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 JUNE 30, 2002
COMMISSION FILE NO. 0-19564
FGIC SECURITIES PURCHASE, INC.
A DELAWARE CORPORATION
IRS EMPLOYER IDENTIFICATION NO. 13-3633082
125 PARK AVENUE, NEW YORK, NEW YORK 10017
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 AUGUST 14, 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
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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
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults on Senior Securities 10
Item 4. Submission of Matters to a Vote of
Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 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 JUNE 30, DECEMBER 31,
2002 2001
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(UNAUDITED)
Liquidity fees receivable $ 2,307,145 $ 1,837,773
Due from GE Capital 32,984,076 29,096,779
Other assets 85,485 147,822
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Total assets $35,376,706 $31,082,374
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LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Deferred liquidity fee income $ 904,530 $ 865,611
Due to affiliates 1,452,506 642,137
Commitment fees payable to GE Capital 831,258 700,251
Accounts payable and accrued expenses 476,480 460,951
Taxes payable 1,447,505 511,913
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Total liabilities $ 5,112,279 $ 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 29,442,182 27,079,266
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Total stockholder's equity $30,264,427 $27,901,511
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Total liabilities and stockholder's equity $35,376,706 $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 THREEMONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2002 2001 2002 2001
---- ---- ---- ----
Liquidity fee income $2,010,548 $1,694,392 $4,247,414 $3,321,321
General and administrative expenses 165,549 251,572 338,538 535,730
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Income before income taxes 1,844,999 1,442,820 3,908,876 2,785,591
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Income tax expense:
Federal 603,210 469,638 1,272,339 906,710
State and local 129,150 100,997 273,621 194,991
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Total income tax expense 732,360 570,635 1,545,960 1,101,701
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Net income $ 1,112,639 $_872,185 $2,362,916 $ 1,683,890
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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 SIX MONTHS ENDED
JUNE 30,
2002 2001
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OPERATING ACTIVITIES:
Net income $2,362,916 $ 1,683,890
Adjustments to reconcile net
income to net cash provided by
operating activities:
Change in taxes payable 935,592 387,067
Change in due from GE Capital (3,887,297) 5,884,847
Change in due to affiliates 810,369 (7,775,656)
Change in other assets 62,337 75,870
Change in liquidity fees receivable (469,372) (316,557)
Change in deferred liquidity fee income 38,919 (38,304)
Change in accounts payable and accrued expenses 15,529 7,153
Change in commitment fees payable to GE Capital 131,007 91,690
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Cash provided by operating activities - -
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Net change in cash and cash equivalents - -
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Cash and cash equivalents at beginning of period - -
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Cash and cash equivalents at end of period $ - $ -
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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
JUNE 30, 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 authorizing
documents. As of June 30, 2002, FGIC-SPI had approximately $4.8 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 $4.8 billion at June 30, 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
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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 and six months ending June 30, 2002 and 2001,
(b) the financial position as of June 30, 2002 and December 31, 2001,
and (c) cash flows for the six months ended June 30, 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 six 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 of certain floating rate municipal
securities, 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 an estimate of time such
employees devote to the activities of FGIC-SPI which will be reviewed
in the second half of 2002. For the six months ended June 30, 2002 and
2001 expenses of $200,000 and $444,887, 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 June 30, 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 six months ended June 30, 2002, FGIC-SPI earned liquidity
fees of $4,247,414 compared to $3,321,321 for the six months
ended June 30, 2001. The increase in earnings is primarily due to
new deals written during 2001 being fully in effect in 2002.
FGIC-SPI incurred $338,538 and $535,730 of general and
administrative expenses for the six months ended June 30, 2002
and 2001, respectively. Included in general and administrative
expenses were commitment fees owed to GE Capital of $131,007 in
2002 and $91,690 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 number of deals written in 2002 as compared to 2001. 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%.
For the three months ended June 30, 2002, FGIC-SPI earned
liquidity fees of $2,010,548 compared to $1,694,392 for the three
months ended June 30, 2001. The increase in earnings is primarily
due to new deals written during 2001 being fully in effect in
2002. FGIC-SPI incurred $165,549 and $251,572 of general and
administrative expenses for the three months ended June 30, 2002
and 2001, respectively. Included in general and administrative
expenses were commitment fees owed to GE Capital of $61,018 in
2002 and $46,665 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 number of deals written in 2002 as compared to 2001. 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 ($33.0 million at
June 30, 2002) and draw upon the standby loan agreement ($4.8
billion at June 30, 2002) in the amount of the purchase price of
tendered bonds.
Net cash provided by operating activities was $0 and $0 for the
six months ended June 30, 2002 and 2001, respectively. There were
no cash flows related to investing and financing activities for
the six months ended June 30, 2002 and 2001, respectively.
Page 8
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 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
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
Exhibit 99.1 - Certification Pursuant to 18 U.S.C. Section
1350 As Adopted Pursuant to Section 906 of the Sabanes -
Oxley Act of 2002.
Exhibit 99.2 - Certification Pursuant to 18 U.S.C. Section
1350 As Adopted Pursuant to Section 906 of the Sabanes -
Oxley Act of 2002.
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: August 14, 2002 /s/ Deborah M. Reif
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Deborah Mary Reif
President (principal
executive officer)
Date: August 14, 2002 /s/ David P. Shea
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David Patrick Shea
Treasurer (principal
financial and
accounting officer)
Page 11