1998, the Company has exercised its option to redeem all
Series issued previous to 1993 as well as Series 1993A and 1994C through 1994M.
These calls produced significant gains for the Company. The Company has
exercised its option to redeem GMNA-Collateralized Bond Series whenever the
Series were callable and the interest rate on the series was above the current
market interest rate. Management anticipates calling any above-market interest
rate Bond Series at the earliest date permitted under the respective prospectus
supplement for such Bond Series.
The Company anticipates that receipts from the GNMA securities securing
each outstanding series of Bonds together with reinvestment income thereon and
funds available in any expense funds which may be established for such series,
will be adequate to meet the Company's cash flow requirements to pay
administrative expenses and the principal of and interest on each series of
Bonds as they become due. The Company does not have, nor does management expect
that the Company will have, any significant source of cash flow other than
capital contributions from its parent and/or advances from its affiliates and
receipts on collateral securing Bonds which have been or may be issued by the
Company.
Because each series of outstanding Bonds is secured by GNMA securities
paying interest and principal at specified rates backed by existing pools of
mortgage loans, and because payment on outstanding Bonds issued by the Company
are at fixed interest rates, management does not expect that changes in economic
factors will significantly affect the Company's ability to meet its obligations
as they come due.
All GNMA securities are classified as available-for-sale as of January 1,
1994. Accordingly, GNMA securities are reflected on the accompanying balance
sheet at fair value, with the unrealized gains and losses, net of tax reported
in a separate category of shareholders' equity. The Company wishes to emphasize
that due to the nature of its business, the GNMA securities carried as
available-for-sale collateralize GNMA-collateralized bonds, and the securities
are not salable before the bonds are callable, at some future date. In addition,
the market value of GNMA securities fluctuates significantly as interest rates
change; therefore, the market values of the GNMA securities as of the future
redemption dates may vary significantly from the current date, and the
realization of the unrealized gains is not assured. When market is such that the
value of GNMA securities is less than amortized cost, the Company has the
expectation that they would be held to maturity as collateral for the related
GNMA-collateralized Bonds, or until the market value rose, whichever is sooner,
and the Company would not realize any unrealized losses. Thus, no tax benefit is
recognized for unrealized losses for the Company's investment in GNMA's.
As has been widely reported, many computer systems process dates based on
two digits for the year of a transaction and are unable to process dates in the
year 2000 and beyond. In connection with its ongoing information system
management efforts, REMAC has previously replaced or modified its key financial
information and operational systems that were not year 2000 compliant. Remaining
financial and operational systems have been assessed, and detailed plans have
been developed and are being implemented to make the necessary modifications to
ensure year 2000 compliance. The financial impact of making the required system
changes for year 2000 compliance are not expected to have a material effect on
REMAC's financial statements.
The Company may from time to time make forward-looking statements (within the
meaning of the Private Securities Litigation Reform Act of 1995) with respect to
expected Year 2000 compliance program, Company objectives and other financial
and business matters. The Company cautions the reader that these forward-
looking statements are subject to numerous assumptions, risks and uncertainties,
including economic conditions; regulatory actions and reforms; competition; as
well as other reasons, all of which change over time. Actual results may differ
materially from forward-looking statements.
Item 8. Financial Statements and Supplementary Data:
See Next Page
<PAGE>
Ray Ellison Mortgage
Acceptance Corp.
Financial Statements
Years Ended December 31, 1998, 1997, and 1996
with Report of Independent Auditors
<PAGE>
Ray Ellison Mortgage Acceptance Corp.
Financial Statements
Years Ended December 31, 1998, 1997, and 1996
Contents
Report of Independent Auditors ............................1
Financial Statements
Balance Sheets ............................................2
Statements of Income ......................................3
Statements of Changes in Stockholder's Equity .............4
Statements of Cash Flows ..................................5
Notes to Financial Statements .............................6
<PAGE>
Report of Independent Auditors
Board of Directors
Ray Ellison Mortgage Acceptance Corp.
We have audited the accompanying balance sheets of Ray Ellison Mortgage
Acceptance Corp., a wholly owned subsidiary of Ray Ellison Mortgage Investment
Corp., as of December 31, 1998 and 1997, and the related statements of income ,
changes in stockholder's equity, and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ray Ellison Mortgage Acceptance
Corp. at December 31, 1998 and 1997, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
March 12, 1999
San Antonio, Texas
Ernst & Young LLP
<PAGE>
<TABLE>
Ray Ellison Mortgage Acceptance Corp.
Balance Sheets
<CAPTION>
December 31
1998 1997
--------------------------------
<S> <C> <C>
Assets
Cash $ 20,679 $ 91,465
Accrued interest receivable 575,004 2,201,245
Underwriting fees and bond issuance expenses 3,574,777 12,672,555
Requisite funds on deposit 128,276 188,314
Note receivable from affiliate 7,479,550 4,820,652
Investment in GNMA securities 102,678,159 368,468,267
Plus (less):
Fair value adjustment 4,422,045 16,480,560
Unamortized discount (3,968,055) (14,769,194)
--------------------------------
103,132,149 370,179,633
--------------------------------
Total assets $ 114,910,435 $ 390,153,864
================================
Liabilities and Stockholder's Equity
Liabilities:
Accounts payable $ 30,000 $ 31,713
Accrued interest 571,956 2,169,492
Bonds payable 101,907,000 365,130,000
Deferred tax liability 1,481,858 5,382,153
--------------------------------
Total liabilities 103,990,814 372,713,358
Stockholder's equity:
Common stock, $1.00 par value, 10,000 shares
authorized, issued and outstanding 10,000 10,000
Contributed capital 4,256,119 2,317,619
Unrealized gains on available for sale
securities, net of tax 2,918,550 10,877,170
Retained earnings 3,734,952 4,235,717
--------------------------------
Total stockholder's equity 10,919,621 17,440,506
--------------------------------
Total liabilities and stockholder's equity $ 114,910,435 $ 390,153,864
================================
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
Ray Ellison Mortgage Acceptance Corp.
Statements of Income
<CAPTION>
Year Ended December 31
1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C>
Income:
Interest income $ 17,657,263 $ 29,784,733 $ 30,700,648
Amortization of discount 1,745,220 1,903,889 1,786,809
Gain on sales of GNMA
securities 14,081,320 1,350,942 1,027,836
-----------------------------------------------
33,483,803 33,039,564 33,515,293
Expense:
Interest expense 17,510,900 29,249,560 30,186,780
Amortization of underwriting
fees and bond issuance
expenses 9,097,778 2,802,082 2,254,593
General and administrative
237,790 293,416 312,378
-----------------------------------------------
26,846,468 32,345,058 32,753,751
-----------------------------------------------
Income before taxes 6,637,335 694,506 761,542
Income tax expense:
Current taxes 1,938,500 194,938 342,970
Deferred taxes 199,600 30,896 -
-----------------------------------------------
2,138,100 225,834 342,970
-----------------------------------------------
Net income $ 4,499,235 $ 468,672 $ 418,572
===============================================
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
Ray Ellison Mortgage Acceptance Corp.
Statements of Changes in Stockholder's Equity
<CAPTION>
Other
Common Stock Comprehensive Total
-------------------- Contributed Income, Retained Equity
Shares Dollars Capital Net of Tax Earnings (Deficit)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31,
1995 10,000 $10,000 $ 1,911,003 $ 14,427,611 $ 3,348,473 $ 19,697,087
Net income - - - - 418,572 418,572
Change in unrealized
gains and (losses)
on available for
sale securities,
net of taxes and
reclassification
adjustment - - - (9,540,854) - (9,540,854)
----------------------------------------------------------------------------------------------
Total Comprehensive
(Loss) - - - - - (9,122,282)
Contribution of
capital - - 211,678 - - 211,678
----------------------------------------------------------------------------------------------
Balance December 31, 1996 10,000 10,000 2,122,681 4,886,757 3,767,045 10,786,483
Net income - - - - 468,672 468,672
Change in unrealized
gains and (losses)
on available for
sale securities,
net of taxes and
reclassification
adjustment - - - 5,990,413 - 5,990,413
----------------------------------------------------------------------------------------------
Total Comprehensive
Income - - - - - 6,459,085
Contribution of
capital - - 194,938 - - 194,938
--------------------------------------------------------------------------------------------
Balance December 31, 1997 10,000 10,000 2,317,619 10,877,170 4,235,717 17,440,506
Net income - - - - 4,499,235 4,499,235
Change in unrealized
gains and (losses)
on available for
sale securities,
net of taxes and
reclassification
adjustment - - - (7,958,620) - (7,958,620)
----------------------------------------------------------------------------------------------
Total Comprehensive
(Loss) - - - - - (3,459,385)
Contribution of
capital - - 1,938,500 - - 1,938,500
Dividend - - - - (5,000,000) (5,000,000)
--------------------------------------------------------------------------------------------
Balance December 31, 1998 10,000 $10,000 $ 4,256,119 $ 2,918,550 $ 3,734,952 $ 10,919,621
============================================================================================
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
Ray Ellison Mortgage Acceptance Corp.
Statements of Cash Flows
<CAPTION>
Year Ended December 31
1998 1997 1996
-----------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income $ 4,499,235 $ 468,672 $ 418,572
Adjustments to reconcile net income to net
cash (used in) provided by operating
activities:
Income tax 2,138,100 225,834 342,970
Amortization of discount (1,745,220) (1,903,889) (1,786,809)
Amortization of underwriting fees and
bond issuance expenses 9,097,778 2,802,082 2,254,593
Gain on sale of GNMA securities (14,081,320) (1,350,942) (1,027,836)
Changes in operating assets and
liabilities:
Accrued interest receivable 1,626,241 328,835 87,171
Accounts payable (1,713) 1,713 5,147
Accrued interest payable (1,597,536) (331,060) (79,016)
-----------------------------------------------------
Net cash (used in) provided by operating (64,435) 241,245 214,792
activities
Investing Activities
Net increase in note receivable from affiliate (2,658,898) (1,306,846) (2,269,527)
Principal payments received on GNMA securities
46,497,187 39,397,934 36,679,137
Purchase of GNMA securities 0 (12,091,679) (35,685,120)
Proceeds from sale of GNMA securities 224,318,322 27,617,384 13,506,736
-----------------------------------------------------
Net cash provided by investing activities 268,156,611 53,616,793 12,231,226
Financing Activities
Cash dividend to parent (5,000,000) - -
Net (increase) decrease in requisite funds
on deposit 60,038 (54,517) 253,020
Increase in underwriting fees and bond
issuance expenses (466,936) (1,426,114)
Proceeds from sales of bonds 0 12,500,000 37,000,000
Redemption of bonds payable (263,223,000) (65,797,000) (48,225,000)
-----------------------------------------------------
Net cash used in financing activities (268,162,962) (53,818,453) (12,398,094)
-----------------------------------------------------
Change in cash (70,786) 39,585 47,924
Cash at beginning of year 91,465 51,880 3,956
-----------------------------------------------------
Cash at end of year $ 20,679 $ 91,465 $ 51,880
=====================================================
See accompanying notes.
</TABLE>
<PAGE>
Ray Ellison Mortgage Acceptance Corp.
Notes to Financial Statements
December 31, 1998, 1997, and 1996
1. Significant Accounting Policies
Nature of Business
Ray Ellison Mortgage Acceptance Corp. (Company) is in the business of purchasing
GNMA securities for investment financed by the issuance of bonds to the public.
Based on the nature of the business, the Company operates in one segment as
defined in Statement of Financial Accounting Standards (SFAS) No. 131,
"Disclosure about Segments of an Enterprise and Related Information".
Basis of Presentation
The Company was incorporated in the state of Texas on October 1, 1984 and is a
wholly owned subsidiary of Ray Ellison Mortgage Investment Corp. (REMIC).
Underwriting Fees, Bond Issuance Expenses, and Unamortized Discount
The Company amortizes the underwriting fees and bond issuance expenses (fees)
and the discount on GNMA (Government National Mortgage Association) securities
by the level yield method. Underwriting fees and bond issuance expenses at
December 31, 1998 and 1997 are reported net of accumulated amortization of
$16,433,694 and $7,335,916, respectively. Any unamortized underwriting fees and
bond issuance expenses remaining upon redemption of the bonds are expensed.
Fair Values of Financial Instruments
The fair values of the Company's GNMA securities and bonds payable are estimated
based on quoted market prices. The carrying values of all other financial
instruments reported in the balance sheets approximate fair values.
GNMA Securities
The Company's GNMA securities are categorized as available for sale securities,
as defined by SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Unrealized holding gains and losses are reflected as a
separate component of stockholders' equity, net of taxes, until realized. The
amortized cost of the specific security sold is used to compute gain or loss on
the sale of securities. Declines in value other than temporary declines are
adjusted against the security with a change to the results of operations.
<PAGE>
Ray Ellison Mortgage Acceptance Corp.
Notes to Financial Statements (continued)
December 31, 1998, 1997, and 1996
1. Significant Accounting Policies (continued)
Comprehensive Income
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
130, "Reporting Comprehensive Income." The statement provides that all items
that are required to be recognized under accounting standards as comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements. Comprehensive income includes net
income as well as certain items that are reported directly within a separate
component of stockholder's equity, such as unrealized gains and losses on
available for sale securities, and bypass net income. The provisions of SFAS No.
130 are effective for 1998, and prior years financial statements have been
restated to reflect the required provisions. The cost of securities sold and the
amount reclassified out of accumulated other comprehensive income was determined
using the specific identification method.
<TABLE>
The components of other comprehensive income are:
<CAPTION>
Year Ended December 31,
1998 1997 1996
-------------------------------------------------------
<S> <C> <C> <C>
Unrealized gains (losses) on
available-for-sale securities
(before income tax) $ 925,918 $ 9,445,145 $ (13,008,475)
Income tax (expense) benefit on
unrealized gains and losses (314,812) (3,211,349) 4,422,882
-------------------------------------------------------
Unrealized gains (losses) on available-
for-sale securities net of tax 611,106 6,233,796 (8,585,593)
-------------------------------------------------------
Reclassification adjustment for realized
gains on available-for-sale
securities (before income tax) (12,984,433) (368,762) (1,447,364)
Income tax benefit on
realized gains and losses 4,414,707 125,379 492,104
-------------------------------------------------------
Reclassification adjustment for realized
gains on available-for-sale
securities net of tax (8,569,726) (243,383) (955,260)
-------------------------------------------------------
Other comprehensive income (net of tax) $ (7,958,620) $ 5,990,413 $ (9,540,853)
=======================================================
</TABLE>
<PAGE>
Ray Ellison Mortgage Acceptance Corp.
Notes to Financial Statements (continued)
December 31, 1998, 1997, and 1996
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. Requisite Funds on Deposit
The Company is required to deposit certain requisite funds with the Trustee for
each series of bonds under the terms of the Indenture. The Company's obligations
to establish such requisite funds may be satisfied by either cash or letters of
credit.
As of December 31, 1998 and 1997, cash in the amount of $128,276 and $188,314,
respectively, had been deposited with the Trustee to satisfy the Company's
obligations relative to such requisite funds.
3. Assets Subject to Lien
Substantially all of the assets of the Company are pledged as security for the
long-term bonds payable.
<PAGE>
Ray Ellison Mortgage Acceptance Corp.
Notes to Financial Statements (continued)
December 31, 1998, 1997, and 1996
4. Bonds Payable
The Company has filed six shelf registrations authorizing a total issuance of
$1,600,000,000 in long-term bonds. The long-term bonds payable of the Company
are issued in series as follows:
<TABLE>
<CAPTION>
Face Bonds Outstanding
of Bonds Interest Maturity December 31
Series Issued at Issue Rate Date 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1985A 02/27/85 $ 11,559,000 11.500% 03/28/2015 $ - $ -
1985B 03/28/85 10,337,000 12.000 04/28/2015 - -
1985C 04/24/85 10,343,000 11.850 12/28/2015 - -
1985D 05/20/85 13,714,000 11.450 07/28/2016 - -
1985E 06/26/85 12,784,000 10.750 08/28/2016 - -
1985F 07/25/85 10,004,000 10.625 09/28/2016 - -
1985G 08/28/85 9,223,000 10.750 10/28/2016 - -
1985H 09/26/85 9,106,000 10.500 11/28/2016 - -
1985I 10/24/85 11,753,000 10.875 12/28/2016 - -
1985J 11/26/85 8,720,000 10.400 01/28/2017 - -
1985K 12/26/85 8,923,000 10.250 02/28/2017 - -
1986A 01/28/86 9,380,000 9.750 03/28/2017 - -
1986B 02/27/86 19,512,000 9.750 04/28/2017 - -
1986C 03/26/86 9,204,000 9.375 05/28/2017 - -
1986D 04/23/86 9,989,000 8.500 06/28/2017 - -
1986E 06/26/86 10,650,000 9.250 08/28/2017 - -
1986F 07/24/86 20,600,000 9.000 09/28/2017 - -
1986G 08/28/86 20,990,000 9.000 10/28/2017 - -
1986H 09/25/86 14,153,000 8.625 11/28/2017 - -
1986I 11/25/86 10,002,000 8.625 01/28/2018 - -
1986J 12/30/86 9,390,000 8.250 02/28/2018 - -
1987A 07/30/87 17,500,000 9.000 09/28/2018 - -
1987B 08/27/87 18,000,000 9.000 10/28/2018 - -
1987C 09/30/87 10,000,000 9.500 11/28/2018 - -
1987D 10/29/87 15,000,000 9.750 12/31/2018 - -
1987E 11/25/87 16,000,000 10.000 01/31/2019 - -
1987F 11/25/87 16,655,000 9.500 01/31/2019 - -
1988A 01/27/88 15,000,000 9.500 03/31/2019 - -
1988B 02/25/88 13,925,000 9.000 04/30/2019 - -
1988C 02/25/88 10,000,000 8.500 04/30/2019 - -
1988D 03/30/88 14,950,000 8.750 05/31/2019 - -
1988E 05/26/88 18,000,000 9.125 07/31/2019 - -
1988F 06/23/88 33,000,000 9.375 08/31/2019 - -
1988G 06/23/88 14,000,000 9.450 08/31/2019 - -
<PAGE>
Ray Ellison Mortgage Acceptance Corp.
Notes to Financial Statements (continued)
December 31, 1998, 1997, and 1996
4. Bonds Payable (continued)
Face Bonds Outstanding
of Bonds Interest Maturity December 31
Series Issued at Issue Rate Date 1998 1997
- ----------------------------------------------------------------------------------------------------------
1988H 07/28/88 $ 15,000,000 9.125% 09/30/2019 $ - $ -
1988I 08/25/88 25,000,000 9.375 10/31/2019 - -
1988J 08/25/88 22,000,000 9.200 10/31/2019 - -
1988K 09/29/88 17,000,000 9.150 11/30/2019 - -
1988L 10/27/88 20,000,000 9.100 12/31/2019 - -
1988M 11/23/88 30,000,000 9.000 01/31/2020 - -
1989A 01/25/89 22,000,000 9.500 03/31/2020 - -
1989B 01/25/89 17,000,000 9.600 03/31/2020 - -
1990A 05/24/90 5,000,000 9.500 05/31/2021 - -
1990B 08/30/90 15,150,000 9.000 08/31/2021 - -
1990C 09/27/90 10,000,000 9.100 09/30/2021 - -
1990D 09/27/90 10,000,000 9.000 09/30/2021 - -
1990E 10/25/90 10,000,000 9.150 10/31/2021 - -
1990F 10/25/90 14,500,000 9.050 10/31/2021 - -
1990G 11/21/90 15,000,000 9.000 11/30/2021 - -
1990H 12/27/90 8,000,000 8.500 12/31/2021 - -
1991A 02/21/91 9,000,000 8.100 02/28/2022 - -
1991B 03/28/91 5,000,000 8.100 03/31/2022 - -
1991C 04/25/91 6,000,000 8.150 04/30/2022 - -
1991D 05/30/91 12,650,000 8.150 05/31/2022 - -
1991E 06/27/91 28,500,000 8.500 06/30/2022 - -
1991F 07/25/91 18,000,000 8.450 07/31/2022 - -
1991G 08/29/91 18,000,000 8.000 08/31/2022 - -
1991H 09/26/91 14,000,000 7.875 09/30/2022 - -
1991I 11/27/91 13,000,000 7.500 11/30/2022 - -
1991J 12/23/91 7,000,000 7.500 12/31/2022 - -
1992A 03/26/92 21,000,000 7.250 03/31/2023 - 12,313,000
1992B 04/23/92 6,500,000 7.400 04/30/2023 - -
1992C 05/28/92 17,500,000 7.600 05/31/2023 - -
1992D 06/25/92 24,000,000 7.400 06/30/2023 - -
1992E 07/30/92 19,000,000 7.150 07/31/2023 - 9,565,000
1992F 08/27/92 8,000,000 6.600 08/31/2023 - 4,422,000
1992G 11/25/92 47,250,000 7.000 11/30/2023 - 34,881,000
1992H 12/23/92 23,600,000 7.100 12/31/2023 - 16,919,000
1992I 12/23/92 14,300,000 7.050 12/31/2023 - 10,283,000
1993A 01/28/93 24,000,000 7.000 01/31/2024 - 17,478,000
1993B 12/22/93 21,000,000 6.000 12/31/2024 16,914,000 18,846,000
1994A 01/27/94 15,000,000 6.000 01/31/2025 11,522,000 12,538,000
1994B 02/24/94 13,000,000 6.000 02/28/2025 9,624,000 11,139,000
<PAGE>
Ray Ellison Mortgage Acceptance Corp.
Notes to Financial Statements (continued)
December 31, 1998, 1997, and 1996
4. Bonds Payable (continued)
Face Bonds Outstanding
of Bonds Interest Maturity December 31
Series Issued at Issue Rate Date 1998 1997
- ----------------------------------------------------------------------------------------------------------
1994C 03/24/94 $ 10,000,000 6.500% 03/31/2025 $ - $ 8,564,000
1994D 05/26/94 19,500,000 7.400 05/31/2025 - 15,206,000
1994E 05/26/94 13,950,000 7.500 05/31/2025 - 10,883,000
1994F 06/23/94 16,000,000 7.300 06/30/2025 - 12,658,000
1994G 07/28/94 16,500,000 7.125 07/31/2025 - 12,849,000
1994H 07/28/94 24,150,000 7.500 07/31/2025 - 20,015,000
1994I 08/25/94 16,050,000 7.500 08/31/2025 - 12,804,000
1994J 09/29/94 18,600,000 7.500 09/30/2025 - 14,241,000
1994K 11/23/94 15,000,000 8.000 11/30/2025 - 10,320,000
1994L 12/28/94 15,000,000 8.100 12/31/2025 - 10,936,000
1994M 12/28/94 16,500,000 8.000 12/31/2025 - 11,304,000
1995A 02/23/95 8,000,000 8.000 02/28/2026 3,508,000 5,612,000
1995B 03/30/95 21,000,000 7.500 03/31/2026 12,194,000 15,872,000
1995C 05/25/95 9,225,000 7.100 05/31/2026 6,971,000 8,010,000
1996A 04/25/96 12,500,000 7.000 04/30/2027 10,344,000 11,791,000
1996B 05/30/96 15,500,000 7.000 05/31/2027 12,697,000 14,706,000
1996C 09/26/96 9,000,000 7.100 09/30/2027 7,556,000 8,747,000
1997A 04/24/97 12,500,000 7.000 04/30/2028 10,577,000 12,228,000
------------------ -------------------------------------
$ 1,372,291,000 $ 101,907,000 $ 365,130,000
================== =====================================
</TABLE>
The remaining bonds may be redeemed at the option of the Company, in whole or in
part, at any time after the fourth anniversary of their issuance. To ensure
sufficient funds to meet debt service requirements, the Indenture provides for
redemption if the payments to be made on the GNMA securities will be less than
the debt service requirements. The amounts of bonds to be redeemed are dependent
on a number of factors such as: 1) prepayments on the GNMA securities, 2)
interest earned on requisite funds, 3) deposit or substitution of collateral in
lieu of bond redemption, and 4) requests for redemption by bondholders. In all
redemptions described above, the redemption price will be 100% of the principal
amount of the bonds to be redeemed plus interest accrued to the date of
redemption.
Cash paid for interest was $19,108,436, $29,580,620, and $30,265,796 for the
years ended December 31, 1998, 1997, and 1996, respectively.
<PAGE>
Ray Ellison Mortgage Acceptance Corp.
Notes to Financial Statements (continued)
December 31, 1998, 1997, and 1996
5. Related Party Transactions
The Company was organized to facilitate the financing of long-term mortgage
loans through the issuance and sale of GNMA-collateralized bonds. The bonds
issued represent obligations solely of the Company and are not guaranteed by any
of its affiliates.
The Company entered into a revolving note receivable with an affiliated company
on October 31, 1992 for $20,000,000. The note is due on demand, or if no demand
is made, on December 31, 1999. Interest is due monthly at the prime rate. The
balance outstanding relating to this note at December 31, 1998 and 1997 was
$7,479,550 and $4,820,652, respectively.
Notes and advances to affiliated companies bear interest at the current market
rates. Net interest income earned from affiliates for advances totaled $350,506,
$333,322, and $157,463 in 1998, 1997, and 1996, respectively.
GNMA securities are purchased and sold through an affiliated company at a cost
which approximates fair value.
None of the directors or executive officers of the Company receive any direct
remuneration from the Company; however, certain of the Company's executive
officers participate in an employment agreement with the Company's parent and
other affiliated companies. The agreement provides that such executive officers
are entitled to a percentage of corporate distributions based on the
accumulation of certain cash and cash equivalents of the Company over an imputed
base return to the stockholder.
General and administrative services for the Company including accounting, legal,
and other administrative functions are provided by affiliated companies. Fees
for general and administrative services were $96,000, $112,124, and $162,643 in
1998, 1997, and 1996, respectively.
<PAGE>
Ray Ellison Mortgage Acceptance Corp.
Notes to Financial Statements (continued)
December 31, 1998, 1997, and 1996
6. Stockholder's Equity
The Company declared and paid $5,000,000 in dividends on March 2, 1998. No
dividends were paid in 1997 and 1996.
7. Federal Income Taxes
The Company files a consolidated federal income tax return with its parent.
Under its legal tax sharing agreement with its parent, current federal income
tax paid by the Company is based on the relationship of the Company's taxable
income to the total taxable income of all profitable members of the consolidated
group. Current federal income tax expense is allocated to profitable members of
the consolidated group only if the consolidated group has a current federal
income tax expense. Any taxes allocated to the Company under this agreement are
payable to the parent.
FAS 109 requires the recognition of income taxes among members of a
consolidated group as if each member had filed a separate return. The Company's
income tax expense under its legal tax sharing agreement varies from that
recognized under FAS 109. Charges and credits to contributed capital or retained
earnings result from applying the provisions of FAS 109 when cash payments or
receipts of taxes are not required to be made to or from the parent under the
legal tax sharing agreement. During the years ended December 31, 1998, 1997, and
1996, a contribution of capital of $1,938,500, $194,938, and $211,678,
respectively, was recorded to reflect the income tax benefit that must be
recorded under FAS 109 but will not be paid to the parent under the Company's
legal tax sharing agreement.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The only significant
components of the Company's deferred tax assets and liabilities relate to a
deductible temporary difference of $84,851 and $867,599 at December 31, 1998 and
1997, respectively, resulting from an excess of tax basis on GNMA securities
over that recorded for financial reporting purposes and a book gain of
$4,422,045 and $16,480,560 at December 31, 1998 and 1997, resulting from the
adjustment to fair value of the Company's investment in GNMAs.
<PAGE>
Ray Ellison Mortgage Acceptance Corp.
Notes to Financial Statements (continued)
December 31, 1998, 1997, and 1996
7. Federal Income Taxes (continued)
The reconciliation of income tax attributable to continuing operations computed
at the U.S. federal statutory tax rate of 34% to income tax expense is:
<TABLE>
1998 1997 1996
--------------------------------------------------
<S> <C> <C> <C>
Tax expense at U.S. statutory rates $ 2,256,694 $ 236,132 $ 258,925
Increase (decrease) in deferred tax asset
valuation allowance (118,594) (10,298) 84,045
--------------------------------------------------
$ 2,138,100 $ 225,834 $ 342,970
==================================================
</TABLE>
8. Fair Values of Financial Instruments
<TABLE>
The carrying amounts and fair values of the Company's financial instruments at
December 31, 1998 and 1997 are as follows:
<CAPTION>
December 31, 1998 December 31, 1997
------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash $ 20,679 $ 20,679 $ 91,465 $ 91,465
Note receivable
from affiliate 7,479,550 7,479,550 4,820,652 4,820,652
GNMA securities
98,710,104 103,132,149 353,699,073 370,179,633
Bonds payable 101,907,000 100,414,430 365,130,000 359,197,701
</TABLE>
The Company is in the business of purchasing GNMA securities for investment
financed by the issuance of bonds to the public. All securities are pledged as
collateral for the bonds payable. As discussed in Note 4, the bonds can be
redeemed at the option of the Company after the fourth anniversary of the
particular Bond Series. All bond redemptions are at par; therefore, the Company
will not realize a gain or loss on the disposition of the bonds under its
optional call provisions. The fair values of the GNMA securities (see Note 1 -
Fair Values of Financial Instruments) fluctuate significantly as interest rates
change; therefore, fair values as of the future redemption dates may vary
<PAGE>
Ray Ellison Mortgage Acceptance Corp.
Notes to Financial Statements (continued)
December 31, 1998, 1997, and 1996
8. Fair Values of Financial Instruments (continued)
significantly from those stated above. When the market is such that the value of
GNMA securities is less than par, the Company has the expectation that they
would be held to maturity as collateral for the related GNMA-collateralized
Bonds, or until the market value rose, whichever is sooner, and the Company
would not realize any unrealized losses. All GNMA securities contractually
mature after December 31, 2007. Expected maturities will differ from contractual
maturities because the issuers of the securities may have the right to prepay
obligations without prepayment penalties.
9. GNMA Securities
<TABLE>
The amortized cost, estimated market values, and gross unrealized gains and
losses for GNMA Securities at December 31, 1998 and 1997 are as follows:
<CAPTION>
December 31
1998 1997
----------------------------------------------
<S> <C> <C>
GNMA securities:
Amortized cost $ 98,710,104 $ 353,699,073
Gross unrealized gains 4,422,045 16,636,581
Gross unrealized (losses) - (156,021)
----------------------------------------------
Estimated market value $ 103,132,149 $ 370,179,633
==============================================
</TABLE>
<PAGE>
Item 9. Disagreements on Accounting and Financial Disclosure.
None.
Item 10. Directors and Executive Officers.
The following is a list of REMAC's directors and executive officers. All of
such directors and executive officers have served in their respective capacities
since the dates described below.
<TABLE>
<S> <C> <C>
Name Age Position
----------- ---- ---------------------
Jack Biegler 55 President, Secretary
and Director
Goodhue W. Smith, III 49 Director
Locksley Simmons 40 Director, Vice President,
Treasurer, and
Assistant Secretary
</TABLE>
Jack Biegler is President of Ray Ellison Industries, Inc. He has, for more
than five years prior to the date of this 10-K, served in various executive
financial capacities for affiliates of the Company. Mr. Biegler is the President
of Ray Ellison Mortgage Investment Corp., the parent corporation of the Company.
Goodhue W. Smith, III is Secretary and Treasurer of Duncan-Smith Co., an
investment banking firm, and has served in that capacity for more than five
years prior to the date of this 10-K.
Locksley Simmons is Vice President of Ray Ellison Industries, Inc and has
served in various financial positions for affiliates of the Company for more
than five years prior to the date of this 10-K.
Mr. Biegler was initially elected as an officer of the Company on October
1, 1984, and was most recently reelected on December 31, 1998. Ms. Simmons was
initially elected as Vice President, Treasurer, and Assistant Secretary of the
Company on April 11, 1988 and was reelected December 31, 1998; Ms. Simmons was
initially appointed as a Director for the Company on December 31, 1996; Mr.
Smith was initially elected to his position with the Company on March 30, 1990,
and was reelected December 31, 1998, in each case to hold office during the term
for which they are elected and until their successors are elected and qualify in
accordance with the terms of REMAC's Articles of Incorporation and the laws of
the State of Texas.
There are no family relationships among or between such directors and
ex-executive officers.
Item 11. Executive Compensation
None of the directors and executive officers of the Company presently
receive any direct remuneration (other than reimbursement of expenses) from
REMAC. It is currently anticipated that the officers and directors of the
Company will continue to devote substantially all of their time to their duties
related to their respective positions with Ray Ellison Industries, Inc. and its
affiliates. The officers and directors of the Company will devote such of their
time as may be necessary to ensure that REMAC fulfills its duties under the
respective Indentures governing the Bonds and such other duties as the officers
and directors shall deem necessary to protect the interest of the Bondholders or
which may be required by law. Certain of the Company's executive officers
participate in an employment agreement with the Company's parent and other
affiliated companies. The agreement provides that such executive officers are
entitled to a percentage of corporate distributions based on the accumulation of
certain cash and cash equivalents of the Company over an imputed base return to
the shareholder.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The authorized capital stock of the Company consists of 10,000 shares of
common stock, par value $1.00 per share, (the "Common Stock"). As of the date
hereof, 10,000 shares of Common Stock were issued and outstanding and were owned
by Ray Ellison Mortgage Investment Corp. Such shares may be pledged from time to
time to secure indebtedness of Ray Ellison Mortgage Investment Corp. and/or its
affiliates.
Set forth below is certain information as to the beneficial ownership of
each class of equity securities of Ray Ellison Mortgage Investment Corp., the
parent corporation of the Issuer, as of March 15, 1999.
<TABLE>
<CAPTION>
Amount and Percent
Name of Beneficial of
Title of Class Beneficial Owner Ownership (1) Class
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock Ray Ellison 10,000 Shares 100%
Grandchildren
Trust (1)
</TABLE>
(1) The Ray Ellison Grandchildren Trust dated March 3, 1992 beneficially
owns 100% of the outstanding stock of Ray Ellison Mortgage Investment Corp. and
its wholly-owned subsidiary, Ray Ellison Mortgage Acceptance Corp.
Item 13. Certain Relationships and Related Transactions.
Not Applicable.
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a)(1) Financial Statements
The following financial statements are included in Part II,
Item 8:
Report of Independent Auditors
Balance Sheets - December 31, 1998 and 1997
Statements of Income
-Years ended December 31, 1998, 1997 and 1996
Statements of Changes in Stockholder's Equity (Deficit)
-Years ended December 31, 1998, 1997, and 1996
Statements of Cash Flows
-Years ended December 31, 1998, 1997, and 1996
Notes to financial statements
(a)(2) Financial Statement Schedules
All schedules have been omitted because they are either inapplicable or
the required information has been given in the financial statements or
the notes thereto.
(a)(3) Exhibits
Exhibit Number
Ex-1 -- Form of Underwriting Agreement including form of Terms
Agreement (4).
Ex-3(i) -- Articles of Incorporation of the Registrant as originally
filed. (1)
Ex-3(ii) -- Bylaws of the Registrant as currently in effect.(5) Ex-4.1 --
Form of Indenture between the Registrant and Trustee
(containing Form of Bond).(4)
Ex-4.2 -- Form of Series Supplement. (2)
-- Form of Guaranty Agreement (level payment and graduated
payment) for GNMA I Program ("Summary of Guaranty
Agreement"). (3)
Ex-4.3 -- Form of Guaranty Agreement for GNMA II Program ("Schedule
of Subscribers and GNMA II Contractual Agreement"). (4)
*Ex-23 -- Consent of independent auditor
*Ex-27 -- Financial Data Schedule
- -----------------------------------
* Filed herewith
1. Previously filed with the Commission as an exhibit to the
Registrant's Form S-11 Registration Statement (File No. 2- 93624) on
October 4, 1984, and incorporated by reference herein.
2. Previously filed with the Commission as an exhibit to the
Post-Effective Amendment No. 1 to the Registrant's Form S-11
Registration Statement (File No. 2-93624) on February 14, 1985, and
incorporated by reference herein.
3. Previously filed with the Commission as an exhibit to Amendment
No. 1 to the Registrant's Form S-11 Registration Statement (File
No. 2-93624) on January 11, 1985, and incorporated by reference
herein.
4. Previously filed with the Commission as an exhibit to the
Registrant's Form S-11 Registration Statement (File No. 33- 48368) on
June 4, 1992, and incorporated by reference herein.
5. Previously filed with the Commission as an exhibit to the Registrants
Form 10-Q for the quarter ended June 30, 1995, and incorporated by
reference herein.
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed by
the undersigned, thereunto duly authorized.
Ray Ellison Mortgage
Acceptance Corp.
(Registrant)
March 23, 1999 By /s/Jack Biegler
-----------------------------
Jack Biegler
President, (Principal Executive
Officer) Director, and Secretary
March 23, 1999 By /s/Locksley Simmons
------------------------------
Locksley Simmons, Director
Vice President, Treasurer,
(Chief Financial Officer and
Principal Accounting Officer)
and Assistant Secretary
Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 23, 1999.
SIGNATURE CAPACITY
- ------------ ---------
/s/ Jack Biegler Director
- ----------------
Jack Biegler
/s/Locksley Simmons Director
- -------------------
Locksley Simmons
/s/ Goodhue W. Smith, III Director
- -------------------------
Goodhue W. Smith, III
Supplemental information to be furnished with reports filed pursuant to
-----------------------------------------------------------------------
section 15(d) of the act by registrants, which have not registered
-----------------------------------------------------------------------
Securities pursuant to Section 12 of the Act.
---------------------------------------------
No annual report or proxy material has been sent to Bondholders of Ray Ellison
Mortgage Acceptance Corp. GNMA-Collateralized Bonds, issued in Series.
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-3 No. 33-76642) of Ray Ellison Mortgage Acceptance Corp. and in the
related Prospectus of our report dated March 12, 1999, with respect to the
financial statements of Ray Ellison Mortgage Acceptance Corp. included in this
Annual Report (Form 10-K) for the year ended December 31, 1998.
ERNST & YOUNG LLP
San Antonio, Texas
March 22, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENTS OF OPERATIONS OF THE COMPANY'S 10-K FOR THE YEAR ENDED
DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000754591
<NAME> RAY ELLISON MORTGAGE ACCEPTANCE CORP.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 20,679
<SECURITIES> 103,132,149
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 595,683
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 114,910,435
<CURRENT-LIABILITIES> 601,956
<BONDS> 101,907,000
0
0
<COMMON> 10,000
<OTHER-SE> 10,909,621
<TOTAL-LIABILITY-AND-EQUITY> 114,910,435
<SALES> 0
<TOTAL-REVENUES> 33,483,803
<CGS> 0
<TOTAL-COSTS> 26,846,468
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,510,900
<INCOME-PRETAX> 6,637,335
<INCOME-TAX> 2,138,100
<INCOME-CONTINUING> 4,499,235
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,499,235
<EPS-PRIMARY> 449.92
<EPS-DILUTED> 449.92
</TABLE>
