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, 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 MAY 14, 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 - 8
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
<PAGE>
ITEM 1. Financial Statements and Supplementary Data.
FGIC SECURITIES PURCHASE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF FGIC HOLDINGS, INC.)
BALANCE SHEETS
ASSETS MARCH 31, DECEMBER 31,
1999 1998
(UNAUDITED)
Short-term investments $ 127,691 $ 126,285
Liquidity fees receivable 1,050,680 1,117,220
Due from affiliates 22,155,157 20,595,753
Deferred tax asset 2,172,457 2,136,958
Other assets 353,109 353,109
------------- -------------
Total assets $25,859,094 $24,329,325
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Deferred liquidity fee income $ 311,816 $ 306,300
Commitment fees payable to GE Capital 201,179 161,342
Accounts payable and accrued expenses 346,760 346,760
Taxes payable 6,669,579 6,061,034
---------- ----------
Total liabilities 7,529,334 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 17,507,515 16,631,644
----------- -----------
Total stockholder's equity 18,329,760 17,453,889
----------- -----------
Total liabilities and stockholder's
equity $25,859,094 $24,329,325
=========== ==========
See accompanying notes to interim financial statements.
<PAGE>
FGIC SECURITIES PURCHASE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF FGIC HOLDINGS, INC.)
STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31,
1999 1998
---- ----
Liquidity fee income $1,635,466 $1,770,167
Investment income 1,406 -
------------ ----------------
Total revenues 1,636,872 1,770,167
General and administrative expenses 187,954 157,239
----------- -----------
Income before provision for income
taxes 1,448,918 1,612,928
---------- ----------
Provisions for income taxes
Federal 471,623 522,185
State and local 101,424 120,970
----------- ----------
Total provisions for income taxes 573,047 643,155
----------- ----------
Net income $ 875,871 $ 969,773
========== ==========
See accompanying notes to interim financial statements
<PAGE>
FGIC SECURITIES PURCHASE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF FGIC HOLDINGS, INC.)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
MARCH 31,
1999 1998
OPERATING ACTIVITIES:
Net income $875,871 $969,773
Adjustments to reconcile net
income to net cash provided by
operating activities:
Deferred income tax expense (35,498) (56,453)
Change in taxes payable 608,545 699,609
Change in due from affiliates (1,559,405) (1,660,370)
Change in due to affiliates - 68,549
Change in liquidity fees receivable 66,540 (16,294)
Change in deferred liquidity fee
income 5,516 (45,140)
Change in accounts payable and
accrued expenses - 1
Change in commitment fees payable
to GE Capital 39,837 40,325
-------- ----------
Cash provided by operating activities 1,406 -
--------- --------------
Net change in cash and cash equivalents 1,406 -
--------- --------------
Cash and cash equivalents at beginning
of period 126,285 117,390
-------- ---------
Cash and cash equivalents at end
of period $127,691 $117,390
======== ========
See accompanying notes to interim financial statements.
FGIC SECURITIES PURCHASE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF FGIC HOLDINGS, INC.)
NOTES TO INTERIM FINANCIAL STATEMENTS
MARCH 31, 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 March 31, 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 March 31, 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
three months ending March 31, 1999 and 1998, (b) the financial
position at March 31, 1999 and December 31, 1998, and (c) cash flows
for the three months ended March 31,1999 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>
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 March 31, 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>
(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 three months
ended March 31, 1999, FGIC-SPI earned liquidity fees of
$1,635,466 compared to $1,770,167 for the three 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
$187,954 and $157,239 of general and administrative expenses
for the three months ended March 31, 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 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 the Company 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.
The action plan includes solutions which are appropriate to
the specific situations. Some systems have been upgraded to
new systems (or to new releases of existing systems) which are
Year 2000 ready. Remediation of FGIC's applications is
complete. Year 2000 system testing is currently in progress;
we expect to be completed mid-1999. The cost of addressing
such matters will not 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.
We are in the process of updating our Business Contingency and
Disaster Recovery Plans, as appropriate. We expect these plans
to be completed and tested by mid-1999.
<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>
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 11, 1999 /S/ ______________________
Ann C. Stern
President (principal
executive officer)
Date: May 11, 1999 /S/ _____________________
Rick J. Filippelli
Treasurer (principal
financial and
accounting officer)
