<PAGE>
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
-----
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 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: 33-42337
CAPSTEAD SECURITIES CORPORATION IV
(Exact name of Registrant as specified in its Charter)
DELAWARE 75-2390594
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2711 NORTH HASKELL, DALLAS, TEXAS 75204
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (214) 874-2323
(Former name, former address and former fiscal year,
if changed from last report)
The Registrant meets the conditions set forth in General Instruction H(1)(a) and
(b) for Form 10-Q and is therefore filing this Form under the reduced disclosure
format.
Indicate by check mark whether the Registrant (1) has filed all documents and
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
---- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date.
Common Stock ($1.00 par value) 1,000 as of November 4, 1996
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<PAGE>
CAPSTEAD SECURITIES CORPORATION IV
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
INDEX
PAGE
----
PART I.-- FINANCIAL INFORMATION
ITEM 1. Financial Statements
Balance Sheet -- September 30, 1996 and December 31, 1995.............. 3
Statement of Operations -- Quarter and Nine Months Ended
September 30, 1996 and 1995........................................... 4
Statement of Cash Flows -- Nine Months Ended
September 30, 1996 and 1995........................................... 5
Notes to Financial Statements.......................................... 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................ 8
PART II. -- OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K............................... 8
SIGNATURES.............................................................. 9
-2-
<PAGE>
PART I. -- FINANCIAL INFORMATION
CAPSTEAD SECURITIES CORPORATION IV
BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------- ------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Mortgage securities collateral $912,600 $1,102,616
Cash and other equivalents 308 469
Other assets 2,887 3,504
-------- ----------
$915,795 $1,106,589
======== ==========
LIABILITIES
Collateralized mortgage securities $898,446 $1,087,262
Accrued expenses 28 20
-------- ----------
898,474 1,087,282
-------- ----------
STOCKHOLDER'S EQUITY
Common stock - $1 par value,
1,000 shares authorized, issued
and outstanding 1 1
Paid-in capital 19,980 23,812
Unrealized gain on debt securities 3,566 3,255
Accumulated deficit (6,226) (7,761)
-------- ---------
17,321 19,307
-------- ----------
$915,795 $1,106,589
======== ==========
</TABLE>
See accompanying notes to financial statements.
-3-
<PAGE>
CAPSTEAD SECURITIES CORPORATION IV
STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------- -----------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Mortgage securities collateral $19,476 $25,642 $62,547 $79,414
Receivable from Parent 9 7 30 23
------- ------- ------- -------
Total interest income 19,485 25,649 62,577 79,437
------- ------- ------- -------
Interest expenses on
collateralized mortgage
securities 18,211 23,920 58,675 73,710
------- ------- ------- -------
Net interest income 1,274 1,729 3,902 5,727
------- ------- ------- -------
OTHER EXPENSES:
Management fees 3 3 8 8
Professional fees and other 32 38 102 105
Pool insurance 701 879 2,257 2,841
------- ------- ------- -------
Total other expenses 736 920 2,367 2,954
------- ------- ------- -------
Net income (loss) $ 538 $ 809 $ 1,535 $ 2,773
======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
CAPSTEAD SECURITIES CORPORATION IV
STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
----------------------------------
1996 1995
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,535 $ 2,773
Noncash item - amortization of
discount and premium 695 545
Net change in other assets and
accrued expenses 625 840
--------- ---------
Net cash provided by operating
activities 2,855 4,158
--------- ---------
INVESTING ACTIVITIES:
Mortgage securities collateral:
Principal collections on collateral 181,654 158,154
Decrease in accrued interest receivable 1,393 888
Decrease (increase) in short-term
investments 6,797 (1,634)
--------- ---------
Net cash provided by investing
activities 189,844 157,408
--------- ---------
FINANCING ACTIVITIES:
Collateralized mortgage securities:
Principal payments on securities (187,018) (155,771)
Decrease in accrued interest payable (2,010) (1,205)
Capital distributions (3,832) (4,612)
--------- ---------
Net cash used by financing
activities (192,860) (161,588)
--------- ---------
Net change in cash and cash equivalents (161) (22)
Cash and cash equivalents at beginning
of period 469 24
--------- ---------
Cash and cash equivalents at end of
period $ 308 $ 2
========= =========
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
CAPSTEAD SECURITIES CORPORATION IV
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the quarter and nine months ended September 30, 1996 are
not necessarily indicative of the results that may be expected for the calendar
year ending December 31, 1996. For further information refer to the financial
statements and footnotes thereto included in the Capstead Securities Corporation
IV (the "Company") annual report on Form 10-K for the year ended December 31,
1995. Certain amounts have been reclassified to conform to the 1996
presentation.
NOTE B -- DISCLOSURES REGARDING FAIR VALUES OF MORTGAGE SECURITIES COLLATERAL
Estimated fair values of mortgage securities collateral have been determined by
the Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting
market data to develop these estimates. In addition, fair values fluctuate on a
daily basis. Accordingly, estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on estimated fair value amounts.
The fair value of mortgage securities collateral was estimated using quoted
market prices, including quotes made by Capstead Mortgage Corporation's lenders
in connection with designating collateral for repurchase arrangements.
The following tables summarize fair value disclosures for mortgage securities
collateral held available-for-sale and held-to-maturity for the periods
indicated (in thousands):
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
---------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Available-for-sale $ 149,765 $ 3,566 $ - $ 153,331
Held-to-maturity 759,269 6,837 1,191 764,915
---------- ------- ------ ----------
$ 909,034 $10,403 $1,191 $ 918,246
========== ======= ====== ==========
AS OF DECEMBER 31, 1995
---------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
Available-for-sale $ 195,474 $ 3,590 $ 335 $ 198,729
Held-to-maturity 903,887 19,929 1,154 922,662
---------- ------- ------ ----------
$1,099,361 $23,519 $1,489 $1,121,391
========== ======= ====== ==========
</TABLE>
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<PAGE>
The maturity of mortgage securities collateral is directly affected by the rate
of principal prepayments by mortgagors. In addition, upon the Company's
redemption of remaining bonds outstanding pursuant to clean-up calls, released
collateral may be sold. Such sales are deemed maturities under the provisions
of SFAS 115. No such redemptions have occurred during the quarter or nine
months ended September 30, 1996 or during 1995.
NOTE C -- NET INTEREST INCOME ANALYSIS
The following tables summarize the amount of interest income and interest
expense and the average effective interest rate for mortgage securities
collateral and collateralized mortgage securities for the respective periods
(dollar amounts in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30
------------------------------------
1996 1995
----------------- -----------------
AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
------- -------- ------- --------
<S> <C> <C> <C> <C>
Interest income on mortgage
securities collateral $19,476 8.44% $25,642 8.57%
Interest expense on
collateralized mortgage
securities 18,211 8.03 23,920 8.12
------- -------
Net interest income $ 1,265 $ 1,722
======= =======
NINE MONTHS ENDED SEPTEMBER 30
-------------------------------------
1996 1995
----------------- ------------------
AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
------- ---- ------- -------
Interest income on mortgage
securities collateral $62,547 8.46% $79,414 8.49%
Interest expense on
collateralized mortgage
securities 58,675 8.06 73,710 8.00
------- -------
Net interest income $ 3,872 $ 5,704
======= =======
</TABLE>
The following tables summarize the amount of change in interest income on
mortgage securities collateral and interest expense on collateralized mortgage
securities due to changes in effective interest rates, versus changes in volume
for the quarter and nine months ended September 30, 1996, compared to the same
periods in 1995 (in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30, 1996
-----------------------------------------
RATE* VOLUME* TOTAL
--------- ----------- -----------
<S> <C> <C> <C>
Interest income on mortgage
securities collateral $(378) $ (5,788) $ (6,166)
Interest expense on
collateralized mortgage
securities (274) (5,435) (5,709)
----- -------- --------
$(104) $ (353) $ (457)
===== ======== ========
NINE MONTHS ENDED SEPTEMBER 30, 1996
----------------------------------------
RATE* VOLUME* TOTAL
--------- ----------- ----------
Interest income on mortgage
securities collateral $(280) $(16,587) $(16,867)
Interest expense on
collateralized mortgage
securities 603 (15,638) (15,035)
----- -------- --------
$(883) $ (949) $ (1,832)
===== ======== ========
</TABLE>
* THE CHANGE IN INTEREST DUE TO BOTH VOLUME AND RATE HAS BEEN ALLOCATED TO
VOLUME AND RATE CHANGES IN PROPORTION TO THE RELATIONSHIP OF THE ABSOLUTE
DOLLAR AMOUNTS OF THE CHANGE IN EACH.
-7-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
- -------------------
The Company was incorporated on August 16, 1991, and commenced operations on
December 23, 1991 with the issuance of its first collateralized mortgage
obligation ("CMO"), Series 1991-VIII. As of September 30, 1996, the Company has
issued 18 CMOs with an aggregate initial principal balance of $4,226,812,000,
including two CMOs with an aggregate initial principal balance of $551,537,000,
which were recorded as sales when issued in 1992.
RESULTS OF OPERATIONS
- ---------------------
Residual investments in collateralized mortgage obligations (represented by the
difference between the carrying value of mortgage securities collateral and
collateralized mortgage securities on the balance sheet; also referred to as
"CMO Investments") earned $532,000 and $1,513,000 for the quarter and nine
months ended September 30, 1996, respectively, compared to net income of
$805,000 and $2,758,000 for the same periods in 1995. Operating results
produced by CMO Investments are represented by the difference between interest
income on mortgage securities collateral and interest expense and professional
fees on collateralized mortgage securities and mortgage pool insurance expense
on mortgage securities collateral.
Operating results from CMO Investments declined due primarily to the impact of
run-off (prepayments and scheduled payments) on average holdings of mortgage
securities collateral. Average holdings of mortgage securities collateral were
$923 million and $986 million for the quarter and nine months ended September
30, 1996, respectively, compared to approximately $1.2 billion for both
corresponding prior year periods. As a result of these lower outstanding
balances, income earned from the net interest spreads was lower in the current
year. Run-off rates were 20% and 25% during the quarter and nine months ended
September 30, 1996, respectively, compared to 22% and 17% during the same
periods in 1995.
Although net interest spreads can fluctuate depending on the timing of the
payoff of collateral and bonds with differing amounts of purchase premium and
bond discounts, the tendency is for CMO net interest spreads to decline as
lower-yielding, shorter-term CMO bonds are paid off prior to longer-term bonds
with relatively higher interest rates. Net interest spreads were 4 basis points
and 9 basis points lower during the quarter and nine months ended September 30,
1996, respectively, compared to the same periods in 1995.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's primary source of funds is the receipt of cash flows on CMO
Investments (primarily the excess of principal received and interest earned on
the mortgage securities collateral and reinvestment proceeds over the principal
and interest payable on CMOs). Net income and excess cash flow from CMO
Investments has allowed the return of $3,832,000 of capital during the nine
months ended September 30, 1996. The Company continues to qualify as a real
estate investment trust subsidiary.
PART II. -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits: None.
Exhibit 27 Financial Data Schedule (electronic filing only).
(b) Reports on Form 8-K: None.
-8-
<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.
CAPSTEAD SECURITIES CORPORATION IV
Date: November 4, 1996 By /s/ RONN K. LYTLE
----------------------------------------
Ronn K. Lytle
Chairman and Chief Executive Officer
Date: November 4, 1996 By /s/ ANDREW F. JACOBS
----------------------------------------
Andrew F. Jacobs
Senior Vice President - Control
and Treasurer
-9-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Capstead
Securities Corporation IV's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 308
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 915,795
<CURRENT-LIABILITIES> 28
<BONDS> 898,446
0
0
<COMMON> 1
<OTHER-SE> 17,320
<TOTAL-LIABILITY-AND-EQUITY> 915,795
<SALES> 0
<TOTAL-REVENUES> 62,577
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,367
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58,675
<INCOME-PRETAX> 1,535
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,535
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,535
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
