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 March 31, 1997
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 April 30,1997, there were outstanding 30,951,399 shares of Common Stock, par
value $0.01 per share, of the registrant (includes 974,338 shares of Common
Stock owned by a trust on behalf of the Company and excludes 1,324,902 shares of
Common Stock actually held in treasury).
<PAGE>
INDEX
PAGE
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Financial Security Assurance Holdings Ltd. and Subsidiaries
Consolidated Balance Sheets - March 31, 1997 and December 31,
1996 3
Consolidated Statements of Income - Three months ended March 31,
1997 and 1996 4
Consolidated Statement of Changes in Shareholders' Equity -
Three months ended March 31, 1997 5
Consolidated Statements of Cash Flows - Three months ended March
31, 1997 and 1996 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 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
2
<PAGE>
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
March 31, December 31,
ASSETS 1997 1996
---- ----
Bonds, at market value (amortized
cost of $1,052,189 and $ 1,058,417) $ 1,049,063 $ 1,072,439
Equity investments at market value
(cost of $9,925 and $8,336) 9,998 8,336
Short-term investments 106,570 73,641
----------- -----------
Total investments 1,165,631 1,154,416
Cash 9,440 8,146
Deferred acquisition costs 150,218 146,233
Prepaid reinsurance premiums 155,934 151,224
Reinsurance recoverable on unpaid losses 29,843 29,875
Other assets 56,764 47,848
----------- -----------
TOTAL ASSETS $ 1,567,830 $ 1,537,742
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deferred premium revenue $ 517,523 $ 511,196
Losses and loss adjustment expenses 73,101 72,079
Deferred federal income taxes 36,946 41,167
Ceded reinsurance balances payable 14,656 12,599
Payable for securities purchased 36,807 14,390
Notes payable 30,000 30,000
Accrued expenses and other liabilities 51,680 55,051
----------- -----------
TOTAL LIABILITIES
760,713 736,482
----------- -----------
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 694,650 695,118
Unrealized gain (loss) on investments (net
of deferred income tax (benefit) provision
of ($1,068) and $4,908) (1,984) 9,114
Accumulated earnings 160,029 142,721
Deferred equity compensation 12,225 12,069
Less treasury stock at cost (2,299,240 and
2,303,407 shares held) (58,826) (58,785)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 807,117 801,260
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,567,830 $ 1,537,742
=========== ===========
See notes to condensed consolidated financial statements.
3
<PAGE>
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
March 31,
----------------------
1997 1996
---- ----
Revenues:
Net premiums written (net of premiums
ceded of $13,927 and $18,441) $ 27,184 $ 34,139
Increase in deferred premium revenue (2,410) (11,405)
-------- --------
Premiums earned (net of premiums ceded
of $8,865 and $12,979) 24,774 22,734
Net investment income 16,361 15,682
Net realized gains (losses) (498) 1,534
Other income 448 62
-------- --------
TOTAL REVENUES 41,085 40,012
-------- --------
Expenses:
Losses and loss adjustment expenses
(net of reinsurance recoveries of
$442 and $560) 2,285 1,625
Interest expense 541 541
Policy acquisition costs 6,209 7,655
Other operating expenses 4,784 3,957
-------- --------
TOTAL EXPENSES 13,819 13,778
-------- --------
INCOME BEFORE INCOME TAXES 27,266 26,234
Provision for income taxes 7,016 6,690
-------- --------
NET INCOME $ 20,250 $ 19,544
======== ========
Weighted average common shares outstanding 29,978 31,387
======== ========
Earnings per common share $ 0.68 $ 0.62
======== ========
See notes to condensed consolidated financial statements.
4
<PAGE>
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Additional Additional Unrealized Deferred
Paid-In Paid-In Gain Equity
Preferred Common Capital - Capital - (Loss) on Accumulated Compen- Treasury
Stock Stock Preferred Common Investments Earnings sation Stock Total
----- ----- --------- ------ ----------- -------- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996 $20 $323 $680 $ 695,118 $ 9,114 $ 142,721 $ 12,069 $(58,785) $ 801,260
Net income 20,250 20,250
Net unrealized loss on (11,098) (11,098)
investments
Dividends paid on common
stock ($0.095 per share) (2,942) (2,942)
Deferred equity
compensation 3,176 3,176
Deferred equity payout (468) (3,020) 56 (3,432)
Repurchase of common stock (97) (97)
--- ---- ---- --------- -------- --------- -------- -------- ---------
BALANCE, March 31, 1997 $20 $323 $680 $ 694,650 $ (1,984) $ 160,029 $ 12,225 $(58,826) $ 807,117
=== ==== ==== ========= ======== ========= ======== ======== =========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Three Months Ended March 31,
----------------------------
1997 1996
---- ----
Cash flows from operating activities:
Premiums received, net $ 27,895 $ 35,371
Policy acquisition and other operating
expenses paid, net (28,766) (22,531)
Loss and LAE recovered (paid), net (1,052) 105
Net investment income received 16,211 17,181
Recoverable advances paid 15 (8,100)
Federal income taxes recovered (paid) 8,198 (1,799)
Other, net (481) 65
--------- ---------
Net cash provided by operating activities 22,020 20,292
--------- ---------
Cash flows from investing activities:
Proceeds from sales of bonds 227,710 180,722
Purchases of bonds (211,600) (167,486)
Purchases of property and equipment (909) (548)
Net increase in short-term securities (32,289) (23,304)
--------- ---------
Net cash used for investing activities (17,088) (10,616)
--------- ---------
Cash flows from financing activities:
Stock-based compensation purchases (654)
Dividends paid (2,942) (2,495)
Treasury stock (42) (6,000)
--------- ---------
Net cash used for financing activities (3,638) (8,495)
--------- ---------
Net increase (decrease) in cash 1,294 1,181
Cash at beginning of period 8,146 1,118
--------- ---------
Cash at end of period $ 9,440 $ 2,299
========= =========
See notes to condensed consolidated financial statements.
6
<PAGE>
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 1997 and 1996
1. ORGANIZATION AND OWNERSHIP
Financial Security Assurance Holdings Ltd. (the Company) is an insurance
holding company domiciled 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 March 31, 1997, the Company was owned 40.4% by U S WEST Capital
Corporation (U S WEST), 11.6% by Fund American Enterprises Holdings, Inc. (Fund
American), 6.4% by The Tokio Marine and Fire Insurance Co., Ltd. (Tokio Marine)
and 41.6% 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 1996 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 March 31, 1997 and
for all periods presented have been made. The December 31, 1996 condensed
balance sheet data 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, 1997 and 1996 are not
necessarily indicative of the operating results for the full year.
Certain amounts in the 1996 financial statements have been reclassed to
conform to the 1997 presentation.
3. RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share ("EPS")
("FAS 128"). FAS 128 specifies the computation presentation and disclosure
requirements for EPS and is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods. Earlier
application is not permitted.
FAS 128 is designed to improve the EPS information provided in financial
statements by simplifying the existing computational guidelines, revising the
disclosure requirements, and increasing the comparability of EPS data on an
international basis. Some of the changes made to simplify the EPS computations
include: (a) eliminating the presentation of primary EPS and replacing it with
basic EPS, (b) eliminating the modified treasury stock method and the three
percent materiality provision, and (c) revising the contingent share provisions
and the supplemental EPS data requirements. FAS 128 requires dual presentation
of basic and diluted EPS on the face of the income statements for all entities
with complex capital structures regardless of whether basic and diluted EPS are
the same; it also requires a reconciliation of the numerator and denominator
used in computing basic and diluted EPS.
The impact of FAS 128 on the Company has not yet been determined.
7
<PAGE>
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
1997 and 1996 First Quarter Results
The Company's 1997 first quarter net income was $20.3 million, compared with
$19.5 million for the same period in 1996, an increase of 3.6%. Core net income
(operating net income less the after-tax effect of refundings and prepayments)
was $20.6 million, compared with $18.3 million for the same period in 1996, an
increase of 12.2%. Total core revenues in the first quarter of 1997 increased
$5.1 million, from $34.1 million in 1996 to $39.3 million in 1997, while total
core expenses increased only $1.1 million. Operating net income (net income less
the after- tax effect of net realized capital gains or losses and the cost of
the performance share program) was $21.6 million for the first quarter of 1997
versus $19.3 million for the comparable period in 1996, an increase of $2.3
million or 12.2%.
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 decreased, from $52.6 million for the first quarter of
1996 to $41.1 million for the first quarter of 1997. Also, gross PV premiums
written decreased from $61.4 million in the first quarter of 1996 to $42.4
million in 1997, a decrease of 30.9%. The decrease in gross premiums written and
gross PV premiums written is attributable to the fact that several large,
high-premium asset-backed transactions closed in the first quarter of 1996. In
the first quarter of 1997, asset- backed gross PV premiums written were $21.2
million, as compared with $41.6 million in 1996, a decrease of 48.9%. For the
municipal business, gross PV premiums written in the first quarter increased
from $19.8 million in 1996 to $21.2 million in 1997, an increase of 7.0%.
In the first quarter of 1997, the Company insured par value of bonds totaling
$6.8 billion, a 26.1% increase over the same period in 1996. FSA's first quarter
asset-backed component rose 38.6% to $4.3 billion while its municipal sector
rose 9.4% to $2.5 billion.
Net premiums written were $27.2 million for the first quarter of 1997, a
decrease of $6.9 million or 20.4% when compared with $34.1 million in 1996. Net
premiums earned for the first quarter of 1997 were $24.8 million, compared with
$22.7 million in the first quarter of 1996, an increase of 9.0%. Premiums earned
from refundings and prepayments were $2.3 million for the first quarter of 1997
and $4.3 million for the same period of 1996, contributing $1.1 million and $1.0
million, respectively, to after-tax earnings. Net premiums earned for the
quarter grew 22.1% relative to the same period in 1996 when the effects of
refundings and prepayments are eliminated.
Net investment income was $16.4 million for the first quarter of 1997 and $15.7
million for the comparable period in 1996, an increase of 4.3%. The Company's
effective tax rate on investment income was 18.6% for the first quarter of 1996
compared with 18.8% in 1997. In the first quarter of 1997, the Company realized
$0.5 million in net capital losses as compared with realized net capital gains
of $1.5 million for the same period in 1996. Capital gains and losses are a
by-product of the normal investment management process and will vary
substantially from period to period.
8
<PAGE>
The provision for losses and loss adjustment expenses during the first quarter
of 1997 was $2.3 million compared with $1.6 million in 1996, 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 March 31, 1997, the unallocated balance in the Company's general
loss reserve was $31.8 million.
Total policy acquisition and other operating expenses (excluding the cost of the
performance share program of $1.6 million for the first quarter of 1997 compared
with $1.1 million for the same period of 1996) were $9.4 million for the first
quarter of 1997 compared with $10.5 million for the same period in 1996, a
decrease of 10.7%. Excluding the effects of refundings, total policy acquisition
and other operating expenses were $8.7 million for the first quarter of 1997
compared with $7.6 million for the same period in 1996, an increase of 14.2%.
The increase was the result of higher DAC amortization due to a higher level of
premiums earned and an increase in other operating expenses.
Income before income taxes for the first quarter of 1997 was $27.3 million, up
from $26.2 million, or 3.9%, for the same period in 1996.
The Company's effective tax rate for the first quarter of 1997 was 25.7%
compared with 25.5% for the same period in 1996.
The weighted average number of shares of common stock outstanding decreased to
29,978,000 for the quarter ended March 31, 1997, from 31,387,000 during the
first quarter of 1996. This decrease was due to shares the Company repurchased
for employee benefit plans as discussed in previous filings. Earnings per share
increased to $0.68 for the first quarter of 1997 from $0.62 for the same period
in 1996.
Liquidity and Capital Resources
The Company's consolidated invested assets and cash equivalents at March 31,
1997, net of unsettled security transactions, was $1,140.0 million, compared
with the December 31, 1996 balance of $1,139.9 million. These balances include
the change in the market value of the investment portfolio, which had an
unrealized gain position of $14.0 million at December 31, 1996, compared with an
unrealized loss position of $3.0 million at March 31, 1997.
A subsidiary of the Company has $30.0 million of 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 no dividends for the three months ended March 31, 1997. Based upon FSA's
statutory statements for the quarter ended March 31, 1997 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 $45.7 million. In addition, the New York Superintendent
has approved the repurchase by FSA of up to $75.0 million of its shares from the
Company through December 31, 1998, pursuant to which FSA has repurchased $30.5
million of its shares through March 31, 1997. Future share repurchases may not
exceed cumulative statutory net income beginning January 1, 1996.
9
<PAGE>
On April 30, 1996, FSA entered into an agreement with an international
Aaa/AAA-rated bank for a $125.0 million credit facility, which expires on
January 31, 2003, unless extended. This facility is a stand-by irrevocable
limited recourse line of credit that 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 1,000,000 shares of its common stock from
US WEST for a purchase price of $26.50 per share. At the same time, the Company
also entered into forward agreements with National Westminster Bank Plc and
Canadian Imperial Bank of Commerce (the Counterparties) in respect of 1,750,000
shares (the Forward Shares) of the Company's common stock. Under the forward
agreements, the Company has the right either to (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. The Company made the economic benefit of 750,000 of these shares
available for subscription by certain employees and its board of directors. If
the Company were to settle these Forward Shares at the Company's March 31, 1997
market price of $33.125, it would receive approximately 164,600 shares, net of
the portion allocable to employees and directors.
10
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(1) Financial statements of Financial Security Assurance Inc. for
the quarterly period ended March 31, 1997.
(b) Reports on Form 8-K
None
11
<PAGE>
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
--------------------------------
May 13, 1997 Jeffrey S. Joseph
Managing Director & Controller
(Chief Accounting Officer)
12
<PAGE>
Exhibit Index
Exhibit No. Exhibit
- ----------- -------
1. Financial statements of Financial Security Assurance Inc. for the
quarterly period ended March 31, 1997
EXHIBIT 1
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
Condensed Consolidated Financial Statements
March 31, 1997
<PAGE>
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 1997 and 1996
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.
<PAGE>
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
March 31, December 31,
ASSETS 1997 1996
---- ----
Bonds at market value (amortized
cost of $1,049,121 and $1,054,678) $ 1,046,010 $1,068,677
Equity investments at market value
(cost of $2,492 and $1,000) 2,480 1,000
Short-term investments 89,619 55,699
----------- ----------
Total investments 1,138,109 1,125,376
Cash 8,497 7,517
Deferred acquisition costs 150,218 146,233
Prepaid reinsurance premiums 155,934 151,224
Reinsurance recoverable on unpaid losses 29,843 29,875
Other assets 73,315 69,705
----------- ----------
TOTAL ASSETS $ 1,555,916 $1,529,930
=========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Deferred premium revenue $ 517,523 $ 511,196
Losses and loss adjustment expenses 73,101 72,079
Deferred federal income taxes 37,507 41,682
Ceded reinsurance balances payable 14,656 12,599
Payable for securities purchased 36,807 14,142
Accrued expenses and other liabilities 51,383 62,900
----------- ----------
TOTAL LIABILITIES 730,977 714,598
----------- ----------
Common stock (1,000 shares authorized;
648 and 660 shares issued and outstanding;
par value of $23,136 and $22,727 per share) 15,000 15,000
Additional paid-in capital 654,127 654,470
Unrealized gain (loss) on
investments (net of deferred income tax
provision (benefit) of ($1,093) and $4,899) (2,030) 9,099
Accumulated earnings 157,842 136,763
----------- ----------
TOTAL SHAREHOLDER'S EQUITY 824,939 815,332
----------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 1,555,916 $1,529,930
=========== ==========
See notes to condensed consolidated financial statements.
1
<PAGE>
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands)
Three Months Ended March 31,
----------------------------
1997 1996
---- ----
REVENUES:
Net premiums written (net of premiums ceded of
$13,927 and $18,441) $ 27,184 $ 34,139
Increase in deferred premium revenue (2,410) (11,405)
-------- --------
Premiums earned (net of premiums ceded of
$8,865 and $12,979) 24,774 22,734
Net investment income 16,087 15,224
Net realized gains 127 1,534
Other income 325 1
-------- --------
TOTAL REVENUES 41,313 39,493
-------- --------
EXPENSES:
Losses and loss adjustment expenses (net of
reinsurance recoveries of $442 and $560) 2,285 1,625
Policy acquisition costs 6,209 7,655
Other operating expenses 4,280 3,660
-------- --------
TOTAL EXPENSES 12,774 12,940
-------- --------
INCOME BEFORE INCOME TAXES 28,539 26,553
Provision for income taxes 7,460 6,931
-------- --------
NET INCOME $ 21,079 $ 19,622
-------- --------
See notes to condensed consolidated financial statements.
2
<PAGE>
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Three Months Ended March 31,
----------------------------
1997 1996
---- ----
Cash flows from operating activities:
Premiums received, net $ 27,895 $ 35,371
Policy acquisition and other operating expenses
paid, net (24,410) (33,443)
Recoverable advances paid 15 (8,100)
Loss and LAE recovered (paid), net (1,052) 105
Net investment income received 16,734 16,613
Federal income taxes paid 3,198 (1,799)
Other, net 699 5,044
--------- ---------
Net cash provided by operating activities 23,079 13,791
--------- ---------
Cash flows from investing activities:
Proceeds from sales of bonds 227,025 179,715
Purchases of bonds (211,254) (157,486)
Purchases of property and equipment (909) (540)
Net increase in short-term securities (33,461) (24,159)
--------- ---------
Net cash used for investing activities (18,599) (2,470)
--------- ---------
Cash flows from financing activities:
Stock repurchase (3,500)
Dividends paid
(10,000)
--------- ---------
Net cash used for financing activities (3,500) (10,000)
Net increase in cash 980 1,321
Cash at beginning of period 7,517 555
--------- ---------
Cash at end of period $ 8,497 $ 1,876
========= =========
See notes to condensed consolidated financial statements.
3
<PAGE>
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
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
March 31, 1997 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, 1996 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, 1997 and 1996 are not necessarily indicative of the
operating results for the full year.
Certain amounts in the 1996 financial statements have been reclassed to
conform to the 1997 presentation.
4
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from Financial
Security Assurance Holdings Ltd. and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 1,155,633
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 9,998
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,165,631
<CASH> 9,440
<RECOVER-REINSURE> 29,843
<DEFERRED-ACQUISITION> 150,218
<TOTAL-ASSETS> 1,567,830
<POLICY-LOSSES> 73,101
<UNEARNED-PREMIUMS> 517,523
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 30,000
0
700
<COMMON> 694,973
<OTHER-SE> 111,444
<TOTAL-LIABILITY-AND-EQUITY> 1,567,830
24,774
<INVESTMENT-INCOME> 16,361
<INVESTMENT-GAINS> (498)
<OTHER-INCOME> 448
<BENEFITS> 2,285
<UNDERWRITING-AMORTIZATION> 6,209
<UNDERWRITING-OTHER> 4,784
<INCOME-PRETAX> 27,266
<INCOME-TAX> 7,016
<INCOME-CONTINUING> 20,250
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,250
<EPS-PRIMARY> 0.68
<EPS-DILUTED> 0
<RESERVE-OPEN> 72,079
<PROVISION-CURRENT> 2,285
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 1,263
<RESERVE-CLOSE> 73,101
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
