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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, 1998
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: 33-47912
CMC SECURITIES CORPORATION IV
(Exact name of Registrant as specified in its Charter)
DELAWARE 75-2431915
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2711 NORTH HASKELL AVENUE, 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 November 3, 1998
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CMC SECURITIES CORPORATION IV
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
INDEX
PART I. -- FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C>
ITEM 1. Financial Statements
Balance Sheet -- September 30, 1998 (Unaudited)
and December 31, 1997............................................... 1
Statement of Operations -- Quarter and Nine Months
Ended September 30, 1998 and 1997 (Unaudited)....................... 2
Statement of Cash Flows -- Nine Months Ended
September 30, 1998 and 1997 (Unaudited)............................. 3
Notes to Financial Statements (Unaudited)............................. 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................................. 6
SIGNATURES............................................................... 7
</TABLE>
<PAGE> 3
PART I. -- FINANCIAL INFORMATION
CMC SECURITIES CORPORATION IV
BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Mortgage securities collateral $ 1,342,345 $ 1,728,030
Cash and cash equivalents 1 2
----------- -----------
$ 1,342,346 $ 1,728,032
=========== ===========
LIABILITIES
Collateralized mortgage securities $ 1,342,213 $ 1,727,766
Accrued expenses 40 32
----------- -----------
1,342,253 1,727,798
----------- -----------
STOCKHOLDER'S EQUITY
Common stock - $1.00 par value,
1 shares authorized,
issued and outstanding 1 1
Paid-in capital 426 490
Accumulated deficit (334) (257)
----------- -----------
93 234
----------- -----------
$ 1,342,346 $ 1,728,032
=========== ===========
</TABLE>
See accompanying notes to financial statements.
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CMC SECURITIES CORPORATION IV
STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
----------------------- -----------------------
1998 1997 1998 1997
------- ------ ------ ------
<S> <C> <C> <C> <C>
Interest income on mortgage
securities collateral $ 28,085 $ 12,846 $ 90,863 $ 38,067
Interest expense on
collateralized mortgage securities 28,102 12,868 90,918 38,133
-------- -------- -------- --------
Net interest expense (17) (22) (55) (66)
-------- -------- -------- --------
Other expenses:
Management fees 3 3 8 8
Professional fees and other 1 1 14 12
-------- -------- -------- --------
Total other expenses 4 4 22 20
-------- -------- -------- --------
Net loss $ (21) $ (26) $ (77) $ (86)
======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
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CMC SECURITIES CORPORATION IV
STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
-------------------------------------
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (77) $ (86)
Net change in other assets and
accrued expenses 8 8
Noncash item - amortization of
discount and premium 16 48
--------- ---------
Net cash used by
operating activities (53) (30)
--------- ---------
INVESTING ACTIVITIES:
Mortgage securities collateral:
Mortgage collateral acquired
from affiliate -- (284,672)
Principal collections on collateral 387,858 57,096
Decrease (increase) in accrued
interest receivable 2,644 (1,536)
--------- ---------
Net cash provided (used) by
investing activities 390,502 (229,112)
--------- ---------
FINANCING ACTIVITIES:
Collateralized mortgage securities:
Issuance of securities -- 284,672
Principal payments on securities (387,858) (57,096)
Increase (decrease) in accrued
interest payable (2,528) 1,554
Capital contribution (distribution) (64) 12
--------- ---------
Net cash provided (used) by
financing activities (390,450) 229,142
--------- ---------
Net change in cash and cash equivalents (1) --
Cash and cash equivalents at
beginning of period 2 --
--------- ---------
Cash and cash equivalents at end
of period $ 1 $ --
========= =========
</TABLE>
See accompanying notes to financial statements.
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CMC SECURITIES CORPORATION IV
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(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, 1998 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1998. For further information refer to the financial
statements and footnotes thereto included in the CMC Securities Corporation IV
annual report on Form 10-K for the year ended December 31, 1997.
NOTE B -- DISCLOSURES REGARDING FAIR VALUES OF MORTGAGE SECURITIES COLLATERAL
The estimated fair values of mortgage securities collateral have been determined
by 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, the 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 the estimated fair value amounts.
The fair values of mortgage securities collateral were 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 table summarizes the fair values of mortgage securities collateral
(in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
Carrying amount $1,342,345 $1,728,030
Unrealized gains 58,712 63,115
---------- ----------
Fair value $1,401,057 $1,791,145
========== ==========
</TABLE>
All mortgage securities collateral is held-to-maturity. The maturity of mortgage
securities collateral is directly affected by the rate of principal prepayments
by mortgagors. In addition, upon the redemption of remaining bonds outstanding
pursuant to clean-up calls, released collateral may be
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sold. Such sales are deemed maturities under the provisions of Statement of
Financial Accounting Standards No. 115. No such redemptions have occurred.
NOTE C -- NET INTEREST INCOME ANALYSIS
The following tables summarize interest income and interest expense and average
effective interest rates for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30
---------------------------------------------------
1998 1997
------------------- ----------------------
AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
------ ------- ------ --------
<S> <C> <C> <C> <C>
Interest income on mortgage
securities collateral $28,085 8.02% $12,846 8.08%
Interest expense on
collateralized mortgage securities 28,102 8.03 12,868 8.09
------- -------
Net interest $ (17) $ (22)
======= =======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
---------------------------------------------------
1998 1997
------------------- ----------------------
AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
------ ------- ------ --------
<S> <C> <C> <C> <C>
Interest income on mortgage
securities collateral $90,863 7.92% $38,067 8.33%
Interest expense on
collateralized mortgage securities 90,918 7.92 38,133 8.34
------- -------
Net interest $ (55) $ (66)
======= =======
</TABLE>
The following tables summarize changes in interest income and interest expense
due to changes in interest rates, versus changes in volume for the quarter and
nine months ended September 30, 1998, compared to the same periods in 1997 (in
thousands):
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30, 1998
-------------------------------------------------
RATE* VOLUME* TOTAL
------ ------- -------
<S> <C> <C> <C>
Interest income on mortgage
securities collateral $ (90) $15,329 $15,239
Interest expense on
collateralized mortgage securities (107) 15,341 15,234
----- ------- -------
$ 17 $ (12) $ 5
===== ======= =======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
-------------------------------------------------
RATE* VOLUME* TOTAL
------ ------- -------
<S> <C> <C> <C>
Rate* Volume* Total
Interest income on mortgage
securities collateral $(1,944) $54,740 $52,796
Interest expense on
collateralized mortgage securities (2,003) 54,788 52,785
------- ------- -------
$ 59 $ (48) $ 11
======= ======= =======
</TABLE>
* The changes in interest income and expense due to both volume and rate have
been allocated to volume and rate changes in proportion to the relationship
of the absolute dollar amounts of the change in each.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CMC Securities Corporation IV (the "Company") was incorporated in Delaware on
May 6, 1992 as a limited purpose finance corporation, and is a wholly-owned
subsidiary of Capstead Mortgage Corporation ("CMC").
As of October 31, 1997, the Company had issued 5 series of collateralized
mortgage obligations ("CMOs") with an aggregate original principal balance of
$2,003,125,000; $176,304,000 of which was issued through private placements,
with the remainder being issued under the registration statement. These
issuances have been accounted for as financings. The Company has essentially
issued the maximum amount of securities under the $2 billion amended
registration statement; therefore, the Company has not issued any CMOs since
October 31, 1997. Since the Company did not retain any investment in the CMOs
issued, no economic benefit was or will be received, thus no net income or loss
was or will be recognized, other than amortization of unreimbursed shelf
issuance costs.
The Company's net losses are due to operational costs incurred (management and
professional fees) and unreimbursed shelf registration costs.
LIQUIDITY AND CAPITAL RESOURCES
All ongoing CMO expenses of the Company are paid out of the excess cash flows on
the CMOs issued before the residual holders receive their residual interest. The
Company believes that the excess cash flows will be sufficient to pay ongoing
CMO expenses. Cash flow requirements due to ongoing operational costs are funded
by CMC.
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.
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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.
CMC SECURITIES CORPORATION IV
Date: November 3, 1998 By: /s/ RONN K. LYTLE
-----------------
Ronn K. Lytle
Chairman and Chief Executive Officer
Date: November 3, 1998 By: /s/ ANDREW F. JACOBS
--------------------
Andrew F. Jacobs
Executive Vice President - Finance,
Treasurer and Secretary
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- ------- ------- ------------
<S> <C> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CMC
SECURITIES CORPORATION IV'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED
SEPTEMBER 30, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,342,346
<CURRENT-LIABILITIES> 40
<BONDS> 1,342,213
0
0
<COMMON> 1
<OTHER-SE> 92
<TOTAL-LIABILITY-AND-EQUITY> 1,342,346
<SALES> 0
<TOTAL-REVENUES> 90,863
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 22
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 90,918
<INCOME-PRETAX> (77)
<INCOME-TAX> 0
<INCOME-CONTINUING> (77)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (77)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
