<PAGE>
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, 1996
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: 33-47913
CMC SECURITIES CORPORATION III
(Exact name of Registrant as specified in its Charter)
DELAWARE 75-2431913
(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
(Former name, former address and former fiscal year, if changed from last
report)
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 4, 1996
<PAGE>
CMC SECURITIES CORPORATION III
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
INDEX
PART I. -- FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ITEM 1. Financial Statements
Balance Sheet -- September 30, 1996 and December 31, 1995...................................... 3
Statement of Operations -- Quarter and Nine Months Ended
September 30, 1996 and 1995................................................................... 4
Statement of Cash Flows -- Nine Months Ended
September 30, 1996 and 1995................................................................... 5
Notes to Financial Statements.................................................................. 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......................................... 8
PART II. -- OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K....................................................... 8
SIGNATURES...................................................................................... 9
</TABLE>
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<PAGE>
PART I. -- FINANCIAL INFORMATION
CMC SECURITIES CORPORATION III
BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------- ------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Mortgage securities collateral $1,843,511 $1,961,167
Cash and other equivalents 1 1
---------- ----------
$1,843,512 $1,961,168
========== ==========
LIABILITIES
Collateralized mortgage securities $1,842,972 $1,960,533
Payable to Parent 710 679
---------- ----------
1,843,682 1,961,212
---------- ----------
STOCKHOLDER'S EQUITY
Common stock - $1 par value,
1,000 shares authorized, issued
and outstanding 1 1
Paid-in capital 101 89
Deficit in undistributed income (272) (134)
---------- ----------
(170) (44)
---------- ----------
$1,843,512 $1,961,168
========== ==========
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
CMC SECURITIES CORPORATION III
STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------ ------------------
1996 1995 1996 1995
---------- ------------ -------- ---------
<S> <C> <C> <C> <C>
Interest income on mortgage
securities collateral $32,211 $34,503 $98,612 $104,942
Interest expense:
Collateralized mortgage securities 32,243 34,503 98,707 104,942
Payable to Parent 8 8 24 27
------- ------- ------- --------
Total interest expense 32,251 34,511 98,731 104,969
------- ------- ------- --------
Net interest expense (40) (8) (119) (27)
------- ------- ------- --------
Other expenses:
Management fees 3 3 8 8
Professional fees 1 2 11 17
------- ------- ------- --------
Total other expenses 4 5 19 25
------- ------- ------- --------
Net loss $ (44) $ (13) $ (138) $ (52)
======= ======= ======= ========
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
CMC SECURITIES CORPORATION III
STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
-------------------------------
1996 1995
---------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (138) $ (52)
Noncash item - amortization of
discount and premium 83 687
--------- --------
Net cash provided (used) by
operating activities (55) 635
--------- --------
INVESTING ACTIVITIES:
Mortgage securities collateral:
Principal collections on collateral 118,945 79,598
Decrease in accrued interest receivable 669 443
--------- --------
Net cash provided by
investing activities 119,614 80,041
--------- --------
FINANCING ACTIVITIES:
Collateralized mortgage securities:
Principal payments on securities (118,945) (79,598)
Decrease in accrued interest payable (657) (1,130)
Increase in payable to Parent 31 36
Capital contribution 12 16
--------- --------
Net cash used by financing
activities (119,559) (80,676)
--------- --------
Net change in cash and cash equivalents - -
Cash and cash equivalents at beginning
of period 1 26
--------- --------
Cash and cash equivalents at end of
period $ 1 $ 26
========= ========
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
CMC SECURITIES CORPORATION III
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(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, it does 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, 1996 are
not necessarily indicative of the results that may be expected for the calendar
year ending December 31, 1996. For further information refer to the financial
statements and footnotes thereto included in the CMC Securities Corporation III
(the "Company") annual report on Form 10-K for the period ended December 31,
1995. Certain amounts have been reclassified to conform to the current year
presentation.
NOTE B -- DISCLOSURES REGARDING FAIR VALUES OF MORTGAGE SECURITIES COLLATERAL
Mortgage securities collateral is classified as held-to-maturity and,
accordingly, is carried at amortized cost in the balance sheet. Estimated fair
values of mortgage securities collateral 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, 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 estimated fair value amounts.
The fair value of mortgage securities collateral was estimated using quoted
market prices, including quotes made by Capstead Mortgage Corporation's lenders
in connection with designating collateral for repurchase arrangements.
Disclosures regarding fair values of mortgage securities collateral are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------- ------------------
<S> <C> <C>
Carrying amount $1,843,511 $1,961,167
Unrealized gains 1,461 7,682
Unrealized losses (98,034) (49,311)
---------- ----------
Fair value $1,746,938 $1,919,538
========== ==========
</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 Company's 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
quarter or nine months ended September 30, 1996 or during 1995.
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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 mortgage securities collateral and collateralized
mortgage securities for the periods shown (dollars in thousands):
QUARTER ENDED SEPTEMBER 30
------------------------------------
1996 1995
------------------ ----------------
AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
--------- -------- -------- ------
Interest income on mortgage
securities collateral $32,211 6.97% $ 34,503 6.93%
Interest expense on collateralized
mortgage securities 32,243 6.97 34,503 6.93
------- --------
Net interest income $ (32) $ -
======= ========
NINE MONTHS ENDED SEPTEMBER 30
---------------------------------
1996 1995
---------------- --------------
AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
------- ------- -------- ----
Interest income on mortgage
securities collateral $98,612 6.95% $104,942 6.93%
Interest expense on collateralized
mortgage securities 98,707 6.95 104,942 6.93
------- --------
Net interest income $ (95) $ -
The following tables summarize 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 and nine months ended September 30, 1996, compared to the same
periods in 1995 (in thousands):
QUARTER ENDED SEPTEMBER 30, 1996
-----------------------------------
RATE* VOLUME* TOTAL
--------- ----------- -----------
Interest income on mortgage
securities collateral $ 173 $(2,465) $(2,292)
Interest expense on collateralized
mortgage securities 208 (2,468) (2,260)
----- ------- -------
$ (35) $ 3 $ (32)
===== ======= =======
NINE MONTHS ENDED SEPTEMBER 30, 1996
-------------------------------------
RATE* VOLUME* TOTAL
----- ------- -----
Interest income on mortgage
securities collateral $ 242 $(6,572) $(6,330)
Interest expense on collateralized
mortgage securities 347 (6,582) (6,235)
----- ------- -------
$(105) $ 10 $ (95)
===== ======= =======
* 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.
-7-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ---------------------------------------------
CMC Securities Corporation III (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").
Since inception the Company has issued approximately $2.2 billion of
collateralized mortgage obligations ("CMOs"). Because an affiliate retained
investments in the CMOs, the issuances were accounted for as financings, and
accordingly, the collateral and bonds are reflected on the Company's balance
sheet. The Company's investment in the CMOs issued is limited to $539,000 of
debt issuance costs, which are reflected as bond discount in the accompanying
balance sheet. Other than the ongoing amortization of these debt issuance
costs, no related economic benefit will be received and no related net income or
loss will be recognized. The Company did not issue any CMOs in 1996.
Net operating losses are due to operational expenses not directly related to
previous CMO issuances and the amortization of debt issuance costs.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
All ongoing CMO-related cash expenses are paid out to 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 these
ongoing costs. Cash flow requirements due to ongoing operational expenses 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.
-8-
<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.
CMC SECURITIES CORPORATION III
Date: November 4, 1996 By /s/ RONN K. LYTLE
-------------------------------------
Ronn K. Lytle
Chairman and Chief Executive Officer
Date: November 4, 1996 By /s/ ANDREW F. JACOBS
------------------------------------
Andrew F. Jacobs
Senior Vice President - Control
and Treasurer
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from CMC
Securities Corporation III's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996 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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,843,512
<CURRENT-LIABILITIES> 710
<BONDS> 1,842,972
0
0
<COMMON> 1
<OTHER-SE> (171)
<TOTAL-LIABILITY-AND-EQUITY> 1,843,512
<SALES> 0
<TOTAL-REVENUES> 98,612
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 19
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 98,731
<INCOME-PRETAX> (138)
<INCOME-TAX> 0
<INCOME-CONTINUING> (138)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (138)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
