<PAGE>
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, 1996
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 1-10001
RYMAC MORTGAGE INVESTMENT CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Maryland 25-1577534
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
100 North Fourth Street, Suite 813, Steubenville, Ohio 43952
(Address of Principal Executive Offices) (Zip Code)
(Registrant's Telephone No., Including Area Code) (800) 666-6960
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 twelve
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 xx No ____
Number of shares of common stock, $.01 par value, outstanding as
of May 15, 1996: 5,210,600
RYMAC MORTGAGE INVESTMENT CORPORATION
FORM 10-Q
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
March 31, 1996 (unaudited)
and December 31, 1995 3
Consolidated Statements of Revenues and
Expenses (unaudited) for the three
months ended March 31, 1996 and 1995 4
Consolidated Statements of Cash Flows
(unaudited) for the three months ended
March 31, 1996 and 1995 5
Notes to Consolidated Financial Statements
(unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 15
PART II. OTHER INFORMATION 21
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to Vote of Security
Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES 23
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<TABLE>
<CAPTION>
Part I. Financial Information
Item 1. Financial Statements
RYMAC MORTGAGE INVESTMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(amounts in thousands except share data)
<S> <C> <C>
March 31, 1996 December 31, 1995
(Unaudited)
ASSETS
Real estate investments:
Mortgage related investments (note 4) $ 9,277 $ 9,814
Mortgage derivative securities less valuation
allowance of $56 and $39 (notes 2 and 3) 664 1,014
Mortgage-backed securities less allowance for
unrealized loss of $83 for 1996 (note 5) 3,306 3,397
______ ______
13,247 14,225
Cash 2,073 1,549
Funds held by trustee 755 159
Receivables on mortgage related investments 278 370
Receivables on mortgage derivative securities 27 45
Other assets 126 254
________ ________
$ 16,506 $ 16,602
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Funding notes payable (note 5) $ 9,960 $ 10,114
Accrued interest on funding notes payable 270 146
Other liabilities 118 127
______ ______
10,348 10,387
COMMITMENTS AND CONTINGENCIES (notes 2,3 and 7)
STOCKHOLDERS' EQUITY
Common stock: par value $.01 per share
50,000,000 shares authorized
5,210,600 issued and outstanding at March 31, 1996,
and December 31, 1995 52 52
Additional paid-in capital 43,985 43,985
Accumulated Deficit (note 8) (37,796) (37,822)
Unrealized loss on mortgage-backed securities (83) -
_____ _____
6,158 6,215
________ ________
$ 16,506 $ 16,602
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
Part I. Financial Information
Item 1. Financial Statements (continued)
RYMAC MORTGAGE INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF REVENUES AND EXPENSES
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(amounts in thousands except share data)
<S> <C> <C>
1996 1995
REVENUES
Interest:
Mortgage related investments $ 225 $ 284
Mortgage derivative securities 52 69
Provision for investment losses (17) (3)
Mortgage-backed securities 60 -
Temporary investments 23 87
Gain on the sale of mortgage derivative security 76 -
_______ _______
419 437
EXPENSES
Interest on funding notes payable 226 285
General and Administrative 167 156
_______ _______
393 441
_______ _______
Net Income (loss) (note 8) $ 26 $ (4)
Net Income (loss) per share $ - $ -
Weighted average number of common
shares outstanding 5,211,000 5,211,000
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
Part I. Financial Information
Item 1. Financial Statements (continued)
RYMAC MORTGAGE INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(amounts in thousands except share data)
<S> <C> <C>
1996 1995
Operating Activities:
Net Income (loss) (note 8) $ 26 $ (4)
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of premiums on
mortgage derivative securities 56 61
Interest accrued and added to funding notes
payable - 76
Decrease in interest receivable on
mortgage related investments 5 4
Decrease in interest receivable on mortgage
derivative securities 17 2
Increase/(decrease) in accrued interest on
funding notes payable 124 (4)
Gain on sale of investment (76) -
Decrease in accrued expenses payable (9) (19)
Other, net 128 1
___ ___
Net cash provided by operating activities 271 117
Investing Activities:
Principal payments on mortgage related investments 624 535
Increase in funds held by trustee (596) (121)
Principal payments on funding notes payable (154) (486)
Principal payments on mortgage-backed security 8 -
Principal payments on mortgage derivative
securities 3 2
Proceeds from sale of investment 368 -
___ ____
Net cash used in investing activities 253 (70)
Financing Activities:
Dividends paid - -
___ ____
Net cash used in financing activities - -
Net increase in cash 524 47
Cash at beginning of period 1,549 4,917
_____ _____
Cash at end of period $ 2,073 $ 4,964
Supplemental disclosure of cash flow information:
Interest paid (net of amounts added to funding
notes payable) $ 103 $ 213
First quarter dividends declared $ - $ -
See notes to consolidated financial statements.
</TABLE>
<PAGE>
RYMAC MORTGAGE INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share data)
_________________________________________________________________
Note 1 - The Company
RYMAC Mortgage Investment Corporation ("RMIC") was incorporated in
Maryland on July 1, 1988. RMIC has two wholly-owned subsidiaries,
RYMAC Mortgage Investment I, Inc. ("RMI") and RYMAC Mortgage
Investment II, Inc. ("RMII"). RMIC, RMI and RMII are collectively
referred to hereafter as the "Company". At inception, the Company
issued 5,420,000 shares of its common stock. During 1990 and 1991,
the Company repurchased 209,400 shares of its common stock in
accordance with a stock repurchase program at costs ranging from
$6.75 to $7.63 per share.
On May 15, 1996, the Company and Navistar International
Transportation Corp. ("Navistar") announced that they had reached
an agreement in principle concerning the purchase by the Company
(the "Acquisition") of Navistar's Columbus Plastics Operation
("Columbus Plastics"), which manufactures large sheet molding
compound ("SMC") components and is located in Columbus, Ohio.
The obligation of either party to proceed with the Acquisition is
subject to the negotiation and execution by the Company and
Navistar of a mutually acceptable definitive purchase agreement.
In the event an agreement is executed, consummation of the
transaction will be subject to approval by the Board of Directors
of each of the Company and Navistar, approval by the Company's
stockholders, and such other terms and conditions as may be set
forth in such purchase agreement. If an agreement is successfully
concluded and all conditions set forth therein are satisfied, it is
expected that the Acquisition will be consummated in late summer
1996.
_________________________________________________________________
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of RMIC
and its wholly-owned subsidiaries RMI and RMII. All intercompany
balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 2 - Summary of Significant Accounting Policies (continued)
make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results
could differ from those estimates.
Mortgage Related Investments
Mortgage Related Investments are carried at their outstanding
principal balance and are designated as available for sale. The
net premium on Mortgage Related Investments was amortized over the
estimated lives of the investments using the interest method. (See
note 4). Due to the sale of several of the Company's Mortgage
Related Investments during 1994, the Company determined that the
remaining balance of any premiums was nominal and, as such, decided
to amortize all premiums at December 31, 1994.
Mortgage Derivative Securities
Mortgage Derivative Securities have been recorded at cost and are
amortized over their estimated lives using the interest method.
(See note 3)
The Financial Accounting Standards Board ("FASB") issued Financial
Accounting Standard No. 115 ("FASB-115"), "Accounting for Certain
Investments in Debt and Equity Securities," effective for fiscal
years beginning after December 15, 1993. The Company first applied
FASB-115 to its December 31, 1993 financial statements. FASB-115
requires that impaired investments be carried at fair market value.
Quarterly, the Company projects the expected future cash flows from
its Mortgage Derivative Securities under market based assumptions
as to future mortgage prepayment speeds and interest rate levels.
An impairment to value under FASB-115 has occurred if the future
cash flows, discounted at a risk free rate (the yield associated
with a U.S. Treasury Security with a maturity approximating the
average life of the future cash flows from the Company's portfolio
of investments), are less than the investment's carrying value.
Mortgage-Backed Securities
Mortgage-Backed Securities have been recorded at the lower of cost
or market and are considered held to maturity. At March 31, 1996,
the cost exceeded the market value by $83. An allowance for
unrealized losses and a separate component of stockholders' equity
has been recorded.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 2 - Summary of Significant Accounting Policies (continued)
Investment Restrictions
In addition to qualifying as a Real Estate Investment Trust
("REIT") under the Internal Revenue Code of 1986, as amended (the
"Code"), the Company's investment activities are currently
restricted by provisions of the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Investment Company Act
specifically exempts entities primarily engaged in the business of
purchasing or otherwise acquiring mortgages and other liens and
interests in real estate from the definition of an investment
company (the "Real Estate Exception"). Under interpretations
issued by the staff of the Securities and Exchange Commission, in
order to qualify for the Real Estate Exception, the Company must
maintain at least 55% of its assets in mortgage loans or certain
other interests in real estate, and another 25% of its assets in
those or certain other types of real estate related interests.
During 1995, the Company purchased additional assets, specifically
mortgage-backed securities. As such, the Company continues to
maintain in excess of 55% of its assets in mortgage loans or
certain other interests in real estate and, therefore, can continue
to rely on the Real Estate Exception to avoid registration as an
investment company under the Investment Company Act.
If the Acquisition described in Note 1 above is consummated, the
Company will no longer be required to rely upon the Real Estate
Exception in order to avoid being subject to the provisions of the
Investment Company Act.
Federal Income Taxes
The Company has elected to be taxed as a REIT under the Code. As
a result, the Company generally will not be subject to federal
income taxation at the corporate level to the extent it distributes
annually at least 95% of its REIT taxable income, as defined in the
Code, to its stockholders and satisfies certain other requirements.
Accordingly, no provision has been made for income taxes in the
accompanying consolidated financial statements.
If the Acquisition described in Note 1 above is consummated, the
Company will no longer qualify as a REIT and will be taxed as a
corporation under subchapter C of Chapter 1 of the Code.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 2 - Summary of Significant Accounting Policies (continued)
Net Income (Loss) Per Share
Net income (loss) per share is computed based on the weighted
average number of common shares outstanding during the period.
_________________________________________________________________
Note 3 - Mortgage Derivative Securities
The Company's investments in mortgage derivative securities
currently consist of (i) a class or classes of collateralized
mortgage obligations ("CMOs") that either represents a regular
class of bonds or a residual class of bonds or (ii) interests in a
class or classes of mortgage-backed pass-through certificates that
either represent a regular class of certificates or a residual
class of certificates. For federal income tax purposes, a majority
of the Company's Mortgage Derivative Securities represent interests
in real estate mortgage investment conduits ("REMICs"). CMOs are
mortgage-backed bonds which bear interest at a specific
predetermined rate or at a rate which varies according to a
specified relationship to a specific short term interest rate
index, such as the London interbank offered rate for one-month U.S.
dollar deposits ("LIBOR").
Most residual bonds are structured so as to entitle the holder to
receive a proportionate share of the excess (if any) of payments
received from the collateral pledged to secure such bonds and the
other related classes, together with the reinvestment income
thereon, over amounts required to make debt service payments on
such CMOs and to pay related administrative expenses. In
connection with these investments, the Company acquired no other
rights relating to the collateral pledged to secure its Mortgage
Derivative Securities. Most residual certificates are structured
so as to entitle the Company to receive a specified percentage of
the distributions generated from the pool of assets comprising the
trust funds of which the certificates evidence an interest.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 3 - Mortgage Derivative Securities (continued)
At March 31, 1996 and December 31, 1995, the Company had
investments in Mortgage Derivative Securities as set forth below:
<TABLE>
<CAPTION>
PORTFOLIO OF MORTGAGE DERIVATIVE SECURITIES 1996 1995
________________________________________________________________________
<S> <C> <C>
FNMA REMIC Trust 1988-7 ("FNMA 1988-7") $ 39 $ 41
- Trust 1988-11 ("FNMA 1988-11") 253 260
- Trust 1991-163 Class SA ("FNMA 1991-163") - 298
FHLMC Multi-Class Mortgage Participation
Certificates
(Guaranteed)
- Series 2 ("FHLMC 2") 111 118
- Series 1248 Class H ("FHLMC 1248") 281 298
Cornerstone Mortgage Investment
Group II, Inc.
- Series 13 ("Cornerstone 13") 23 24
- Series 14 ("Cornerstone 14") 13 14
________________________________________________________________________
$ 720 $ 1,053
</TABLE>
The Company makes valuation adjustments at quarterly dates based
upon assumptions as to mortgage prepayment speeds, interest rates
and discount rates reflective of then current financial markets.
Under FASB-115, future cash flows are discounted at a rate
reflective of market yields for assets of the type held by the
Company. At March 31, 1996 and December 31, 1995, the Company
applied a discount rate of 16% to the cash flows for its portfolio
of Mortgage Derivative Securities. At March 31, 1996 and December
31, 1995, all assets in this category were providing yields in a
range of 18%-30%. Yields in excess of 16% were utilized to fund a
valuation reserve account in order to provide for future downward
valuation adjustments. At March 31, 1996 and December 31, 1995,
the valuation reserve account had a balance of $56 and $39,
respectively. Valuation adjustments for 1995 were $700, all of
which was incurred during the second quarter of 1995. No valuation
adjustments were made during the first quarter of 1996.
During the first quarter, the Company sold one Mortgage Derivative
Security for $368 and recorded a net gain of $76. The proceeds
from the sale will be directed toward the new business activities
which the Company is currently investigating.
None of the Company's Mortgage Derivative Securities are pledged as
collateral for any borrowings and thus represent a source of
increased liquidity to the Company.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 4 - Mortgage Related Investments
The Company's Mortgage Related Investments consist of ownership
interests in certain classes of mortgage-backed securities issued
by Ryan Mortgage Acceptance Corporation IV (as described below).
On September 23, 1988, the Company purchased from Ryan Mortgage
Acceptance Corporation IV ("RYMAC IV") certain GNMA certificates
and FNMA certificates and other collateral owned by RYMAC IV and
pledged to secure RYMAC IV's Mortgage Collateralized Bonds (the
"RYMAC IV Bonds"). (See note 6) These Mortgage Related
Investments and other collateral were purchased subject to the lien
of the Indenture between RYMAC IV and the Trustee (the "RYMAC IV
Indenture") pursuant to which the RYMAC IV Bonds were issued and
subject to the rights of the Trustee and the bondholders
thereunder. (See note 6) The purchase agreements grant to the
Company certain additional rights with respect to the RYMAC IV
Bonds, such as the right, if any, to substitute collateral, the
right to direct the reinvestment of collateral proceeds and the
right to call the related RYMAC IV Bonds. At March 31, 1996 and
December 31, 1995, the Company's Mortgage Related Investments
consist of RYMAC IV Bonds, Series 7, 10 and 19.
The Company is investigating the possible contractual assignment of
the Company's rights in the RYMAC IV Bonds.
At March 31, 1996 and December 31, 1995, the Company owned Mortgage
Related Investments with aggregate outstanding principal balances
of $9,277 and $9,814, respectively, which provide for monthly
principal and interest payments. The RYMAC IV collateral bears
interest at rates ranging from 7.75% to 10.50% and have scheduled
maturity dates ranging from July 1, 2001 to April 1, 2017.
_________________________________________________________________
Note 5 - Mortgage-Backed Securities
Mortgage-Backed Securities have been recorded at the lower of cost
or market. The market value of the Company's Mortgage-Backed
Securities were at a discount to the carrying value at March 31,
1996. An allowance for unrealized losses has been established at
March 31, 1996. A separate component of stockholders' equity has
been reduced by $83, accordingly.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 6 - Funding Notes Payable
Funding Notes Payable represent limited recourse notes delivered to
RYMAC IV as partial payment for the purchase of Mortgage Related
Investments and other collateral, and have payment terms the same
as the related series of RYMAC IV Bonds. (See note 4) The Funding
Notes Payable consisted of three multi-class series at March 31,
1996 and December 31, 1995 having stated maturities ranging from
August 1, 2016 to May 1, 2017. The classes of each series of
Funding Notes Payable bear interest at fixed rates. The range of
fixed rates at March 31, 1996 and December 31, 1995 were 8.25% to
9.45%.
Principal and interest payments on the Mortgage Related Investments
are used to make the monthly or quarterly payments on the funding
notes payable. In addition, prepayments of the underlying mortgage
related investments are passed through as prepayments of the
Funding Notes Payable so that the Funding Notes Payable may be
fully paid prior to their stated maturities.
_________________________________________________________________
Note 7 - Federal Income Taxes and Distributions
As described in note 2, the Company has elected to be treated for
federal income tax purposes as a REIT. As such, the Company is
required to distribute annually, in the form of dividends to its
stockholders, at least 95% of its taxable income. Because of the
provisions of the Code applicable to the type of investments made
by the Company, in the early years of the life of certain of the
Company's initial investments (particularly investments made in
connection with the Company's initial public offering, and to a
lesser degree during 1989) taxable income exceeded net income.
During the later years of such ownership, Net Income will exceed
REIT taxable income. The principal reason for such difference is
that the Company reports income from its portfolio of Mortgage
Related Investments and Mortgage Derivative Securities on the
interest method for financial reporting purposes; however, for
income tax purposes, the Company reports its proportionate share of
the difference between interest income generated by the collateral
and interest expense on the CMOs. More recent investments made by
the Company and investments currently available in the market are
typically structured so that taxable income and Net Income are
similar during each reporting period. Over the life of a
particular investment or security, taxable income and Net Income
will be equal. In reporting periods where taxable income exceeds
Net Income, stockholders' equity will be reduced by the amount of
dividends in excess of Net Income in such period and will be
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 7 - Federal Income Taxes and Distributions (continued)
increased by the excess of Net Income over dividends in future
reporting periods.
For the first quarter of 1996, no dividend distributions were made.
For 1995, the Company made a distribution of $0.003 per share to
its stockholders on September 29, 1995, with a record date of
September 20, 1995. The dividend represented excess inclusion
income. The Company expects to have a tax loss of approximately
$625 for the year. The Company's taxable losses through 1995
aggregate to approximately $36 million. Under the Code, a REIT
must generally distribute its excess inclusion income to its
stockholders even though it has other losses or deductions
exceeding such excess inclusion income. Accordingly, if the
Company were to report future excess inclusion income, it may elect
to distribute such excess inclusion income as dividends even though
it has an estimated tax loss carryforward approximating $36
million, including approximately $5 million in capital loss
carryforwards. The tax losses can be carried forward to offset
future income of the Company.
If the Acquisition described in Note 1 above is consummated, the
Company will no longer qualify as a REIT and will be taxed as a
corporation under subchapter C of Chapter 1 of the Code.
_________________________________________________________________
Note 8 - Related Party Transactions
Pursuant to the Purchase Agreements between the Company and RYMAC
IV (see note 4), $6 has been withheld from amounts released from
the lien of the RYMAC IV Indenture, retained by RYMAC IV and
deposited in escrow to be used for payment of expenses of the CMOs
secured by certain of the Mortgage Related Investments purchased by
the Company. In addition, during the quarter ended March 31, 1996,
the Company incurred $4 of CMO administration fees which were paid
to RYMAC IV under the terms of the Purchase Agreements.
_________________________________________________________________
Note 9 - Employee Benefits
The Company's Board of Directors has established a Salary
Reduction-Simplified Employee Pension Program ("SAR-SEP") for its
full-time employees. A SAR-SEP is a minimal administration 408-K
Plan (similar to a 401-K) for companies with fewer than 25
employees.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 9 - Employee Benefits (continued)
For 1996, the Company has established a minimum contribution of 3%
of gross compensation. Company contributions to the plan may vary
and the Company is not required to continue the program. Employee
contributions are based upon established formulas under the
Employee Retirement Income Security Act ("ERISA") rules governing
408-K Plans.
The Unaffiliated Directors adopted an incentive stock option
program during 1994 for the Company's two Officers and Affiliated
Director. Under the Stock Option Program, options on 260,000
shares of the Company's Common Stock were awarded at market prices,
exercisable over ten year periods ending May 2005. The Company
accounts for stock option grants in accordance with APB Opinion No.
25, "Accounting for Stock Issued to Employees", and, accordingly,
recognizes no compensation expense for the stock option grants. In
addition, a salary continuance program was provided to the
Company's officers, allowing for up to one year's base salary
following the consummation of a business combination.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RECENT DEVELOPMENTS
On May 15, 1996, the Company and Navistar International
Transportation Corp. ("Navistar") announced that they had reached
an agreement in principle concerning the purchase by the Company
(the "Acquisition") of Navistar's Columbus Plastics Operation
("Columbus Plastics"), which manufactures large sheet molding
compound ("SMC") components and is located in Columbus, Ohio.
The obligation of either party to proceed with the Acquisition is
subject to the negotiation and execution by the Company and
Navistar of a mutually acceptable definitive purchase agreement.
In the event an agreement is executed, consummation of the
transaction will be subject to approval by the Board of Directors
of each of the Company and Navistar, approval by the Company's
stockholders, and such other terms and conditions as may be set
forth in such purchase agreement. If an agreement is successfully
concluded and all conditions set forth therein are satisfied, it is
expected that the Acquisition will be consummated in late summer
1996.
INVESTMENT ACTIVITIES AND FUTURE PROSPECTS FOR THE COMPANY
As a result of the Company's earnings difficulties, the substantial
diminution in value of its mortgage assets and the altered state of
the mortgage-backed securities market, the Company's Board of
Directors elected in mid-1994 not to pursue its historical
business. Instead, the Company and, since June 1995, its financial
advisor have been investigating alternatives to the business
currently conducted by the Company. Operating and capital losses
incurred during 1992 through 1995 have resulted in tax losses
estimated currently at $36 million. Such tax losses can be carried
forward and utilized to offset taxable income generated from
current or contemplated activities before Company earnings are
taxable or, as a REIT, result in dividend distributions.
The Board's election not to pursue the Company's historical
business and the periodic sale of assets have resulted in a
reduction in the Company's assets and an increase in the Company's
liquidity.
Absent gains on the sale of the remaining mortgage assets or the
need for downward asset valuation adjustments, the Company will
operate at a small quarterly loss level. This circumstance is due
to ongoing amortization of Mortgage Related Investments and
Mortgage Derivative Securities on the Company's Balance Sheet and
the Company's investment of its cash into low-risk, highly liquid
but low yielding assets during its efforts to identify an
appropriate business combination or merger. Additionally, the
Company has not applied any leverage through borrowed funds to its
investment activities since November of 1994 when it repaid in full
repurchase agreements outstanding.
If the Company is unsuccessful in concluding the Acquisition
described above, it may elect to continue to seek a suitable
candidate with which to effect a business combination or,
alternatively, to begin to develop an investment portfolio of
financial assets as a means of increasing value to stockholders.
A decision to pursue such alternative investment activity would be
subject to the Company's financial position as well as general
economic and financial market conditions prevailing at such time.
The Company and its financial advisor continue to believe that the
future potential earnings and value building aspects of utilizing
its assets in a successful business combination outweigh those of
rebuilding an investment portfolio containing lower-risk assets
than those previously composing the Company's investment portfolio.
DIVIDEND POLICY
In accordance with the Code, the Company is required to distribute
at least 95% of its taxable income to its stockholders each year in
order to maintain its status as a REIT. Dividends paid for a
fiscal year in excess of the Company's taxable income are reported
as a return of capital to the Company's stockholders, except as
provided below.
Some of the Company's investments constitute REMIC residual
interests. Certain of these residual interests may produce "excess
inclusion" income during the fiscal year. The Code requires that
excess inclusion income be included in a taxpayer's income even
though the taxpayer has current or prior losses that would
otherwise offset such income. As a result, the Company could have
taxable income from excess inclusions in a taxable year even though
it has current or prior losses from other investments that would
normally be sufficient to offset the amount of such excess
inclusion income. The Company is required to distribute the
taxable income representing excess inclusions to meet its 95%
distribution requirement and to avoid a corporate level tax on such
income. When such income is distributed to a stockholder, the
stockholder will have taxable income, rather than a return of
capital, equal to its share of such excess inclusion income during
the fiscal year. For a stockholder, generally, excess inclusion
income cannot be offset by losses.
For the tax year ended December 31, 1995, the Company paid a
dividend of $0.003 per share on September 29, 1995 to stockholders
of record on September 20, 1995. This 1995 dividend was the result
of excess inclusion income and is reportable by stockholders as
taxable income for 1995. The Company paid no dividend for the
first quarter of 1996.
If the Acquisition described in Note 1 above is consummated, the
Company will no longer qualify as a REIT and will be taxed as a
corporation under subchapter C of Chapter 1 of the Code. As a
result, the Company will no longer be entitled to any deduction for
dividends paid to stockholders. No assurances can be given as to
the dividends, if any, that may be declared by the Board of
Directors of the Company following such Acquisition.
RESULTS OF OPERATIONS
The Company's Net Income increased from a Net Loss of $4,000 for
the three month period ended March 31, 1995 to Net Income of
$26,000 for the three month period ended March 31, 1996, an
increase of $30,000. This increase in net income between periods
is attributable to the recognition of a gain on the sale of one of
the Company's Mortgage Derivative Securities during the 1996 period
in the amount of $76,000 while the 1995 period contained no such
asset sales gains.
Without the gain recorded from the sale of a Mortgage Derivative
Security in 1996's first quarter, the Company would have incurred
a loss of $50,000 for such period.
Statement of Revenues and Expenses
Net Income (loss), as calculated in accordance with generally
accepted accounting principles ("GAAP") and as presented in the
accompanying consolidated financial statements, was $(4,000) for
the three months ended March 31, 1995 as compared with $26,000 for
the three months ended March 31, 1996. The per share calculation
at each date is negligible.
Interest revenue on Mortgage Related Investments decreased from
$284,000 for the three months ended March 31, 1995 to $225,000 for
the three months ended March 31, 1996, as a result of the reduction
in Mortgage Related Investments on the Company's Balance Sheet,
which decreased between these same dates from $11,939,000 to
$9,277,000, respectively. Interest revenue on Mortgage Derivative
Securities was $69,000 for the three months ended March 31, 1995 as
compared to $52,000 for the three months ended March 31, 1996. The
amortization of the Company's cost basis in its Mortgage Derivative
Securities and the return of principal will reduce interest
revenues from such assets in each subsequent period.
Income on Temporary Investments decreased from $87,000 for the
quarter ended March 31, 1995 to $23,000 for the quarter ended March
31, 1996 due to the Company's purchase of one 7% FNMA guaranteed
30-year single family mortgage pool of which the Company maintained
100% ownership during 1995's fourth quarter. This Mortgage-Backed
Security carried as a separate investment category produced $60,000
of interest revenues during the 1996 quarter.
For the three months ended March 31, 1996, the Company recorded a
gain of $76,000 on the sale of one Mortgage Derivative Security,
while no sales gains were recognized during the three months ended
March 31, 1995. Without the sales gain, the Company would have
incurred a loss for the three months ended March 31, 1996 of
$50,000, or $(0.01) per share.
Interest expense on Funding Notes Payable decreased from $285,000
to $226,000 for the three months ended March 31, 1995 and 1996,
respectively, as a result of the substantial offsetting balance
sheet decline of Funding Notes Payable, which decreased from
$12,128,000 to $9,960,000 between March 31, 1995 and March 31,
1996, respectively. First quarter General and Administrative
expenses increased insignificantly from $156,000 for 1995's first
quarter to $167,000 in 1996's first quarter as the Company
maintained a minimal staff while continuing its extensive efforts
to identify a merger candidate.
Balance Sheet
The Company's assets declined by $96,000 during the three month
period ended March 31, 1996, to a total of $16,506,000 at March 31,
1996. This decrease is attributable to the Company's Mortgage
Related Investments declining during the three month period from
$9,814,000 to $9,277,000, a decrease of $537,000. This reduction
is the result of principal payments on the mortgage collateral
underlying the Company's Mortgage Related Investments.
Concurrently, Funds Held by Trustee increased from $159,000 at
December 31, 1995 to $755,000 at March 31, 1996, an increase of
$596,000. This category of assets represents the receipt of
monthly mortgage payments (principal and interest) on the Company's
Mortgage Related Investments awaiting the future payment
(reduction) of Funding Notes, Interest on Funding Notes and payment
of excess monies (if any) to the Company. A $524,000 increase in
the Company's cash accounts between the December 31, 1995 and March
31, 1996 balance sheet dates was the only other asset category
reflecting significant change. This increase was the result of the
receipt in March 1996 of proceeds from the sale of a Mortgage
Derivative Security of $368,000.
The decrease in Mortgage Related Investments was matched by a
current decrease in the related liability account, Funding Notes
Payable, from $10,114,000 to $9,960,000, or a decrease of $154,000,
as returned principal on the underlying mortgages was used to
retire outstanding obligations secured by such mortgages. Further
reductions in Mortgage Related Investments will occur at dates
subsequent to March 31, 1996 sourced from Funds Held by Trustee.
Mortgage Derivative Securities decreased from $1,014,000 at
December 31, 1995 to $664,000 at March 31, 1996, a decrease of
$350,000, reflecting 1) the amortization of premium and return of
principal basis of the assets held in this category of $58,000 and
2) the asset sale from this category that returned $292,000 of cash
basis.
Receivables on Mortgage Related Investments and Mortgage Derivative
Securities decreased from $415,000 at December 31, 1995 to $305,000
at March 31, 1996, a change of $110,000, reflective of the decline
in the corresponding assets, Mortgage Related Investments and
Mortgage Derivative Securities, of $887,000.
The two liability accounts, Accrued Interest on Funding Notes
Payable and Other Liabilities, increased in total by $115,000,
primarily reflecting the accrual of interest on Funding Notes
Payable due at dates subsequent to March 31, 1996.
The Company's Accumulated Deficit decreased slightly from
$(37,822,000) at December 31, 1995 to $(37,796,000) at March 31,
1996 due to minor Net Income of $26,000 in the quarter ended March
31, 1996. The Company made no dividend distribution for 1995's
first quarter.
EXPENSES AND USE OF BORROWED FUNDS
Operating expenses (formerly "General and Administrative" and
"Interest on Notes Payable", but since November 30, 1994
represented solely by "General and Administrative" when the Company
repaid all Notes Payable and has since remained debt-free) were
$156,000 for the three months ended March 31, 1995 versus $167,000
for the three months ended March 31, 1996. These low expense
levels are reflective of the Company's minimal staffing and cost
reduction efforts while it conducts its search for a merger party.
Prior to 1995, the Company had used the proceeds from repurchase
agreements to fund a portion of its portfolio of Mortgage
Derivative Securities. Prior to April 1994, the Company had also
maintained a line of credit used to fund day-to-day operating needs
and in past periods to also temporarily fund acquisitions of new
investments pending negotiation of repurchase agreements or
awaiting return of invested principal.
LIQUIDITY AND CAPITAL RESOURCES
At both December 31, 1995 and March 31, 1996, the total amount
borrowed by the Company was $0. The Company is subject to a
limitation on the amount of total borrowings of $25,000,000
pursuant to a policy adopted by its Board of Directors in March
1992, although such amount is substantially in excess of amounts
that could currently be borrowed by the Company.
At November 30, 1994, the Company repaid in full its remaining
repurchase agreement obligations and has had no outstanding Notes
Payable since that date. As such, all of the Company's remaining
Mortgage Derivative Securities are available to secure future
borrowings. These potential borrowings of approximately $250,000
and cash reserves of approximately $5,400,000, currently held in
high quality short-term instruments and a Mortgage-Backed Security,
provide the Company with significant liquidity with which to pursue
its proposed business activities. (See "Recent Developments" and
"Investment Activities and Future Prospects for the Company")
If the Acquisition described in Note 1 above is consummated,
additional liquidity to fund working capital requirements of the
Company will be needed. The Company intends to seek additional
working capital funding prior to the consummation of the
Acquisition in order to fund such requirements. No assurances can
be given that the Company will be successful in obtaining such
funding.
<PAGE>
Part II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
On May 15, 1996, the Company and Navistar International
Transportation Corp. ("Navistar") announced that they
had reached an agreement in principle concerning the
purchase by the Company (the "Acquisition") of
Navistar's Columbus Plastics Operation ("Columbus
Plastics"), which manufactures large sheet molding
compound ("SMC") components and is located in Columbus,
Ohio.
The obligation of either party to proceed with the
Acquisition is subject to the negotiation and execution
by the Company and Navistar of a mutually acceptable
definitive purchase agreement. In the event an
agreement is executed, consummation of the transaction
will be subject to approval by the Board of Directors of
each of the Company and Navistar, approval by the
Company's stockholders, and such other terms and
conditions as may be set forth in such purchase
agreement. If an agreement is successfully concluded
and all conditions set forth therein are satisfied, it
is expected that the Acquisition will be consummated in
late summer 1996.
<PAGE>
Part II (continued)
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included as part of
this Form 10-Q.
Exhibit 27.1 Financial Data Schedule
Exhibit 99.1 Additional Exhibits
(b) Reports on Form 8-K
None
<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.
RYMAC MORTGAGE INVESTMENT CORPORATION
BY: /s/ Richard R. Conte
Richard R. Conte, Chairman of the
Board, Chief Executive Officer and
Principal Financial Officer
Dated: May 15, 1996
<PAGE>
EXHIBIT INDEX
Exhibits filed with Quarterly Report on Form 10-Q for the
Quarter Ended March 31, 1996
Exhibit No. Description
27.1 Financial Data Schedule
99.1 Additional Exhibits
-- Press Release of May 15, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains financial information extracted from the Company's report
on Form 10-Q for the quarter ended March 31, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,828
<SECURITIES> 13,247
<RECEIVABLES> 305
<ALLOWANCES> 83
<INVENTORY> 0
<CURRENT-ASSETS> 7,229
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,506
<CURRENT-LIABILITIES> 388
<BONDS> 9,960
0
0
<COMMON> 52
<OTHER-SE> 6,106
<TOTAL-LIABILITY-AND-EQUITY> 16,506
<SALES> 0
<TOTAL-REVENUES> 436
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 393
<LOSS-PROVISION> 17
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 26
<INCOME-TAX> 0
<INCOME-CONTINUING> 26
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26
<EPS-PRIMARY> $0.00
<EPS-DILUTED> $0.00
</TABLE>
PRESS RELEASE
Navistar contact: Andy Opila - 312-836-2901
RYMAC contact: Richard Conte - 800-666-6960
NAVISTAR TO SELL COLUMBUS PLASTICS TO RYMAC
CHICAGO (May 15, 1996) -- Navistar International Corporation
(NYSE: NAV) and RYMAC Mortgage Investment Corporation (AMEX: RM)
today announced an agreement in principle whereby RYMAC will
acquire a majority interest in Navistar's Columbus Plastics
Operation, which manufactures large sheet molding compound (SMC)
components.
RYMAC, based in Steubenville, Ohio, is a publicly traded real
estate investment trust, whose investments are currently being
liquidated.
The sale is expected to close in late summer, with the
operation to keep its headquarters in Columbus. Terms were not
disclosed.
Columbus Plastics was opened by Navistar in 1981 and has 480
employees. It provides plastics components to customers such as
Navistar, Yamaha and General Motors. Its 1995 sales were
approximately $65 million.
"Navistar's vision -- to be the best truck and engine
manufacturer in North America -- requires us to focus our resources
on our core businesses," said John R. Horne, Navistar's chairman
and chief executive officer. "The sale of Columbus Plastics
achieves two key objectives. First, it will provide us with
additional financial flexibility as we evaluate various strategic
options aimed at strengthening our core truck and engine business.
Second, as a free-standing company, Columbus Plastics will be
better positioned to maximize its growth potential within the SMC
segment of the plastics industry."
"Columbus Plastics is just the type of company which we had
hoped to acquire," said RYMAC's Malcolm M. Prine, who will serve as
chairman of the new company, "and RYMAC has available capital and
access to capital to help the operation achieve its full potential
and value.
"Columbus Plastics has a history of strong earnings; it has a
talented workforce and good customer relationships, and it holds an
attractive market position in an industry with demonstrated strong
growth potential. Early on, we will be looking for expansion
--MORE--
<PAGE>
opportunities to serve customers in other parts of the U.S."
All of the employees at Columbus Plastics will remain with the
new company. Contracts with the International Association of
Machinists and Aerospace Workers, Local 1471, are expected to
essentially remain in place.
The transaction is contingent upon the companies entering into
a definitive purchase agreement, the approval of the boards of
directors of both Navistar and RYMAC, the approval of RYMAC
stockholders and other conditions.
Chicago-based Navistar manufactures and markets International
(registered trademark) brand medium and heavy trucks, school bus
chassis, and mid-range diesel engines in North America and selected
export markets.
###
