EXHIBIT 1
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
Condensed Consolidated Financial Statements
September 30, 1996
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended September 30, 1996 and 1995
INDEX
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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)
September 30, December 31,
ASSETS 1996 1995
---- ----
Bonds at market value (amortized cost of $1,053,541 and
$1,006,084) $1,057,358 $1,036,382
Stocks, at market value (cost of $1,000) 1,000
Short-term investments 90,326 49,845
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Total investments 1,148,684 1,086,227
Cash 6,932 555
Deferred acquisition costs 139,083 132,951
Prepaid reinsurance premiums 147,810 133,548
Reinsurance recoverable on unpaid losses 36,350 61,532
Receivable for securities sold 6,048 2,326
Other assets 62,504 59,499
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TOTAL ASSETS $1,547,411 $1,476,638
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Deferred premium revenue $ 505,955 $ 463,897
Losses and loss adjustment expenses 81,452 111,759
Deferred federal income taxes 31,164 43,205
Ceded reinsurance balances payable 13,539 13,664
Payable for securities purchased 73,148 9,516
Accrued expenses and other liabilities 46,970 44,611
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TOTAL LIABILITIES 752,228 686,652
---------- ----------
Common stock (1,000 shares authorized; 700 and 750 shares
issued and outstanding; par value of $21,429 and $20,000 15,000 15,000
per share)
Additional paid-in capital 666,470 681,470
Unrealized gain on investments (net of deferred
income tax provision of $1,336 and $10,604) 2,482 19,694
Accumulated earnings 111,231 73,822
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TOTAL SHAREHOLDER'S EQUITY 795,183 789,986
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $1,547,411 $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)
Nine Months Ended September 30,
-------------------------------
1996 1995
---- ----
REVENUES:
Net premiums written (net of premiums ceded of
$43,021 and $23,414) $ 93,314 $ 54,917
Increase in deferred premium revenue (29,193) (4,080)
--------- --------
Premiums earned (net of premiums ceded of
$28,854 and $27,020) 64,121 50,837
Net investment income 45,950 35,621
Net realized gains (losses) (2,488) 1,246
Other income 162 3,713
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TOTAL REVENUES 107,745 91,417
--------- --------
EXPENSES:
Losses and loss adjustment expenses (net of
reinsurance recoveries of $1,947 and $3,051) 4,637 4,822
Policy acquisition costs 18,081 12,413
Other operating expenses 10,834 9,127
--------- --------
TOTAL EXPENSES 33,552 26,362
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INCOME BEFORE INCOME TAXES 74,193 65,055
Provision for income taxes 18,870 18,711
--------- --------
NET INCOME $ 55,323 $ 46,344
========= ========
See notes to condensed consolidated financial statements.
2
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Nine Months Ended September 30,
-------------------------------
1996 1995
---- ----
Cash flows from operating activities:
Premiums received, net $ 97,506 $ 56,177
Policy acquisition and other operating expenses
paid, net (29,996) (24,349)
Recoverable advances received (paid) 6,373 (9,551)
Loss and LAE paid, net (9,700) (832)
Net investment income received 46,444 30,160
Federal income taxes paid (25,292) (11,121)
Other, net (14,693) 213
--------- ---------
Net cash provided by operating activities 70,642 40,697
--------- ---------
Cash flows from investing activities:
Proceeds from sales of bonds 843,083 410,404
Purchases of bonds (833,810) (498,631)
Purchases of property and equipment (1,502) (611)
Net decrease (increase) in short-term securities (39,036) 60,320
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Net cash used for investing activities (31,265) (28,518)
--------- ---------
Cash flows from financing activities:
Stock repurchase (15,000)
Dividends paid (18,000) (14,000)
--------- ---------
Net cash used for financing activities (33,000) (14,000)
--------- ---------
Net increase in cash 6,377 (1,821)
Cash at beginning of period 555 2,663
--------- ---------
Cash at end of period $ 6,932 $ 842
========= =========
See notes to condensed consolidated financial statements.
3
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
1. ORGANIZATION AND OWNERSHIP
Financial Security Assurance Inc. (the Company) is an insurance company
domiciled in the State of New York, and is a wholly owned subsidiary of Capital
Guaranty Corporation, which is a wholly owned subsidiary of Financial Security
Assurance Holdings Ltd. (the Parent). 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
September 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 September 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 $17.7 million and $35.3 million, as of September 30, 1996
and December 31, 1995, respectively.
4