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 SEPTEMBER 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 _____
Shares Outstanding
Title of Class at October 25, 2002
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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.
FGIC SECURITIES PURCHASE, INC.
(A Wholly Owned Subsidiary of FGIC Holdings, Inc.)
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets 1
Statements of Income 2
Statements of Cash Flows 3
Note to Unaudited Interim Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 6
Item 4. Controls and Procedures 7
PART II. OTHER INFORMATION
Other Information:
Item 1. Legal Proceedings 8
Item 2. Changes in Securities 8
Item 3. Defaults on Senior Securities 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 8
Signatures 9
Certifications 10
ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FGIC SECURITIES PURCHASE, INC.
(A Wholly Owned Subsidiary of FGIC Holdings, Inc.)
Balance Sheets
September 30, 2002 and December 31, 2001
SEPTEMBER 30, DECEMBER 31,
Assets 2002 2001
------------------- -------------------
(Unaudited)
Liquidity fees receivable $ 1,753,436 1,837,773
Due from GE Capital 36,440,004 29,096,779
Other assets 59,788 147,822
------------------- -------------------
Total assets $ 38,253,228 31,082,374
=================== ===================
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Deferred liquidity fee income $ 957,062 865,611
Due to affiliates 3,088,043 642,137
Commitment fees payable to GE Capital 919,196 700,251
Accounts payable and accrued expenses 522,630 460,951
Taxes payable 987,750 511,913
------------------- -------------------
Total liabilities 6,474,681 3,180,863
------------------- -------------------
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 30,956,302 27,079,266
------------------- -------------------
Total stockholder's equity 31,778,547 27,901,511
------------------- -------------------
Total liabilities and stockholder's equity $ 38,253,228 31,082,374
=================== ===================
See accompanying notes to unaudited financial statements.
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FGIC SECURITIES PURCHASE, INC.
(A Wholly Owned Subsidiary of FGIC Holdings, Inc.)
Statements of Income
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------ ------------------------------------
2002 2001 2002 2001
----------------- ----------------- ----------------- ----------------
Liquidity fee income $ 2,782,371 1,601,093 7,029,785 4,922,414
General and administrative expenses 277,622 231,640 616,160 767,370
----------------- ----------------- ----------------- ----------------
Income before income taxes 2,504,749 1,369,453 6,413,625 4,155,044
----------------- ----------------- ----------------- ----------------
Income tax expense:
Federal 815,295 445,757 2,087,635 1,352,467
State and local 175,333 95,862 448,954 290,853
----------------- ----------------- ----------------- ----------------
Total income tax expense 990,628 541,619 2,536,589 1,643,320
----------------- ----------------- ----------------- ----------------
Net income $ 1,514,121 827,834 3,877,036 2,511,724
================= ================= ================= ================
See accompanying notes to unaudited financial statements.
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FGIC SECURITIES PURCHASE, INC.
(A Wholly Owned Subsidiary of FGIC Holdings, Inc.)
Statements of Cash Flows
Nine months ended September 30, 2002 and 2001
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------------------
2002 2001
------------------- -------------------
Operating activities:
Net income $ 3,877,036 2,511,724
Adjustments to reconcile net income to net provided by
operating activities:
Change in taxes payable 475,837 (111,921)
Change in due from GE Capital (7,343,225) 5,297,455
Change in due from affiliates -- (103,946)
Change in due to affiliates 2,445,906 (7,786,456)
Change in other assets 88,034 173,976
Change in liquidity fees receivable 84,337 (108,692)
Change in deferred liquidity fee income 91,451 (23,697)
Change in accounts payable and accrued expenses 61,679 12,154
Change in commitment fees payable to GE Capital 218,945 139,403
------------------- -------------------
Cash provided by operating activities -- --
------------------- -------------------
Net change in cash and cash equivalents -- --
Cash and cash equivalents at beginning of period -- --
------------------- -------------------
Cash and cash equivalents at end of period $ -- --
=================== ===================
See accompanying notes to unaudited financial statements.
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FGIC SECURITIES PURCHASE, INC.
(A Wholly Owned Subsidiary of FGIC Holdings, Inc.)
Notes to Unaudited Interim Financial Statements
September 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 September 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 September 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
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 nine months ending September 30, 2002 and 2001, (b) the
financial position as of September 30, 2002 and December 31, 2001, and
(c) cash flows for the nine months ended September 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:
(A) 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.
(B) 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 installments fees are earned
straight-line over the installment period.
(C) 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, and accrued expenses and taxes payable, approximate
their fair values.
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(D) 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.
(E) EXPENSES
Direct expenses incurred by the Parent are fully allocated to
FSIC-SPI on a specific identification basis. Employee related
expenses are allocated by affiliates to FGIC-SPI. For the nine
months ended September 30, 2002 and 2001 expenses of $385,155 and
$639,221 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.
(F) COMMITMENT FEES
The commitment fees are accrued on the outstanding liquidity
facilities.
(G) 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 September 30, 2002, management does not anticipate any losses
relative to such arrangements.
(H) 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.
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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 nine months ended September 30, 2002, FGIC-SPI earned liquidity
fees of $7,029,785 compared to $4,922,414 for the nine months ended
September 30, 2001. The increase in earnings is primarily due to new
deals written during 2001 being fully in effect in 2002. FGIC-SPI
incurred $616,160 and $767,370 of general and administrative expenses for
the nine months ended September 30, 2002 and 2001, respectively. Included
in general and administrative expenses were commitment fees owed to GE
Capital of $218,944 in 2002 and $139,403 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 significant decrease in 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 September 30, 2002, FGIC-SPI earned liquidity
fees of $2,782,371 compared to $1,601,093 for the three months ended
September 30, 2001. The increase in earnings is primarily due to new
deals written during 2001 being fully in effect in 2002. FGIC-SPI
incurred $277,622 and $231,640 of general and administrative expenses for
the three months ended September 30, 2002 and 2001, respectively.
Included in general and administrative expenses were commitment fees owed
to GE Capital of $87,937 in 2002 and $47,713 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 significant decrease in 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 ($36.4 million at
September 30, 2002) and draw upon the standby loan agreement ($4.8
billion at September 30, 2002) in the amount of the purchase price of
tendered bonds.
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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 judgments. The Company's accounting policy with
respect to the recognition of revenue was considered a critical
accounting policy.
ITEM 4. CONTROLS AND PROCEDURES
(a) Under the supervision and with the participation of the Company's
management, including the Company's President along with the
Company's Treasurer, we evaluated the effectiveness of the design
and operation of the Company's disclosure controls and procedures
as defined in Rule 13a-14 under the Exchange Act as of a date (the
Evaluation Date) within 90 days prior to the filing date of this
report. Based upon that evaluation, the Company's President and
Treasurer concluded that, as of the Evaluation Date, the Company's
disclosure controls and procedures were effective in timely
alerting them to material information relating to the Company
required to be included in the Company's periodic SEC filings.
(b) There have been no significant changes in the Company's internal
controls during the period covered by this report or, to our
knowledge, in other factors which could significantly affect
internal controls subsequent to the date the Company carried out
its evaluation.
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OTHER INFORMATION
1. LEGAL PROCEEDINGS
Omitted
2. CHANGES IN SECURITIES
Omitted
3. DEFAULTS ON SENIOR SECURITIES
Omitted
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Omitted
5. OTHER INFORMATION
Omitted
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 Sarbanes - Oxley Act of
2002
Exhibit 99.2 - Certification Pursuant to 18 U.S.C. Section 1350 As
Adopted Pursuant to Section 906 of the Sarbanes - Oxley Act of
2002.
b) Report on Form 8-K
Omitted
- 8 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registration has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FGIC SECURITIES PURCHASE, INC.
------------------------------
(Registrant)
Date: ________________ /s/ Deborah Mary Reif
------------------------------
Deborah Mary Reif
President (principal
executive officer)
Date: ________________ /s/ David Patrick Shea
------------------------------
David Patrick Shea
Treasurer (principal
financial and
accounting officer)
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CERTIFICATION
I, Deborah M. Reif, certify that:
(1) I have reviewed this quarterly report on Form 10-Q of FGIC Securities
Purchase, Inc. (The Company);
(2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
(4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
(5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function);
(a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
(6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: ________________ /s/ Deborah M. Reif
------------------------------------
Deborah M. Reif
President (principal
executive officer)
- 10 -
I, David P. Shea, certify that:
(1) I have reviewed this quarterly report on Form 10-Q of FGIC Securities
Purchase, Inc. (The Company);
(2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
(4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
(5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function);
(a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
(6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: ________________ /s/ David P. Shea
--------------------------------
David P. Shea
Treasurer (principal
financial and
accounting officer)
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EXHIBIT 99.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of FGIC Securities Purchase, Inc. (the
Company) on Form 10-Q for the period ending September 30, 2002, as filed with
the Securities and Exchange Commission on the date hereof (the Report), I,
Deborah M. Reif, Chief Executive Officer of the Company, herby certify pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) such report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in such report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
Date: ________________ /s/ Deborah M. Reif
--------------------------------
Deborah M. Reif
President (principal
executive officer)
- 12 -
EXHIBIT 99.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of FGIC Securities Purchase, Inc. (the
Company) on Form 10-Q for the period ending September 30, 2002, as filed with
the Securities and Exchange Commission on the date hereof (the Report), I, David
P. Shea, Chief Financial Officer of the Company, herby certify pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) such report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in such report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
Date: ________________ /s/ David P. Shea
--------------------------------
David P. Shea
Treasurer (principal
financial and
accounting officer)
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