EXHIBIT 1
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
Condensed Consolidated Financial Statements
June 30, 1998
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 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)
June 30, December 31,
ASSETS 1998 1997
---- ----
Bonds at market value (amortized cost
of $1,329,490 and $1,192,771) $1,369,513 $1,235,441
Equity investments at market value (cost
of $16,367 and $20,405) 17,361 20,762
Short-term investments 62,900 103,926
---------- ----------
Total investments 1,449,774 1,360,129
Cash 13,863 11,235
Deferred acquisition costs 179,437 171,098
Prepaid reinsurance premiums 190,946 173,123
Reinsurance recoverable on unpaid losses 3,690 30,618
Receivable for securities sold 7,769 20,535
Other assets 86,379 72,901
---------- ----------
TOTAL ASSETS $1,931,858 $1,839,639
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Deferred premium revenue $ 648,561 $ 595,196
Losses and loss adjustment expenses 66,364 75,417
Deferred federal income taxes 52,520 59,867
Ceded reinsurance balances payable 23,167 11,199
Payable for securities purchased 59,342 72,979
Long-term debt 50,000 50,000
Accrued expenses and other liabilities 82,279 77,121
---------- ----------
TOTAL LIABILITIES 982,233 941,779
---------- ----------
Common stock (500 and 528 shares authorized, issued and
outstanding; par value of $30,000 and $28,391 per share) 15,000 15,000
Additional paid-in capital 614,067 617,870
Accumulated other comprehensive income (net of deferred
income tax provision of $14,076 and $15,059) 26,140 27,968
Accumulated earnings 294,418 237,022
---------- ----------
TOTAL SHAREHOLDER'S EQUITY 949,625 897,860
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $1,931,858 $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)
Six Months Ended June 30,
-------------------------
1998 1997
---- ----
REVENUES:
Net premiums written (net of premiums ceded of
$43,512 and $37,427) $ 100,068 $ 94,679
Increase in deferred premium revenue (35,695) (42,344)
----------- -----------
Premiums earned (net of premiums ceded of
$25,701 and $19,266) 64,373 52,335
Net investment income 36,022 32,886
Net realized gains 8,478 1,384
Other income 265 4,537
----------- -----------
TOTAL REVENUES 109,138 91,142
----------- -----------
EXPENSES:
Losses and loss adjustment expenses (net of
reinsurance recoveries of $(6,868) and $2,438) 2,094 4,441
Policy acquisition costs 16,914 13,349
Other operating expenses 11,372 8,387
----------- -----------
TOTAL EXPENSES 30,380 26,177
----------- -----------
INCOME BEFORE INCOME TAXES 78,758 64,965
Provision for income taxes 21,363 17,766
----------- -----------
NET INCOME 57,395 47,199
----------- -----------
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities:
Unrealized holding gains arising during period 3,683 3,677
Less: reclassification adjustment for
gains included in net income (5,511) (900)
----------- -----------
Other comprehensive income (1,828) 2,777
----------- -----------
COMPREHENSIVE INCOME $ 55,567 $ 49,976
=========== ===========
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,
-------------------------
1998 1997
---- ----
Cash flows from operating activities:
Premiums received, net $ 116,661 $ 98,426
Policy acquisition and other operating
expenses paid, net (41,315) (33,988)
Recoverable advances received (paid) 4,561 (443)
Loss and LAE recovered (paid), net 15,672 (2,332)
Net investment income received 31,989 29,487
Federal income taxes paid (30,584) (6,152)
Other, net (3,597) 1,370
----------- -----------
Net cash provided by operating activities 93,387 86,368
----------- -----------
Cash flows from investing activities:
Proceeds from sales of bonds 818,324 470,721
Purchases of bonds (943,776) (482,437)
Other 4,086
Purchases of property and equipment (550) (1,638)
Net decrease (increase) in short-term securities 43,743 (56,935)
----------- -----------
Net cash used for investing activities (82,259) (66,203)
----------- -----------
Cash flows from financing activities:
Stock repurchase (8,500) (7,000)
----------- -----------
Net cash used for financing activities (8,500) (7,000)
----------- -----------
Net increase in cash 2,628 13,165
Cash at beginning of period 11,235 7,517
----------- -----------
Cash at end of period $ 13,863 $ 20,682
=========== ===========
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, 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
June 30, 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 June 30, 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.
4. RECENTLY ISSUED ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities (FAS No. 133). FAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. FAS
No. 133 is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. The impact of FAS No. 133 on the Company has not yet been
determined.
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