<PAGE>
================================================================================
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: JUNE 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 August 6, 1996
================================================================================
<PAGE>
CAPSTEAD SECURITIES CORPORATION IV
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1996
INDEX
PAGE
----
PART I. -- FINANCIAL INFORMATION
ITEM 1. Financial Statements
Balance Sheet -- June 30, 1996 and December 31, 1995................... 3
Statement of Operations -- Quarter and Six Months Ended
June 30, 1996 and 1995................................................ 4
Statement of Cash Flows -- Six Months Ended
June 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................................ 9
SIGNATURES.............................................................. 10
-2-
<PAGE>
PART I. -- FINANCIAL INFORMATION
CAPSTEAD SECURITIES CORPORATION IV
BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995
------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Mortgage securities collateral $962,782 $1,102,616
Cash and other equivalents 326 469
Other assets 3,057 3,504
-------- ----------
$966,165 $1,106,589
======== ==========
LIABILITIES
Collateralized mortgage securities $949,570 $1,087,262
Accrued expenses 25 20
-------- ----------
949,595 1,087,282
-------- ----------
STOCKHOLDER'S EQUITY
Common stock - $1 par value,
1,000 shares authorized, issued
and outstanding 1 1
Paid-in capital 21,063 23,812
Unrealized gain on debt securities 2,270 3,255
Accumulated deficit (6,764) (7,761)
-------- ----------
16,570 19,307
-------- ----------
$966,165 $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 SIX MONTHS ENDED
JUNE 30 JUNE 30
------------- ----------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Interest income:
Mortgage securities collateral $20,680 $26,640 $43,071 $53,772
Receivable from Parent 11 7 21 16
------- ------- ------- -------
Total interest income 20,691 26,647 43,092 53,788
------- ------- ------- -------
Interest expenses on collateralized
mortgage securities 19,452 24,549 40,464 49,790
------- ------- ------- -------
Net interest income 1,239 2,098 2,628 3,998
------- ------- ------- -------
Other expenses:
Management fees 2 2 5 5
Professional fees and other 36 30 70 67
Pool insurance 766 949 1,556 1,962
------- ------- ------- -------
Total other expenses 804 981 1,631 2,034
------- ------- ------- -------
Net income $ 435 $ 1,117 $ 997 $ 1,964
======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
-4-
<PAGE>
CAPSTEAD SECURITIES CORPORATION IV
STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
------------------------
1996 1995
------ ------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 997 $ 1,964
Noncash item - amortization of
discount and premium 544 322
Net change in other assets and
accrued expenses 452 498
--------- ---------
Net cash provided by operating
activities 1,993 2,784
--------- ---------
INVESTING ACTIVITIES:
Mortgage securities collateral:
Principal collections on collateral 135,586 93,137
Decrease in accrued interest receivable 1,047 495
Decrease in short-term investments 1,865 4,206
--------- ---------
Net cash provided by investing
activities 138,498 97,838
--------- ---------
FINANCING ACTIVITIES:
Collateralized mortgage securities:
Principal payments on securities (136,392) (96,862)
Decrease in accrued interest payable (1,493) (726)
Capital distributions (2,749) (3,056)
--------- ---------
Net cash used by financing
activities (140,634) (100,644)
--------- ---------
Net decrease in cash and cash equivalents (143) (22)
Cash and cash equivalents at beginning
of period 469 24
--------- ---------
Cash and cash equivalents at end of
period $ 326 $ 2
========= =========
</TABLE>
See accompanying notes to financial statements.
-5-
<PAGE>
CAPSTEAD SECURITIES CORPORATION IV
NOTES TO FINANCIAL STATEMENTS
JUNE 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 six months ended June 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 Company's 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 either
quoted market prices, when available, including quotes made by the Parent'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 JUNE 30, 1996
----------------------------------------------
<S> <C> <C> <C> <C>
Available-for-sale $ 163,955 $ 2,529 $ 259 $ 166,225
Held-to-maturity 796,558 7,207 2,038 801,727
---------- ------- ------ ----------
$ 960,513 $ 9,736 $2,297 $ 967,952
========== ======= ====== ==========
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>
-6-
<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 six months
ended June 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
(dollars in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30
---------------------------------
1996 1995
-------------- -----------------
AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
------- ----- ------- --------
<S> <C> <C> <C> <C>
Interest income on mortgage
securities collateral $20,680 8.43% $26,640 8.53%
Interest expense on
collateralized mortgage securities 19,452 8.06 24,549 7.98
------- -------
Net interest income $ 1,228 $ 2,091
======= =======
SIX MONTHS ENDED JUNE 30
---------------------------------
1996 1995
-------------- -----------------
AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
------- ----- ------- --------
<S> <C> <C> <C> <C>
Interest income on mortgage
securities collateral $43,071 8.46% $53,772 8.45%
Interest expense on
collateralized mortgage securities 40,464 8.08 49,790 7.94
------- -------
Net interest income $ 2,607 $ 3,982
======= =======
</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 six months ended June 30, 1996, compared to the same periods
in 1995 (in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30, 1996
------------------------------
RATE* VOLUME* TOTAL
------- ---------- ---------
<S> <C> <C> <C>
Interest income on mortgage
securities collateral $(312) $ (5,648) $ (5,960)
Interest expense on
collateralized mortgage securities 241 (5,338) (5,097)
----- -------- --------
$(553) $ (310) $ (863)
===== ======== ========
SIX MONTHS ENDED JUNE 30, 1996
------------------------------
RATE* VOLUME* TOTAL
------- ---------- ---------
<S> <C> <C> <C>
Interest income on mortgage
securities collateral $ 108 $(10,809) $(10,701)
Interest expense on
collateralized mortgage securities 870 (10,196) (9,326)
----- -------- --------
$(762) $ (613) $ (1,375)
===== ======== ========
</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 June 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 $426,000 and $981,000 for the quarter and six months
ended June 30, 1996, respectively, compared to $1,112,000 and $1,953,000 for the
same periods in 1995. Operating results produced by CMO Investments is
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 to higher levels of
prepayments on mortgage securities collateral experienced during the quarter and
six months ended June 30, 1996 compared to the same periods in 1995. Principal
collections on collateral were $69 million and $136 million during the quarter
and six months ended June 30, 1996, respectively, compared to $49 million and
$93 million during the same periods of 1995. The increase in prepayments
resulted in a $268 million and $255 million decrease in average mortgage
securities collateral during the quarter and six months ended June 30, 1996,
respectively, compared to the same periods in 1995. The net interest spread
decreased 18 basis points and 13 basis points during the quarter and six months
ended June 30, 1996, respectively, compared to the same periods in 1995.
The following table presents the weighted average yields for the periods shown:
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
--------------- ------------------
1996 1995 1996 1995
------- ------ -------- --------
<S> <C> <C> <C> <C>
Mortgage securities collateral 8.43% 8.53% 8.46% 8.45%
Collateralized mortgage securities 8.06 7.98 8.08 7.94
---- ---- ---- ----
Net interest spread 0.37% 0.55% 0.38% 0.51%
==== ==== ==== ====
</TABLE>
The changes in the yields of mortgage securities collateral reflect a decrease
in yield of adjustable-rate mortgage loans securing CMO Series 1992-IX and 1992-
XIV. These yield changes were compounded by corresponding increases in the
yields of the related collateralized mortgage securities. These adjustable-rate
mortgage loans represent approximately $163 million, or 17%, of mortgage
securities collateral at June 30, 1996.
-8-
<PAGE>
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 $2,749,000 of capital during the six
months ended June 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:
Exhibit 27 Financial Data Schedule (electronic filing only).
(b) Reports on Form 8-K: None.
-9-
<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: August 6, 1996 By /s/ RONN K. LYTLE
------------------------------------
Ronn K. Lytle
Chairman and Chief Executive Officer
Date: August 6, 1996 By /s/ ANDREW F. JACOBS
------------------------------------
Andrew F. Jacobs
Senior Vice President - Control
and Treasurer
-10-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CAPSTEAD
SECURITIES CORPORATIN IV'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED
JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 326
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 966,165
<CURRENT-LIABILITIES> 25
<BONDS> 949,570
0
0
<COMMON> 1
<OTHER-SE> 16,569
<TOTAL-LIABILITY-AND-EQUITY> 966,165
<SALES> 0
<TOTAL-REVENUES> 43,092
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,631
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,464
<INCOME-PRETAX> 997
<INCOME-TAX> 0
<INCOME-CONTINUING> 997
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 997
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
