<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: MARCH 31, 1997
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
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 May 8, 1997
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<PAGE>
CAPSTEAD SECURITIES CORPORATION IV
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1997
INDEX
PAGE
----
PART I.-- FINANCIAL INFORMATION
ITEM 1. Financial Statements
Balance Sheet -- March 31, 1997 and December 31, 1996............. 1
Statement of Operations -- Quarter Ended March 31, 1997 and 1996.. 2
Statement of Cash Flows -- Quarter Ended March 31, 1997 and 1996.. 3
Notes to Financial Statements..................................... 4
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.............. 6
PART II. -- OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K........................... 7
SIGNATURES......................................................... 8
<PAGE>
PART I. -- FINANCIAL INFORMATION
CAPSTEAD SECURITIES CORPORATION IV
BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Mortgage securities collateral $732,387 $766,812
Cash and cash equivalents 44 2,675
Other assets 2,214 2,493
-------- --------
$734,645 $771,980
======== ========
LIABILITIES
Collateralized mortgage securities $721,063 $754,631
Accrued expenses 32 30
-------- --------
721,095 754,661
-------- --------
STOCKHOLDER'S EQUITY
Common stock - $1 par value,
1,000 shares authorized,
issued and outstanding 1 1
Paid-in capital 14,078 17,713
Unrealized gain on debt securities 2,153 2,646
Accumulated deficit (2,682) (3,041)
-------- --------
13,550 17,319
-------- --------
$734,645 $771,980
======== ========
</TABLE>
See accompanying notes to financial statements.
-1-
<PAGE>
CAPSTEAD SECURITIES CORPORATION IV
STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31
------------------------
1997 1996
----------- ----------
<S> <C> <C>
INTEREST INCOME:
Mortgage securities collateral $15,748 $22,391
Receivable from Parent 38 10
------- -------
Total interest income 15,786 22,401
------- -------
Interest expense on collateralized
mortgage securities 14,872 21,012
------- -------
Net interest income 914 1,389
------- -------
OTHER EXPENSES:
Management fees 3 3
Professional fees and other 37 34
Pool insurance 515 790
------- -------
Total other expenses 555 827
------- -------
Net income $ 359 $ 562
======= =======
</TABLE>
See accompanying notes to financial statements.
-2-
<PAGE>
CAPSTEAD SECURITIES CORPORATION IV
STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31
----------------------
1997 1996
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 359 $ 562
Noncash item - amortization of
discount and premium 143 272
Net change in other assets and
accrued expenses 281 167
-------- --------
Net cash provided by operating
activities 783 1,001
-------- --------
INVESTING ACTIVITIES:
Mortgage securities collateral:
Principal collections on collateral 35,169 66,236
Decrease in accrued interest receivable 259 513
Increase in short-term investments (1,555) (1,666)
-------- --------
Net cash provided by
investing activities 33,873 65,083
-------- --------
FINANCING ACTIVITIES:
Collateralized mortgage securities:
Principal payments on securities (33,285) (64,062)
Decrease in accrued interest payable (367) (692)
Capital distributions (3,635) (1,357)
-------- --------
Net cash used by
financing activities (37,287) (66,111)
-------- --------
Net change in cash and cash equivalents (2,631) (27)
Cash and cash equivalents at beginning
of period 2,675 469
-------- --------
Cash and cash equivalents at end of
period $ 44 $ 442
======== ========
</TABLE>
See accompanying notes to financial statements.
-3-
<PAGE>
CAPSTEAD SECURITIES CORPORATION IV
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
(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 ended March 31, 1997 are not necessarily
indicative of the results that may be expected for the calendar year ending
December 31, 1997. For further information refer to the financial statements
and footnotes thereto included in the Capstead Securities Corporation IV annual
report on Form 10-K for the year ended December 31, 1996.
NOTE B -- DISCLOSURES REGARDING FAIR VALUES OF MORTGAGE SECURITIES COLLATERAL
The estimated fair values of mortgage securities collateral have been determined
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 could be realized 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.
Fair values are estimated using quoted market prices, when available, 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 MARCH 31, 1997
------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Available-for-sale $ 76,805 $ 2,153 $ - $ 78,958
Held-to-maturity 653,429 12,315 196 665,548
-------- ------- ---- --------
$730,234 $14,468 $196 $744,506
======== ======= ==== ========
<CAPTION>
AS OF DECEMBER 31, 1996
------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Available-for-sale $ 81,539 $ 2,646 $ - $ 84,185
Held-to-maturity 682,627 14,327 206 696,748
-------- ------- ---- --------
$764,166 $16,973 $206 $780,933
======== ======= ==== ========
</TABLE>
-4-
<PAGE>
The maturity of mortgage securities collateral is directly affected by the rate
of principal prepayments by mortgagors. In addition, upon redemption of
remaining bonds outstanding pursuant to clean-up calls, released collateral may
be sold. Such sales are deemed maturities under the provisions of Statement of
Financial Accounting Standards No. 115. No such redemptions occurred during the
three months ended March 31, 1997 or 1996.
NOTE C -- NET INTEREST INCOME ANALYSIS
The following table summarizes the amount of interest income and interest
expense and the average effective interest rates for mortgage securities
collateral and collateralized mortgage securities for the respective periods
(dollars in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31
------------------------------------
1997 1996
----------------- -----------------
AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
------- -------- ------- --------
<S> <C> <C> <C> <C>
Interest income on mortgage
securities collateral $15,748 8.52% $22,391 8.50%
Interest expense on
collateralized mortgage
securities 14,872 8.19 21,012 8.10
------- -------
Net interest $ 876 $ 1,379
======= =======
</TABLE>
The following table summarizes 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 ended March 31, 1997 compared to the same period in 1996 (in
thousands):
<TABLE>
<CAPTION>
RATE* VOLUME* TOTAL
------ -------- --------
<S> <C> <C> <C>
Interest income on mortgage
securities collateral $ 58 $(6,701) $(6,643)
Interest expense on
collateralized mortgage
securities 228 (6,368) (6,140)
----- ------- -------
$(170) $ (333) $ (503)
===== ======= =======
</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.
-5-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION
- -------------------
Capstead Securities Corporation IV (the "Company") was incorporated on August
16, 1991, as a special-purpose finance subsidiary of Capstead Mortgage
Corporation ("CMC") and commenced operations on December 23, 1991 with the
issuance of its first collateralized mortgage obligation ("CMO"), Series 1991-
VIII. As of March 31, 1997, 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 CMOs (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 $324,000 for
the quarter ended March 31, 1997, compared to $555,000 for the same period in
1996. 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 primarily to a 30% decrease
in the average holdings of mortgage securities collateral during the first
quarter of 1997 compared to the same period in 1996. This was a result of run-
off (prepayments and scheduled payments) and the redemption of CMO Series 1991-
VIII, 1992-III and 1992-IX during the fourth quarter of 1996. Average holdings
of mortgage securities collateral were $740 million for the quarter ended March
31, 1997, compared to $1.1 billion for the corresponding prior year period. As
a result of lower outstanding balances, income earned from the net interest
spread was lower in the current year. The run-off rate was 19% during the
quarter ended March 31, 1997, compared to 25% during the same period in 1996.
The following table presents the weighted average yields for the periods shown:
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31
------------------------
1997 1996
----------- -----------
<S> <C> <C>
Mortgage securities collateral 8.52% 8.50%
Collateralized mortgage securities 8.19 8.10
---- ----
Net interest spread 0.33% 0.40%
==== ====
</TABLE>
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.
-6-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's primary sources of funds are the receipt of excess cash flows on
CMO Investments (primarily the excess of principal and interest earned on the
mortgage securities collateral including reinvestment proceeds over the
principal and interest payable on the CMOs), proceeds from additional CMO
issuances and occasionally proceeds from the sale of collateral released from
the related CMOs. In late 1996 the Company redeemed the remaining outstanding
bonds of three series of collateralized mortgage securities (Series 1991-VIII,
1992-III and 1992-IX) totaling $110,802,000 pursuant to clean-up calls. There
have been no redemptions in 1997. The fourth quarter 1996 sale of this released
CMO collateral to CMC and excess cash flows from CMO Investments have allowed
the return of $3,635,000 of capital during the three months ended March 31,
1997. 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.
-7-
<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: May 8, 1997 By: /s/ RONN K. LYTLE
-----------------------------------------
Ronn K. Lytle
Chairman and Chief Executive Officer
Date: May 8, 1997 By: /s/ ANDREW F. JACOBS
-----------------------------------------
Andrew F. Jacobs
Senior Vice President - Control
and Treasurer
-8-
<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
March 31, 1997 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 734,645
<CURRENT-LIABILITIES> 32
<BONDS> 721,063
0
0
<COMMON> 1
<OTHER-SE> 13,549
<TOTAL-LIABILITY-AND-EQUITY> 734,645
<SALES> 0
<TOTAL-REVENUES> 15,786
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 555
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,872
<INCOME-PRETAX> 359
<INCOME-TAX> 0
<INCOME-CONTINUING> 359
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 359
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
