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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, 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: 33-47913
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
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 12, 1998
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CMC SECURITIES CORPORATION III
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1998
INDEX
<TABLE>
<CAPTION>
PART I. -- FINANCIAL INFORMATION
PAGE
----
<S> <C>
ITEM 1. Financial Statements
Balance Sheet -- March 31, 1998 and December 31, 1997 . . . . . . . . . . . 1
Statement of Operations -- Quarter Ended March 31, 1998 and 1997 . . . . . . 2
Statement of Cash Flows -- Quarter Ended March 31, 1998 and 1997 . . . . . . 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 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . 6
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
</TABLE>
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PART I. -- FINANCIAL INFORMATION
CMC SECURITIES CORPORATION III
BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Mortgage securities collateral $ 2,180,979 $ 1,630,600
Cash and other equivalents 1 1
--------------- ---------------
2,180,980 1,630,601
=============== ===============
LIABILITIES
Collateralized mortgage securities $ 2,180,630 $ 1,630,220
Payable to Parent 43 40
--------------- ---------------
2,180,673 1,630,260
--------------- ---------------
STOCKHOLDER'S EQUITY
Common stock - $1.00 par value,
1 shares authorized, issued
and outstanding 1 1
Paid-in capital 833 824
Accumulated deficit (527) (484)
--------------- ---------------
307 341
--------------- ---------------
$ 2,180,980 $ 1,630,601
=============== ===============
</TABLE>
See accompanying notes to financial statements.
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CMC SECURITIES CORPORATION III
STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Interest income on mortgage securities
collateral $ 27,638 $ 30,771
Interest expense:
Collateralized mortgage securities 27,669 30,803
Payable to Parent -- 8
------------ ------------
Total interest expense 27,669 30,811
------------ ------------
Net interest expense (31) (40)
------------ ------------
Other expenses:
Management fees 3 3
Professional fees and other 9 8
------------ ------------
Total other expenses 12 11
------------ ------------
Net loss $ (43) $ (51)
============ ============
</TABLE>
See accompanying notes to financial statements.
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CMC SECURITIES CORPORATION III
STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (43) $ (51)
Noncash item - amortization of discount and premium 48 21
------------ ------------
Net cash provided (used) by operating activities 5 (30)
------------ ------------
INVESTING ACTIVITIES:
Mortgage securities collateral:
Purchases of collateral (594,390) --
Principal collections on collateral 47,871 35,641
Decrease (increase) in accrued interest receivable (3,272) 200
------------ ------------
Net cash provided (used) by investing activities (549,791) 35,841
------------ ------------
FINANCING ACTIVITIES:
Collateralized mortgage securities:
Issuance of securities 594,390 --
Principal payments on securities (47,871) (35,641)
Increase (decrease) in accrued interest payable 3,255 (189)
Increase in payable to Parent 3 10
Capital contribution 9 9
------------ ------------
Net cash provided (used) by financing activities 549,786 (35,811)
------------ ------------
Net change in cash and cash equivalents -- --
Cash and cash equivalents at beginning of period 1 1
------------ ------------
Cash and cash equivalents at end of period $ 1 $ 1
============ ============
</TABLE>
See accompanying notes to financial statements.
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CMC SECURITIES CORPORATION III
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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, 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 ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the calendar
year ending December 31, 1998. For further information refer to the financial
statements and footnotes thereto included in the CMC Securities Corporation III
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, 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 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, 1998 DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
Carrying amount $ 2,180,979 $ 1,630,600
Unrealized gains 16,263 14,768
Unrealized losses (2,865) (2,389)
----------- -----------
Fair value $ 2,194,377 $ 1,642,979
=========== ===========
</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 occurred during the quarter
ended March 31, 1998 or during 1997.
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NOTE C -- MORTGAGE SECURITIES COLLATERAL
During March 1998 the Company acquired from an affiliate conventional mortgage
loans with unpaid principal balances of $594 million as collateral for the
issuance of CMO Series 1998-I. These loans were acquired at an amount equal to
the net proceeds of the issuance.
NOTE D -- COLLATERALIZED MORTGAGE SECURITIES
During March 1998 the Company issued CMO Series 1998-I with a 30-year stated
maturity and a total obligation (including accrued interest and premium) of
$598 million. The Company retained no beneficial interest in this CMO and as
such, no economic benefit will be received and no related net income or loss
will be recognized other than the amortization of unreimbursed shelf issuance
costs. This issuance was accounted for as a financing.
NOTE E -- NET INTEREST INCOME ANALYSIS
The following table summarizes the amount of interest income and interest
expense and the average effective interest rates for mortgage securities
collateral and collateralized mortgage securities (dollars in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31
-------------------------------------------------------------------
1998 1997
------------------------------ -----------------------------
AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest income on mortgage
securities collateral $ 27,638 6.90% $ 30,771 6.94%
Interest expense on
collateralized mortgage
securities 27,669 6.90 30,803 6.95
------------ ------------
Net interest $ (31) $ (32)
============ ============
</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 $ (198) $(2,935) $(3,133)
Interest expense on
collateralized mortgage securities (198) (2,936) (3,134)
------- ------- -------
$ -- $ 1 $ 1
======= ======= =======
</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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 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").
During the first quarter of 1998, the Company issued CMO Series 1998-I with
total obligations (including accrued interest and premium) of $597.9 million.
Since inception the Company has issued 8 series of collateralized mortgage
obligations ("CMOs") with an aggregate original principal balance of
$2,748,809,000, $4,306,000 of which was issued through private placements, with
the remainder being issued under the registration statement. These issuances
have been accounted for as financings. At March 31, 1998 the Company had
$1,255,496,000 remaining under the registration statement for future CMO
issuances. Since the Company did not retain any investment in the CMOs issued,
no economic benefit was or will be received, thus no related 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).
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: None.
Exhibit 27 Financial Data Schedule (electronic filing only).
(b) Reports on Form 8-K:
Current Report of Form 8-K dated March 31, 1998 to file the following:
Exhibit 28.1 - Computational Materials Provided by Bear, Stearns & Co.
Inc.
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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 III
Date: May 12, 1998 By: /s/ RONN K. LYTLE
----------------------------------------
Ronn K. Lytle
Chairman and Chief Executive Officer
Date: May 12, 1998 By: /s/ JULIE MOORE
----------------------------------------
Julie Moore
Senior Vice President - Control
and Treasurer
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EXHIBIT INDEX
<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 III'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED
MARCH 31, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,180,980
<CURRENT-LIABILITIES> 43
<BONDS> 2,180,630
0
0
<COMMON> 1
<OTHER-SE> 306
<TOTAL-LIABILITY-AND-EQUITY> 2,180,980
<SALES> 0
<TOTAL-REVENUES> 27,638
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 12
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,669
<INCOME-PRETAX> (43)
<INCOME-TAX> 0
<INCOME-CONTINUING> (43)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (43)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
