UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2001
COMMISSION FILE NO. 0-19564
FGIC SECURITIES PURCHASE, INC.
A DELAWARE CORPORATION
IRS EMPLOYER IDENTIFICATION NO. 13-3633082
115 BROADWAY, NEW YORK, NEW YORK 10006
TELEPHONE - (212) 312-3000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
SHARES OUTSTANDING
TITLE OF CLASS AT MAY 15, 2001
- -------------- --------------------
Common Stock (voting), $10.00 par value 10
Registrant meets the conditions set forth in general instruction H(1)(a) and (b)
of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure
format.
TABLE OF CONTENTS
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PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Unaudited Interim Financial Statements 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
PART II. OTHER INFORMATION
Item 1 - Item 6 10
Signatures 11
Page 2
ITEM 1. Financial Statements and Supplementary Data.
FGIC SECURITIES PURCHASE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF FGIC HOLDINGS, INC.)
BALANCE SHEETS
ASSETS MARCH 31, DECEMBER 31,
2001 2000
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(UNAUDITED)
Liquidity fees receivable $ 956,977 $ 889,680
Due from GE Capital 26,368,849 32,837,628
Other assets 391,158 399,609
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Total assets $27,716,984 $34,126,917
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Deferred liquidity fee income $ 548,925 $ 544,656
Due to affiliates 631,373 7,786,456
Commitment fees payable to GE Capital 542,903 497,879
Accounts payable and accrued expenses 326,033 319,407
Taxes payable 419,385 541,859
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Total liabilities 2,468,619 9,690,257
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Stockholder's Equity:
Common stock, par value $10.00 per share;
10 shares authorized, issued and outstanding 100 100
Additional paid-in capital 822,145 822,145
Retained earnings 24,426,120 23,614,415
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Total stockholder's equity 25,248,365 24,436,660
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Total liabilities and stockholder's equity $27,716,984 $34,126,917
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See accompanying notes to interim financial statements.
Page 3
FGIC SECURITIES PURCHASE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF FGIC HOLDINGS, INC.)
STATEMENTS OF INCOME
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31,
2001 2000
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Liquidity fee income $1,626,929 $1,611,308
Investment income - 1,339
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Total revenues 1,626,929 1,612,647
General and administrative expenses 284,158 183,790
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Income before provision for income taxes 1,342,771 1,428,857
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Provisions for income taxes
Federal 437,072 465,093
State and local 93,994 100,020
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Total provisions for income taxes 531,066 565,113
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Net income $ 811,705 $ 863,744
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See accompanying notes to interim financial statements
Page 4
FGIC SECURITIES PURCHASE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF FGIC HOLDINGS, INC.)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
MARCH 31,
2001 2000
---------------- ------------
OPERATING ACTIVITIES:
Net income $811,705 $863,744
Adjustments to reconcile net
income to net cash used in
operating activities:
Deferred income tax expense - (1,111)
Change in taxes payable (122,474) 90,397
Change in due from GE Capital 6,468,779 (1,031,642)
Change in due to affiliates (7,155,083) 101,881
Change in other assets 8,451 130,118
Change in liquidity fees receivable (67,297) (413,645)
Change in deferred liquidity fee income 4,269 81,965
Change in accounts payable and accrued expenses 6,626 6,001
Change in commitment fees payable to GE Capital 45,024 39,909
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Cash used in operating activities - (132,383)
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Net change in cash and cash equivalents - (132,383)
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Cash and cash equivalents at beginning of period - 132,383
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Cash and cash equivalents at end of period $ - $ -
================ ============
See accompanying notes to interim financial statements.
Page 5
FGIC SECURITIES PURCHASE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF FGIC HOLDINGS, INC.)
NOTES TO INTERIM FINANCIAL STATEMENTS
MARCH 31, 2001
(UNAUDITED)
(1) BUSINESS
--------
FGIC Securities Purchase, Inc. ("FGIC-SPI") is a wholly-owned
subsidiary of FGIC Holdings, Inc. (the "Parent") which, in turn, is
wholly-owned by General Electric Capital Corporation ("GE Capital").
FGIC-SPI provides liquidity for certain floating rate municipal
securities whereby FGIC-SPI will, under certain circumstances, purchase
such securities in the event they are tendered by the holders thereof
as permitted under the terms of the respective bond indentures. As of
March 31, 2001, FGIC-SPI had approximately $3.0 billion (par and
interest) of potential obligations under such arrangements. In order to
obtain funds to purchase the securities, in the event such purchases
are necessary, FGIC-SPI has entered into standby loan agreements with
GE Capital totaling $6.0 billion at March 31, 2001, under which GE
Capital will be irrevocably obligated to lend funds as needed for
FGIC-SPI to purchase the securities.
(2) SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
The interim financial statements of FGIC-SPI containted in this report
reflect all normal recurring adjustments necessary, in the opinion of
management, for a fair statement of (a) the results of operations for
the three months ended March 31, 2001 and 2000, (b) the financial
position as of March 31, 2001 and December 31, 2000, and (c) the cash
flows for the three months ended March 31, 2001 and 2000.
These interim financial statements should be read in conjunction with
the financial statements and related notes included in the 2000 Annual
Report on Form 10-K.
Significant accounting policies are as follows:
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are carried at cost, which approximates fair
value. For purposes of the statement of cash flows, FGIC-SPI considers
all highly liquid investments with original maturities of three months
or less to be cash equivalents.
REVENUE RECOGNITION
Fees are paid up-front and in installments. Up-front fees are earned on
a straight-line basis over the life of the liquidity commitment, and
installment fees are earned straight-line over the installment period.
Page 6
FGIC SECURITIES PURCHASE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF FGIC HOLDINGS, INC.)
NOTES TO INTERIM FINANCIAL STATEMENTS
MARCH 31, 2001
(UNAUDITED)
FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts of FGIC-SPI's financial instruments, relating
primarily to cash & cash equivalents, liquidity fees receivable,
amounts due to and from affiliated companies, accounts payable and
accrued expenses and taxes payable, approximate their fair values.
SEC REGISTRATION FEES
SEC registration fees are reimbursable to FGIC-SPI, as a separate item
at the closing, by issuers, as transactions are consummated. Such fees
are deferred when paid, and netted against the related reimbursement as
transactions are consummated. Management evaluates the recoverability
of such deferred fees at each reporting date.
EXPENSES
Direct expenses incurred by the Parent are fully allocated to FGIC-SPI
on a specific identification basis. Employee related expenses are
allocated by affiliates to FGIC-SPI based on the percentage of time
such employees devote to the activities of FGIC-SPI. For the three
months ended March 31, 2001 and 2000 expenses of $236,508 and $141,881,
respectively, were allocated to FGIC-SPI. Management believes that such
allocation method is reasonable. Management believes that such
expenses, as reported in the statement of income, would not differ
materially from what expenses would have been on a stand-alone basis.
COMMITMENT FEES
The commitment fees are accrued on the outstanding liquidity
facilities.
RESERVE FOR LOSSES
It is management's policy to establish a reserve for losses based upon
its estimate of the ultimate aggregate losses relative to its
obligations under the liquidity facility arrangements written.
At March 31, 2001, management does not anticipate any losses relative
to such arrangements.
OTHER COMPREHENSIVE INCOME
There are no elements of other comprehensive income
(3) INCOME TAXES
Under an intercompany tax-sharing agreement with its parent, FGIC-SPI
is included in the consolidated Federal income tax returns filed by GE
Capital. FGIC-SPI provides for taxes as if it filed a separate tax
return in accordance with SFAS No. 109.
(4) CURRENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") issued, then
subsequently amended, Statement of Financial Accounting Standards
("SFAS") No. 133, Accounting for Derivative Instruments and Hedging
Activities, which became effective for FGIC-SPI on January 1, 2001.
Under SFAS No. 133, as
Page 7
FGIC SECURITIES PURCHASE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF FGIC HOLDINGS, INC.)
NOTES TO INTERIM FINANCIAL STATEMENTS
MARCH 31, 2001
(UNAUDITED)
amended, all derivative instruments (including certain derivative
instruments embedded in other contracts) are recognized in the balance
sheet at their fair values and changes in fair value are recognized
immediately in earnings, unless the derivatives qualify as hedges of
future cash flows. For derivatives qualifying as hedges of future cash
flows, the effective portion of changes in fair value is recorded
temporarily in equity, then recognized in earnings along with the
related effects of the hedged items. Any ineffective portion of a hedge
is reported in earnings as it occurs. There was no impact on FGIC-SPI's
financial statements upon adoption.
Page 8
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS
Liquidity fees are received up-front at the inception of the
contract and in installments over the life of the contract.
Up-front fees are earned on a straight-line basis over the life
of the liquidity commitment, and installment fees are earned
straight-line over the installment period. For the three months
ended March 31, 2001, FGIC-SPI earned liquidity fees of
$1,626,929 compared to $1,611,308 for the three months ended
March 31, 2000. The slight increase in earnings is primarily due
to new deals written during 2000 and one new deal in 2001 offset
by the renewal of existing deals at lower basis points. FGIC-SPI
incurred $284,158 and $183,790 of general and administrative
expenses for the three months ended March 31, 2001 and 2000,
respectively. Included in general and administrative expenses
were commitment fees owed to GE Capital of $45,025 in 2001 and
$39,909 in 2000. The increase is due to the increase in number of
outstanding contracts. The remainder of general and
administrative expenses is principally comprised of intercompany
overhead expense allocations which increased due to an overall
increase in corporate expenses. The effective Federal tax rate
during 2001 and 2000 was equal to the Federal corporate tax rate
of 35% giving consideration to the benefit for the deduction of
state taxes of 7%.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is a measure of the ability to generate sufficient cash
to meet cash obligations as they come due. FGIC-SPI's primary
source of cash is from liquidity fees and investment income. Cash
outflows primarily relate to general and administrative expenses,
GE Capital commitment fees, and income taxes. To date FGIC-SPI
has not been required to purchase securities (fund a cash
outflow) under the liquidity facilities issued. Should FGIC-SPI
be required to fund such an outflow, the Company can readily
access the cash balances held by GE Capital ($26.4 million at
December 31, 2000) and draw upon the standby loan agreement ($6
billion at December 31, 2000) in the amount of the purchase price
of tendered bonds.
Net cash provided by (used in) operating activities was $0 and
($132,383) for the three months ended March 31, 2001 and 2000,
respectively. There were no cash flows related to investing and
financing activities for the three months ended March 31, 2001
and 2000.
Page 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
FGIC-SPI is not involved in any pending legal proceedings.
Item 2. Changes in Securities
None.
Item 3. Defaults on Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
b) Exhibits
None.
b) Reports on Form 8-K
None.
Page 10
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.
FGIC SECURITIES PURCHASE, INC.
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(Registrant)
Date: May 11, 2001
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Deborah Mary Reif
President (principal
executive officer)
Date: May 11, 2001
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David Shea
Treasurer (principal
financial and
accounting officer)
Page 11