10-Q 1 d08322e10vq.txt FORM 10-Q ================================================================================ 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: JUNE 30, 2003 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: 33-42337 CAPSTEAD SECURITIES CORPORATION IV (Exact name of Registrant as specified in its Charter) DELAWARE 75-2390594 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 8401 NORTH CENTRAL EXPRESSWAY, SUITE 800, DALLAS, TX 75225 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 August 11, 2003 ================================================================================ CAPSTEAD SECURITIES CORPORATION IV FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2003 INDEX

PART I. -- FINANCIAL INFORMATION CAPSTEAD SECURITIES CORPORATION IV BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE DATA) ITEM 1. FINANCIAL STATEMENTS

See accompanying notes to financial statements. -1- CAPSTEAD SECURITIES CORPORATION IV STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS)

See accompanying notes to financial statements. -2- CAPSTEAD SECURITIES CORPORATION IV STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)

See accompanying notes to financial statements. -3- CAPSTEAD SECURITIES CORPORATION IV NOTES TO FINANCIAL STATEMENTS JUNE 30, 2003 (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, they do 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 six months ended June 30, 2003 are not necessarily indicative of the results that may be expected for the calendar year ending December 31, 2003. For further information refer to the financial statements and footnotes thereto included in the Capstead Securities Corporation IV (the "Company") Annual Report on Form 10-K for the year ended December 31, 2002. NOTE B -- DISCLOSURES REGARDING FAIR VALUES OF FINANCIAL INSTRUMENTS The estimated fair values of mortgage securities collateral have been determined 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. Fair values are 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 summarizes fair value disclosures for mortgage securities collateral held available-for-sale for the dates indicated (in thousands):

The maturity of mortgage securities collateral is directly affected by the rate of principal prepayments by mortgagors. In addition, upon redemption of remaining bonds outstanding pursuant to clean-up calls, released collateral may be sold provided the collateral has paid down to within 15% of its original issue amount. Such sales are deemed maturities under the provisions of Statement of Financial Accounting Standards No. 115. There was no CMO collateral released during the first six months of 2003. -4- NOTE C -- NET INTEREST INCOME ANALYSIS The following summarizes interest income and interest expense and the average effective interest rates (dollars in thousands):

Changes in interest income and interest expense due to changes in interest rates versus changes in volume were as follows (in thousands):

---------- * 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. -5- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Capstead Securities Corporation IV (the "Company") was incorporated in Delaware on August 16, 1991, as a special-purpose finance subsidiary of Capstead Mortgage Corporation ("CMC") and commenced operations on December 23, 1991 with the issuance of its first collateralized mortgage obligation ("CMO"), Series 1991-VIII. As of June 30, 2003, the Company had issued 19 series of CMOs with an aggregate initial principal balance of $4,572,644,000. The Company has not issued any CMOs since September 30, 1998. Only CMO Series 1998-3 remains outstanding at June 30, 2003. The Company's net losses are due to operational costs incurred (management and administrative fees). Other comprehensive loss reflects the decline in unrealized gain pledged CMO collateral since year-end as a result of relatively high mortgage prepayments. As the underlying mortgages pay off, related unrealized gain is eliminated. LIQUIDITY AND CAPITAL RESOURCES All ongoing cash CMO expenses of the Company are paid out of the excess cash flow on the CMO 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company did not retain any economic interest in its last remaining CMO outstanding at June 30, 2003; therefore, the Company has no exposure to interest rate risk. ITEM 4. CONTROLS AND PROCEDURES As of June 30, 2003, an evaluation was performed under the supervision and with the participation of the Company's management, including the Chief Executive Officer ("CEO") and Senior Vice President - Control ("CFO"), of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, the Company's management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2003. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to June 30, 2003. -6- PART II. -- OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K: (a) Exhibits: The following Exhibit is presented herewith: Exhibit 31.1 - Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002. Exhibit 32.1 - Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K: None 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. CAPSTEAD SECURITIES CORPORATION IV Date: August 11, 2003 By: /s/ ANDREW F. JACOBS ------------------------------------- Andrew F. Jacobs Chairman, Chief Executive Officer and President Date: August 11, 2003 By: /s/ PHILLIP A. REINSCH ------------------------------------- Phillip A. Reinsch Senior Vice President - Control -7-

CAPSTEAD SECURITIES CORPORATION IV 10-Q