SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No. 1-12644
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
(Exact name of registrant as specified in its charter)
New York 13-3261323
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
350 Park Avenue
New York, New York 10022
(Address of principal executive offices)
(212) 826-0100
(Registrant's telephone number,
including area code)
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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
At July 31,1996, there were outstanding 32,276,301 shares of Common Stock, par
value $0.01 per share, of the registrant, including 2,138,838 shares held in
treasury.
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Financial Security Assurance Holdings Ltd.
and Subsidiaries Consolidated Balance Sheets
- June 30, 1996 and December 31, 1995 3
Consolidated Statements of Income -
Three months and Six months ended June 30, 1996 and 1995 4
Consolidated Statement of Changes in Shareholders'
Equity - Six months ended June 30, 1996 5
Consolidated Statements of Cash Flows
- Six months ended June 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II OTHER INFORMATION, AS APPLICABLE
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
2
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
June 30, December 31,
ASSETS 1996 1995
---- ----
Bonds, at market value (amortized
cost of $1,066,444 and $1,027,414) $ 1,057,613 $ 1,058,076
Stocks, at market value (cost of $6,514) 6,581 --
Short-term investments 75,245 52,666
----------- -----------
Total investments 1,139,439 1,110,742
Cash 7,432 1,118
Deferred acquisition costs 133,950 132,951
Prepaid reinsurance premiums 144,881 133,548
Reinsurance recoverable on unpaid
losses 35,624 61,532
Receivable for securities sold 15,871 2,326
Other assets 39,099 48,045
----------- -----------
TOTAL ASSETS
$ 1,516,296 $ 1,490,262
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deferred premium revenue $ 496,061 $ 463,897
Losses and loss adjustment expenses 79,501 111,759
Deferred federal income taxes 26,038 41,936
Ceded reinsurance balances payable 14,267 13,664
Payable for securities purchased 78,646 9,516
Notes payable 30,000 30,000
Accrued expenses and other
liabilities 31,783 41,543
----------- -----------
TOTAL LIABILITIES 756,296 712,315
Preferred stock (3,000,000 shares
authorized; 2,000,000
issued and outstanding; par
value of $.01 per share) 20 20
Common stock (50,000,000 shares
authorized; 32,276,301
issued; par value of $.01 per share) 323 323
Additional paid-in capital -
preferred 680 680
Additional paid-in capital - common 695,152 696,253
Unrealized gain (loss) on
investments (net of deferred
income tax (benefit) provision
of ($3,067) and $10,731) (5,696) 19,931
Accumulated earnings 105,777 72,410
Deferred equity compensation 14,817 6,504
Less treasury stock at cost
(2,022,031 and 774,276 shares
held) (51,073) (18,174)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 760,000 777,947
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 1,516,296 $ 1,490,262
=========== ===========
See notes to condensed consolidated financial statements.
3
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
Three Months Six Months
Ended Ended
June 30 June 30
---------- ----------
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Net premiums written (net
of premiums ceded
of $14,035, $8,856, $32,476 and $16,092) $ 30,726 $ 20,792 $ 64,865 $ 40,349
Decrease (increase) in deferred
premium revenue (10,976) (5,462) (22,381) (9,804)
-------- -------- -------- --------
Premiums earned (net of premiums ceded of
$8,188, $8,533, $21,167 and $16,426) 19,750 15,330 42,484 30,545
Net investment income 15,986 12,311 31,668 24,665
Net realized gains (losses) (22) 2,061 1,512 (2,732)
Other income 43 209 105 406
-------- -------- -------- --------
TOTAL REVENUES 35,757 29,911 75,769 52,884
-------- -------- -------- --------
Expenses:
Losses and loss adjustment expenses
(net of reinsurance recoveries
of $571, $1,017, $1,131 and $2,016) 1,530 1,605 3,155 3,305
Interest expense 542 1,083 57
Policy acquisition costs 4,965 3,596 12,620 7,197
Other operating expenses 3,509 3,058 7,466 6,259
-------- -------- -------- --------
TOTAL EXPENSES 10,546 8,259 24,324 16,818
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 25,211 21,652 51,445 36,066
Provision for income taxes 6,463 6,168 13,153 9,777
-------- -------- -------- --------
NET INCOME $ 18,748 $ 15,484 $ 38,292 $ 26,289
======== ======== ======== ========
Weighted average common shares outstanding 30,758 25,887 31,074 25,940
======== ======== ======== ========
Earnings per common share $ 0.61 $ 0.59 $ 1.23 $ 1.01
======== ======== ======== ========
See notes to condensed consolidated financial statements.
4
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in thousands)
Addition Additional Unrealized Deferred
Paid-In Paid-In Gain Equity
Preferred Common Capital- Capital (Loss) Accumulated Compen- Treasury
Stock Stock Preferred Common Investments Earnings sation Stock Total
--------- ------ --------- ---------- ----------- ----------- --------- --------- -----
BALANCE, December 31,1995 $20 $323 $680 $696,253 $19,931 $72,410 $6,504 $(18,174) $777,947
Net income 38,292 38,292
Net unrealized gain on (25,627) (25,627)
investments
Dividends paid on common
stock ($0.08 per share) (4,925) (4,925)
Deferred equity compensation 8,313 8,313
Repurchase of common (32,899) (32,899)
stock
Other common stock (1,101) (1,101)
transactions
--- ---- ---- -------- -------- -------- ------- -------- --------
BALANCE, June 30, 1996 $20 $323 $680 $695,152 $(5,696) $105,777 $14,817 $(51,073) $760,000
=== ==== ==== ======== ======== ======== ======= ========= ========
See notes to condensed consolidated financial statements.
5
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Six Months Ended June 30,
-------------------------
1996 1995
---- ----
Cash flows from operating activities:
Premiums received, net $70,424 $40,036
Policy acquisition and
other operating expenses paid, net (25,272) (16,210)
Loss and LAE paid, net (9,603) (690)
Net investment income
received 30,627 20,526
Recoverable advances received (paid) 7,628 (2,325)
Federal income taxes paid (14,732) (3,952)
Interest paid (1,855) (771)
Other, net (851) (2,414)
------ --------
Net cash provided by operating activities 56,366 34,200
------ --------
Cash flows from investing activities:
Proceeds from sales of bonds 479,363 235,199
Purchases of bonds (467,682) (287,559)
Purchases of property and equipment (1,225) (441)
Net decrease (increase) in short-term securities (21,582) 36,044
------ --------
Net cash used for investing activities (11,126) (16,757)
------ --------
Cash flows from financing activities:
Payment of management notes (5,624)
Dividends paid (4,925) (4,148)
Treasury stock (34,001) (5,215)
------ --------
Net cash used for financing activities (38,926) (14,987)
------ --------
Net increase in cash 6,314 2,456
Cash at beginning of period 1,118 2,742
------ --------
Cash at end of period $7,432 $ 5,198
====== ========
6
See notes to condensed consolidated financial statements.
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 1996 and 1995
1. ORGANIZATION AND OWNERSHIP
Financial Security Assurance Holdings Ltd. (the Company) is an insurance
holding company incorporated in the State of New York. The Company is primarily
engaged (through its insurance subsidiaries, collectively known as FSA) in the
business of providing financial guaranty insurance on asset-backed and municipal
obligations. At June 30, 1996, the Company was owned approximately 40.0% by U S
WEST Capital Corporation (U S WEST), 11.4% by Fund American Enterprises
Holdings, Inc. (Fund American), 6.4% by The Tokio Marine and Fire Insurance Co.,
Ltd. (Tokio Marine) and 42.2% by the public and employees.
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with instructions to Form 10-Q and, accordingly, do not include all
of the information and disclosures required by generally accepted accounting
principles. These statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's 1995 Annual
Report to Shareholders. The accompanying financial statements have not been
audited by independent accountants in accordance with generally accepted
auditing standards but, 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 June 30, 1996 and
for all periods presented have been made. The December 31, 1995 condensed
balance sheet data was derived from audited financial statements. The results of
operations for the periods ended June 30, 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 recharacterized its cash
equivalents as short-term investments. The amount of cash equivalents
recharacterized were $26.7 million and $38.1 million, as of June 30, 1996 and
December 31, 1995, respectively.
3. COMMON STOCK TRANSACTIONS
In May 1996, the Company repurchased 1.0 million shares of it common stock
from U S WEST for a purchase price of $26.50 per share. At the same time, the
Company also entered into forward agreements with National Westminister Bank Plc
and Canadian Imperial Bank of Commerce (the Counterparties) in respect of 1.75
million shares (the Forward Shares) of the Company's common stock. Under the
forward agreements, the Company will have the right to either (a) purchase the
Forward Shares from the Counterparties for a price equal to $26.50 per share
plus carrying costs or (b) direct the Counterparties to sell the Forward Shares,
with the Company receiving any excess or making up any shortfall between the
sale proceeds and $26.50 per share plus carrying costs in cash or additional
shares, at its option.
7
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
1996 and 1995 Second Quarter Results
The Company's 1996 second quarter net income was $18.8 million, compared with
$15.5 million for the same period in 1995, an increase of 21.1%. The increase
was primarily attributable to higher core net income and capital gains. In
December 1995, a subsidiary of the Company merged with Capital Guaranty
Corporation, so that in the second quarter of 1996 the Company began to realize
the benefits of the merger when compared to the previous year as total core
revenues increased $9.0 million, from $26.7 million in 1995 to $35.7 million in
1996, while total core expenses increased only $2.5 million.
Operating net income (net income less the after-tax effect of net realized
capital gains or losses) was $18.8 million for the second quarter of 1996 versus
$14.1 million for the comparable period in 1995, an increase of $4.6 million or
32.7%. Core net income (operating net income less the after-tax effect of
refundings and prepayments) was $18.7 million for the second quarter of 1996
versus $13.5 million for the comparable period in 1995, an increase of $5.2
million or 38.4%.
There are two measures of gross premiums originated for a given period. Gross
premiums written captures premiums collected in the period, whether collected
up-front for business originated in the period, or in installments for business
originated in prior periods. An alternative measure, the gross present value of
premiums written (gross PV premiums written) reflects future installment
premiums discounted to a present value, as well as up-front premiums, but only
for business originated in the period. The Company considers gross PV premiums
written to be the better indicator of a given period's origination activity
because a substantial part of the Company's premiums are collected in
installments, a practice typical of the asset-backed business. Regardless of the
measure used, quarter to quarter comparisons are of limited significance because
originations fluctuate from quarter to quarter but historically have not
exhibited a seasonal pattern.
Gross premiums written increased 51.0%, from $29.7 million for the second
quarter of 1995 to $44.8 million for the second quarter of 1996. Also, gross PV
premiums written increased from $33.2 million in the second quarter of 1995 to
$55.9 million in 1996, an increase of 68.3%. In the second quarter of 1996,
asset-backed gross PV premiums written were $28.8 million, as compared to $15.7
million in 1995, as several large, high-premium transactions were underwritten
within the pooled corporate obligations sector. However, management does not
necessarily believe that this same growth level within the asset-backed sector
will continue throughout the year. For the municipal business, gross PV premiums
written in the second quarter increased from $17.5 million in 1995 to $27.1
million in 1996, an increase of 54.8%. This increase was primarily attributable
to the additional underwriting capabilities the Company realized from the
merger.
In the second quarter of 1996, the Company insured par value of bonds totaling
$7.4 billion, a 93.0% increase over the same period in 1995. The second quarter
asset-backed component rose 68.7% to $4.4 billion while the municipal sector
rose 145.0% to $3.0 billion. Compared with the combined FSA and Capital Guaranty
second quarter production in 1995, the increase would have been 29.8%.
Net premiums written were $30.7 million for the second quarter of 1996, an
increase of $9.9 million or 47.8% when compared with $20.8 million in 1995. The
increase in net premiums written was less than that of gross premiums written
because the Company increased the amounts ceded on a facultative basis for the
asset-backed business in 1996 as compared to the second quarter of 1995. This
facultative reinsurance was utilized on the several large, high-premium
transactions noted above, and therefore this level of reinsurance may not
continue at the same rate over the year.
8
Net premiums earned for the second quarter of 1996 were $19.8 million, compared
with $15.3 million in the second quarter of 1995, an increase of 28.8%. Premiums
earned from refundings and prepayments were $0.1 million for the second quarter
of 1996 and $1.2 million for the same period of 1995, contributing $0.1 million
and $0.6 million, respectively, to after-tax earnings. Net premiums earned for
the quarter grew 38.8% relative to the same period in 1995 when the effects of
refundings and prepayments are eliminated.
Net investment income was $16.0 million for the second quarter of 1996 and $12.3
million for the comparable period in 1995, an increase of 29.8%. The increase in
investment income is primarily due to additional invested assets acquired in the
merger. The Company's effective tax rate on investment income has decreased from
23.0% for the second quarter of 1995 to 19.6% in 1996, as the holdings of
tax-exempt securities has increased. In the second quarter of 1996, the Company
realized $22 thousand in net capital losses as compared with realized net
capital gains of $2.1 million for the same period in 1995. Capital gains and
losses are a by-product of the normal investment management process and will
vary substantially from period to period.
The provisions for losses and loss adjustment expenses during the second
quarters of 1996 and 1995 were $1.5 million and $1.6 million, respectively,
representing additions to the Company's general loss reserve. The additions to
the general reserve represent management's estimate of the amount required to
adequately cover the net cost of claims. The Company will, on an ongoing basis,
monitor these reserves and may periodically adjust such reserves based on the
Company's actual loss experience, its future mix of business, and future
economic conditions. At June 30, 1996, the unallocated balance in the Company's
general loss reserve was $34.7 million.
Total policy acquisition and other operating expenses were $8.5 million for the
second quarter of 1996 compared with $6.7 million for the same period in 1995,
an increase of 27.4%. Excluding the effects of refundings, total policy
acquisition and other operating expenses were $8.4 million for the second
quarter of 1996 compared with $6.4 million for the same period in 1995, an
increase of 31.1%. The increase was primarily the result of higher DAC
amortization due to a higher level of premiums earned and increased accruals for
performance plan payouts due to the addition of another plan year to the accrual
base.
Income before income taxes for the second quarter of 1996 was $25.2 million, up
from $21.7 million, or 16.4%, for the same period in 1995.
The Company's effective tax rate for the second quarter of 1996 was 25.6%
compared with 28.5% for the same period in 1995. The decrease in effective tax
rates from the second quarter of 1995 to 1996 was due to a higher proportion of
tax-exempt interest income.
The weighted average number of shares of common stock outstanding increased to
30,758,000 for the quarter ended June 30, 1996, from 25,887,000 during the
second quarter of 1995. This increase was due to the issuance of new shares in
the merger with Capital Guaranty, net of shares the Company repurchased as
discussed below in "Liquidity and Capital Resources." Earnings per share
increased from $0.59 for the second quarter of 1995 to $0.61 for the same period
in 1996.
1996 and 1995 First Six Months Results
The Company's net income for the first six months of 1996 was $38.3 million,
compared with $26.3 million for the same period in 1995, an increase of 45.7%.
The increase was primarily attributable to higher core net income due to the
merger and realization of capital gains, partially offset by lower refundings.
Operating net income was $37.3 million for the first six months of 1996 versus
$28.1 million for the comparable period in 1995, an increase of 32.9%. Core net
income was $36.3 million for the first six months of 1996 versus $26.4 million
for the comparable period in 1995, an increase of 37.4%.
9
Gross premiums written increased 72.5%, to $97.3 million for the first six
months of 1996 from $56.4 million for the first six months of 1995. Also, gross
PV premiums written for the first six months of 1996 increased by 57.8%, to
$117.3 million from the prior year's total of $74.3 million. In the first six
months of 1996, asset-backed gross PV premiums written were up 71.8% to $70.4
million, as business increased due to several large, high-premium transactions
in the pooled corporate obligations sector, as compared to gross PV premiums
written in the first six months of 1995 of $40.9 million. For the municipal
business, gross PV premiums written in the first six months increased 40.6% to
$46.9 million in 1996 from $33.4 million in 1995.
In the first six months of 1996, the Company insured bonds totaling $12.8
billion, a 63.2% increase over the same period in 1995. The second quarter
asset-backed component rose 36.7% to $7.5 billion while the municipal sector
rose 124.9% to $5.3 billion. Compared with the combined FSA and Capital Guaranty
six month production in 1995, the increase would have been 29.8%. In the first
six months of 1996, the estimated total market par volume of municipal new
issues was $89.8 billion, an increase of 27.7% from 1995's level and the par
insured by the industry increased 50% to $41.1 billion in 1996.
Net premiums written were $64.9 million for the first six months of 1996, an
increase of 60.7% when compared with 1995. The increase in net premiums written
was less than that of gross premiums written because the Company increased the
amounts ceded on a facultative basis for the asset-backed business in 1996 as
compared to the first six months of 1995. This facultative reinsurance was
utilized on the several large, high-premium transactions noted above, and
therefore this level of reinsurance may not continue at the same rate over the
year.
Net premiums earned for the first six months of 1996 were $42.5 million,
compared with $30.5 million in 1995, an increase of 39.1%. Premiums earned from
refundings and prepayments were $4.5 million for the first six months of 1996
and $3.2 million for the same period of 1995, contributing $1.0 million and $1.7
million to after-tax earnings. Net premiums earned for the period grew 38.9%
relative to 1995 when the effects of refundings and prepayments were eliminated.
While prepayments may continue throughout the remainder of the year, no
assurances can be given that they will continue at the same level that was
experienced in the first six months of 1996.
Net investment income was $31.7 million for the first six months of 1996 and
$24.7 million for the comparable period in 1995, an increase of 28.4%. The
increase in investment income is primarily due to additional invested assets
acquired in the merger. The Company's effective tax rate on investment income
has decreased from 23.0% for the first six months of 1995 to 19.1% in 1996, as
the holdings of tax-exempt securities has increased. Year-to-date 1996, the
Company has realized $1.5 million of capital gains as compared with realized net
capital losses of $2.7 million for the same period in 1995.
The provisions for losses and loss adjustment expenses during the first six
months of 1996 and 1995 were $3.2 million and $3.3 million, respectively,
representing additions to the Company's general loss reserve.
Total policy acquisition and other operating expenses were $20.1 million for the
first six months of 1996 compared with $13.5 million for the same period in
1995, an increase of 49.3%. Eliminating the effect of refundings and
prepayments, total policy acquisition and other operating expenses would have
increased 33.5% due to higher amortization of deferred acquisition costs in
1996. The increase was primarily the result of higher DAC amortization due to a
higher level of premiums earned and increased accruals for performance plan
payouts due to another plan year added to the accrual base.
Income before income taxes for the first six months of 1996 was $51.4 million,
up from $36.1 million, or 42.6%, for the same period in 1995.
The Company's effective tax rate for the first six months of 1996 was 25.6%
compared with 27.1% for the same period in 1995. The decrease in effective tax
rates from the first six months of 1995 to 1996 was due to a higher proportion
of tax-exempt interest income.
The weighted average number of shares of common stock outstanding increased from
25,940,000 during the first six months of 1995 to 31,074,000, for the six months
ended June 30, 1996. This increase was due to the issuance of new shares in the
merger, partially offset by a repurchase of shares as discussed below in
"Liquidity and Capital Resources." Earnings per share increased to $1.23 for the
first six months of 1996 from $1.01 for the same period in 1995.
10
Liquidity and Capital Resources
The Company's consolidated invested assets and cash equivalents at June 30,
1996, net of unsettled security transactions, was $1,076.7 million, a 2.4%
decrease from the December 31, 1996 balance of $1,103.6 million. This decrease
is primarily the result of a change in the market value of the investment
portfolio, which included an unrealized gain position of $30.7 million at
December 31, 1995 and an unrealized loss position of $8.8 million at June 30,
1996.
A subsidiary of the Company has $30.0 million outstanding long-term debt. The
Company has no material plans for capital expenditures within the next twelve
months.
Because the operations of the Company are conducted through FSA, the ability of
the Company to declare and pay dividends both on a short- and long-term basis
will be largely dependent upon FSA's ability to do so and upon external
financings.
FSA's ability to pay dividends is dependent upon FSA's financial condition,
results of operations, cash requirements, rating agency approval and other
related factors and is also subject to restrictions contained in the insurance
laws and related regulations of New York and other states. Under New York State
insurance law, FSA may pay dividends out of earned surplus, provided that,
together with all dividends declared or distributed by FSA during the preceding
12 months, the dividends do not exceed the lesser of (i) 10% of policyholders'
surplus as of its last statement filed with the New York Superintendent of
Insurance or (ii) adjusted net investment income during this period. FSA has
paid dividends of $18.0 million for the six months ended June 1996. Based upon
FSA's statutory statements for the quarter ended June 30, 1996 and considering
dividends which can be paid by its subsidiary, the maximum amount available for
payment of dividends by FSA without regulatory approval over the following 12
months is approximately $37.3 million. As a customary condition for approving in
September, 1994, the application of Fund American for a change in control of
FSA, the prior approval of the New York Superintendent is required for payment
of dividends by FSA to the Company for a period of two years following such
change of control. Such prior approval requirement will lapse in September 1996.
Such prior approvals have been obtained by FSA in respect of such quarterly
dividend since September, 1995 in the ordinary course.
FSA has several sources of liquidity as described in the Company's 1996 Annual
Report to Shareholders. In addition to these sources, in April 30, 1996, FSA
entered into an agreement with a AAA/Aaa rated international bank for a $125.0
million credit facility which expires on January 31, 2003, unless extended. This
facility is a seven-year stand-by irrevocable limited recourse line-of-credit
which provides liquidity and credit support to FSA in the event losses from
municipal obligations in FSA's insured portfolio exceed specified limits.
Repayment of amounts drawn under the line will be limited primarily to
recoveries of losses related to such municipal obligations.
In May 1996, the Company repurchased 1.0 million shares of it common stock from
U S WEST for a purchase price of $26.50 per share. At the same time, the Company
also entered into forward agreements with National Westminister Bank Plc and
Canadian Imperial Bank of Commerce (the Counterparties) in respect of 1.75
million shares (the Forward Shares) of the Company's common stock. Under the
forward agreements, the Company will have the right to either (a) purchase the
Forward Shares from the Counterparties for a price equal to $26.50 per share
plus carrying costs or (b) direct the Counterparties to sell the Forward Shares,
with the Company receiving any excess or making up any shortfall between the
sale proceeds and $26.50 per share plus carrying costs in cash or additional
shares, at its option. If the Company were to settle these Forward Shares at the
Company's June 30, 1996 market price of $27.375, it would receive approximately
49 thousand shares.
11
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The Company's Annual Meeting of Shareholders was held on Thursday, May 9, 1996.
At the 1996 Annual Meeting, shareholders elected all 15 nominees for director
and approved the Company's selection of Coopers & Lybrand L.L.P. as independent
auditors for the year ending December 31, 1996. The number of votes cast with
respect to each director nominee were at least as follows:
Number of Shares Number of
Nominee Voted For Shares Withheld
- ------------------ ----------------- ---------------
John J. Byrne 30,495,058 12,888
Robert P. Cochran 30,495,058 12,888
Michael Djordjevich 30,495,083 12,863
Robert N. Downey 30,495,083 12,863
Anthony M. Frank 30,493,808 14,138
K. Thomas Kemp 30,493,808 14,138
Kozo Kusakari 30,494,648 13,298
David O. Maxwell 30,495,083 12,863
James M.Osterhoff 30,494,748 13,198
James H. Ozanne 30,495,083 12,863
Staats M.Pellett, Jr. 30,495,083 12,863
Richard A. Post 30,494,648 13,298
Roger K. Taylor 30,495,058 12,888
Allan L. Waters 30,495,083 12,863
Howard M. Zelikow 30,495,083 12,863
The selection of Coopers & Lybrand L.L.P. was ratified by at least 30,501,585
shares; at least 685 shares were voted against ratification and at least 5,676
shares abstained from voting on this matter.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(1) Condensed consolidated financial statements of Financial Security
Assurance Inc. for the six month period ended June 30, 1996.
(2) Credit Agreement dated as of April 30, 1996, among Financial
Security Assurance Inc., Financial Security Assurance of Maryland
Inc., Financial Security Assurance of Oklahoma, Inc., the Banks
signatory thereto and Bayerische Landesbank Girozentrale, New
York Branch, as Agent.
(b) Reports on Form 8-K
A Current Report on Form 8-K dated April 26, 1996, was filed by the
Company in respect of Item 5 of Form 8-K (Other Events)
12
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.
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
By /s/ Jeffrey S. Joseph
---------------------------
August 9, 1996 Jeffrey S. Joseph
Managing Director & Controller
(Chief Accounting Officer)
13
Exhibit Index
Exhibit No. Exhibit
- ---------- ---------
1. Condensed financial statements of Financial Security Assurance Inc.
for the six month period ended June 30, 1996
2. Credit Agreement dated as of April 30, 1996, among Financial Security
Assurance Inc., Financial Security Assurance of Maryland Inc.,
Financial Security Assurance of Oklahoma, Inc., the Banks signatory
thereto and Bayerische Landesbank Girozentrale, New York Branch, as
Agent