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, 2002
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
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SHARES OUTSTANDING
TITLE OF CLASS AT MAY 13, 2002
- -------------- ---------------
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
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets 3
Statements of Income 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,
2002 2001
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(UNAUDITED)
Cash $ 146,591 $ 0
Liquidity fees receivable 2,790,052 1,837,773
Due from GE Capital 30,280,978 29,096,779
Other assets 147,822 147,822
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Total assets $33,365,443 $31,082,374
============== ==============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Deferred liquidity fee income $ 911,814 $ 865,611
Due to affiliates 1,365,731 642,137
Commitment fees payable to GE Capital 770,240 700,251
Accounts payable and accrued expenses 463,952 460,951
Taxes payable 701,918 511,913
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Total liabilities $ 4,213,655 $ 3,180,863
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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 28,329,543 27,079,266
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Total stockholder's equity $29,151,788 $27,901,511
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Total liabilities and stockholder's equity $33,365,443 $31,082,374
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See accompanying notes to unaudited 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,
2002 2001
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Liquidity fee income $2,236,866 $1,626,929
General and administrative expenses 172,989 284,158
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Income before income taxes 2,063,877 1,342,771
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Income tax expense:
Federal 669,129 437,072
State and local 144,471 93,994
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Total income tax expense 813,600 531,066
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Net income $1,250,277 $ 811,705
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See accompanying notes to unaudited 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,
2002 2001
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OPERATING ACTIVITIES:
Net income $1,250,277 $ 811,705
Adjustments to reconcile net
income to net cash provided by
operating activities:
Change in taxes payable 190,005 (122,474)
Change in due from GE Capital (1,184,199) 6,468,779
Change in due to affiliates 723,594 (7,155,083)
Change in other assets - 8,451
Change in liquidity fees receivable (952,279) (67,297)
Change in deferred liquidity fee income 46,203 4,269
Change in accounts payable and accrued expenses 3,001 6,626
Change in commitment fees payable to GE Capital 69,989 45,024
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Cash provided by operating activities 146,591 -
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Net change in cash and cash equivalents 146,591 -
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Cash and cash equivalents at beginning of period - -
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Cash and cash equivalents at end of period $ 146,591 $ -
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See accompanying notes to uaudited interim financial statements.
Page 5
FGIC SECURITIES PURCHASE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF FGIC HOLDINGS, INC.)
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
MARCH 31, 2002
(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, 2002, FGIC-SPI had approximately $4.7 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 $4.7 billion at March 31, 2002, 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 unaudited interim financial statements of FGIC-SPI contained in
this report reflect all normal recurring adjustments necessary, in the
opinion of management, for a fair statement of (a) results of
operations for the three months ending March 31, 2002 and 2001, (b) the
financial position as of March 31, 2002 and December 31, 2001, and (c)
cash flows for the three months ended March 31, 2002 and 2001.
These unaudited interim financial statements should be read in
conjunction with the financial statements and related notes included in
the 2001 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, which are not with affiliated entities, 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,
usually five years, and installment fees are earned straight-line over
the installment period.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts of FGIC-SPI's financial instruments, relating
primarily to short-term investments, liquidity fees receivable, due
from GE Capital, other assets, deferred liquidity fee income, due to
affiliates, commitment fees payable to GE Capital, accounts payable and
accrued expenses and taxes payable, approximate their fair values.
Page 6
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 and included in other assets 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, 2002 and 2001 expenses of $100,000 and $236,508,
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, 2002, 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.
Page 7
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, 2002, FGIC-SPI earned
liquidity fees of $2,236,866 compared to $1,626,929 for the three
months ended March 31, 2001. The increase in earnings is
primarily due to new deals written during 2001 being fully in
effect in 2002. FGIC-SPI incurred $72,989 and $284,158 of general
and administrative expenses for the three months ended March 31,
2002 and 2001, respectively. Included in general and
administrative expenses were commitment fees owed to GE Capital
of $69,989 in 2002 and $45,025 in 2001. The increase in
commitment fees is due to the increase in number of outstanding
contracts. The remainder of general and administrative expenses
is primarily comprised of intercompany overhead expense
allocations, which decreased due to the level of corporate effort
expended decreasing relative to FGIC-SPI. The effective Federal
tax rate during 2002 and 2001 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 ($30.3 million at
March 31, 2002) and draw upon the standby loan agreement ($4.7
billion at March 31, 2002) in the amount of the purchase price of
tendered bonds.
Net cash provided by operating activities was $146,591 and $0 for
the three months ended March 31, 2002 and 2001, respectively.
There were no cash flows related to investing and financing
activities for the three months ended March 31, 2002 and 2001.
CRITICAL ACCOUNTING POLICIES
The footnotes to the Company's financial statements disclose the
Company's significant accounting policies. Certain of these
policies are critical to the portrayal of the Company's financial
condition and results of operations as they require management to
establish estimates based on subjective judgements. The Company's
accounting policy with respect to the recognition of revenue was
considered a critical accounting policy.
Page 8
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
a) Exhibits
None.
b) Reports on Form 8-K
None.
Page 9
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 13, 2002
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Deborah Mary Reif
President (principal
executive officer)
Date: May 13, 2002s
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David Patrick Shea
Treasurer (principal
financial and
accounting officer)
Page 10