UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10 - K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]
Fiscal year ended December 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______ to ______
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Commission file number 0-19564
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FGIC Securities Purchase, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3633082
(State or other jurisdiction incorporation (I.R.S. Employer Identification No.)
or organization)
125 Park Avenue, New York, New York 10017 (212) 312-3000
(Zip Code) (Registrant's telephone number,
(Address of principal executive offices) including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF EACH CLASS
COMMON STOCK, PAR VALUE $10.00 PER SHARE
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 or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES OF THE
REGISTRANT AT DECEMBER 31, 2002. NONE.
AT MARCH 7, 2003, 10 SHARES OF COMMON STOCK WITH A PAR VALUE OF $10.00 PER SHARE
WERE OUTSTANDING.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
REGISTRANT MEETS THE CONDITIONS SDET FORTH IN GENERAL INSTRUCTION J(1)(A) AND
(B) OF FORM 10-K AND IS THEREFORE FILING THIS FORM 10-K WITH THE REDUCED
DISCLOSURE FORMAT
FGIC SECURITIES PURCHASE, INC.
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business 1
Item 2. Properties 1
Item 3. Legal Proceedings 1
Item 4. Submission of Matters to a Vote of Security Holders 1
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 2
Item 6. Selected Financial Data 2
Item 7. Management's Discussion and Analysis of Results of Operations 2
Item 8. Financial Statements and Supplementary Data 4
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 16
PART III
Item 10. Directors and Executive Officers of the Registrant 16
Item 11. Executive Compensation 16
Item 12. Security Ownership of Certain Beneficial Owners and Management 16
Item 13. Certain Relationships and Related Transactions 16
Item 14. Controls and Procedures 16
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 17
Signatures 18
Certifications Pursuant to Section 302 of the Sarbanes - Oxley
Act of 2002 19
PART I
ITEM 1. Business
FGIC Securities Purchase, Inc. (FGIC-SPI or the Company) was
incorporated in 1990 in the State of Delaware. As of December 31,
2002, all outstanding capital stock of FGIC-SPI was owned by FGIC
Holdings, Inc., a Delaware corporation, a wholly owned subsidiary
of General Electric Capital Corporation (GE Capital), a New York
corporation, the ultimate parent of which is General Electric
Company.
The business of FGIC-SPI consists of providing liquidity for
certain floating rate municipal securities through a "liquidity
facility". These floating rate municipal securities are typically
remarketed by registered broker-dealers at par on a periodic basis
to establish the applicable interest rate for the next interest
period and to provide a secondary market liquidity mechanism for
security holders desiring to sell their securities. In the event
that such securities cannot be remarketed, FGIC-SPI, pursuant to a
standby purchase agreement with the issuer of the securities, will
be obligated to purchase unremarketed securities, at par, from the
holders thereof who desire to remarket their securities. In order
to obtain funds to purchase the securities, FGIC-SPI has entered
into standby loan agreements, with GE Capital, under which GE
Capital will be irrevocably obligated to lend funds as needed for
FGIC-SPI to purchase the securities.
Presently, management of the Company has decided not to provide
any new liquidity facilities. Management will continue to reassess
this decision in the future. The current liquidity facilities
shall remain in effect in accordance with their terms.
ITEM 2. Properties
FGIC-SPI conducts its business from the facilities of Financial
Guaranty Insurance Company, a wholly owned subsidiary of FGIC
Corporation. FGIC Holdings, Inc. was the majority owner of FGIC
Corporation until late 2001 at which time it became the sole owner
of FGIC Corporation.
ITEM 3. Legal Proceedings
FGIC-SPI is not involved in any pending legal proceedings.
ITEM 4. Submission of Matters to a Vote of Security Holders
Omitted.
- 1 -
PART II
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
As of December 31, 1992, all of FGIC-SPI's common stock, its sole
class of common equity was owned by FGIC Corporation. In January
1993, the common stock of FGIC-SPI was dividended to GE Capital.
GE Capital, in turn, made a capital contribution of the common
stock of FGIC-SPI to FGIC Holdings, Inc., which now owns 100% of
the common stock of FGIC-SPI. FGIC Holdings was the majority owner
of FGIC Corporation until late 2001 at which time it became the
sole owner of FGIC Corporation. Accordingly, there is no public
trading market for FGIC-SPI's common stock.
ITEM 6. Selected Financial Data
Omitted.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
FGIC-SPI commenced operations in March 1992. 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 years ended December 31, 2002 and 2001, FGIC SPI earned
liquidity fees of $9,475,773 and $6,961,782, respectively. The
increase in earnings is primarily due to the 15 new deals in 2001
being fully in effect in 2002, approximately $2.7 million, and 4
new deals in 2002, approximately $0.4 million offset by the
renewal of existing deals at lower basis points and the expiration
of several deals, approximately $0.6 million. FGIC-SPI incurred
$896,905 and $1,230,018 of general and administrative expenses for
the years ended December 31, 2002 and 2001, respectively. Included
in general and administrative expenses were commitment fees owed
to GE Capital of $292,724 in 2002 and $202,373 in 2001. The
increase in commitment fees is due to the increase in the number
of outstanding contracts for the full year of 2002. The remainder
of general and administrative expenses is primarily comprised of
intercompany overhead expense allocations which decreased due to
an overall decrease in corporate expenses due to a decrease in the
number of deals written by the Company in 2002. 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%.
- 2 -
For the years ended December 31, 2001 and 2000, FGIC SPI earned
liquidity fees of $6,961,782 and $6,481,313, respectively. The
increase in earnings is primarily due to new deals in 2000 being
fully in effect in 2001, approximately $0.3 million and 15 new
deals in 2001, approximately $0.7 million, offset by the
expiration of two deals, approximately, $0.5 million. FGIC-SPI
incurred $1,230,018 and $565,739 of general and administrative
expenses for the years ended December 31, 2001 and 2000,
respectively. Included in general and administrative expenses were
commitment fees owed to GE Capital of $202,373 in 2001 and
$177,048 in 2000. The increase in commitment fees is due to the
increase in the number of outstanding contracts in 2001. The
remainder of general and administrative expenses is primarily
comprised of intercompany overhead expense allocations which
increased due to an overall increase in corporate expenses and an
increase in the number of deals written by the Company in 2001.
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%.
During 2002, four deals closed totaling $305.0 million of
liquidity facility. During 2001, fifteen deals closed totaling
$1,935.5 million of liquidity facility. During 2000, eight deals
closed totaling $592.7 million of liquidity facility.
FGIC-SPI's total liquidity facility capacity since inception has
amounted to $7 billion of which $0 and $2 billion were created in
2002 and 2001, respectively. At December 31, 2002, the Company had
remaining capacity of $0.3 billion.
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 ($34.8 million at December 31, 2002)
and draw upon the standby loan agreement in the amount of the
purchase price of the tendered bonds ($4.8 billion in outstanding
liquidity facility at December 31, 2002).
Net cash provided by (used in) operating activities was $0, $0,
and ($132,383), for the years ended December 31, 2002, 2001, and
2000, respectively. There were no cash flows related to investing
and financing activities for the years ended December 31, 2002,
2001, and 2000.
- 3 -
CRITICAL ACCOUNTING POLICIES
The footnotes to the Company's financial statements disclose the
Company's significant accounting policies. Some accounting
policies may be 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 as management
estimates the risk associated with the liquidity facilities is
distributed ratably over the life of facilities and as such earns
the fees evenly over the liquidity facility period.
ITEM 8. Financial Statements and Supplementary Data.
Issued but not yet implemented accounting standards.
In November 2002, the FASB issued Interpretation No. 45 (FIN 45)
Guarantor's Accounting and Disclosure Requirements for Guarantees.
Including Indirect Guarantees of Indebtedness of Others. The
liquidity facilities issued by FGIC-SPI are subject to the
disclosure requirements of FIN 45 and such disclosures are
included in the notes to these financial statements. Management is
currently assessing the impact of the accounting provisions of FIN
45 on the Company.
- 4 -
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
FGIC Securities Purchase, Inc.
We have audited the accompanying balance sheets of FGIC Securities Purchase,
Inc. as of December 31, 2002 and 2001, and the related statements of income,
changes in stockholder's equity, and cash flows for each of the years in the
three-year period ended December 31, 2002. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly in all
material respects, the financial position of FGIC Securities Purchase, Inc. as
of December 31, 2002 and 2001, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 2002, in
conformity with accounting principles generally accepted in the United States of
America.
KPMG LLP
February 7, 2003
New York, New York
- 5 -
FGIC SECURITIES PURCHASE, INC.
Balance Sheets
December 31, 2002 and 2001
ASSETS 2002 2001
------------------- -------------------
Liquidity fees receivable $ 1,827,918 1,837,773
Due from GE Capital 34,799,176 29,096,779
Other assets -- 147,822
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Total assets $ 36,627,094 31,082,374
=================== ===================
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Deferred liquidity fee income $ 926,202 865,611
Due to affiliates 135,773 642,137
Commitment fees payable to GE Capital 992,975 700,251
Accounts payable and accrued expenses 496,417 460,951
Taxes payable 988,291 511,913
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Total liabilities 3,539,658 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 32,265,191 27,079,266
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Total stockholder's equity 33,087,436 27,901,511
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Total liabilities and stockholder's equity $ 36,627,094 31,082,374
=================== ===================
See accompanying notes to financial statements.
- 6 -
FGIC SECURITIES PURCHASE, INC.
Statements of Income
Years ended December 31, 2002, 2001, and 2000
2002 2001 2000
------------------- ------------------- -------------------
Liquidity fee income $ 9,475,773 6,961,782 6,481,313
Investment income -- -- 1,339
------------------- ------------------- -------------------
Total revenues 9,475,773 6,961,782 6,482,652
------------------- ------------------- -------------------
General and administrative expenses 604,181 1,027,645 388,691
GE Capital commitment fees 292,724 202,373 177,048
------------------- ------------------- -------------------
Total expenses 896,905 1,230,018 565,739
------------------- ------------------- -------------------
Income before provision for
income taxes 8,578,868 5,731,764 5,916,913
------------------- ------------------- -------------------
Income tax expense (benefit):
Federal:
Current 2,792,421 1,865,690 1,927,066
Deferred -- -- (1,111)
State and local 600,522 401,223 414,184
------------------- ------------------- -------------------
Total income tax expense 3,392,943 2,266,913 2,340,139
------------------- ------------------- -------------------
Net income $ 5,185,925 3,464,851 3,576,774
=================== =================== ===================
See accompanying notes to financial statements.
- 7 -
FGIC SECURITIES PURCHASE, INC.
Statements of Changes in Stockholder's Equity
Years ended December 31, 2002, 2001, and 2000
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------------------- ------------------- ------------------- -------------------
Balance, December 31, 1999 $ 100 822,145 20,037,641 20,859,886
Net income -- -- 3,576,774 3,576,774
------------------- ------------------- ------------------- -------------------
Balance, December 31, 2000 100 822,145 23,614,415 24,436,660
Net income -- -- 3,464,851 3,464,851
------------------- ------------------- ------------------- -------------------
Balance, December 31, 2001 100 822,145 27,079,266 27,901,511
Net income -- -- 5,185,925 5,185,925
------------------- ------------------- ------------------- -------------------
Balance, December 31, 2002 $ 100 822,145 32,265,191 33,087,436
=================== =================== =================== ===================
See accompanying notes to financial statements.
- 8 -
FGIC SECURITIES PURCHASE, INC.
Statements of Cash Flows
Years ended December 31, 2002, 2001, and 2000
2002 2001 2000
------------------- ------------------- -------------------
Operating activities:
Net income $ 5,185,925 3,464,851 3,576,774
Adjustments to reconcile net income
to net cash provided by operating
activities:
Change in liquidity fees receivable 9,855 (948,093) (160,776)
Change in due from GE Capital (5,702,397) 3,740,849 (7,583,837)
Change in other assets 147,822 251,787 (59,619)
Change in deferred liquidity fee
income 60,591 320,955 293,332
Change in due to affiliates (506,364) (7,144,319) 7,746,456
Change in commitment fees
payable to GE Capital 292,724 202,372 177,048
Change in accounts payable and
accrued expenses 35,466 141,544 (7,352)
Change in taxes payable 476,378 (29,946) (4,113,298)
Change in deferred tax payable -- -- (1,111)
------------------- ------------------- -------------------
Cash provided by (used in)
operating activities -- -- (132,383)
------------------- ------------------- -------------------
Net change in cash and cash
equivalents -- -- (132,383)
Cash and cash equivalents at beginning
of period -- -- 132,383
------------------- ------------------- -------------------
Cash and cash equivalents at end of period $ -- -- --
=================== =================== ===================
See accompanying notes to financial statements.
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FGIC SECURITIES PURCHASE, INC.
Notes to Financial Statements
December 31, 2002 and 2001
(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 December 31, 2002, FGIC-SPI had
approximately $4.8 billion par and interest of potential obligations
under such arrangements. At December 31, 2002, the Company had remaining
capacity of $0.3 billion. Presently, management of the Company has
decided not to provide any new liquidity facilities. Management will
continue to reassess this decision in the future. The current liquidity
facilities shall remain in effect in accordance with their terms.
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 December 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 accompanying financial statements of FGIC-SPI have been prepared on
the basis of accounting principles generally accepted in the United
States of America. The preparation of financial statements in conformity
with accounting principles generally accepted requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Significant accounting policies are as follows:
(A) CASH AND CASH EQUIVALENTS
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.
(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 installment 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
payable and accrued expenses and taxes payable, approximate their
fair values.
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FGIC SECURITIES PURCHASE, INC.
Notes to Financial Statements
December 31, 2002 and 2001
(D) SEC REGISTRATION FEES
SEC registrations 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. At December 31, 2002 and 2001, the deferred
registration fees were $0 and $147,822, respectively. Management
evaluates the recoverability of such deferred fees at each
reporting date. During the fourth quarter 2002, with management's
decision to cease issuing new facilities, $59,788 of deferred
registration fees were written off. In October 2001, FGIC-SPI
filed a shelf registration with the SEC increasing by $2 billion
FGIC-SPI's capacity. Registration fees deferred were $0 and
$500,000 in 2002 and 2001, respectively.
(E) EXPENSES
Direct expenses incurred by the Parent are attributed 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
years ended December 31, 2002, 2001, and 2000 expenses of
$520,928, $918,686, and $420,044, respectively, were allocated to
FGIC-SPI. Management believes that such allocation method is
reasonable, and that such expenses, as reported in the statement
of income, would not differ materially from the amount of expenses
on a stand-alone basis.
(F) COMMITMENT FEES
Commitment fees are accrued as a percentage of the par value of
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 December 31, 2002, management does not anticipate any losses
relative to such arrangements.
(H) INCOME TAXES
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases, on a stand alone basis. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered to settled. The
effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the
enactment date.
(I) OTHER COMPREHENSIVE INCOME
There are no elements of other comprehensive income.
(J) DERIVATIVE INSTRUMENTS
The Financial Accounting Standards Board (FASB) issued, then
subsequently amended, Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative Instruments and
- 11 -
Hedging Activities, which became effective for FGIC-SPI on January
1, 2001. Under SFAS No. 133, as 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 of SFAS No. 133.
(K) NEW ACCOUNTING PRONOUNCEMENTS
In November 2002, the FASB issued Interpretation No. 45 (FIN 45)
Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others. The
liquidity facilities issued by FGIC-SPI are subject to the
disclosure requirements of FIN 45 and such disclosures are
included in the notes to these financial statements. Management is
currently assessing the impact of the accounting provisions of FIN
45 on the Company.
(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.
FGIC-SPI's effective Federal tax rate differs from the corporate tax rate
on ordinary income of 35% in 2002, 2001, and 2000. The differences
between the statutory Federal tax rate and expense computed by applying
the statutory tax rate to earnings before income taxes are as follows:
YEAR ENDED DECEMBER 31
-------------------------------------------------------------
2002 2001 2000
-------------------------------------------------------------
Computed statutory tax provision $ 3,002,604 2,006,117 2,070,920
Benefit of deduction for state and
local income taxes (210,183) (140,427) (144,965)
-------------------------------------------------------------
Federal income taxes 2,792,421 1,865,690 1,925,955
State and local income taxes 600,522 401,223 414,184
-------------------------------------------------------------
Income tax expense $ 3,392,943 2,266,913 2,340,139
=============================================================
For the years ended December 31, 2002, 2001, and 2000, Federal and state
income taxes paid or settled through intercompany accounts totaled
$2,657,890, $2,296,859, and $6,454,548, respectively.
(4) RELATED PARTY TRANSACTIONS
All municipal securities for which FGIC-SPI provides liquidity are
insured by Financial Guaranty Insurance Company, a subsidiary of the
Parent.
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FGIC SECURITIES PURCHASE, INC.
Notes to Financial Statements
December 31, 2002 and 2001
As part of a standby loan agreement with GE Capital (see note 6),
FGIC-SPI has incurred commitment fees for the years ended December 31,
2002, 2001, and 2000 of $292,724, $202,373, and $177,048, respectively.
At December 31, 2002 and 2001, the amounts classified as due from GE
Capital relates to balances held by GE Capital. FGIC-SPI has access to
these funds on an as needed basis.
All amounts due from affiliates and due to affiliates are non-interest
bearing.
See note 2 for description of expenses allocated by the Parent.
(5) OFF-BALANCE-SHEET RISK
FGIC-SPI provides liquidity for certain floating rate municipal
securities whereby FGIC-SPI will, under certain circumstances, purchase
such securities at par in the event they are tendered by the holders
thereof as permitted under the terms of the respective bond indentures.
The geographical distribution of the underlying par value supported by
the 53 liquidity facilities outstanding at December 31, 2002 was as
follows (dollars in millions):
New York $ 1,164
California 776
Michigan 749
Massachusetts 648
Pennsylvania 324
District of Columbia 284
Hawaii 250
Ohio 113
Florida 122
New Hampshire 38
North Carolina 30
Alabama 22
Texas 17
------------------
Total $ 4,537
==================
Of the $1.2 billion of par value related to State of New York, $975
million relates to New York City. The next largest single exposure is to
the Massachusetts Water Resource Authority with $648 million in
outstanding par.
- 13 -
FGIC SECURITIES PURCHASE, INC.
Notes to Financial Statements
December 31, 2002 and 2001
The maturity distribution of the underlying par value supported by the 53
liquidity facilities outstanding at December 31, 2002 is as follows
(dollars in millions):
Less than one year $ 797
One to two years 214
Two to three years 568
Three to four years 1,962
Four to five years 996
Over five years --
-------------------
Total $ 4,537
===================
The liquidity agreements are for a term of approximately five years
(subject to renewal) or earlier if the bonds are no longer outstanding
and provide for purchase of underlying municipal securities.
As of December 31, 2002, the fair value of the future liquidity fees
receivable on outstanding facilities was $23.0 million. The fair value
was calculated based upon current expected cash inflows, assuming current
outstanding facilities at current fee rates, discounted at the risk free
rate of 2.74%.
FGIC-SPI is exposed to credit risk that the issuer defaults on the
underlying municipal security at a time that FGIC-SPI is holding
securities purchased pursuant to a liquidity facility and the financial
guarantor (Financial Guaranty Insurance Company) fails to perform on its
insurance contract. It is the accounting policy of FGIC-SPI to evaluate
the likelihood of any credit loss at each reporting period and to
establish reserves for credit losses when deemed appropriate. Management
believes that no such reserves were required at December 31, 2002 and
2001.
FGIC-SPI is exposed to market risk in the event that FGIC-SPI is required
to purchase municipal securities at their par amount at a time when such
par value is in excess of the securities' fair value. It is the
accounting policy of FGIC-SPI to evaluate the likelihood of it being
called upon to purchase securities under its liquidity arrangements at
amounts greater than their fair value at each reporting period and to
establish valuation reserves when deemed appropriate. Management believes
that no such valuation reserves were required at December 31, 2002 and
2001.
(6) STANDBY LOAN AGREEMENTS
FGIC-SPI secured the right to obtain funds for the purchase of tendered
bonds by entering into standby loan agreements with GE Capital who will
lend funds to FGIC-SPI in amounts not exceeding the purchase price of the
tendered bonds. The total standby loan agreement amount at December 31,
2002, equals the total outstanding facility amount of $4.8 billion.
In consideration of the commitment of GE Capital to make loans to
FGIC-SPI, FGIC-SPI agrees to pay GE Capital a fee equal to 0.625 basis
points on the outstanding facility. The fee is payable on dates mutually
agreed by FGIC-SPI and GE Capital.
- 14 -
(7) QUARTERLY DATA (UNAUDITED)
Selected quarterly financial data was as follows:
2002
---------------------------------------------------------------------------------
4th 3rd 2nd 1st Total
--------------- -------------- --------------- --------------- --------------
Total revenues $ 2,445,988 2,782,371 2,010,548 2,236,866 9,475,773
Total expenses 280,745 277,622 165,549 172,989 896,905
--------------- -------------- --------------- --------------- --------------
Income before
provision for
income taxes 2,165,243 2,504,749 1,844,999 2,063,877 8,578,868
Income tax expense 856,355 990,628 732,360 813,600 3,392,943
--------------- -------------- --------------- --------------- --------------
Net income $ 1,308,888 1,514,121 1,112,639 1,250,277 5,185,925
=============== ============== =============== =============== ==============
2001
---------------------------------------------------------------------------------
4th 3rd 2nd 1st Total
--------------- -------------- --------------- --------------- --------------
Total revenues $ 2,039,368 1,601,093 1,694,392 1,626,929 6,961,782
Total expenses 462,648 231,640 251,572 284,158 1,230,018
--------------- -------------- --------------- --------------- --------------
Income before
provision for
income taxes 1,576,720 1,369,453 1,442,820 1,342,771 5,731,764
Income tax expense 623,593 541,619 570,635 531,066 2,266,913
--------------- -------------- --------------- --------------- --------------
Net income $ 953,127 827,834 872,185 811,705 3,464,851
=============== ============== =============== =============== ==============
- 15 -
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
NONE
PART III
ITEM 10. Directors and Executive Officers of the Registrant
Omitted.
ITEM 11. Executive Compensation
Omitted.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
Omitted.
ITEM 13. Certain Relationships and Related Transactions
Omitted.
ITEM 14. Controls and Procedures
(a) Within the 90-day period prior to the filing of this
report, the Company's management, including the President
and Treasurer, conducted an evaluation of the effectiveness
of the design and operation of the Company's disclosure
controls and procedures as defined in Exchange Act Rule
13a-14(c). Based on that evaluation, the President and
Treasurer concluded that the Company's disclosure controls
and procedures were effective as of the date of that
evaluation.
(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.
- 16 -
PART IV
ITEM 15. Exhibits and Financial Statement Schedules.
(a) Financial Statements
Included in Part II of this report:
Report of Independent Auditors
Balance Sheets as of December 31, 2002 and 2001
Statements of Income for the years ended December 31,
2002, 2001, and 2000.
Statements of Changes in Stockholder's Equity for the
years ended December 31, 2002, 2001, and 2000.
Statements of Cash Flows for the years ended December
31, 2002, 2001, and 2000.
Notes of Financial Statements
All Schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange
Commission are not required under the related instructions
or are inapplicable and, therefore, have been omitted.
(b) Exhibit Index
1.1 - Certificate of Incorporation of FGIC-SPI (Incorporated by
reference to Exhibit 1.1 of FGIC-SPI's December 31,
1991 Form 10K)
1.2 - By-Laws of FGIC-SPI (Incorporated by reference to Exhibit
1.2 of FGIC-SPI's December 31, 1991 Form 10K)
1.3 - Consents of Independent Auditors
99.1 - Certification Pursuant to 18 U.S.C. Section 1350 As
Adopted Pursuant to Section 906 of the Sarbanes - Oxley
Act of 2002
99.2 - Certification Pursuant to 18 U.S.C. Section 1350 As
Adopted Pursuant to Section 906 of the Sarbanes - Oxley
Act of 2002.
- 17 -
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
- -------------------- ---------------------------------------- --------------
President (principal executive officer),
/s/ Deborah M. Reif Director March 7, 2003
- -------------------- --------------
Deborah M. Reif
Treasurer and Assistant Secretary
/s/ J. Stevenson Barker (principal financial and accounting March 7, 2003
- ----------------------- officer) --------------
J. Stevenson Barker
/s/ A. Edward Turi, III Director March 7, 2003
- -------------------- --------------
A. Edward Turi, III
- 18 -
CERTIFICATIONS PURSUANT TO
SECTION 302 OF THE SARBANES - OXLEY ACT OF 2002
CERTIFICATION
- -------------
I, Deborah M. Reif, certify that:
(1) I have reviewed this annual report on Form 10-K of FGIC Securities
Purchase, Inc. (The Company);
(2) Based on my knowledge, this annual 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 annual report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this annual 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
annual 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
annual 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 annual report (the "Evaluation Date"); and
(c) presented in this annual 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
annual 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: March 7, 2003 /s/ Deborah M. Reif
-----------------------------
Deborah M. Reif
President (principal
executive officer)
- 19 -
CERTIFICATION
- -------------
I, J. Stevenson Barker, certify that:
(1) I have reviewed this annual report on Form 10-K of FGIC Securities
Purchase, Inc. (The Company);
(2) Based on my knowledge, this annual 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 annual report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this annual 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
annual 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
annual 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 annual report (the "Evaluation Date"); and
(c) presented in this annual 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
annual 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: March 7, 2003 /s/ J. Stevenson Barker
-------------------------------------
J. Stevenson Barker
Treasurer and Assistant Secretary
(principal financial and
accounting officer)
- 20 -
EXHIBIT 1.3
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholder
FGIC Securities Purchase, Inc.
We consent to incorporation by reference in the registration statements (No.
333-71950) on Form S-3 of FGIC Securities Purchase, Inc. of our report dated
February 7, 2003 relating to the balance sheets of FGIC Securities Purchase,
Inc. as of December 31, 2002 and 2001, and the related statements of income,
changes in stockholder's equity, and cash flows for each of the years in the
three-year period ended December 31, 2002, which report appears in the December
31, 2002 annual report on Form 10-K of FGIC Securities Purchase, Inc.
/s/ KPMG LLP
New York, New York
March 7, 2003
- 21 -
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 Annual Report of FGIC Securities Purchase, Inc. (the
Company) on Form 10-K for the period ending December 31, 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: March 7, 2003 /s/ Deborah M. Reif
--------------------------------
Deborah M. Reif
President (principal
executive officer)
- 22 -
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 Annual Report of FGIC Securities Purchase, Inc. (the
Company) on Form 10-K for the period ending December 31, 2002, as filed with the
Securities and Exchange Commission on the date hereof (the Report), I, J.
Stevenson Barker, Treasurer 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: March 7, 2003 /s/ J. Stevenson Barker
------------------------------------
J. Stevenson Barker
Treasurer and Assistant Secretary
(principal financial and
accounting officer)
- 23 -