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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 SEPTEMBER 30, 2000
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 [ ]
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SHARES OUTSTANDING
TITLE OF CLASS AT NOVEMBER 8, 2000
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Common Stock (voting), $10.00 par value 10
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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 8
PART II. OTHER INFORMATION
Item 1 - Item 6 9
Signatures 10
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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
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ASSETS SEPTEMBER 30, DECEMBER 31,
2000 1999
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(UNAUDITED)
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Cash & cash equivalents $ -- $ 132,383
Liquidity fees receivable 1,708,783 728,904
Due from GE Capital 30,731,298 25,253,791
Other assets 171,127 339,990
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Total assets $32,611,208 $26,455,068
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LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Deferred liquidity fee income $ 574,785 $ 251,324
Due to affiliates 1,791,745 40,000
Commitment fees payable to GE Capital 452,337 320,831
Accounts payable and accrued expenses 205,920 326,759
Deferred tax liability -- 1,111
Taxes payable 5,978,422 4,655,157
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Total liabilities 9,003,209 5,595,182
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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 822,145 822,145
Retained earnings 22,785,754 20,037,641
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Total stockholder's equity 23,607,999 20,859,886
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Total liabilities and stockholder's equity $32,611,208 $26,455,068
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See accompanying notes to interim financial statements.
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FGIC SECURITIES PURCHASE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF FGIC HOLDINGS, INC.)
STATEMENTS OF OPERATIONS
(UNAUDITED)
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For The Three Months For The Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
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Liquidity fee income $1,609,498 $1,550,423 $4,869,201 $4,811,099
Investment income -- 1,537 1,339 4,421
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Total revenues 1,609,498 1,551,960 4,870,540 4,815,520
General and administrative expenses 138,287 174,702 324,447 540,619
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Income before provision for income taxes 1,471,211 1,377,258 4,546,093 4,274,901
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Provisions for income taxes
Federal 478,879 448,298 1,479,753 1,391,480
State and local 102,985 96,408 318,227 299,243
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Total provisions for income taxes 581,864 544,706 1,797,980 1,690,723
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Net income $ 889,347 $ 832,552 $2,748,113 $2,584,178
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See accompanying notes to interim financial statements
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FGIC SECURITIES PURCHASE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF FGIC HOLDINGS, INC.)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
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FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
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OPERATING ACTIVITIES:
Net income $ 2,748,113 $ 2,584,178
Adjustments to reconcile net
income to net cash provided by
operating activities:
Deferred income tax expense (1,111) (104,735)
Change in taxes payable 1,323,265 781,284
Change in due from GE Capital (5,477,507) (3,521,875)
Change in due to affiliates 1,751,745 135,412
Change in other assets 168,863 --
Change in liquidity fees receivable (979,879) 28,443
Change in deferred liquidity fee income 323,461 (18,148)
Change in accounts payable and accrued expenses (120,839) --
Change in commitment fees payable to GE Capital 131,506 119,862
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Cash provided by operating activities (132,383) 4,421
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Net change in cash and cash equivalents (132,383) 4,421
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Cash and cash equivalents at beginning of period 132,383 126,285
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Cash and cash equivalents at end of period $ -- $ 130,706
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See accompanying notes to interim financial statements.
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FGIC SECURITIES PURCHASE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF FGIC HOLDINGS, INC.)
NOTES TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(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 September 30, 2000,
FGIC-SPI had approximately $2.9 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 September 30, 2000,
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 nine months ending
September 30, 2000 and 1999, (b) the financial position at September 30,
2000 and December 31, 1999, and (c) cash flows for the nine months ended
September 30, 2000 and 1999.
These interim financial statements should be read in conjunction with
the financial statements and related notes included in the 1999 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.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts of FGIC-SPI's financial instruments, relating
primarily to cash & cash equivalents, liquidity fees, amounts due to and
from affiliated companies, accounts payable and accrued expenses and
taxes payable, 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.
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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.
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 September 30, 2000, 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". 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.
(4) CURRENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") has issued, then
subsequently amended Statement of Financial Accounting Standards
("SFAS") No. 133, Accounting for Derivative Instruments and Hedging
Activities, effective for FGIC-SPI on January 1, 2001. Upon adoption,
all derivative instruments (including certain derivative instruments
embedded in other contracts) will be recognized in the balance sheet at
their fair values; changes in such fair values must be recognized
immediately in earnings unless specific hedging criteria are met.
Management estimates that at September 30, 2000, the effects on its
financial statements of adopting SFAS 133, as amended, will be
immaterial. However, the transition effect as of January 1, 2001,
cannot be estimated at this time because it is subject to the following
unknown variables as of that date: (1) actual derivatives, (2) market
values of derivatives, and (3) further interpretation of SFAS 133 by
the FASB.
(5) SUBSEQUENT EVENT
During October 2000, FGIC-SPI filed a shelf registration with the SEC
for $1.0 billion increasing FGIC-SPI's capacity.
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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 nine months
ended September 30, 2000, FGIC-SPI earned liquidity fees of
$4,869,201 compared to $4,811,099 for the nine months ended 1999.
The slight increase in earnings is primarily due to six new deals
written in the first nine months of 2000 offset by the renewal of
existing deals at lower basis points. FGIC-SPI incurred $324,447
and $540,619 of general and administrative expenses for the nine
months ended September 30, 2000 and 1999, respectively. Included in
general and administrative expenses were commitment fees owed to GE
Capital of $131,506 in 2000 and $119,862 in 1999. The decrease in
expenses is primarily due to the reduction of overall expenses. The
expenses incurred primarily include fees associated with
establishing the liquidity facilities. The effective federal tax
rate during 2000 and 1999 of 35% was equal to the Federal Corporate
tax rate. Overall net income increased for the reasons noted above.
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 third quarter of
2000, FGIC-SPI earned liquidity fees of $1,609,498 compared to
$1,550,423 for the three months ended September 30, 1999. The
increase in earnings is primarily due to new deals written in 2000.
FGIC-SPI incurred $138,287 and $174,702 of general and
administrative expenses for the three months ended September 30,
2000 and 1999, respectively. Included in general and administrative
expenses were commitment fees owed to GE Capital of $46,024 in 2000
and $39,289 in 1999. The decrease in expenses is primarily due to
the reduction of overall expenses. The expenses incurred primarily
include fees associated with establishing the liquidity facilities.
The effective federal tax rate during 2000 and 1999 of 35% was
equal to the Federal Corporate tax rate. Overall net income
increased for the reasons noted above.
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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.
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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: November 8, 2000 /s/ Ann C. Stern
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Ann C. Stern
President (principal
executive officer)
Date: November 8, 2000 /s/ Rick J. Filippelli
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Rick J. Filippelli
Treasurer (principal
financial and
accounting officer)
