UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1998
COMMISSION FILE NO. 0-19564
FGIC SECURITIES PURCHASE, INC.
A DELAWARE CORPORATION
IRS EMPLOYER IDENTIFICATION NO. 13-3633082
115 BROADWAY, NEW YORK, NEW YORK 10006
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 AUGUST 6, 1998
-------------- ------------------
Common Stock (voting), $10.00 par value 10
Registrant meets the conditions set forth in general instruction H(1)(a) and (b)
of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure
format.
TABLE OF CONTENTS
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Unaudited Interim Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
PART II. OTHER INFORMATION
Item 1 - Item 6 9
Signatures 10
ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
FGIC SECURITIES PURCHASE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF FGIC HOLDINGS, INC.)
BALANCE SHEETS
ASSETS JUNE 30, DECEMBER 31,
1998 1997
------------ -----------
(UNAUDITED)
Short-term investments $ 123,134 $ 117,390
Liquidity fees receivable 1,118,901 1,278,386
Due from affiliates 21,994,242 18,408,928
Deferred tax asset 1,971,195 1,964,434
Other assets 438,599 456,074
----------- -----------
Total assets $25,646,071 $22,225,212
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Deferred liquidity fee income $ 249,556 $ 211,178
Due to affiliates 69,948 140,980
Commitment fees payable to GE Capital 654,490 822,145
Accounts payable and accrued expenses 306,760 283,259
Taxes payable 9,526,175 8,087,541
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Total liabilities 10,806,929 9,545,103
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Stockholder's Equity:
Common stock, par value $10.00
per share; 10 shares authorized,
issued and outstanding 100 100
Retained earnings 14,839,040 12,680,009
----------- -----------
Total stockholder's equity 14,839,140 12,680,109
----------- -----------
Total liabilities and
stockholder's equity $25,646,069 $22,225,212
=========== ===========
See accompanying notes to interim financial statements.
Page 3
FGIC SECURITIES PURCHASE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF FGIC HOLDINGS, INC.)
STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1998 1997 1998 1997
---- ---- ---- ----
Liquidity fee income $1,875,176 $2,959,403 $3,645,343 $5,900,449
Investment income 5,744 - 5,744 -
---------- --------- --------- ---------
Total revenues 1,880,920 2,959,403 3,651,087 5,900,449
General and administrative expenses (97,056) 187,005 60,183 311,253
---------- --------- --------- ---------
Income before provision for
income taxes 1,977,976 2,772,398 3,590,904 5,589,196
---------- --------- --------- ---------
Provisions for income taxes
Federal 640,370 897,563 1,162,555 1,809,503
State and local 148,348 207,930 269,318 419,190
---------- --------- --------- ---------
Total provisions for income taxes 788,718 1,105,493 1,431,873 2,228,693
---------- --------- --------- ---------
Net income $1,189,258 $1,666,905 $2,159,031 $3,360,503
========== ========== ========== ==========
See accompanying notes to interim financial statements
Page 4
FGIC SECURITIES PURCHASE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF FGIC HOLDINGS, INC.)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED
JUNE 30,
1998 1997
----------- -----------
OPERATING ACTIVITIES:
Net income $2,159,031 $3,360,503
Adjustments to reconcile net
income to net cash provided by
operating activities:
Deferred income tax expense (6,761) (178,468)
Change in taxes payable 1,438,634 2,407,160
Change in due from affiliates (3,585,314) (4,866,978)
Change in due to affiliates (71,031) -
Change in other assets 17,476 -
Change in liquidity fees receivable 159,485 (801,949)
Change in deferred liquidity fee income 38,378 (16,627)
Change in accounts payable and accrued expenses 23,501 5,641
Change in commitment fees payable to GE Capital (167,655) 90,718
----------- ---------
Cash provided by operating activities 5,744 -
----------- ----------
Net change in cash and cash equivalents 5,744 -
----------- ----------
Cash and cash equivalents at beginning of period 117,390 109,277
----------- ----------
Cash and cash equivalents at end of period $123,134 $109,277
=========== ==========
See accompanying notes to interim financial statements.
Page 5
FGIC SECURITIES PURCHASE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF FGIC HOLDINGS, INC.)
NOTES TO INTERIM FINANCIAL STATEMENTS
JUNE 30,1998
(UNAUDITED)
(1) BUSINESS
--------
FGIC Securities Purchase, Inc. ("FGIC-SPI") is a wholly-owned
subsidiary of FGIC Holdings, Inc. (the "Parent") which, in turn, is
wholly-owned by General Electric Capital Corporation ("GE Capital").
FGIC-SPI provides liquidity for certain floating rate municipal
securities whereby FGIC-SPI will, under certain circumstances, purchase
such securities in the event they are tendered by the holders thereof
as permitted under the terms of the respective bond indentures. As of
June 30, 1998, FGIC-SPI had approximately $2.7 billion (par and
interest) of potential obligations under such arrangements. In order to
obtain funds to purchase the securities, FGIC-SPI has entered into
standby loan agreements with GE Capital totaling $4.0 billion at June
30, 1998, 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 interim financial statements of FGIC-SPI in this report reflect all
normal recurring adjustments necessary, in the opinion of management,
for a fair statement of (a) results of operations for six months ending
June 30, 1998 and 1997, (b) the financial position at June 30, 1998 and
December 31, 1997, and (c) cash flows for the six months ended June
30,1998 and 1997.
These interim financial statements should be read in conjunction with
the financial statements and related notes included in the 1997 audited
financial statements.
Significant accounting policies are as follows:
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are carried at cost, which approximates fair
value. For purposes of the statement of cash flows, FGIC-SPI considers
all highly liquid investments with original maturities of six months or
less to be cash equivalents.
REVENUE RECOGNITION
Fees are paid up-front and in installments. Up-front fees are earned on
a straight-line basis over the life of the liquidity commitment, and
installment fees are earned straight-line over the installment period.
Page 6
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 reimbursable to FGIC-SPI, as a separate item
at the closing, by issuers, as transactions are consummated. Such fees
are deferred when paid, and netted against the related reimbursement as
transactions are consummated. Management evaluates the recoverability
of such deferred fees at each reporting date.
EXPENSES
Direct expenses incurred by the Parent are fully allocated to FGIC-SPI
on a specific identification basis. Employee related expenses are
allocated by affiliates to FGIC-SPI based on the percentage of time
such employees devote to the activities of 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.
RESERVE FOR LOSSES
It is management's policy to establish a reserve for losses based upon
its estimate of the ultimate aggregate losses relative to its
obligations under the liquidity facility arrangements written. At June
30, 1998, 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, on a stand alone basis, as provided in SFAs No.
109, "Accounting for Income Taxes". These temporary differences relate
principally to accrued state taxes not settled with GE Capital.
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 in accordance with SFAS No. 109.
Page 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Liquidity fees are received up-front at the inception of the contract
and in installments over the life of the contract. Up-front fees are
earned on a straight-line basis over the life of the liquidity
commitment, and installment fees are earned straight-line over the
installment period. For the six months ended June 30, 1998, FGIC-SPI
earned liquidity fees of $3,645,343 compared to $5,900,449 for the six
months ended 1997. The decrease in earnings is primarily due to a
reduction in the outstanding liquidity facility and the renewal of
existing deals at lower basis points. FGIC-SPI incurred $60,183 and
$311,255 of general and administrative expenses for the six months
ended June 30, 1998 and 1997, respectively. The decrease in general and
administrative expenses is primarily due to a credit recognized for
prior years commitment fees payable, waived by GE Capital. The expenses
incurred primarily include fees associated with establishing the
liquidity facilities.
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 second quarter of 1998, FGIC-SPI earned
liquidity fees of $1,875,176 compared to $2,959,403 for the three
months ended June 30, 1997. FGIC-SPI incurred ($97,055) and $187,005 of
general and administrative expenses for the three months ended June 30,
1998 and 1997, respectively. The decrease in general and administrative
expenses is primarily due to a credit recognized for prior years
commitment fees payable, waived by GE Capital. The expenses incurred
primarily include fees associated with establishing the liquidity
facilities.
Page 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults on Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
None.
b) Reports on Form 8-K
None.
Page 9
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: 8/14/98 /s/
------------------------------
Ann C. Stern
President (principal
executive officer)
Date: 8/14/98 /s/
------------------------------
Christopher Jacobs
Treasurer (principal
financial and
accounting officer)
Page 10
