EXHIBIT 1
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
Condensed Consolidated Financial Statements
June 30, 1996
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 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)
June 30 December 31,
1996 1995
----- ------------
Bonds at market value (amortized
cost of $1,061,866 and $1,006,084) $ 1,053,120 $ 1,036,382
Short-term investments 75,256 49,845
----------- -----------
Total investments 1,128,376 1,086,227
Cash 5,970 555
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 57,745 59,499
----------- -----------
TOTAL ASSETS $ 1,522,417 $ 1,476,638
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Deferred premium revenue $ 496,061 $ 463,897
Losses and loss adjustment expenses 79,501 111,759
Deferred federal income taxes 27,414 43,205
Ceded reinsurance balances payable 14,267 13,664
Payable for securities purchased 78,646 9,516
Accrued expenses and other liabilities 41,456 44,611
----------- -----------
TOTAL LIABILITIES 737,345 686,652
----------- -----------
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 ($3,061) and $10,604) (5,685) 19,694
Accumulated earnings 94,287 73,822
----------- -----------
TOTAL SHAREHOLDER'S EQUITY 785,072 789,986
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 1,522,417 $ 1,476,638
=========== ===========
See notes to condensed consolidated financial statements.
1
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands)
Six Months Ended June 30,
-------------------------
1996 1995
---- ----
REVENUES:
Net premiums written (net of premiums ceded of
$32,476 and $16,092) $ 64,865 $ 40,349
Increase in deferred premium revenue (22,381) (9,804)
-------- --------
Premiums earned (net of premiums ceded of
$21,167 and $16,426) 42,484 30,545
Net investment income 30,103 23,811
Net realized gains (losses) 1,457 (2,785)
Other income 163 319
-------- --------
TOTAL REVENUES 74,207 51,890
-------- --------
EXPENSES:
Losses and loss adjustment expenses (net of
reinsurance recoveries of $1,131 and $2,016) 3,155 3,305
Policy acquisition costs 12,620 7,197
Other operating expenses 6,674 5,783
-------- --------
TOTAL EXPENSES 22,449 16,285
-------- --------
INCOME BEFORE INCOME TAXES 51,758 35,605
Provision for income taxes 13,293 9,676
-------- --------
NET INCOME $ 38,465 $ 25,929
======== ========
See notes to condensed consolidated financial statements.
2
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED 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 (35,304) (17,906)
Recoverable advances received (paid) 7,628 (2,325)
Loss and LAE paid, net (9,603) (690)
Net investment income received 28,790 19,479
Federal income taxes paid (15,240) (5,891)
Interest paid (798) (715)
Other, net 1,807 (42)
-------- --------
Net cash provided by operating activities 47,704 31,946
-------- --------
Cash flows from investing activities:
Proceeds from sales of bonds 458,659 219,622
Purchases of bonds (457,287) (277,487)
Purchases of property and equipment (1,225) (420)
Net decrease (increase) in short-term securities (24,436) 37,677
-------- --------
Net cash used for investing activities (24,289) (20,608)
-------- --------
Cash flows from financing activities:
Dividends paid (18,000) (9,000)
-------- --------
Net cash used for financing activities (18,000) (9,000)
-------- --------
Net increase in cash 5,415 2,338
Cash at beginning of period 555 2,663
-------- --------
Cash at end of period $ 5,970 $ 5,001
======== ========
See notes to condensed consolidated financial statements.
3
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 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
June 30, 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. 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 $35.3 million, as of June 30, 1996 and
December 31, 1995, respectively.
4