<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED: DECEMBER 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: 333-64481
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.)
8401 N CENTRAL EXPRESSWAY, SUITE 800, DALLAS, TX 75225
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 874-2323
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: None.
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
---- ----
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST
OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K [ ]
AT MARCH 23, 2000 THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY
NONAFFILIATES WAS: NOT APPLICABLE.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION J (1)(a)
AND (b) OF FORM 10-K AND IS, THEREFORE, FILING THIS FORM WITH REDUCED DISCLOSURE
FORMAT.
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AT MARCH 23, 2000: 1,000
DOCUMENTS INCORPORATED BY REFERENCE: NONE.
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CMC SECURITIES CORPORATION IV
1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
PART I
<S> <C> <C>
ITEM 1. BUSINESS.................................................. 1
ITEM 2. PROPERTIES................................................ 3
ITEM 3. LEGAL PROCEEDINGS......................................... 3
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS......................... 3
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS........... 3
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK...................................... 4
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............... 4
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE..................... 15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K..................................... 16
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS.
ORGANIZATION
CMC Securities Corporation IV (the "Company") was incorporated in Delaware on
May 6, 1992, as a special-purpose finance corporation and is a wholly-owned
subsidiary of Capstead Mortgage Corporation ("CMC"). CMC is a publicly-owned
real estate investment trust that, until late 1995, operated as a mortgage
conduit, purchasing and securitizing single-family residential mortgage loans.
The Company is managed by CMC (the "Manager").
Due to changing circumstances, control of the Company within CMC's consolidated
group was changed twice during 1994 and 1995. In August 1994, CMC sold all the
issued and outstanding shares of capital stock in the Company to Capstead Inc.,
CMC's subsidiary formed primarily to service single-family mortgage loans. On
December 21, 1995, after CMC reached a decision to exit the mortgage conduit
business, the Company was merged with and into a newly formed and wholly-owned
subsidiary of CMC (with a corporate charter and organizational structure
identical in almost all respects to that of the Company) ("CMCSC IV-A") whereby
the existence of the Company ceased and CMCSC IV-A acquired all the assets and
assumed all the liabilities of the Company as the surviving entity. As merger
consideration to Capstead Inc., CMCSC IV-A paid an amount of $430,000 in cash
that had been contributed by CMC. As a part of the merger, CMCSC IV-A changed
its name to CMC Securities Corporation IV, and from December 21, 1995 forward
has been referred to as the "Company."
The Company was formed primarily for the purpose of issuing collateralized
mortgage obligations ("Bonds" or "CMOs"), collateralized by mortgage-backed,
pass-through certificates ("Certificates") that evidence an interest in a pool
of mortgage loans secured by single-family residences. The Certificates pledged
as collateral for the Bonds will either be contributed by CMC or its affiliates
or purchased from third parties and will either be Ginnie Mae certificates,
Fannie Mac certificates, Freddie Mac certificates or mortgage pass-through
("Non-Agency") Certificates. The Company's Certificate of Incorporation requires
that Bonds issued be rated in one of the two highest rating categories
established by one or more nationally recognized statistical rating agencies.
On August 17, 1992 the Securities and Exchange Commission declared effective an
amended registration statement filed by the Company covering the offering of a
maximum of $2 billion aggregate principal amount of CMOs. The Company commenced
operations with the September 30, 1994 issuance of its first series of CMOs. The
Company did not issue any CMOs during 1996 or 1995. During 1997 the Company
issued two series of CMOs (Series 1997-NAMC 3 and 1997-2) with total obligations
(including accrued interest and premium) of $1.2 billion. The Company retained
no beneficial interest in these CMOs, and as such, no economic benefit will be
received and no related net income or loss will be recognized other than the
amortization of unrecovered shelf issuance costs. These issuances were accounted
for as financings. As of December 31, 1999, the Company had issued 5 series of
CMOs with an aggregate original principal balance of $2,003,125,000,
$176,304,000 of which were issued outside the registration statement as private
placements.
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SPECIAL-PURPOSE FINANCE CORPORATION
The Company has not engaged and will not engage in any business or investment
activities other than (i) issuing and selling CMOs, and receiving, owning,
holding and pledging as collateral the related Certificates, (ii) investing cash
balances on an interim basis in high quality short-term securities, and (iii)
engaging in other activities which are necessary or convenient to accomplish the
foregoing and are incidental thereto. Article III of the Company's Certificate
of Incorporation limits the Company's purposes to the above.
COMPETITION
The Company's business is highly competitive. The Company competes with other
issuers of similar obligations, both with respect to the acquisition of mortgage
related collateral, securing the Bonds and the placement of the CMOs. The
Company also competes with entities that issue and/or market numerous other
competitive financial products.
EMPLOYEES
At December 31, 1999 the Company had no employees. The Manager provides all
executive and administrative personnel required by the Company.
MANAGEMENT AGREEMENT
Pursuant to a management agreement, the Manager advises the Company with respect
to its investments and administers the day-to-day operations of the Company. The
management agreement is nonassignable except by consent of the Company and the
Manager. The management agreement may be terminated without cause at any time
upon 90 days written notice. In addition, the Company has the right to terminate
the management agreement upon the happening of certain specified events,
including a breach by the Manager of any provision contained in the management
agreement which remains uncured for 30 days after notice of such breach and the
bankruptcy or insolvency of the Manager.
The Manager is at all times subject to the supervision of the Company's Board of
Directors and has only such functions and authority as the Company delegates to
it. The Manager is responsible for the day-to-day operations of the Company and
performs such services and activities relating to the assets and operations of
the Company as may be appropriate. The Manager receives an annual basic
management fee of $10,000 per year for managing the assets pledged to secure
Bonds issued by the Company.
The Manager is required to pay employment expenses of its personnel (including
salaries, wages, payroll taxes, insurance, fidelity bonds, temporary help and
costs of employee benefit plans), and other office expenses, travel and other
expenses of directors, officers and employees of the Manager, accounting fees
and expenses incurred in supervising and monitoring the Company's investments or
relating to performance by the Manager of its functions. The Company is required
to pay all other expenses of operation (as defined in the management agreement).
SERVICING AND ADMINISTRATION
The originators of mortgage loans backing the Non-Agency Certificates may elect,
if they meet the Company's criteria for servicers, either to service
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the loans they sell or to sell the loans with no agreement with respect to
servicing. The Company enters into servicing agreements with each servicer.
As compensation for services rendered under the servicing agreements, the
servicers retain a servicing fee, payable monthly, generally 1/4 of 1% per annum
of the outstanding principal balance of each mortgage loan serviced as of the
last day of each month. During 1998 Capstead Inc. serviced a significant number
of the Company's mortgage loans. This servicing was sold by Capstead Inc. in
December 1998 to an unaffiliated third party. No servicing fees were retained by
Capstead Inc. during 1999; however, during 1998 and 1997 Capstead Inc. retained
fees from mortgage loan payments for servicing mortgage loans of $940,000 and
$1,174,000, respectively.
In addition, CMC acts as administrator with respect to certain of the Company's
Non-Agency Certificates and CMOs. During 1999, 1998 and 1997, CMC retained fees
for administering the Non-Agency Certificates and CMOs of $180,000, $253,000 and
$297,000, respectively.
ITEM 2. PROPERTIES.
The Company's operations are conducted primarily in Dallas, Texas on properties
leased by CMC.
ITEM 3. LEGAL PROCEEDINGS.
As of the date hereof, there are no material legal proceedings outside the
normal course of business to which the Company was a party or of which any of
its property was the subject.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
All of the Company's common stock is owned by CMC. Accordingly, there is no
public trading market for its common stock. To date the Company has not paid
dividends.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The Company commenced operations on September 30, 1994 with the issuance of its
first series of CMOs. Two additional series of CMOs were issued in both 1994 and
1997. The Company elected Real Estate Mortgage Investment Conduit ("REMIC")
status for tax purposes on these transactions. These issuances have been
accounted for as financings. As financings, CMO collateral and Bonds are
reflected on the balance sheet.
Since the Company did not retain any investment in the CMOs issued, no economic
benefit was or will be received and thus no net income or loss was or will be
recognized related to these CMOs other than amortization of unreimbursed shelf
issuance costs. The Company's net losses are due to this amortization and
operational costs incurred (management fees and professional fees).
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<PAGE> 6
LIQUIDITY AND CAPITAL RESOURCES
All ongoing cash CMO expenses 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 cash CMO
expenses. Cash flow requirements due to ongoing operational costs are funded by
CMC.
IMPACT OF YEAR 2000
The Manager took the necessary steps to ensure that its software systems and
applications would not fail or create erroneous results by or at December 31,
1999 ("Year 2000 compliant"). The Manager also took steps to ensure that the
vendors it utilizes and institutions that it interfaces with had also taken the
necessary steps to become Year 2000 compliant. The Company experienced no
material instances of Year 2000 compliance failures.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As discussed above, the Company will receive no economic benefit from the CMOs
it has issued other than the amortization of unreimbursed bond issuance costs
totaling $79,000 as of December 31, 1999. Accordingly the Company has no
appreciable exposure to market risks, including interest rate risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
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REPORT OF INDEPENDENT AUDITORS
Stockholder and Board of Directors
CMC Securities Corporation IV
We have audited the accompanying balance sheet of CMC Securities Corporation IV
(a wholly-owned subsidiary of Capstead Mortgage Corporation) as of December 31,
1999 and 1998, and the related statements of operations, stockholder's equity,
and cash flows for each of the three years in the period ended December 31,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CMC Securities Corporation IV
at December 31, 1999 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
Dallas, Texas
January 27, 2000
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CMC SECURITIES CORPORATION IV
BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Mortgage securities collateral $ 828,194 $ 1,171,151
Cash and cash equivalents 5 1
----------- -----------
$ 828,199 $ 1,171,152
=========== ===========
LIABILITIES
Collateralized mortgage securities $ 828,115 $ 1,171,031
Accrued expenses 52 42
----------- -----------
828,167 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 (434) (354)
----------- -----------
32 79
----------- -----------
$ 828,199 $ 1,171,152
=========== ===========
</TABLE>
See accompanying notes to financial statements.
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CMC SECURITIES CORPORATION IV
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Interest income on
mortgage securities collateral $ 75,907 $ 115,627 $ 67,475
Interest expense on collateralized
mortgage securities 75,967 115,697 67,563
----------- ----------- -----------
Net interest expense (60) (70) (88)
----------- ----------- -----------
Other expenses:
Management fees 10 10 10
Professional fees 10 17 14
----------- ----------- -----------
Total other expenses 20 27 24
----------- ----------- -----------
Net loss $ (80) $ (97) $ (112)
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
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CMC SECURITIES CORPORATION IV
STATEMENT OF STOCKHOLDER'S EQUITY
THREE YEARS ENDED DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
----------------------- PAID-IN UNDISTRIBUTED
SHARES AMOUNT CAPITAL INCOME (LOSS) TOTAL
---------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Balance at
January 1, 1997 1 $ 1 $ 474 $ (145) $ 330
Capital contribution -- -- 16 -- 16
Net loss -- -- -- (112) (112)
---------- ---------- ---------- ------------- ----------
Balance at
December 31, 1997 1 1 490 (257) 234
Capital distribution -- -- (58) -- (58)
Net loss -- -- -- (97) (97)
---------- ---------- ---------- ------------- ----------
Balance at
December 31, 1998 1 1 432 (354) 79
Capital contribution -- -- 33 -- 33
Net loss -- -- -- (80) (80)
---------- ---------- ---------- ------------- ----------
Balance at
December 31, 1999 1 $ 1 $ 465 $ (434) $ 32
========== ========== ========== ============= ==========
</TABLE>
See accompanying notes to financial statements.
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CMC SECURITIES CORPORATION IV
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (80) $ (97) $ (112)
Noncash item - amortization
of discount and premium 33 19 61
Net change in other assets and
accrued expenses 10 10 10
------------- ------------- -------------
Net cash used by
operating activities (37) (68) (41)
------------- ------------- -------------
INVESTING ACTIVITIES:
Mortgage securities collateral:
Mortgage collateral acquired
from affiliate -- -- (1,187,085)
Principal collections on collateral 357,983 559,522 81,555
Decrease (increase) in accrued
interest receivable 2,099 3,745 (7,060)
Increase in short-term investments -- -- (2)
------------- ------------- -------------
Net cash provided (used) by
investing activities 360,082 563,267 (1,112,592)
------------- ------------- -------------
FINANCING ACTIVITIES:
Collateralized mortgage securities:
Issuance of securities -- -- 1,187,085
Principal payments on securities (357,983) (559,522) (81,555)
Increase (decrease) in accrued
interest payable (2,091) (3,620) 7,089
Capital contribution (distribution) 33 (58) 16
------------- ------------- -------------
Net cash provided (used) by
financing activities (360,041) (563,200) 1,112,635
------------- ------------- -------------
Net change in cash and cash equivalents 4 (1) 2
Cash and cash equivalents at
beginning of year 1 2 --
------------- ------------- -------------
Cash and cash equivalents at end
of year $ 5 $ 1 $ 2
============= ============= =============
</TABLE>
See accompanying notes to financial statements.
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CMC SECURITIES CORPORATION IV
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE A -- BUSINESS
CMC Securities Corporation IV (the "Company") was incorporated in Delaware on
May 6, 1992, as a special-purpose finance corporation primarily to issue bonds
collateralized by whole loans or mortgage-backed securities. Capstead Inc.
acquired the Company from Capstead Mortgage Corporation ("CMC"), the then parent
of Capstead Inc., on August 10, 1994 pursuant to a Stock Purchase Agreement
prior to commencement of operations; however, control of the Company was
transferred back to CMC on December 21, 1995 pursuant to an Agreement and Plan
of Merger (see Note G).
NOTE B -- ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
SECURITIES HELD-TO-MATURITY
Management determines the appropriate classification of debt securities at the
time of purchase and reevaluates such designation as of each balance sheet date.
Debt securities are classified as held-to-maturity when the Company has the
positive intent and ability to hold the securities to maturity. Held-to-maturity
securities are stated at amortized cost.
MORTGAGE SECURITIES COLLATERAL
Mortgage securities collateral consists of debt securities classified as
held-to-maturity. Amortized cost is adjusted for amortization of premiums and
discounts over the estimated life of the security using the interest method.
Such amortization is included in related interest income.
Mortgage securities collateral is subject to changes in value because of changes
in interest rates and rates of prepayment, as well as failure of the mortgagor
to perform under the mortgage agreement. The Company has limited its exposure to
these risks by issuing collateralized mortgage securities, using a
senior/subordinate structure (see Note F).
ALLOWANCE FOR POSSIBLE LOSSES
The Company provides for possible losses on its investments in amounts which it
believes are adequate relative to the risk inherent in such investments.
COLLATERALIZED MORTGAGE SECURITIES
Collateralized mortgage securities are carried at their unpaid principal
balances, net of unamortized discount or premium. Any discount or premium is
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recognized as an adjustment to interest expense by the interest method over the
life of the related securities.
INCOME TAXES
Since its inception through August 9, 1994, the Company operated as a qualified
real estate investment trust ("REIT") subsidiary of CMC, which itself is a REIT,
and was combined with CMC for federal income tax purposes. REITs are not taxed
at the corporate level provided that certain requirements are met. From August
10, 1994 through December 21, 1995 the Company was consolidated for income tax
purposes with Capstead Inc., which is not a REIT; however, due to losses
incurred during this period, no provision was made for federal income taxes.
Beginning December 21, 1995 the Company once again began operating as a
qualified REIT subsidiary of CMC. Accordingly, no provision is required for
federal income taxes.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and highly liquid investments
with original maturities of three months or less.
NOTE C -- MORTGAGE SECURITIES COLLATERAL
Mortgage securities collateral consists of conventional single-family mortgage
loans which are pledged to secure repayment of the collateralized mortgage
securities. All principal and interest payments on the collateral are remitted
directly to a collection account maintained by a trustee. The trustee is
responsible for reinvesting those funds in short-term investments. All
collections on the collateral and the reinvestment income earned thereon are
available for payment of principal and interest on the collateralized mortgage
securities. The components of mortgage securities collateral are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Mortgage collateral $ 832,087 $ 1,190,070
Short-term investments 9 9
Accrued interest receivable 5,101 7,200
------------- -------------
Total collateral 837,197 1,197,279
Unamortized discount (9,003) (26,128)
------------- -------------
Net collateral $ 828,194 $ 1,171,151
============= =============
</TABLE>
The weighted average effective interest rate for mortgage securities collateral
was 8.06% and 7.92% during 1999 and 1998, respectively.
NOTE D -- COLLATERALIZED MORTGAGE SECURITIES
Each series of collateralized mortgage securities consists of various classes,
some of which may be deferred interest, interest-only and principal-only
securities. Interest is payable monthly at specified rates for all classes other
than deferred interest securities. Generally, principal payments on each series
are made to each class in the order of their stated maturities so that no
payment of principal will be made on any class until all classes having an
earlier stated maturity have been paid in full. Generally, payments of principal
and interest on deferred interest securities
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<PAGE> 14
will commence only upon payment in full of some or all other classes. Prior to
that time, interest accrues on the deferred interest securities and the amount
accrued is added to the unpaid principal balance. Interest payments on
interest-only bonds are based on a specified notional amount used only for the
calculation of interest and no payments of principal are made. Principal-only
bonds remit principal payments and no interest is paid.
The components of collateralized mortgage securities are summarized as follows
(dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Collateralized mortgage securities $ 832,087 $ 1,190,070
Accrued interest payable 5,035 7,107
------------ ------------
Total obligation 837,122 1,197,177
Unamortized discount (9,007) (26,146)
------------ ------------
Net obligation $ 828,115 $ 1,171,031
============ ============
Range of average interest rate 6.35% to 8.55% 6.36% to 8.26%
Stated maturities 2024 to 2027 2024 to 2027
Number of series 5 5
</TABLE>
The maturity of each series of securities is directly affected by the rate of
principal prepayments on the related mortgage securities collateral. Each series
of securities is also subject to redemption at the Company's option provided
that certain requirements specified in the related indenture have been met
(referred to as "clean-up calls"). As a result, the actual maturity of any
series of securities is likely to occur earlier than its stated maturity.
The weighted average effective interest rate for collateralized mortgage
securities was 8.06% and 7.93% during 1999 and 1998, respectively. Interest
payments on collateralized mortgage securities of $70,489,000, $110,882,000 and
$52,621,000 were made during 1999, 1998 and 1997, respectively.
NOTE E -- DISCLOSURES REGARDING FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments 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, the 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 the estimated fair value amounts.
The carrying amount of cash and cash equivalents approximates fair value. The
fair value of mortgage securities collateral was estimated using either quoted
market prices, when available, including quotes made by CMC's lenders in
connection with designating collateral for repurchase arrangements. The fair
value of collateralized mortgage securities is dependent upon the
characteristics of the mortgage securities collateral pledged to secure the
issuance. Therefore, fair value was based on the same method used for
determining fair value for the underlying mortgage securities collateral,
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<PAGE> 15
adjusted for credit enhancements. The following table summarizes the fair value
of financial instruments (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 5 $ 5 $ 1 $ 1
Mortgage securities collateral 828,194 834,267 1,171,151 1,220,545
LIABILITIES
Collateralized mortgage
securities 828,115 843,839 1,171,031 1,226,691
</TABLE>
The table above reflects the estimated fair value of mortgage securities
collateral and cash equivalents, which reflect gross unrealized gains of $6.4
million and gross unrealized losses of $318,000 as of December 31, 1999, and
gross unrealized gains of $49.4 million as of December 31, 1998.
NOTE F -- ALLOWANCE FOR POSSIBLE LOSSES
The Company has limited exposure to losses on mortgage securities collateral
because the Company's collateralized mortgage securities are issued in a
senior/subordinate structure where the investor in the subordinate classes
assumes the risks of losses due to typical mortgagor default and special
hazards. Special hazards are typically catastrophic events that are unable to be
predicted (e.g., earthquakes). Because of its limited exposure to losses, the
Company has determined that an allowance for possible losses is not warranted at
December 31, 1999.
Since 23% and 18% of mortgage securities collateral is secured by properties
located in California and Virginia, respectively, the Company has a
concentration of risk related to these markets. However, the Company's exposure
arising from this concentration is reduced by the use of the senior/subordinate
structure for securitizations.
NOTE G -- CHANGE IN CONTROL
On August 9, 1994, the Company amended its Certificate of Incorporation to
revise certain provisions thereof to meet current rating agency criteria and to
change its name to CMC Securities Corporation IV. Pursuant to a Stock Purchase
Agreement dated August 10, 1994, CMC sold all of the issued and outstanding
shares of capital stock in the Company to Capstead Inc. for $708,000. Such
amount was funded by an advance from CMC to Capstead Inc. under a revolving
credit facility between such companies.
Pursuant to an Agreement and Plan of Merger dated December 21, 1995 (the
"Agreement") between the Company and CMC Securities Corporation IV-A ("CMCSC
IV-A"), a newly formed and wholly-owned subsidiary of CMC with a corporate
charter and organizational structure identical in almost all respects to that of
the Company, the Company merged with and into CMCSC IV-A, whereby the existence
of the Company ceased and CMCSC IV-A acquired all of the assets and assumed all
of the liabilities of the Company as the surviving entity. CMCSC IV-A paid
Capstead Inc. $430,000 as merger consideration that
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<PAGE> 16
had been contributed to CMCSC IV-A by CMC. As a part of the merger, CMCSC IV-A
changed its name to CMC Securities Corporation IV.
NOTE H -- MANAGEMENT AGREEMENT
The Company operates under a $10,000 per year management agreement with CMC (the
"Manager"). The agreement provides that the Manager will advise the Company with
respect to all facets of its business and administer the day-to-day operations
of the Company under the supervision of the Company's Board of Directors. The
Manager pays among other things, salaries and benefits of its personnel,
accounting fees and expenses, and other office expenses incurred in supervising
and monitoring the Company's investments.
NOTE I -- TRANSACTIONS WITH RELATED PARTIES
The Company has entered into servicing agreements with Capstead Inc., the
provisions of which are typical of such agreements in the mortgage servicing
industry. Capstead Inc. sold this servicing to an unaffiliated third party in
December 1998. Under the servicing agreements, Capstead Inc. retained from
interest collected a servicing fee generally 1/4 of 1% per annum of the
outstanding principal balance of mortgage loans serviced. No servicing fees were
retained by Capstead Inc. during 1999; however, servicing fees of $940,000 and
$1,174,000 were retained by Capstead Inc. in 1998 and 1997, respectively.
CMC acts as administrator in relation to certain of the Company's Non-Agency
Certificates and CMOs in which it performs certain administrative functions. CMC
receives fees of approximately 0.015% to 0.04% per annum of the outstanding
principal amount of the bonds, after deducting trustee fees. Such fees totaled
$180,000, $253,000 and $297,000 in 1999, 1998 and 1997, respectively.
During 1995 the Company had a $20 million revolving subordinated promissory note
with Capstead Inc. under which interest accrued on amounts payable based on the
annual federal short-term rate as published by the Internal Revenue Service.
This note matured January 1, 1996 and has been replaced with a $1 million note
with CMC that contains similar terms and expires January 1, 2001.
NOTE J -- NET INTEREST INCOME ANALYSIS (UNAUDITED)
The following table summarizes the amount of interest income and interest
expense and the average effective interest rate for mortgage securities
collateral and collateralized mortgage securities (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------- -------------------------- --------------------------
AVERAGE AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE AMOUNT RATE
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest income on
mortgage securities
collateral $ 75,907 8.06% $ 115,627 7.92% $ 67,475 8.65%
Interest expense on
collateralized
mortgage securities 75,967 8.06 115,697 7.93 67,563 8.66
----------- ----------- -----------
Net interest expense $ (60) $ (70) $ (88)
=========== =========== ===========
</TABLE>
-14-
<PAGE> 17
The following is a summary of the amount of change in interest income and
interest expense due to changes in interest rates versus changes in volume (in
thousands):
<TABLE>
<CAPTION>
1999/1998
--------------------------------------
RATE VOLUME TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
Interest income on mortgage
securities collateral $ 1,953 $ (41,673) $ (39,720)
Interest expense on collateralized
mortgage securities 1,981 (41,711) (39,730)
---------- ---------- ----------
$ (28) $ 38 $ 10
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
1998/1997
--------------------------------------
RATE VOLUME TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
Interest income on mortgage
securities collateral $ (6,132) $ 54,284 $ 48,152
Interest expense on collateralized
mortgage securities (6,201) 54,335 48,134
---------- ---------- ----------
$ 69 $ (51) $ 18
========== ========== ==========
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
-15-
<PAGE> 18
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. The following financial statements of the
Company are included in ITEM 8:
Balance Sheet - December 31, 1999 and 1998 6
Statement of Operations - Three Years Ended
December 31, 1999 7
Statement of Stockholder's Equity -
Three Years Ended December 31, 1999 8
Statement of Cash Flows -
Three Years Ended December 31, 1999 9
Notes to Financial Statements - December 31, 1999 10
</TABLE>
2. Financial Statement Schedules: None.
All schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable and, therefore, have been omitted.
3. Exhibits:
EXHIBIT
NUMBER
1.1 Underwriting Agreement dated as of September 26, 1997
by and among DLJSC, the Registrant and CMC(9)
2.1 Stock Purchase Agreement dated as of August 10,
1994(4)
3.1 Certificate of Amendment of the Certificate of
Incorporation of the Company dated August 9, 1994(4)
3.2 Certificate of Incorporation(1)
3.3 Bylaws(1)
3.2 Certificate of Merger of the Company into CMCSC IV-A,
filed and Certified on December 21, 1995 with the
Secretary of State of Delaware(10)
3.3 Bylaws of CMCSC IV-A(10)
3.4 Certificate of Incorporation of CMCSC IV-A, as filed
with the Secretary of State of Delaware on December
13, 1995(10)
4.1 Form of Indenture between Registrant and Texas
Commerce Bank, National Association, as Trustee(1)
4.2 Form of First Supplement to the Indenture(5)
4.3 Form of Second Supplement to the Indenture(6)
4.5 Form of Fourth Supplement to the Indenture(9)
4.4 Form of Third Supplement to the Indenture(7)
10.1 Form of Pooling and Administrative Agreement(1)
10.2 Form of Servicing Agreement(1)
10.4 Management Agreement between Registrant and Capstead
Advisers, Inc. dated January 1, 1993(2)
10.5 Amended Management Agreement between Registrant and
Capstead Advisers, Inc. dated October 1, 1993(3)
23 Consent of Ernst & Young LLP, Independent Auditors*
27 Financial Data Schedule*
-16-
<PAGE> 19
PART IV
ITEM 14. - CONTINUED
(b) Reports on Form 8-K: None.
- -----------------
(1) Incorporated herein by reference to the Company's Registration
Statement on Form S-3 (No. 33-47912) filed May 14, 1992
(2) Previously filed with the Commission as an exhibit to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1992
(3) Previously filed with the Commission as an exhibit to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993
(4) Previously filed with the Commission as an Exhibit to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1994
(5) Previously filed with the Commission as an exhibit to the Registrant's
Current Report on Form 8-K on September 30, 1994
(6) Previously filed with the Commission as an exhibit to the Registrant's
Current Report on Form 8-K on October 31,1994
(7) Previously filed with the Commission as an exhibit to the Registrant's
Current Report on Form 8-K on December 30, 1994
(8) Previously filed with the Commission as an exhibit to the Registrant's
Current Report on Form 8-K on September 26, 1997
(9) Previously filed with the Commission as an exhibit to the Registrant's
Current Report on Form 8-K on September 30, 1997
(10) Previously filed with the Commission as an exhibit to the Registrant's
Current Report on Form 10-K for the year ended December 31, 1995
* Filed herewith.
-17-
<PAGE> 20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
CMC SECURITIES CORPORATION IV
REGISTRANT
Date: March 24, 2000 By: /s/ ANDREW F. JACOBS
-----------------------------------
Andrew F. Jacobs
Executive Vice President-Finance
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated below and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ RONN K. LYTLE Chairman, Chief March 24, 2000
- ------------------------------ Executive Officer
(Ronn K. Lytle) and Director
/s/ ANDREW F. JACOBS Executive Vice President - March 24, 2000
- ------------------------------ Finance
(Andrew F. Jacobs)
/s/ MAURICE MCGRATH Director March 28, 2000
- ------------------------------
(Maurice McGrath)
</TABLE>
-18-
<PAGE> 21
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
No annual report or proxy material has been sent to security holders.
<PAGE> 22
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
1.1 Underwriting Agreement dated as of September 26, 1997 by and
among DLJSC, the Registrant and CMC(9)
2.1 Stock Purchase Agreement dated as of August 10, 1994(4)
3.1 Certificate of Amendment of the Certificate of Incorporation of
the Company dated August 9, 1994(4)
3.2 Certificate of Incorporation(1)
3.3 Bylaws(1)
3.2 Certificate of Merger of the Company into CMCSC IV-A, filed and
Certified on December 21, 1995 with the Secretary of State of
Delaware(10)
3.3 Bylaws of CMCSC IV-A(10)
3.4 Certificate of Incorporation of CMCSC IV-A, as filed with the
Secretary of State of Delaware on December 13, 1995(10)
4.1 Form of Indenture between Registrant and Texas Commerce Bank,
National Association, as Trustee(1)
4.2 Form of First Supplement to the Indenture(5)
4.3 Form of Second Supplement to the Indenture(6)
4.5 Form of Fourth Supplement to the Indenture(9)
4.4 Form of Third Supplement to the Indenture(7)
10.1 Form of Pooling and Administrative Agreement(1)
10.2 Form of Servicing Agreement(1)
10.4 Management Agreement between Registrant and Capstead Advisers,
Inc. dated January 1, 1993(2)
10.5 Amended Management Agreement between Registrant and Capstead
Advisers, Inc. dated October 1, 1993(3)
23 Consent of Ernst & Young LLP, Independent Auditors*
27 Financial Data Schedule*
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-3 No. 333-64481) of CMC Securities Corporation IV pertaining to the issuance
of a maximum $2 billion aggregate principal balance of collateralized mortgage
obligations and in the related prospectus and prospectus supplements of our
report dated January 27, 2000, with respect to the financial statements of CMC
Securities Corporation IV included in this Annual Report (Form 10-K) for the
year ended December 31, 1999.
ERNST & YOUNG LLP
Dallas, Texas
March 23, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CMC
SECURITIES CORPORATION IV'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 5
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 828,199
<CURRENT-LIABILITIES> 52
<BONDS> 828,115
0
0
<COMMON> 1
<OTHER-SE> 31
<TOTAL-LIABILITY-AND-EQUITY> 828,199
<SALES> 0
<TOTAL-REVENUES> 75,907
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 20
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 75,967
<INCOME-PRETAX> (80)
<INCOME-TAX> 0
<INCOME-CONTINUING> (80)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (80)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
