EXHIBIT 1
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
Condensed Consolidated Financial Statements
March 31, 1996
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
INDEX
FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Income 2
Condensed Consolidated Statements of Cash Flows 3
Notes to Condensed Consolidated Financial Statements 4
The New York State Insurance Department recognizes only statutory accounting
practices for determining and reporting the financial condition and results of
operations of an insurance company, for determining its solvency under the New
York Insurance Law, and for determining where its financial condition warrants
the payment of a dividend to its stockholders. No consideration is given by the
New York State Insurance Department to financial statements prepared in
accordance with generally accepted accounting principles in making such
determinations.
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, December 31,
ASSETS 1996 1995
---- ----
Bonds at market value (amortized
cost of $1,045,913 and $1,006,084) $1,044,779 $1,036,382
Cash equivalents 74,315 49,845
------------- ------------
Total investments 1,119,094 1,086,227
Cash 1,876 555
Deferred acquisition costs 131,404 132,951
Prepaid reinsurance premiums 139,014 133,548
Reinsurance recoverable on unpaid losses 62,126 61,532
Receivable for securities sold 2,298 2,326
Other assets 76,418 59,499
------------- ------------
TOTAL ASSETS $1,532,230 $1,476,638
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Unearned premiums $ 479,240 $ 463,897
Losses and loss adjustment expenses 114,024 111,759
Deferred federal income taxes 31,879 43,205
Ceded reinsurance balances payable 13,575 13,664
Payable for securities purchased 70,021 9,516
Accrued expenses and other liabilities 44,314 44,611
------------- -------------
TOTAL LIABILITIES 753,053 686,652
------------ ------------
Common stock (1,000 shares authorized; 750 shares
issued and outstanding; par value of $20,000 per share) 15,000 15,000
Additional paid-in capital 681,470 681,470
Unrealized gain (loss) on investments (net of deferred
income tax provision (benefit) of ($397) and $10,604) (737) 19,694
Accumulated earnings 83,444 73,822
------------- -------------
TOTAL SHAREHOLDER'S EQUITY 779,177 789,986
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $1,532,230 $1,476,638
========== ==========
See notes to condensed consolidated financial statements.
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED MARCH 31,
1996 1995
---- ----
REVENUES:
Net premiums written (net of premiums ceded of
$18,441 and $7,236) $34,139 $19,557
Increase in unearned premiums (11,405) (4,342)
-------- ---------
Premiums earned (net of premiums ceded of
$12,979 and $7,893) 22,734 15,215
Net investment income 15,224 11,918
Net realized gains (losses) 1,534 (4,801)
Other income 1 177
------------ ----------
TOTAL REVENUES 39,493 22,509
-------- --------
EXPENSES:
Losses and loss adjustment expenses (net of
reinsurance recoveries of $560 and $999) 1,625 1,700
Policy acquisition costs 7,655 3,601
Other operating expenses 3,660 2,922
--------- ---------
TOTAL EXPENSES 12,940 8,223
-------- ---------
INCOME BEFORE INCOME TAXES 26,553 14,286
Provision for income taxes 6,931 3,611
--------- ---------
NET INCOME $19,622 $10,675
======= =======
See notes to condensed consolidated financial statements.
2
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED MARCH 31,
1996 1995
----
Cash flows from operating activities:
Premiums received, net $ 35,371 $ 15,755
Policy acquisition and other operating expenses
paid, net (33,104) (13,084)
Recoverable advances paid (8,100) (4,159)
Loss and LAE recovered (paid), net 105 (291)
Net investment income received 16,613 11,937
Federal income taxes paid (1,799)
Interest paid (339) (407)
Other, net 5,044 (2,054)
---------- -----------
Net cash provided by operating activities 13,791 7,697
---------- -----------
Cash flows from investing activities:
Proceeds from sales of bonds 179,715 145,776
Purchases of bonds (157,486) (31,720)
Purchases of property and equipment (540) (330)
Net decrease in short-term securities (24,159) (119,805)
---------- ---------
Net cash used for investing activities (2,470) (6,079)
---------- -----------
Cash flows from financing activities:
Dividends paid (10,000) (4,000)
---------- -----------
Net cash used for financing activities (10,000) (4,000)
---------- -----------
Net increase (decrease) in cash 1,321 (2,382)
Cash at beginning of period 555 2,663
---------- -----------
Cash at end of period $ 1,876 $ 281
========== ===========
See notes to condensed consolidated financial statements.
3
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
1. ORGANIZATION AND OWNERSHIP
Financial Security Assurance Inc. (the Company), a wholly owned subsidiary
of Financial Security Assurance Holdings Ltd. (the Parent), is an insurance
company domiciled in the State of New York. The Company is primarily
engaged in the business of providing financial guaranty insurance on
asset-backed financings and municipal obligations.
2. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared by the Company and are unaudited. In the opinion of management, all
adjustments, which include only normal recurring adjustments, necessary to
present fairly the financial position, results of operations and cash flows at
March 31, 1996 and for all periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These statements should be read in conjunction
with the Company's December 31, 1995 consolidated financial statements and notes
thereto. The year-end condensed balance sheet was derived from audited financial
statements, but does not include all disclosures required by generally accepted
accounting principles. The results of operations for the periods ended March 31,
1996 and 1995 are not necessarily indicative of the operating results for the
full year.
Certain amounts in the 1995 financial statements have been reclassed to
conform to the 1996 presentation.
In the first quarter of 1996, the Company has recharacterized its cash
equivalents as short term investments. The amount of cash equivalents
recharacterized were $22.3 million and $35.3 million, as of March 31, 1996 and
December 31, 1995, respectively.
3. SUBSEQUENT EVENT
FSA on April 30, 1996, entered into an agreement with a AAA/Aaa rated
international bank for a $125.0 million credit facility which expires on January
31, 2003. This facility is a seven-year stand-by irrevocable limited recourse
line-of-credit which will provide liquidity to FSA in the event claims from
municipal obligations exceed specified limits. Repayment of any amounts drawn
under the line will be limited primarily to the amount of recoveries of losses
related to policy obligations.
4