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, 1999
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 13, 1999
- -------------- ------------------
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.
<PAGE>
TABLE OF CONTENTS
PAGE
----
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 6-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8, 9
PART II. OTHER INFORMATION
Item 1 - Item 6 10
Signatures 11
Page 2
<PAGE>
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,
1999 1998
-------- ------------
(UNAUDITED)
Short-term investments $ 129,168 $ 126,285
Liquidity fees receivable 1,204,591 1,117,220
Due from GE Capital 23,605,494 20,595,753
Deferred tax asset 2,207,950 2,136,958
Other assets 353,109 353,109
------------ ------------
Total assets $27,500,312 $24,329,325
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Deferred liquidity fee income $ 290,853 $ 306,300
Due to affiliates 137,227 -
Commitment fees payable to GE Capital 241,915 161,342
Accounts payable and accrued expenses 346,760 346,760
Taxes payable 7,278,044 6,061,034
---------- ----------
Total liabilities 8,294,799 6,875,436
---------- ----------
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 18,383,268 16,631,644
----------- -----------
Total stockholder's equity 19,205,513 17,453,889
----------- -----------
Total liabilities and stockholder's equity $27,500,312 $24,329,325
=========== ===========
See accompanying notes to interim financial statements.
Page 3
<PAGE>
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,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Liquidity fee income $1,625,210 $1,875,176 $3,260,676 $3,645,343
Investment income 1,477 5,744 2,883 5,744
---------- ---------- ---------- ----------
Total revenues 1,626,687 1,880,920 3,263,559 3,651,087
General and administrative expenses 177,964 152,944 365,918 310,183
---------- ---------- ---------- ----------
Income before provision for income taxes 1,448,723 1,727,976 2,897,641 3,340,904
---------- ---------- ---------- ----------
Provisions for income taxes
Federal 471,560 559,432 943,182 1,081,617
State and local 101,411 129,598 202,835 250,568
---------- ---------- ---------- -----------
Total provisions for income taxes 572,971 689,030 1,146,017 1,332,185
---------- ---------- ---------- -----------
Net income $875,752 $1,038,946 $1,751,624 $2,008,719
========== ========== ========== ==========
</TABLE>
See accompanying notes to interim financial statements
Page 4
<PAGE>
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,
1999 1998
----------- -----------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 1,751,624 $ 2,008,719
Adjustments to reconcile net
income to net cash provided by
operating activities:
Deferred income tax expense (70,992) (198)
Change in taxes payable 1,217,010 1,332,383
Change in due from affiliates (3,009,741) (3,585,314)
Change in due to affiliates 137,227 (71,032)
Change in other assets -- 17,475
Change in liquidity fees receivable (87,371) 159,485
Change in deferred liquidity fee income (15,447) 38,378
Change in accounts payable and accrued expenses -- 23,503
Change in commitment fees payable to GE Capital 80,573 82,345
----------- -----------
Cash provided by operating activities 2,883 5,744
----------- -----------
Net change in cash and cash equivalents 2,883 5,744
----------- -----------
Cash and cash equivalents at beginning of period 126,285 117,390
----------- -----------
Cash and cash equivalents at end of period $ 129,168 $ 123,134
=========== ===========
</TABLE>
See accompanying notes to interim financial statements.
Page 5
<PAGE>
FGIC SECURITIES PURCHASE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF FGIC HOLDINGS, INC.)
NOTES TO INTERIM FINANCIAL STATEMENTS
JUNE 30, 1999
(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, 1999, FGIC-SPI had approximately $2.6
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 $5.0 billion at June 30, 1999, 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, 1999 and 1998, (b) the financial position at
June 30, 1999 and December 31, 1998, and (c) cash flows for the six
months ended June 30,1999 and 1998.
These interim financial statements should be read in conjunction with
the financial statements and related notes included in the 1998
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
three 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
<PAGE>
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, 1999, 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
<PAGE>
(4) 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.
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, 1999, FGIC-SPI
earned liquidity fees of $3,260,676 compared to $3,645,343 for the
six months ended 1998. 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 $365,918 and
$310,183 of general and administrative expenses for the six months
ended June 30, 1999 and 1998, respectively. 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 1999, FGIC-SPI earned
liquidity fees of $1,625,210 compared to $1,875,176 for the three
months ended June 30, 1998. 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 $177,964
and $152,944 of general and administrative expenses for the three
months ended June 30, 1999 and 1998, respectively. The expenses
incurred primarily include fees associated with establishing the
liquidity facilities.
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.
YEAR 2000 READINESS DISCLOSURE
The inability of business processes to continue to function correctly
after the beginning of the Year 2000 could have serious adverse
effects on companies and entities throughout the world. FGIC-SPI
recognizes the seriousness of the Year 2000 issue and has developed
an action plan to mitigate Year 2000 issues in their information
systems, products, facilities and suppliers. The action plan has been
reviewed by senior management at FGIC-SPI and GE Capital Services
internal audit staff. Our progress is closely monitored by GE
Capital's Year 2000 Program Management Office.
The action plan is divided into four phases: (1) define/measure -
identify and inventory possible sources of Year 2000 issues; (2)
analyze determine the nature and extent of Year 2000 issues and
develop project plans to address those issues; (3) improve - execute
project plans and perform a majority of the testing; and (4) control
- complete testing, continue monitoring readiness and complete
necessary contingency plans.
Page 8
<PAGE>
The action plan includes solutions which are appropriate to the
specific situations. Currently, Year 2000 system remediation and
testing is complete for all of FGIC-SPI's internal systems. We do not
expect the cost of addressing such matters to have a material impact
on the business, operations, or financial condition of the Company.
Business operations are also dependent on the Year 2000 readiness of
infrastructure suppliers in areas such as utilities, communications,
transportation and other services. The likelihood and effects of
failures in infrastructure systems and in the supply chain cannot be
estimated. However, with respect to operations under its direct
control, management does not expect, in view of its Year 2000 action
plan, that occurrences of Year 2000 failures will have a material
adverse effect on the financial position, results of operations or
liquidity.
Page 9
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
FGIC-SPI is not involved in any pending legal proceedings.
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
<PAGE>
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: August 9,1999 /s/
------------------------------
Ann C. Stern
President (principal
executive officer)
Date: August 9, 1999 /s/
------------------------------
Rick J. Filippelli
Treasurer (principal
financial and
accounting officer)
Page 11
