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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, 1999
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, 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 6, 1999
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CMC SECURITIES CORPORATION IV
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
INDEX
<TABLE>
<CAPTION>
PART I. -- FINANCIAL INFORMATION
PAGE
----
<S> <C>
ITEM 1. Financial Statements
Balance Sheet -- March 31, 1999 and December 31, 1998............................................... 1
Statement of Operations -- Quarter Ended March 31, 1999 and 1998.................................... 2
Statement of Cash Flows -- Quarter Ended March 31, 1999 and 1998.................................... 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 1. Legal Proceedings.............................................................................. 7
ITEM 5. Other Information.............................................................................. 7
ITEM 6. Exhibits and Reports on Form 8-K............................................................... 7
SIGNATURES............................................................................................. 8
</TABLE>
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CMC SECURITIES CORPORATION IV
PART I. -- FINANCIAL INFORMATION
BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Mortgage securities collateral $ 1,021,406 $ 1,171,151
Cash and cash equivalents 1 1
------------ ------------
$ 1,021,407 $ 1,171,152
============ ============
LIABILITIES
Collateralized mortgage securities $ 1,021,301 $ 1,171,031
Accrued expenses 45 42
------------ ------------
1,021,346 1,171,073
------------ ------------
STOCKHOLDER'S EQUITY
Common stock - $1.00 par value,
1 shares authorized,
issued and outstanding 1 1
Paid-in capital 432 432
Undistributed loss (372) (354)
------------ ------------
61 79
------------ ------------
$ 1,021,407 $ 1,171,152
============ ============
</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 MARCH 31
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Interest income on mortgage
securities collateral $ 22,064 $ 32,300
Interest expense on collateralized
mortgage securities 22,079 32,320
------------ ------------
Net interest expense (15) (20)
------------ ------------
Other expenses:
Management fees 3 3
Professional fees -- 9
------------ ------------
Total other expenses 3 12
------------ ------------
Net loss $ (18) $ (32)
============ ============
</TABLE>
See accompanying notes to financial statements.
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CMC SECURITIES CORPORATION IV
STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (18) $ (32)
Noncash item - amortization of discount and premium 4 57
Net change in other assets and accrued expenses 3 3
---------- ----------
Net cash provided (used) by operating activities (11) 28
---------- ----------
INVESTING ACTIVITIES:
Mortgage securities collateral:
Principal collections on collateral 150,787 121,237
Decrease in accrued interest receivable 955 785
---------- ----------
Net cash provided by investing activities 151,742 122,022
---------- ----------
FINANCING ACTIVITIES:
Collateralized mortgage securities:
Principal payments on securities (150,787) (121,237)
Decrease in accrued interest payable (944) (775)
Capital distribution -- (37)
---------- ----------
Net cash used by financing activities (151,731) (122,049)
---------- ----------
Net change in cash and cash equivalents -- 1
Cash and cash equivalents at beginning of period 1 2
---------- ----------
Cash and cash equivalents at end of period $ 1 $ 3
========== ==========
</TABLE>
See accompanying notes to financial statements.
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CMC SECURITIES CORPORATION IV
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
(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, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999. 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, 1998.
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>
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
<S> <C> <C>
Carrying amount $1,021,406 $1,171,151
Unrealized gains 41,974 49,394
---------- ----------
Fair value $1,063,380 $1,220,545
========== ==========
</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 sold. Such
sales are deemed maturities under the provisions of Statement of Financial
Accounting Standards No. 115. No such redemptions have occurred.
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NOTE C -- NET INTEREST INCOME ANALYSIS
The following table summarizes interest income and interest expense and average
effective interest rates for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31
----------------------------------------------------------
1999 1998
-------------------- ---------------------
AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
------ ------- ------ -------
<S> <C> <C> <C> <C>
Interest income on mortgage
securities collateral $22,064 8.12% $32,300 7.78%
Interest expense on
collateralized mortgage
securities 22,079 8.12 32,320 7.78
------- -------
Net interest $ (15) $ (20)
======= =======
</TABLE>
The following table summarizes the amount of change in interest income and
interest expense due to changes in interest rates versus changes in volume (in
thousands):
<TABLE>
<CAPTION>
RATE* VOLUME* TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
Interest income on mortgage
securities collateral $ 1,365 $ (11,601) $ (10,236)
Interest expense on
collateralized mortgage
securities 1,369 (11,610) (10,241)
---------- ---------- ----------
$ (4) $ 9 $ 5
========== ========== ==========
</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.
Interest payments on collateralized mortgage securities of $20,626,000 and
$31,813,000 were made during the quarters ended March 31, 1999 and 1998,
respectively.
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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, and therefore no net
income or loss was or will be recognized, other than amortization if
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 cash 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.
IMPACT OF YEAR 2000
Many existing computer software programs use only two digits to identify the
year in date fields and, as such, could fail or create erroneous results by or
at the Year 2000. The Manager utilizes a number of software systems to
administer securitizations and otherwise manage the Company's affairs. In
addition, the Manager utilizes vendors in various capacities and interfaces
with various institutions. The Manager is exposed to the risk that its systems
and the systems of its vendors and institutions it interfaces with are not Year
2000 compliant.
State of Readiness. The Manager has made and will continue to make
investments in its software systems and applications to ensure the Manager is
Year 2000 compliant. The Manager is also taking steps to ensure that the
vendors it utilizes and institutions that it interfaces with are also taking
the necessary steps to become Year 2000 compliant. This process is expected to
be essentially complete by the end of the second quarter of 1999.
Costs. The financial costs of the Manager becoming Year 2000 compliant are
the responsibility of the Manager.
Risks and Contingency Planning. Although the Manager expects that all its
systems and applications will be Year 2000 compliant per the above schedule and
well prior to December 31, 1999, there can be no assurance that all of
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the vendors it utilizes and institutions that it interfaces with will complete
their compliance efforts. The Manager will continue to monitor their efforts in
this regard and will take all prudent steps necessary to ensure operations are
not disrupted including the use of other vendors or other methodologies and
processes to transact the Company's business. The effect of any disruption to
the Company's operations of any such instances of non-compliance is presently
not determinable.
PART II. -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS: None.
ITEM 5. OTHER INFORMATION: None.
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: May 6, 1999 By: /s/ RONN K. LYTLE
--------------------------------------
Ronn K. Lytle
Chairman and Chief Executive Officer
Date: May 6, 1999 By: /s/ ANDREW F. JACOBS
--------------------------------------
Andrew F. Jacobs
Executive Vice President - Finance,
Treasurer and Secretary
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <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 QUARTLERY REPORT ON FORM 10-Q FOR THE QUARTER ENDED
MARCH 31, 1999, 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,021,407
<CURRENT-LIABILITIES> 45
<BONDS> 1,021,301
0
0
<COMMON> 1
<OTHER-SE> 60
<TOTAL-LIABILITY-AND-EQUITY> 1,021,407
<SALES> 0
<TOTAL-REVENUES> 22,064
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,079
<INCOME-PRETAX> (18)
<INCOME-TAX> 0
<INCOME-CONTINUING> (18)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
