EXHIBIT 99
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
Condensed Consolidated Financial Statements
June 30, 2000
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FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2000 and 1999
INDEX
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FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Operations and
Comprehensive 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 whether 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 accounting principles generally accepted in the United States of
America in making such determinations.
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FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
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<S> <C> <C>
ASSETS
Bonds at market value (amortized cost of $1,889,206 and
$1,903,932) $ 1,890,660 $ 1,837,085
Equity investments at market value (cost of $10,100) 9,762 9,768
Short-term investments 92,361 257,030
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Total investments 1,992,783 2,103,883
Cash 15,124 4,153
Deferred acquisition costs 190,688 198,048
Prepaid reinsurance premiums 333,782 285,105
Reinsurance recoverable on unpaid losses 9,921 9,492
Receivable for securities sold 98,355 40,635
Other assets 174,742 145,837
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TOTAL ASSETS $ 2,815,395 $ 2,787,153
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LIABILITIES AND MINORITY INTEREST AND SHAREHOLDER'S EQUITY
Deferred premium revenue $ 908,607 $ 844,146
Losses and loss adjustment expenses 94,848 87,309
Deferred federal income taxes 82,320 53,357
Ceded reinsurance balances payable 43,850 36,387
Payable for securities purchased 51,128 239,295
Long-term debt 120,000 120,000
Minority interest 34,054 32,945
Accrued expenses and other liabilities 103,021 78,768
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TOTAL LIABILITIES AND MINORITY INTEREST 1,437,828 1,492,207
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Common stock (500 shares authorized, issued and
outstanding; par value of $30,000 per share) 15,000 15,000
Additional paid-in capital 841,036 832,556
Accumulated other comprehensive income (loss) [net of deferred
income tax provision (benefit) of $453 and $(23,513)] 662 (43,666)
Accumulated earnings 520,869 491,056
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TOTAL SHAREHOLDER'S EQUITY 1,377,567 1,294,946
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TOTAL LIABILITIES AND MINORITY INTEREST AND
SHAREHOLDER'S EQUITY $ 2,815,395 $ 2,787,153
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
1
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FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(Dollars in thousands)
Six Months Ended June 30,
-------------------------
2000 1999
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REVENUES:
Net premiums written (net of premiums ceded of
$87,760 and $48,514) $ 109,639 $ 101,745
Increase in deferred premium revenue (17,373) (17,677)
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Premiums earned (net of premiums ceded of
$37,966 and $30,221) 92,266 84,068
Net investment income 57,024 43,765
Net realized losses (32,190) (5,465)
Other income 81 158
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TOTAL REVENUES 117,181 122,526
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EXPENSES:
Losses and loss adjustment expenses [net of
reinsurance recoveries of $(609) and $(2,231)] 4,858 4,000
Policy acquisition costs 19,440 20,593
Merger related expenses 33,912
Other operating expenses 20,464 16,328
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TOTAL EXPENSES 78,674 40,921
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Minority interest and equity earnings (1,280) (1,041)
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INCOME BEFORE INCOME TAXES 37,227 80,564
Provision for income taxes 7,414 19,631
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NET INCOME 29,813 60,933
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Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities:
Holding gains (losses) arising during period 22,570 (42,453)
Less: reclassification adjustment for losses
included in net income (21,759) (3,552)
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Other comprehensive income (loss) 44,329 (38,901)
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COMPREHENSIVE INCOME $ 74,142 $ 22,032
========= =========
See notes to condensed consolidated financial statements.
2
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FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Six Months Ended June 30,
-------------------------
2000 1999
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Cash flows from operating activities:
Premiums received, net $ 118,098 $ 78,387
Policy acquisition, merger and other operating
expenses paid, net (25,238) (32,202)
Recoverable advances paid (4,178) (10,350)
Loss and LAE recovered (paid), net 1,923 (600)
Net investment income received 48,743 40,116
Federal income taxes paid (24,132) (25,440)
Interest paid (3,000) (5,168)
Other, net (1,715) 1,596
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Net cash provided by operating activities 110,501 46,339
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Cash flows from investing activities:
Proceeds from sales of bonds 964,649 984,205
Purchases of bonds (1,227,196) (1,009,756)
Purchases of property and equipment (3,094) (432)
Net decrease (increase) in short-term securities 167,107 (15,308)
Other investments, net (996) 19
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Net cash used for investing activities (99,530) (41,272)
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Net increase in cash 10,971 5,067
Cash at beginning of period 4,153 2,729
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Cash at end of period $ 15,124 $ 7,796
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See notes to condensed consolidated financial statements.
3
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FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
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, 2000 and for all periods presented, have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted. These
statements should be read in conjunction with the Company's December 31, 1999
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 accounting principles generally accepted in
the United States of America. The results of operations for the periods ended
June 30, 2000 and 1999 are not necessarily indicative of the operating results
for the full year.
3. MERGER
On July 5, 2000, the Parent completed the previously announced merger
pursuant to which the Parent became an indirect wholly owned subsidiary of Dexia
S.A., a publicly held Belgian corporation. The net effect of the merger is to
decrease net income for the six-month period ended June 30, 2000 by $28.9
million.
In connection with the merger, the Company repurchased $55.0 million of
its stock from the Parent in July, 2000. The proceeds from these transactions
were used to fund the Parent's obligations under certain of its long-term,
equity-linked compensation programs.
4. ACCOUNTING PRONOUNCEMENTS
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, as amended, is effective for fiscal years beginning on or after January
1, 2001. Management believes that the adoption of FAS No. 133 will not have a
material impact on the consolidated financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulleting No. 101, Revenue Recognition (SAB No. 101). An amendment in
June 2000 delayed the effective date until the fourth
4
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quarter of 2000. Management believes that the adoption of SAB No. 101 will not
have a material impact on the consolidated financial statements.
5
