UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 10-K
__________________
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996
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 _____
__________________
COMMISSION FILE NUMBER 0-19564
__________________
FGIC SECURITIES PURCHASE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3633082
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
115 BROADWAY, NEW YORK, NEW YORK 10006 (212) 312-3000
(Address of principal executive (Zip Code) (Registrant's telephone number,
including area code)
__________________
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 MARCH 22, 1996. NONE.
AT MARCH 22, 1996, 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 SET 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.
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 12
PART III
Item 10. Directors and Executive Officers of the Registrant 12
Item 11. Executive Compensation 12
Item 12. Security Ownership of Certain Beneficial Owners and
Management 12
Item 13. Certain Relationships and Related Transactions 12
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 12
Signatures 13
PART I
ITEM 1. Business.
FGIC Securities Purchase, Inc. ("FGIC-SPI") was incorporated in
1990 in the State of Delaware. As of December 31, 1996, 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.
ITEM 2. Properties.
FGIC-SPI conducts its business from the facilities of Financial
Guaranty Insurance Company, a wholly-owned subsidiary 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.
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. Accordingly, there is no public
trading market for FGIC-SPI's common stock. During 1996, FGIC-SPI
paid $2,000,000 in dividends to its parent, FGIC Holdings, Inc.
ITEM 6. Selected Financial Data.
Omitted.
ITEM 7. Management's Discussion and Analysis of Results of Operations.
FGIC-SPI commenced operations in March 1992. 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, and
installment fees are earned straight-line over the installment
period.
For the years ended December 31, 1996 and 1995, fees earned totaled
$11,785,585 and $12,331,893 respectively. The decrease in
earnings is primarily due to a reduction in the liquidity facility
utilized during the first nine months of 1996. FGIC-SPI also
incurred $459,685 and $510,649 in expenses for the years ended
December 31, 1996 and 1995 respectively. Expenses decreased
$50,964 or 10% from 1995 to 1996 primarily as a result of a
decrease in the number of transactions for which FGIC-SPI provided
a liquidity facility.
For the years ended December 31, 1995 and 1994, fees earned totaled
$12,331,893 and $11,198,663, respectively. The increase in
earnings is due to the increase in the number of outstanding
contracts to 36 as of December 31, 1995, from 34 as of December 31,
1994. FGIC-SPI also incurred $510,649 and $563,941 in expenses for
the years ended December 31, 1995 and 1994, respectively. Expenses
decreased $53,292, or 9%, from 1994 to 1995 primarily as a result
of an decrease in the number of transactions for which FGIC-SPI
provided a liquidity facility. In 1995, FGIC-SPI provided two
liquidity facilities totaling $0.2 billion compared to ten
liquidity facilities totaling $0.8 billion in 1994.
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, 1996 and 1995, 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, 1996. 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 generally accepted auditing
standards. 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, 1996 and 1995, and the results of its operations and
its cash flows for each of the years in the three-year period ended December
31, 1996, in conformity with generally accepted accounting principles.
January 17, 1997
ITEM 8. Financial Statements and Supplementary Data.
FGIC SECURITIES PURCHASE, INC.
BALANCE SHEETS
ASSETS DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
Short-term investments $ 109,277 $ 107,863
Liquidity fees receivable 1,905,938 2,928,617
Due from affiliates 13,284,308 12,556,461
Deferred tax asset 1,377,427 1,314,773
Other assets 322,079 323,679
------------ -------------
Total assets $16,999,029 $17,231,393
============= =============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Deferred liquidity fee income $ 347,223 $ 353,348
Due to affiliates - 31,069
Commitment fees payable to GE Capital 643,741 464,729
Accounts payable and accrued expenses 412,619 231,596
Taxes payable 8,094,410 13,459,841
---------- -----------
Total liabilities 9,497,993 14,540,583
---------- -----------
Stockholder's Equity:
Common stock, par value $10.00
per share;
10 shares authorized, issued
and outstanding 100 100
Retained earnings 7,500,936 2,690,710
---------- -------------
Total stockholder's equity 7,501,036 2,690,810
---------- -------------
Total liabilities and
stockholder's equity $16,999,029 $17,231,393
=========== ===========
See accompanying notes to financial statements.
FGIC SECURITIES PURCHASE, INC.
STATEMENTS OF INCOME
FOR THE YEAR ENDED
DECEMBER 31,
---------------------------
1996 1995 1994
---- ---- ----
Liquidity fee income $11,785,585 $12,331,893 $11,198,663
Other income - - -
Investment income 1,414 77,686 160,932
----------- ----------- -----------
Total revenues 11,786,999 12,409,579 11,359,595
General and administrative
expenses 280,673 313,197 396,803
GE Capital commitment fees 179,012 197,452 167,138
----------- ----------- ----------
Total expenses 459,685 510,649 563,941
----------- ----------- -----------
Income before provision for
income taxes 11,327,314 11,898,930 10,795,654
Income tax expense (benefit):
Federal
Current 3,730,193 4,204,078 3,749,202
Deferred (62,654) (341,679) (462,251)
State and local 849,549 890,170 1,404,385
---------- ---------- ----------
Total income tax expense 4,517,088 4,752,569 4,691,336
---------- ---------- ----------
Net income $6,810,226 $7,146,361 $6,104,318
========== ========== ==========
See accompanying notes to financial statements.
FGIC SECURITIES PURCHASE, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
COMMON RETAINED
STOCK EARNINGS TOTAL
------ --------- -----
Balance, January 1, 1994 $100 $2,940,031 $2,940,131
Net income - 6,104,318 6,104,318
Dividends paid - (3,000,000) (3,000,000)
------- ----------- -----------
Balance, December 31, 1994 $100 $6,044,349 $6,044,449
Net Income - 7,146,361 7,146,361
Dividends paid - (10,500,000) (10,500,000)
------- ------------ ------------
Balance, December 31, 1995 $100 $ 2,690,710 $ 2,690,810
Net Income - 6,810,226 6,810,266
Dividends Paid - (2,000,000) (2,000,000)
------- ------------ -----------
Balance December 31, 1996 $100 $7,500,936 $7,501,036
======== ============ ==========
See accompanying notes to financial statements.
FGIC SECURITIES PURCHASE, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED
DECEMBER 31,
---------------------------------
1996 1995 1994
---- ---- ----
OPERATING ACTIVITIES:
Net income $6,810,226 $ 7,146,361 $ 6,104,318
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Change in taxes payable (5,365,431) 5,094,248 5,153,587
Change in due from
affiliates (727,847) (11,326,395) (811,827)
Change in due to affiliates (31,069) (217,439) 133,038
Change in liquidity fees
receivable 1,022,679 (982,215) (192,836)
Change in deferred tax
asset (62,654) (341,679) (462,251)
Change in deferred liquidity
fee income (6,125) (42,350) 66,915
Change in other assets 1,600 - (59,281)
Change in accounts payable and
accrued expenses 181,023 78,086 (60,871)
Change in commitment fees
payable to GE Capital 179,012 197,452 167,138
------------ ------------- -----------
Cash provided by operating
activities (2,001,414) (393,931) 10,037,930
------------- ------------- ----------
FINANCING ACTIVITIES:
Dividend paid (2,000,000) (10,500,000) (3,000,000)
------------- ------------ ----------
Cash used by financing
activities (2,000,000) (10,500,000) (3,000,000)
------------ ------------ ----------
Net change in cash and cash
equivalents 1,414 (10,893,931) 7,037,930
Cash and cash equivalents at
beginning of period 107,863 11,001,794 3,963,864
------------ ----------- -----------
Cash and cash equivalents
at end of period $ 109,277 $ 107,863 $11,001,794
=========== =========== ===========
See accompanying notes to financial statements.
FGIC SECURITIES PURCHASE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(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 was
capitalized on September 24, 1991. FGIC-SPI was formed to provide
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, 1996, FGIC-
SPI had approximately $2.9 billion par and interest of potential
obligations under such arrangements. In order to obtain funds, in the
event such purchases are necessary, 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.
(2) SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
The accompanying financial statements have been prepared on the basis of
generally accepted accounting principles. The preparation of financial
statements in conformity with generally accepted accounting principles
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:
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.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are carried at cost, which approximates fair
value. For purposes of the statement of cash flows, FGIC-SPI considers
all highly liquid investments with original maturities of three months
or less to be cash equivalents.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts of FGIC-SPI's financial instruments, relating
primarily to short-term investments and liquidity fees, approximate
their fair values.
SEC REGISTRATION FEES
SEC registration fees are recognized as prepaid assets and are recovered
as FGIC-SPI is reimbursed for such fees by issuers as transactions are
consummated.
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, 1996, management does not anticipate any losses relative to
such arrangements.
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. These temporary differences relate principally to state
taxes and unearned fees. 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 or 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.
(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 percent in 1996, 1995 and 1994. 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 YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
Computed Statutory
tax provision $3,964,559 $4,164,626 $3,778,479
State and local
income taxes, net
of Federal income
tax benefit 552,207 578,611 912,857
Other 322 9,332 -
---------- --------- ---------
Income tax expense $4,517,088 $4,752,569 $4,691,336
========== ========== ==========
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at December
31, 1996 and 1995 are as follows:
1996 1995
---- ----
State taxes $1,230,246 $1,230,246
Unearned fees 186,326 123,672
----------- ----------
Total gross deferred tax assets 1,416,572 1,353,918
Deferred tax liabilities - other 39,145 39,145
----------- ----------
Net deferred tax asset $1,377,427 $1,314,773
=========== ==========
Based on the level of historical taxable income, projections of future
taxable income over the periods in which the deferred tax assets are
deductible and the estimated reversal of future taxable temporary
differences, FGIC-SPI believes it is more likely than not that it will
realize the benefits of these deductible differences and has not
established a valuation allowance at December 31, 1996 and 1995.
(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.
As part of a standby loan agreement with GE Capital, FGIC-SPI has
incurred commitment fees for the years ended December 31, 1996, 1995 and
1994 of $179,012, $197,452 and $167,138, respectively.
At December 31, 1996 and 1995, $8,696,139 and $8,879,025, respectively,
of the amount classified as due from affiliates relates to cash balances
held by GE Capital. FGIC-SPI has access to these funds on an as needed
basis.
In 1995 and 1996, FGIC-SPI paid certain expenses on behalf of FGIC
Advisors, Inc., and FGIC Plus Corp., affiliated companies. The unpaid
balance of these expenses, which are classified as due from affiliates,
amounted to $1,001,091 at December 31, 1996, and was reimbursed to FGIC-
SPI, in the first quarter of 1997.
In April 1995, FGIC-SPI supplied its parent, FGIC Holdings, Inc., with
$1.5 million to purchase Applied Municipal Network. This balance, which
remained unpaid at December 31, 1996, was reimbursed to FGIC-SPI, in
the first quarter of 1997.
All amounts due from affiliates and due to affiliates are non-interest
bearing.
(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.
In the event of such purchase, and until such time as the bonds are
remarketed, FGIC-SPI would have exposure to market risk on the price of
the bonds.
The geographical distribution of the underlying par value supported by
the thirty eight liquidity facilities outstanding at December 31, 1996
was as follows (dollars in millions):
New York $ 1,753.2
Connecticut 312.0
California 269.4
Pennsylvania 163.6
Ohio 114.3
Illinois 62.4
Louisiana 56.1
Florida 53.9
Texas 31.1
Oklahoma 21.4
South Carolina 9.3
Michigan 8.0
--------
Total $2,854.7
========
The liquidity agreements are for a term of approximately five years or
until the bonds are repurchased and reissued.
(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. Such agreements totaled $4.0 billion at December
31, 1996.
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.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Financial Statements
Included in Part II of this report:
Report of Independent Auditors
Balance Sheets as of December 31, 1996 and 1995
Statements of Income for the years ended
December 31, 1996, 1995 and 1994.
Statements of Changes in Stockholder's Equity for the years
ended December 31, 1996, 1995 and 1994
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994.
Notes to 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) Reports On Form 8-K
During the fourth quarter, reports on Form 8-K were filed on
October 7, 1996, October 18, 1996, October 26, 1996, November 29,
1996, December 10, 1996 and two on December 28, 1996. All Reports
on Form 8-K related to Item 5 and Item 7.
(c) Exhibit Index
Exhibit
-------
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
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
--------- ----- ----
/s/Ann C. Stern President (principal 3/27/96
- ------------------------ ---------------
Ann C. Stern executive officer),
Director
/s/Christopher Jacobs Treasurer, Director 3/27/96
- ------------------------- ---------------
Christopher Jacobs
/s/Francisco L. Borges Director 3/27/96
- ------------------------ -------------
Francisco L. Borges
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 3/27/96
- ------------------------ ---------------
Ann C. Stern executive officer),
Director
Treasurer, Director 3/27/96
- ------------------------- ---------------
Christopher Jacobs
Director 3/27/96
- ------------------------ -------------
Francisco L. Borges
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholder
FGIC Securities Purchase, Inc.
We consent to incorporation by reference in the registration statement (No.
33-43066) on Form S-3 of FGIC Securities Purchase, Inc. of our report dated
January 17, 1997, relating to the balance sheets of FGIC Securities Purchase,
Inc. of December 31, 1996 and 1995, 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, 1996, which report appears in the
December 31, 1996 annual report on Form 10-K of FGIC Securities Purchase,
Inc.
New York, New York
March 24, 1997
Exhibit 1.3
