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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, 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)
<TABLE>
<S> <C>
DELAWARE 75-2431915
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8401 N CENTRAL EXPRESSWAY, SUITE 800, DALLAS, TX 75225
(Address of principal executive offices) (Zip Code)
</TABLE>
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 10, 1999
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CMC SECURITIES CORPORATION IV
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
INDEX
<TABLE>
<CAPTION>
PART I. -- FINANCIAL INFORMATION
PAGE
----
ITEM 1. Financial Statements
<S> <C>
Balance Sheet -- September 30, 1999 and December 31, 1998........................................... 1
Statement of Operations -- Quarter and Nine Months
Ended September 30, 1999 and 1998................................................................. 2
Statement of Cash Flows -- Nine Months Ended
September 30, 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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PART I. -- FINANCIAL INFORMATION
CMC SECURITIES CORPORATION IV
BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Mortgage securities collateral $ 861,977 $ 1,171,151
Cash and cash equivalents 6 1
------------ ------------
$ 861,983 $ 1,171,152
============ ============
LIABILITIES
Collateralized mortgage securities $ 861,883 $ 1,171,031
Accrued expenses 50 42
------------ ------------
861,933 1,171,073
------------ ------------
STOCKHOLDER'S EQUITY
Common stock - $1.00 par value,
1 shares authorized,
issued and outstanding 1 1
Paid-in capital 465 432
Undistributed loss (416) (354)
------------ ------------
50 79
------------ ------------
$ 861,983 $ 1,171,152
============ ============
</TABLE>
See accompanying notes to financial statements.
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CMC SECURITIES CORPORATION IV
STATEMENT OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------- -------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest income on mortgage
securities collateral $ 17,917 $ 28,085 $ 59,111 $ 90,863
Interest expense on
collateralized mortgage securities 17,932 28,102 59,156 90,918
-------- -------- -------- --------
Net interest expense (15) (17) (45) (55)
-------- -------- -------- --------
Other expenses:
Management fees 3 3 8 8
Professional fees and other 2 1 9 14
-------- -------- -------- --------
Total other expenses 5 4 17 22
-------- -------- -------- --------
Net loss $ (20) $ (21) $ (62) $ (77)
======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
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CMC SECURITIES CORPORATION IV
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
------------------------------
1999 1998
---------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (62) $ (77)
Noncash item - amortization of
discount and premium 21 16
Net change in other assets and
accrued expenses 8 8
---------- ----------
Net cash used by
operating activities (33) (53)
---------- ----------
INVESTING ACTIVITIES:
Mortgage securities collateral:
Principal collections on collateral 323,130 387,858
Decrease in accrued interest receivable 1,882 2,644
---------- ----------
Net cash provided by
investing activities 325,012 390,502
---------- ----------
FINANCING ACTIVITIES:
Collateralized mortgage securities:
Principal payments on securities (323,130) (387,858)
Decrease in accrued interest payable (1,877) (2,528)
Capital contribution (distribution) 33 (64)
---------- ----------
Net cash used by
financing activities (324,974) (390,450)
---------- ----------
Net change in cash and cash equivalents 5 (1)
Cash and cash equivalents at
beginning of period 1 2
---------- ----------
Cash and cash equivalents at end
of period $ 6 $ 1
========== ==========
</TABLE>
See accompanying notes to financial statements.
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CMC SECURITIES CORPORATION IV
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 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 and nine months ended September 30, 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>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
<S> <C> <C>
Carrying amount $ 861,977 $1,171,151
Unrealized gains 9,484 49,394
Unrealized losses (424) --
---------- ----------
Fair value $ 871,037 $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 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
-----------------------------------------------------------
1999 1998
------------------------- ------------------------
AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Interest income on mortgage
securities collateral $ 17,917 8.20% $ 28,085 8.02%
Interest expense on
collateralized mortgage securities 17,932 8.21 28,102 8.03
-------- --------
Net interest $ (15) $ (17)
======== ========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
-----------------------------------------------------------
1999 1998
------------------------- ------------------------
AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Interest income on mortgage
securities collateral $ 59,111 8.09% $ 90,863 7.92%
Interest expense on
collateralized mortgage securities 59,156 8.09 90,918 7.92
-------- --------
Net interest $ (45) $ (55)
======== ========
</TABLE>
The following tables summarize the amount of change in interest income and
interest expense due to changes in interest rates versus changes in volume (in
thousands):
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30, 1999
--------------------------------------------------
RATE* VOLUME* TOTAL
-------- -------- --------
<S> <C> <C> <C>
Interest income on mortgage
securities collateral $ 610 $(10,778) $(10,168)
Interest expense on
collateralized mortgage securities 617 (10,787) (10,170)
-------- -------- --------
$ (7) $ 9 $ 2
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
--------------------------------------------------
RATE* VOLUME* TOTAL
-------- -------- --------
<S> <C> <C> <C>
Interest income on mortgage
securities collateral $ 1,878 $(33,630) $(31,752)
Interest expense on
collateralized mortgage securities 1,889 (33,651) (31,762)
-------- -------- --------
$ (11) $ 21 $ 10
======== ======== ========
</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 (the "Manager").
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 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 the Manager.
IMPACT OF THE 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 manage the Company's mortgage assets. 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 investments in its software
systems and applications to ensure the Manager is Year 2000 compliant. The
Manager has also taken steps to ensure that the vendors it utilizes and
institutions that it interfaces with have also taken the necessary steps to
become Year 2000 compliant. This process was completed in the third quarter of
1999.
Costs. The financial costs of the Manager becoming Year 2000 compliant are
the responsibility of the Manager.
Risks and Contingency Planning. The Manager considers all its systems and
applications to be Year 2000 compliant, and has taken steps to ensure that all
of the vendors it utilizes and institutions that it interfaces have
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<PAGE> 9
completed their compliance efforts. Nonetheless, the Manager will continue to
monitor Year 2000 compliance and has drafted contingency plans for all critical
processes to help ensure the impact on the Company's operations, or that of
customers or vendors will be minimized if an event of non-compliance occurs.
These plans include arranging for the use of other vendors or other
methodologies and processes to transact the Company's business. The effect of
any such disruption to the Company's operations is not presently 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: November 10, 1999 By: /s/ RONN K. LYTLE
-----------------------------------
Ronn K. Lytle
Chairman and Chief Executive Officer
Date: November 10, 1999 By: /s/ ANDREW F. JACOBS
-----------------------------------
Andrew F. Jacobs
Executive Vice President - Finance
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule (electronic filing only).
</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, 1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 6
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 861,983
<CURRENT-LIABILITIES> 50
<BONDS> 861,883
0
0
<COMMON> 1
<OTHER-SE> 49
<TOTAL-LIABILITY-AND-EQUITY> 861,983
<SALES> 0
<TOTAL-REVENUES> 59,111
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 17
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 59,156
<INCOME-PRETAX> (62)
<INCOME-TAX> 0
<INCOME-CONTINUING> (62)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (62)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
