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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, 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 AVENUE, 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 November 3, 1998
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CMC SECURITIES CORPORATION III
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
INDEX
PART I. -- FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ITEM 1. Financial Statements
Balance Sheet -- September 30, 1998 (Unaudited)
and December 31, 1997................................................................................ 1
Statement of Operations -- Quarter and Nine Months Ended
September 30, 1998 and 1997 (Unaudited).............................................................. 2
Statement of Cash Flows -- Nine Months Ended
September 30, 1998 and 1997 (Unaudited).............................................................. 3
Notes to Financial Statements (Unaudited).............................................................. 4
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............................................... 7
PART II. -- OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K............................................................ 7
SIGNATURES................................................................................................ 8
</TABLE>
<PAGE> 3
PART I. -- FINANCIAL INFORMATION
CMC SECURITIES CORPORATION III
BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Mortgage securities collateral $2,561,027 $1,630,600
Cash and other equivalents - 1
---------- ----------
$2,561,027 $1,630,601
========== ==========
LIABILITIES
Collateralized mortgage securities $2,561,027 $1,630,220
Payable to Parent 47 40
---------- ----------
2,561,074 1,630,260
---------- ----------
STOCKHOLDER'S EQUITY
Common stock - $1.00 par value,
1 shares authorized, issued
and outstanding 1 1
Paid-in capital 555 824
Accumulated deficit (603) (484)
---------- ----------
(47) 341
---------- ----------
$2,561,027 $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 NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
--------------------------- -----------------------
1998 1997 1998 1997
------- ------- ------- -----
<S> <C> <C> <C> <C>
Interest income on mortgage
securities collateral $35,821 $29,470 $100,710 $90,363
Interest expense:
Collateralized mortgage securities 35,842 29,502 100,794 90,458
Payable to Parent - - - 17
------- ------- -------- -------
Total interest expense 35,842 29,502 100,794 90,475
------- ------- -------- -------
Net interest expense (21) (32) (84) (112)
------- ------- -------- -------
Other expenses:
Management fees 3 3 8 8
Professional fees and other 15 1 27 12
------- ------- -------- -------
Total other expenses 18 4 35 20
------- ------- -------- -------
Net loss $ (39) $ (36) $ (119) $ (132)
======= ======== ======= =======
</TABLE>
See accompanying notes to financial statements.
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CMC SECURITIES CORPORATION III
STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
------------------------------
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (119) $ (132)
Noncash item - amortization of
discount and premium 51 47
----------- -----------
Net cash used by
operating activities (68) (85)
----------- -----------
INVESTING ACTIVITIES:
Mortgage securities collateral:
Purchases of collateral (1,136,167) --
Principal collections on collateral 213,247 131,397
Decrease (increase) in accrued
interest receivable (5,519) 738
----------- -----------
Net cash provided (used) by
investing activities (928,439) 132,135
----------- -----------
FINANCING ACTIVITIES:
Collateralized mortgage securities:
Issuance of securities 1,136,167 --
Principal payments on securities (213,247) (131,397)
Increase (decrease) in accrued
interest payable 5,848 (690)
Increase (decrease) in payable to Parent 7 (684)
Capital contribution (distribution) (269) 721
----------- -----------
Net cash provided (used) by
financing activities 928,506 (132,050)
----------- -----------
Net change in cash and cash equivalents (1) --
Cash and cash equivalents at beginning
of period 1 1
----------- -----------
Cash and cash equivalents at end of
period $ -- $ 1
=========== ===========
</TABLE>
See accompanying notes to financial statements.
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CMC SECURITIES CORPORATION III
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 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 and nine months ended September 30, 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 period 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>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
Carrying amount $2,561,027 $1,630,600
Unrealized gains 47,196 14,768
Unrealized losses - (2,389)
---------- ----------
Fair value $2,608,223 $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 nine months ended
September 30, 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 that were pledged as
collateral for the simultaneous issuance of CMO Series 1998-I. During September
1998 the Company acquired from an affiliate conventional mortgage loans with
unpaid principal balances of $542 million that were pledged as collateral for
the simultaneous issuance of CMO Series 1998-II. All loans were acquired at an
amount equal to the net proceeds of the related 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. During September the Company issued CMO Series 1998-II with maturities
ranging from 10 to 30 years and a total obligation (including accrued interest
and premium) of $545 million. 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 amounts
received in excess of allocated shelf issuance costs totaling $296,000. These
issuances were accounted for as financings.
NOTE E -- NET INTEREST INCOME ANALYSIS
The following tables summarize interest income and interest expense and the
average effective interest rates for the periods indicated (dollars in
thousands):
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30
-----------------------------------------------------
1998 1997
-------------------------- -----------------------
AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest income on mortgage
securities collateral $ 35,821 6.98% $ 29,470 6.96%
Interest expense on collateralized
mortgage securities 35,842 6.98 29,502 6.96
-------- ------ -------- ------
Net interest $ (21) $ (32)
======== ========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
----------------------------------------------------
1998 1997
--------------------- -----------------------
AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest income on mortgage
securities collateral $100,710 7.11% $90,363 6.93%
Interest expense on collateralized
mortgage securities 100,794 7.11 90,458 6.93
-------- -------
Net interest $ (84) $ (95)
======== =======
</TABLE>
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The following tables summarize changes in interest income and interest expense
due to changes in interest rates, versus changes in volume for the quarter and
nine months ended September 30, 1998, compared to the same periods in 1997 (in
thousands):
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30, 1998
-----------------------------------------------
RATE* VOLUME* TOTAL
------ ------ ------
<S> <C> <C> <C>
Interest income on mortgage
securities collateral $111 $6,240 $6,351
Interest expense on collateralized
mortgage securities 94 6,246 6,340
---- ------ ------
$ 17 $ (6) $ 11
==== ====== ======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
--------------------------------------------------
RATE* VOLUME* TOTAL
------ ------ ------
<S> <C> <C> <C>
Interest income on mortgage
securities collateral $2,380 $7,967 $10,347
Interest expense on collateralized
mortgage securities 2,354 7,982 10,336
------ ------ -------
$ 26 $ (15) $ 11
====== ====== =======
</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 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 1998 the Company issued CMO Series 1998-I and 1998-II with total
obligations (including accrued interest and premium) of $597.9 million and
$545.0 million, respectively. Since inception the Company has issued nine series
of collateralized mortgage obligations ("CMOs") with an aggregate original
principal balance of $3,287,569,000, $8,788,000 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 September
30, 1998 the Company had $721,219,000 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:
Exhibit 27 Financial Data Schedule (electronic filing only).
(b) Reports on Form 8-K:
Current Report on Form 8-K dated September 29, 1998 to file the
following:
Exhibit 99.1 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: November 3, 1998 By: /s/ RONN K. LYTLE
----------------------------------
Ronn K. Lytle
Chairman and Chief Executive
Officer
Date: November 3, 1998 By: /s/ ANDREW F. JACOBS
----------------------------------
Andrew F. Jacobs
Executive Vice President - Finance,
Treasurer and Secretary
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INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Exhibit Page
- ------ ------- ------------
27 Financial Data Schedule
<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
September 30, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,561,027
<CURRENT-LIABILITIES> 47
<BONDS> 2,561,027
0
0
<COMMON> 1
<OTHER-SE> (48)
<TOTAL-LIABILITY-AND-EQUITY> 2,561,027
<SALES> 0
<TOTAL-REVENUES> 100,710
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 35
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 100,794
<INCOME-PRETAX> (119)
<INCOME-TAX> 0
<INCOME-CONTINUING> (119)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (119)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
