UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
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, NY 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
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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.
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TABLE OF CONTENTS
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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 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
PART II. OTHER INFORMATION
Item 1 - Item 6 10
Signatures 11
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ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
FGIC SECURITIES PURCHASE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF FGIC HOLDINGS, INC.)
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS JUNE 30, DECEMBER 31,
1998 1997
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(UNAUDITED)
<S> <C> <C>
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 1,964,632 1,964,434
Other assets 438,599 456,074
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Total assets $ 25,639,508 $ 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 82,345 822,145
Accounts payable and accrued expenses 306,762 283,259
Taxes payable 9,419,924 8,087,541
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Total liabilities 10,128,535 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
Additional paid in capital 822,145 -
Retained earnings 14,688,728 12,680,009
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Total stockholder's equity 15,510,973 12,680,109
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Total liabilities and stockholder's equity $25,639,508 $22,225,212
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</TABLE>
See accompanying notes to interim financial statements.
Page 3
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FGIC SECURITIES PURCHASE, INC.
(A WHOLLY OWNED SUBSIDIARY OF FGIC HOLDINGS, INC.)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
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 152,944 187,005 310,183 311,253
----------- ----------- ----------- -----------
Income before provision for income taxes 1,727,976 2,772,398 3,340,904 5,589,196
----------- ----------- ----------- -----------
Provisions for income taxes
Federal 559,432 897,563 1,081,617 1,809,503
State and local 129,598 207,930 250,568 419,190
----------- ----------- ----------- -----------
Total provisions for income taxes 689,030 1,105,493 1,332,185 2,228,693
----------- ----------- ----------- -----------
Net income $1,038,946 $1,666,905 $2,008,719 $3,360,503
=========== =========== =========== ===========
</TABLE>
See accompanying notes to interim financial statements
Page 4
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FGIC SECURITIES PURCHASE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF FGIC HOLDINGS, INC.)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
1998 1997
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OPERATING ACTIVITIES:
<S> <C> <C>
Net income $2,008,719 $3,360,503
Adjustments to reconcile net
income to net cash provided by
operating activities:
Deferred income tax expense (198) (178,468)
Change in taxes payable 1,332,383 2,407,160
Change in due from affiliates (3,585,314) (4,866,978)
Change in due to affiliates (71,032) -
Change in other assets 17,475 -
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 23,503 5,641
Change in commitment fees payable to GE Capital 82,345 90,718
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Cash provided by operating activities 5,744 -
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Net change in cash and cash equivalents 5,744 -
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Cash and cash equivalents at beginning of period 117,390 109,277
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Cash and cash equivalents at end of period $123,134 $109,277
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SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Waived commitment fees payable to GE Capital $ 822,145 -
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</TABLE>
See accompanying notes to interim financial statements.
Page 5
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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) RESTATEMENTS
------------
On December 28, 1998, the Company determined that certain adjustments
should be made to the Company's previously issued financial statements
for the quarter ended June 30, 1998, to reflect a change in the
accounting treatment with respect to stand-by loan commitment fees waived
by GE Capital.
The Company initially recorded such fees as general and administrative
expenses in years 1994 through 1997. In May of 1998, GE Capital waived
all such fees previously accrued through December 31, 1997. The Company
initially recorded the waiving of such fees as a reduction of general and
administrative expenses.
Upon subsequent review, the Company determined that the waiving of such
fees should have been recorded as additional paid-in-capital.
The effect of this accounting change resulted in the Company increasing
expenses by $250,000 and reducing reported earnings by $150,312 for both
the three and six month periods ended June 30, 1998. Additionally, as a
result of this accounting change, at June 30, 1998, deferred tax asset,
commitment fees payable to GE Capital, taxes payable, and retained
earnings were reduced by $6,563, $572,145, $106,251, and $150,312,
respectively, and additional paid-in-capital was increased by $822,145.
(3) 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:
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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.
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.
COMMITMENT FEES
The commitment fees are accrued on the outstanding liquidity facilities
(see Note 4).
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.
Page 7
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(4) 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.
(5) CAPITAL CONTRIBUTION
--------------------
In May of 1998, GE Capital waived all Stand-by loan commitment fees
previously accrued through December 31, 1997. Total fees amounted to
$822,145. Such fees were originally recorded as general and
administrative expenses (years 1994 through 1997). The total waived fees
have been recorded as additional paid-in capital. No further waiving of
fees is anticipated in future periods.
Page 8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Liquidity fees are received up-front at the inception of the contract
and in installments over the life of the contract. Up-front fees are
earned on a straight-line basis over the life of the liquidity
commitment, and installment fees are earned straight-line over the
installment period. For the 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 $310,183 and
$311,255 of general and administrative expenses for the six months
ended June 30, 1998 and 1997, respectively.
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 $152,944 and $187,005
of general and administrative expenses for the three months ended
June 30, 1998 and 1997, respectively.
In May of 1998, GE Capital waived all Stand-by loan commitment fees
previously accrued through December 31, 1997. Total fees amounted to
$822,145. Such fees were originally recorded as general and
administrative expenses (years 1994 through 1997). The total waived
fees have been recorded as additional paid-in capital. No further
waiving of fees is anticipated in future periods.
RESTATEMENTS
On December 28, 1998, the Company determined that certain adjustments
should be made to the Company's previously issued financial
statements for the quarter ended June 30, 1998, to reflect a change
in the accounting treatment with respect to stand-by loan commitment
fees waived by GE Capital.
The Company initially recorded such fees as general and
administrative expenses in years 1994 through 1997. In May of 1998,
GE Capital waived all such fees previously accrued through December
31, 1997. The Company initially recorded the waiving of such fees as
a reduction of general and administrative expenses.
Upon subsequent review, the Company determined that the waiving of
such fees should have been recorded as additional paid-in-capital.
The effect of this accounting change resulted in the Company
increasing expenses by $250,000 and reducing reported earnings by
$150,312 for both the three and six month periods ended June 30,
1998. Additionally, as a result of this accounting change, at June
30, 1998, deferred tax asset, commitment fees payable to GE Capital,
taxes payable, and retained earnings were reduced by $6,563,
$572,145, $106,251, and $150,312, respectively, and additional
paid-in-capital was increased by $822,145.
Page 9
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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 10
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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: December 30, 1998 /s/ Ann C. Stern
------------------------- --------------------------------------------
Ann C. Stern, President
(Principal executive officer)
Date: December 30, 1998 /s/ Christopher Jacobs
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Christopher Jacobs, Treasurer
(Principal financial and accounting officer)
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