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, 2003
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 May 2, 2003
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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 Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 10
ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FGIC SECURITIES PURCHASE, INC.
(A Wholly Owned Subsidiary of FGIC Holdings, Inc.)
Balance Sheets
March 31, 2003 and December 31, 2002
MARCH 31, DECEMBER 31,
Assets 2003 2002
------------------- -------------------
(Unaudited)
Liquidity fees receivable $ 2,153,276 1,827,918
Due from GE Capital 36,518,296 34,799,176
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Total assets $ 38,671,572 36,627,094
=================== ===================
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Deferred liquidity fee income $ 847,240 926,202
Due to affiliates 1,237,867 135,773
Commitment fees payable to GE Capital 1,062,713 992,975
Accounts payable and accrued expenses 504,732 496,417
Taxes payable 717,670 988,291
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Total liabilities 4,370,222 3,539,658
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Stockholder's Equity:
Common stock, par value $10.00 per share. Authorized,
issued, and outstanding 10 shares 100 100
Additional paid-in capital 822,145 822,145
Retained earnings 33,479,105 32,265,191
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Total stockholder's equity 34,301,350 33,087,436
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Total liabilities and stockholder's equity $ 38,671,572 36,627,094
=================== ===================
See accompanying notes to unaudited interim financial statements.
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FGIC SECURITIES PURCHASE, INC.
(A Wholly Owned Subsidiary of FGIC Holdings, Inc.)
Statements of Income and Retained Earnings
Three-months ended March 31, 2003 and 2002
(Unaudited)
2003 2002
------------------- -------------------
Liquidity fee income $ 2,262,214 2,236,866
General and administrative expenses 254,085 172,989
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Income before income taxes 2,008,129 2,063,877
------------------- -------------------
Income tax expense:
Federal 653,646 669,129
State and local 140,569 144,471
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Total income tax expense 794,215 813,600
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Net income 1,213,914 1,250,277
Retained earnings beginning of period 32,265,191 27,079,266
------------------- -------------------
Retained earnings end of period $ 33,479,105 28,329,543
=================== ===================
See accompanying notes to unaudited interim financial statements.
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FGIC SECURITIES PURCHASE, INC.
(A Wholly Owned Subsidiary of FGIC Holdings, Inc.)
Statements of Cash Flows
Three-months ended March 31, 2003 and 2002
(Unaudited)
2003 2002
------------------- -------------------
Operating activities:
Net income $ 1,213,914 1,250,277
Adjustments to reconcile net income to net cash
provided by operating activities:
Change in taxes payable (270,621) 190,005
Change in due from GE Capital (1,719,120) (1,184,199)
Change in due to affiliates 1,102,094 723,594
Change in liquidity fees receivable (325,358) (952,279)
Change in deferred liquidity fee income (78,962) 46,203
Change in accounts payable and accrued expenses 8,315 3,001
Change in commitment fees payable to GE Capital 69,738 69,989
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Cash provided by operating activities -- 146,591
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Net change in cash and cash equivalents -- 146,591
Cash and cash equivalents at beginning of period -- --
------------------- -------------------
Cash and cash equivalents at end of period $ -- 146,591
=================== ===================
See accompanying notes to unaudited interim financial statements.
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FGIC SECURITIES PURCHASE, INC.
(A Wholly Owned Subsidiary of FGIC Holdings, Inc.)
Notes to Unaudited Interim Financial Statements
March 31, 2003
(Unaudited)
(1) BUSINESS
FGIC Securities Purchase, Inc. (FGIC-SPI) is a wholly owned subsidiary of
FGIC Holdings, Inc. (the Parent). The Parent is wholly owned by GEI,
Inc., 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 March 31, 2003, FGIC-SPI had approximately
$4.5 billion (par and interest) of potential obligations under such
arrangements. At March 31, 2003, 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 $4.5 billion at March 31, 2003, 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 ended March 31, 2003 and 2002, (b) the financial position as
of March 31, 2003 and (c) cash flows for the three months ended March 31,
2003 and 2002.
These unaudited interim financial statements should be read in
conjunction with the financial statements and related notes included in
the 2002 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.
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FGIC SECURITIES PURCHASE, INC.
(A Wholly Owned Subsidiary of FGIC Holdings, Inc.)
Notes to Unaudited Interim Financial Statements
March 31, 2003
(Unaudited)
(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.
(D) 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 three
months ended March 31, 2003 and 2002 expenses of $173,031 and
$100,000, 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.
(E) COMMITMENT FEES
The commitment fees are accrued on the outstanding liquidity
facilities.
(F) 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, 2003, management does not anticipate any losses
relative to such arrangements.
(G) OTHER COMPREHENSIVE INCOME
There are no elements of other comprehensive income.
(H) 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 management believes the
accounting provisions of FIN 45 are applicable to the facilities
issued by the Company; however, no new facilities were issued in
2003.
(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.
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.
For the three months ended March 31, 2003, FGIC-SPI earned liquidity fees
of $2,262,214 compared to $2,236,866 for the three months ended March 31,
2002. The earnings on the liquidity facilities is such due to the fact no
new deals have been written in 2003 and there have only been limited
terminations or maturities. FGIC-SPI incurred $254,085 and $172,989 of
general and administrative expenses for the three months ended March 31,
2003 and 2002, respectively. Included in general and administrative
expenses were commitment fees owed to GE Capital of $69,738 in 2003 and
$69,989 in 2002. The level nature of the commitment fees is consistent
with the level nature of liquidity fees. The remainder of general and
administrative expenses is primarily comprised of intercompany overhead
expense allocations, which increased due to increase in underlying costs
being allocated. The effective Federal Tax rate during 2003 and 2002 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 ($36.6 million at
March 31, 2003) and draw upon the standby loan agreement ($4.5 billion at
March 31, 2003) 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. 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 4. 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.
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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
Exhibit99.1 - 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
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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.
------------------------------
(Registrant)
Date: May 2, 2003 /s/ Deborah M. Reif
---------------- ------------------------------------
Deborah Mary Reif
President (principal
executive officer)
Date: May 2, 2003 /s/ J. Stevenson Barker
---------------- ------------------------------------
J. Stevenson Barker
Treasurer and Assistant
Secretary (principal financial
and accounting officer)
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CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
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: May 2, 2003 /s/ Deborah M. Reif
----------------- ------------------------------------
Deborah M. Reif
President (principal
executive officer)
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CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
- -------------
I, J. Stevenson Barker, 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: May 2, 2003 /s/ J. Stevenson Barker
---------------- --------------------------------------
J. Stevenson Barker
Treasurer and Assistant
Secretary (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 March 31, 2003, 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: May 2, 2003 /s/ Deborah M. Reif
------------------ -----------------------------------
Deborah M. Reif
President (principal
executive officer)
A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.
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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 March 31, 2003, as filed with the
Securities and Exchange Commission on the date hereof (the Report), I, J.
Stevenson Barker, 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: May 2, 2003 /s/ J. Stevenson Barker
----------------- ---------------------------------------
J. Stevenson Barker
Treasurer and Assistant
Secretary (principal financial
and accounting officer)
A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.
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