EXHIBIT 1
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
Condensed Consolidated Financial Statements
March 31, 1998
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 1998 and 1997
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 1998 1997
---------- ----------
Bonds at market value (amortized cost of $1,120,042 and
$1,192,771) $1,157,005 $1,235,441
Equity investments at market value (cost of $20,072 and
$20,405) 20,687 20,762
Short-term investments 212,667 103,926
---------- ----------
Total investments 1,390,359 1,360,129
Cash 17,620 11,235
Deferred acquisition costs 175,896 171,098
Prepaid reinsurance premiums 175,983 173,123
Reinsurance recoverable on unpaid losses 23,685 30,618
Receivable for securities sold 32,073 20,535
Other assets 75,742 72,901
---------- ----------
TOTAL ASSETS $1,891,358 $1,839,639
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Deferred premium revenue $ 604,140 $ 595,196
Losses and loss adjustment expenses 69,268 75,417
Deferred federal income taxes 53,752 59,867
Ceded reinsurance balances payable 16,618 11,199
Payable for securities purchased 96,821 72,979
Long-term debt 50,000 50,000
Accrued expenses and other liabilities 77,712 77,121
---------- ----------
TOTAL LIABILITIES 968,311 941,779
---------- ----------
Common stock (514 and 528 shares authorized, issued and
outstanding; par value of $29,173 and $28,391 per share) 15,000 15,000
Additional paid-in capital 618,317 617,870
Accumulated other comprehensive income (net of deferred
income tax provision of $13,300 and $15,059) 24,700 27,968
Accumulated earnings 265,030 237,022
---------- ----------
TOTAL SHAREHOLDER'S EQUITY 923,047 897,860
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $1,891,358 $1,839,639
========== ==========
See notes to condensed consolidated financial statements.
1
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands)
Three Months Ended March 31,
----------------------------
1998 1997
-------- --------
REVENUES:
Net premiums written (net of premiums ceded of
$16,391 and $13,927) $ 37,947 $ 27,184
Increase in deferred premium revenue (6,026) (2,410)
-------- --------
Premiums earned (net of premiums ceded of
$13,120 and $8,865) 31,921 24,774
Net investment income 17,546 16,087
Net realized gains 3,944 127
Other income 235 325
-------- --------
TOTAL REVENUES 53,646 41,313
-------- --------
EXPENSES:
Losses and loss adjustment expenses (net of
reinsurance recoveries of $(6,841) and $442) 1,047 2,285
Policy acquisition costs 8,387 6,209
Other operating expenses 5,716 4,280
-------- --------
TOTAL EXPENSES 15,150 12,774
-------- --------
INCOME BEFORE INCOME TAXES 38,496 28,539
Provision for income taxes 10,488 7,460
-------- --------
NET INCOME 28,008 21,079
-------- --------
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period (704) (11,046)
Less: reclassification adjustment for losses (gains)
included in net income (2,564) (83)
-------- --------
Other comprehensive income (3,268) (11,129)
-------- --------
COMPREHENSIVE INCOME $ 24,740 $ 9,950
======== ========
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,
----------------------------
1998 1997
--------- ---------
Cash flows from operating activities:
Premiums received, net $ 44,043 $ 27,895
Policy acquisition and other operating expenses
paid, net (37,084) (24,410)
Recoverable advances received 5,778 15
Loss and LAE paid, net (164) (1,052)
Net investment income received 19,881 16,734
Federal income taxes recovered (paid) (487) 3,198
Other, net (3,062) 699
--------- ---------
Net cash provided by operating activities 28,905 23,079
--------- ---------
Cash flows from investing activities:
Proceeds from sales of bonds 408,342 227,025
Purchases of bonds (318,471) (211,254)
Purchases of property and equipment (359) (909)
Net increase in short-term securities (107,782) (33,461)
--------- ---------
Net cash used for investing activities (18,270) (18,599)
--------- ---------
Cash flows from financing activities:
Stock repurchase (4,250) (3,500)
--------- ---------
Net cash used for financing activities (4,250) (3,500)
--------- ---------
Net increase in cash 6,385 980
Cash at beginning of period 11,235 7,517
--------- ---------
Cash at end of period $ 17,620 $ 8,497
========= =========
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, 1998 AND 1997
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 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, 1998 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, 1997 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, 1998 and 1997 are not necessarily indicative of the
operating results for the full year.
3. COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
130, Reporting Comprehensive Income, which requires that all components of other
comprehensive income be classified by their nature in a financial statement and
accumulated balances of other comprehensive income be displayed separately from
retained earnings and additional paid-in capital in the equity section of a
balance sheet. The Company is disclosing this information in its statements of
income. Comprehensive income is defined as the change in shareholders' equity
during a period from transactions and other events and circumstances from
non-owner sources and includes net income and all changes in shareholders'
equity except those from investments by owners and distributions to owners. This
statement did not change the current accounting treatment for components of
comprehensive income such as changes in unrealized gains or losses on securities
available for sale.
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