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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, 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: 33-47913
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 6, 1999
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CMC SECURITIES CORPORATION III
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
INDEX
PART I. -- FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ITEM 1. Financial Statements
Balance Sheet -- March 31, 1999 and December 31, 1998 ....................... 1
Statement of Operations -- Quarter Ended March 31, 1999 and 1998 ............ 2
Statement of Cash Flows -- Quarter Ended March 31, 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 III
BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Mortgage securities collateral $ 2,303,602 $ 2,435,778
=========== ===========
LIABILITIES
Collateralized mortgage securities $ 2,303,602 $ 2,435,778
Payable to Parent 53 50
----------- -----------
2,303,655 2,435,828
----------- -----------
STOCKHOLDER'S DEFICIT
Common stock - $1.00 par value, 1 shares
authorized, issued and outstanding 1 1
Paid-in capital 557 557
Undistributed loss (611) (608)
----------- -----------
(53) (50)
----------- -----------
$ 2,303,602 $ 2,435,778
=========== ===========
</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
----------------------
1999 1998
-------- --------
<S> <C> <C>
Interest income on mortgage securities
collateral $ 40,666 $ 27,638
Interest expense on collateralized
mortgage securities 40,666 27,669
-------- --------
Net interest expense -- (31)
-------- --------
Other expenses:
Management fees 3 3
Professional fees -- 9
-------- --------
Total other expenses 3 12
-------- --------
Net loss $ (3) $ (43)
======== ========
</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
------------------------
1999 1998
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (3) $ (43)
Noncash item - amortization of discount and premium (345) 48
--------- ---------
Net cash provided (used) by operating activities (348) 5
--------- ---------
INVESTING ACTIVITIES:
Mortgage securities collateral:
Purchases of collateral -- (594,390)
Principal collections on collateral 131,722 47,871
Decrease (increase) in accrued interest receivable 1,073 (3,272)
--------- ---------
Net cash provided (used) by investing activities 132,795 (549,791)
--------- ---------
FINANCING ACTIVITIES:
Collateralized mortgage securities:
Issuance of securities -- 594,390
Principal payments on securities (131,722) (47,871)
Increase (decrease) in accrued interest payable (728) 3,255
Increase in payable to Parent 3 3
Capital contribution -- 9
--------- ---------
Net cash provided (used) by financing activities (132,447) 549,786
--------- ---------
Net change in cash and cash equivalents -- --
Cash and cash equivalents at beginning of period -- 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
MARCH 31, 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, 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, 1999 are not necessarily
indicative of the results that may be expected for the calendar year ending
December 31, 1999. 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, 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, 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, 1999 DECEMBER 31, 1998
-------------- -----------------
<S> <C> <C>
Carrying amount $2,303,602 $2,435,778
Unrealized gains 18,915 34,920
Unrealized losses (1,538) (33)
---------- ----------
Fair value $2,320,979 $2,470,665
========== ==========
</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, 1999 or during 1998.
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NOTE C -- NET INTEREST INCOME ANALYSIS
The following table summarizes 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
--------------------------------------------------
1999 1998
-------------------- ---------------------
AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income on mortgage
securities collateral $40,666 6.90% $27,638 6.90%
Interest expense on
collateralized mortgage
securities 40,666 6.90 27,669 6.90
------- -------
Net interest expense $ - $ (31)
======= =======
</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 $48 $12,980 $13,028
Interest expense on
collateralized mortgage securities 16 12,981 12,997
--- ------- -------
$32 $ (1) $ 31
=== ======= =======
</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.
Interest payments on collateralized mortgage securities of $40,406,000 and
$22,857,000 were made during the quarters ended March 31, 1999 and 1998,
respectively.
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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").
Since inception the Company has issued 9 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 March 31, 1999 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, and therefore 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 cash 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.
IMPACT OF 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 otherwise manage the Company's affairs. 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 and will continue to make
investments in its software systems and applications to ensure the Manager is
Year 2000 compliant. The Manager is also taking steps to ensure that the vendors
it utilizes and institutions that it interfaces with are also taking the
necessary steps to become Year 2000 compliant. This process is expected to be
essentially complete by the end of the second quarter of 1999.
Costs. The financial costs of the Manager becoming Year 2000 compliant
are the responsibility of the Manager.
Risks and Contingency Planning. Although the Manager expects that all
its systems and applications will be Year 2000 compliant per the above schedule
and well prior to December 31, 1999, there can be no assurance that all of the
vendors it utilizes and institutions that it interfaces with will complete their
compliance efforts. The Manager will continue to monitor their efforts in this
regard and will take all prudent steps necessary to
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ensure operations are not disrupted including the use of other vendors or other
methodologies and processes to transact the Company's business. The effect of
any disruption to the Company's operations of any such instances of
non-compliance is presently not 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 III
Date: May 6, 1999 By: /s/ RONN K. LYTLE
-----------------------------------------
Ronn K. Lytle
Chairman and Chief Executive Officer
Date: May 6, 1999 By: /s/ ANDREW F. JACOBS
-----------------------------------------
Andrew F. Jacobs
Executive Vice President - Finance,
Treasurer and Secretary
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INDEX TO EXHIBITS
<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 FORM CMC
SECURITIES CORPORATION III'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED
MARCH 31, 1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,303,602
<CURRENT-LIABILITIES> 53
<BONDS> 2,303,602
0
0
<COMMON> 1
<OTHER-SE> (54)
<TOTAL-LIABILITY-AND-EQUITY> 2,303,602
<SALES> 0
<TOTAL-REVENUES> 40,666
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,666
<INCOME-PRETAX> (3)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
