ITEM 1. BUSINESS.
Capstead Mortgage Corporation (together with its subsidiaries, “Capstead” or the “Company”) formed in 1985 and based in Dallas, Texas, is a self-managed real estate investment trust (“REIT”) for federal income tax purposes. Capstead’s core strategy is managing a leveraged portfolio of residential mortgage securities consisting almost exclusively of ARM securities issued and guaranteed by government-sponsored entities, either Fannie Mae or Freddie Mac, or by an agency of the federal government, Ginnie Mae. Agency-guaranteed residential mortgage securities carry an implied AAA credit rating with limited, if any, credit risk. Capstead may also augment its core portfolio with investments in credit-sensitive commercial real estate-related assets.
For further discussion of the Company’s business and financial condition, see the Registrant’s Annual Report to Stockholders for the year ended December 31, 2007 on pages 31 through 54, which is incorporated herein by reference.
Other Investment Strategies
The Company may enter into other short- or long-term investment strategies as the opportunities arise.
Competition
In purchasing residential mortgage investments and commercial real estate-related assets, the Company competes with others in the real estate and banking industries including REITs, savings banks, commercial banks, mortgage and investment bankers, private equity funds, conduits, insurance companies, other lenders, other real estate investors and mutual funds.
Regulation and Related Matters
Operating as a REIT that primarily invests in financial assets subjects the Company to various federal regulatory requirements. For further discussion, see the Registrant’s Annual Report to Stockholders for the year ended December 31, 2007 on pages 48 through 52, which is incorporated herein by reference.
Employees
As of December 31, 2007, the Company had 12 full-time employees and three part-time employees.
Website Access to Company Reports and Other Company Information
Capstead makes available on its website at www.capstead.com, free of charge, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and press releases, including amendments to such documents as soon as reasonably practicable after such materials are electronically filed or furnished to the SEC or otherwise publicly released. The Company also makes available on its website charters for the committees of its board of directors, its Board of Directors Guidelines, its Code of Business Conduct and Ethics, its Financial Code of Professional Conduct and other information, including amendments to such documents and waivers, if any, to the Codes. Such information will also
be furnished, free of charge, upon written request to Capstead Mortgage Corporation, Attention: Stockholder Relations, 8401 North Central Expressway, Suite 800, Dallas, Texas 75225-4410.
Forward-looking Statements
For information on forward-looking statements made in this report, see the Registrant’s Annual Report to Stockholders for the year ended December 31, 2007 on page 54, which is incorporated herein by reference.
ITEM 1A.
ITEM 1A. RISK FACTORS.
Under the captions “Risk Factors” and “Critical Accounting Policies” on pages 44 through 52 and 54 through 54 of the Registrant’s Annual Report to Stockholders for the year ended December 31, 2007 which is incorporated herein by reference, are discussions of risk factors and critical accounting policies affecting Capstead’s financial condition and results of operations that are an integral part of this discussion and analysis. Readers are strongly urged to consider the potential impact of these factors and accounting policies on the Company while reading this document.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
ITEM 2. PROPERTIES.
Capstead’s headquarters are located in Dallas, Texas in office space leased by the Company.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5.
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
The information required by this item regarding the market price of, dividends on, and number of holders of the Registrant’s common shares is included in the Registrant’s Annual Report to Stockholders for the year ended December 31, 2007 on page 28 under the caption “Note 14 - Market and Dividend Information,” and is incorporated herein by reference. See ITEM 12 for information regarding equity compensation plans. Capstead did not sell any unregistered securities during the past three fiscal years.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this item is included in the Registrant’s Annual Report to Stockholders for the five years ended December 31, 2007 on page 30 under the caption “Selected Financial Data,” and is incorporated herein by reference.
ITEM 7.
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The information required by this item is included in the Registrant’s Annual Report to Stockholders for the year ended December 31, 2007 on pages 31 through 54 under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and is incorporated herein by reference.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS.
The information required by this item is included in the Registrant’s Annual Report to Stockholders for the year ended December 31, 2007 on pages 31 through 54 under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and is incorporated herein by reference.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is included in the Registrant’s Annual Report to Stockholders for the year ended December 31, 2007 on pages 6 through 28 and page 58, and is incorporated herein by reference.
ITEM 9.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES.
The information required by this item is included in the Registrant’s Annual Report to Stockholders for the year ended December 31, 2007 on pages 56 and 57 and is incorporated herein by reference.
ITEM 9B.
ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item is included in the Registrant’s 2008 definitive Proxy Statement on pages 4 through 6 under the caption “Proposal Number One - Election of Directors,” on pages 6 through 10 under the caption “Board of Directors and Committee Information,” on pages 11 and 12 under the caption “Stockholder Procedures for Director Candidate Recommendations,” on page 13 under the caption “Executive Officers,” on pages 26 through 27 under the captions “Audit Committee” and “Audit Committee Report” and on page 29 under the caption “Compliance with Section 16(a) of the Securities Exchange Act of 1934,” all of which are incorporated herein by reference.
Capstead has adopted its Code of Business Conduct and Ethics that applies to all directors, officers and employees, and its Financial Officer Code of Conduct that applies to its chief executive officer, chief financial officer and other officers with a role in the Company’s financial accounting and reporting process. These codes and waivers thereto, if any, are available on the Company’s website at www.capstead.com.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is included in the Registrant’s 2008 definitive Proxy Statement on pages 14 through 25 under the caption “Executive Compensation,” which is incorporated herein by reference.
ITEM 12.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The information required by this item is included in the Registrant’s 2008 definitive Proxy Statement on page 25 under the caption “Equity Compensation Plans” and page 27 and 28 under the captions “Security Ownership of Management and Certain Beneficial Owners,” which is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is included in the Registrant’s 2008 definitive Proxy Statement on page 31 under the caption “Related Person Transactions,” which is incorporated herein by reference.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information required by this item is included in the Registrant’s 2008 definitive Proxy Statement on pages 30 through 31 under the caption “Proposal Number Three - Ratification of the Appointment of Ernst & Young LLP as Our Independent Registered Public Accounting Firm,” which is incorporated herein by reference.
PART IV
ITEM 15.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a)
Documents filed as part of this report:
1.
The following consolidated financial statements of the Company, included in the 2007 Annual Report to Stockholders, are incorporated herein by reference:
2.
Financial Statement Schedules - All schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ PAUL M. LOW
(Paul M. Low)
Chairman and Director
March 5, 2008
/s/ ANDREW F. JACOBS
(Andrew F. Jacobs)
President, Chief Executive Officer and Director
March 5, 2008
/s/ JACK BIEGLER
(Jack Biegler)
Director
March 5, 2008
/s/ GARY KEISER
(Gary Keiser)
Director
March 2, 2008
/s/ CHRISTOPHER W. MAHOWALD
(Christopher W. Mahowald)
Director
March 1, 2008
/s/ MICHAEL G. O’NEIL
(Michael G. O’Neil)
Director
March 1, 2008
/s/ MARK S. WHITING
(Mark S. Whiting)
Director
March 1, 2008
INDEX TO EXHIBITS