<DOCUMENT>
<TYPE>EX-99.2
<SEQUENCE>5
<FILENAME>d2q04.txt
<DESCRIPTION>ADDITIONAL EXHIBITS
<TEXT>
FINANCIAL STATEMENTS
Financial Guaranty Insurance Company
June 30, 2004
<PAGE>
Financial Guaranty Insurance Company
Financial Statements
June 30, 2004
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Balance Sheets at June 30, 2004 (Unaudited) and December 31, 2003.................................... 1
Statements of Income for the Three Months and Six Months Ended June 30, 2004
and 2003 (Unaudited).............................................................................. 2
Statements of Cash Flows for the Six Months Ended June 30, 2004
and 2003 (Unaudited).............................................................................. 3
Notes to Financial Statements (Unaudited)............................................................ 4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial Guaranty Insurance Company
Balance Sheets
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SUCCESSOR
--------------------------------------
JUNE 30 DECEMBER 31
2004 2003
--------------------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Fixed maturity securities, available for sale, at fair value
(amortized cost of $2,758,154 in 2004 and $2,688,459 in 2003) $ 2,686,439 $ 2,691,922
Short-term investments, at cost, which approximates fair value 94,171 14,377
--------------------------------------
Total investments 2,780,610 2,706,299
Cash 115,199 78,645
Accrued investment income 32,694 32,803
Receivable for securities sold - 170
Reinsurance recoverable on losses 5,934 8,065
Other reinsurance receivables - 5,295
Deferred policy acquisition costs 18,890 2,921
Receivable from related parties 90 9,759
Property and equipment, net of accumulated depreciation of $12 in 2004 102 -
Prepaid reinsurance premiums 118,298 123,768
Prepaid expenses and other assets 6,792 6,058
Current federal income taxes receivable - 126
Deferred federal income taxes receivable 99 -
--------------------------------------
Total assets $ 3,078,708 $ 2,973,909
======================================
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Unearned premiums $ 988,352 $ 918,882
Losses and loss adjustment expenses 37,347 40,467
Ceded reinsurance payable 656 114
Accounts payable and accrued expenses 18,871 19,238
Obligations under capital lease 6,248 6,982
Payable for securities purchased 11,006 -
Current federal income taxes payable 7,758 -
Deferred federal income taxes payable - 18,862
--------------------------------------
Total liabilities 1,070,238 1,004,545
--------------------------------------
Stockholder's equity:
Common stock, par value $1,500 per share; 10,000 shares authorized,
issued and outstanding 15,000 15,000
Additional paid-in capital 1,857,772 1,857,772
Accumulated other comprehensive (loss) income, net of tax (45,533) 2,059
Retained earnings 181,231 94,533
--------------------------------------
Total stockholder's equity 2,008,470 1,969,364
--------------------------------------
Total liabilities and stockholder's equity $ 3,078,708 $ 2,973,909
======================================
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS.
1
<PAGE>
<TABLE>
<CAPTION>
Financial Guaranty Insurance Company
Statements of Income
(Unaudited)
(DOLLARS IN THOUSANDS)
SUCCESSOR PREDECESSOR SUCCESSOR PREDECESSOR
--------- ----------- --------- -----------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
2004 2003 2004 2003
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Gross premiums written $ 106,457 $ 93,483 $ 162,851 $ 141,941
Ceded premiums written (812) 3,962 (3,559) 4,025
----------------------------------------------------------------------
Net premiums written 105,645 97,445 159,292 145,966
Increase in net unearned premiums (52,494) (55,043) (74,939) (69,638)
----------------------------------------------------------------------
Net premiums earned 53,151 42,402 84,353 76,328
Net investment income 23,360 30,127 46,031 59,978
Net realized (losses) gains (749) 404 778 30,382
Other income 240 57 557 57
----------------------------------------------------------------------
Total revenues 76,002 72,990 131,719 166,745
----------------------------------------------------------------------
Expenses:
Losses and loss adjustment expenses (1,070) 6,429 (406) 3,729
Underwriting expenses 21,435 16,109 35,802 30,672
Policy acquisition cost deferred (8,630) (8,827) (16,311) (14,804)
Amortization of deferred policy acquisition costs 184 4,325 342 8,602
----------------------------------------------------------------------
Total expenses 11,919 18,036 19,427 28,199
----------------------------------------------------------------------
Income before income taxes 64,083 54,954 112,292 138,546
Federal income tax expense 15,690 12,672 25,594 32,497
----------------------------------------------------------------------
Net income $ 48,393 $ 42,282 $ 86,698 $ 106,049
======================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS.
2
<PAGE>
<TABLE>
<CAPTION>
Financial Guaranty Insurance Company
Statements of Cash Flows
(Unaudited)
(DOLLARS IN THOUSANDS)
SUCCESSOR PREDECESSOR
--------- -----------
SIX MONTHS ENDED
JUNE 30
2004 2003
--------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 86,698 $ 106,049
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of deferred policy acquisition costs 342 8,602
Policy acquisition costs deferred (16,311) (14,804)
Depreciation of property and equipment 12 4
Amortization of fixed maturity securities 16,506 10,050
Net realized gains on investments (778) (30,382)
Provision for deferred income taxes 6,823 (1,218)
Change in accrued investment income, prepaid expenses and
other assets (625) 2,930
Change in receivable from related parties 9,669 -
Change in other reinsurance receivables 5,295 -
Change in reinsurance recoverable on losses 2,131 (1,107)
Change in prepaid reinsurance premiums 5,470 12,917
Change in current federal income tax receivable 126 -
Change in unearned premiums 69,470 56,721
Change in losses and loss adjustment expenses (3,120) 4,309
Change in ceded reinsurance payable and accounts payable and
accrued expenses 175 (4,696)
Change in current federal income taxes payable 7,758 (7,016)
--------------------------------------
Net cash provided by operating activities 189,641 142,359
--------------------------------------
INVESTING ACTIVITIES
Sales and maturities of fixed maturity securities 161,637 798,879
Purchases of fixed maturity securities (246,106) (848,932)
Purchases, sales and maturities of short-term investments (79,794) (99,694)
Receivable for securities sold, net of payable for
securities purchased 11,176 9,078
--------------------------------------
Net cash used in investing activities (153,087) (140,669)
--------------------------------------
Net increase in cash 36,554 1,690
Cash at beginning of period 78,645 7,260
--------------------------------------
Cash at end of period $ 115,199 $ 8,950
======================================
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS.
3
<PAGE>
Financial Guaranty Insurance Company
Notes to Financial Statements
(Unaudited)
June 30, 2004
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION
Financial Guaranty Insurance Company (the "Company") is a wholly-owned
subsidiary of FGIC Corporation (the "Parent"). The Parent was a wholly-owned
subsidiary of General Electric Capital Corporation ("GE Capital"). The Company
provides financial guaranty insurance for public finance and structured finance
obligations. The Company began insuring public finance obligations in 1984 and
structured finance obligations in 1988. The Company's financial strength is
rated "Aaa" by Moody's Investors Service, Inc. ("Moody's"), "AAA" by Standard &
Poor's Rating Services, a division of The McGraw-Hill Companies, Inc. ("S&P"),
and "AAA" by Fitch Ratings, Inc. ("Fitch"). The Company is licensed to engage in
financial guaranty insurance in all 50 states, the District of Columbia, the
Commonwealth of Puerto Rico and, through a branch, in the United Kingdom.
On December 18, 2003, an investor group consisting of The PMI Group, Inc.
("PMI"), affiliates of the Blackstone Group L.P. ("Blackstone"), affiliates of
the Cypress Group L.L.C. ("Cypress") and affiliates of CIVC Partners L.P.
("CIVC"), collectively the "Investor Group", completed the acquisition (the
"Transaction") of FGIC Corporation from a subsidiary of GE Capital in a
transaction valued at approximately $2,200,000. At the closing of the
Transaction, the Investor Group, acting through an affiliate, paid GE Capital a
cash purchase price of approximately $1,600,000, which was funded by equity
investments by the Investor Group and borrowings of approximately $227,300 under
a bridge loan facility within an affiliate of Bank of America Corporation. The
bridge loan originally was to mature on December 16, 2004; however, the bridge
loan was repaid with the proceeds of the Senior Notes issued on January 12,
2004. In addition, FGIC Corporation paid GE Capital approximately $284,300 in
pre-closing dividends and GE Capital retained 2,346 shares of Convertible
Preferred Stock (the "Senior Preferred Shares") with an aggregate liquidation
preference of $234,600 and approximately 5% of FGIC Corporation's common stock.
PMI is the largest stockholder of FGIC Corporation, owning approximately 42% of
its common stock at December 31, 2003. Blackstone, Cypress and CIVC own
approximately 23%, 23% and 7% of FGIC Corporation's common stock, respectively,
at December 31, 2003.
The accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by accounting principles generally accepted in the United
States for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring
4
<PAGE>
Financial Guaranty Insurance Company
Notes to Financial Statements
(Unaudited) (continued)
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION (CONTINUED)
accruals) considered necessary for fair presentation have been included.
Operating results for the six-month period ended June 30, 2004 are not
necessarily indicative of results that may be expected for the year ending
December 31, 2004.
These unaudited interim financial statements should be read in conjunction with
the financial statements and related notes included in the 2003 audited
financial statements.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States ("GAAP") requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and the accompanying notes. Actual results could differ from those
estimates.
As a result of the Transaction effective on December 18, 2003, the basis of the
assets and liabilities has changed, which necessitates the presentation of
Predecessor Company and the Successor Company columns in the Balance Sheets,
Statements of Income and Cash Flows.
2. INCOME TAXES
The Company's effective federal corporate tax rate (22.8% and 23.5% for the six
months ended June 30, 2004 and 2003, and 24.5% and 23.1% for the three months
ended June 30, 2004 and 2003, respectively) is less than the statutory corporate
tax rate (35%) on income due to permanent differences between financial and
taxable income, principally tax-exempt interest.
3. REINSURANCE
Net premiums earned are shown net of ceded premiums earned of $9,029 and $8,900,
respectively, for the six months ended June 30, 2004 and 2003, and $6,372 and
$4,000 for the three months ended June 30, 2004 and 2003, respectively.
5
<PAGE>
Financial Guaranty Insurance Company
Notes to Financial Statements
(Unaudited) (continued)
(DOLLARS IN THOUSANDS)
4. COMPREHENSIVE INCOME
Accumulated other comprehensive income (loss) of the Company consists of net
unrealized gains on investment securities and foreign currency translation
adjustments. The components of other comprehensive income (loss) for the six and
three months ended June 30, 2004 and 2003 are as follows:
<TABLE>
<CAPTION>
SUCCESSOR
---------------------------------------------
SIX MONTHS ENDED JUNE 30, 2004
---------------------------------------------
BEFORE NET OF
TAX TAX
AMOUNT TAX AMOUNT
--------------- ------------- ---------------
<S> <C> <C> <C>
Unrealized holding losses arising during the period $ (74,105) $25,937 $ (48,168)
Less reclassification adjustment for losses realized
in net income (778) 272 (506)
--------------- ------------- ---------------
Unrealized losses on investments (74,883) 26,209 (48,674)
Foreign currency translation adjustment 1,665 (583) 1,082
--------------- ------------- ---------------
Total other comprehensive loss $ (73,218) $25,626 $ (47,592)
=============== ============= ===============
SUCCESSOR
---------------------------------------------
THREE MONTHS ENDED JUNE 30, 2004
---------------------------------------------
BEFORE NET OF
TAX TAX
AMOUNT TAX AMOUNT
--------------- ------------- ---------------
Unrealized holding losses arising during the period $ (92,626) $32,419 $ (60,207)
Less reclassification adjustment for gains realized
in net income 749 (262) 487
--------------- ------------- ---------------
Unrealized losses on investments (91,877) 32,157 (59,720)
Foreign currency translation adjustment (849) 297 (552)
--------------- ------------- ---------------
Total other comprehensive loss $ (92,726) $ 32,454 $ (60,272)
=============== ============= ===============
</TABLE>
6
<PAGE>
Financial Guaranty Insurance Company
Notes to Financial Statements
(Unaudited) (continued)
(DOLLARS IN THOUSANDS)
4. COMPREHENSIVE INCOME (CONTINUED)
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------------------------
SIX MONTHS ENDED JUNE 30, 2003
---------------------------------------------
BEFORE NET OF
TAX TAX
AMOUNT TAX AMOUNT
--------------- -------------- --------------
<S> <C> <C> <C>
Unrealized holding gains arising during the period $ 78,151 $ (27,363) $ 50,798
Less reclassification adjustment for gains realized
in net income (30,382) 10,634 (19,748)
--------------- -------------- --------------
Unrealized gains on investments 47,769 (16,719) 31,050
Foreign currency translation adjustment 3,146 (1,101) 2,045
--------------- -------------- --------------
Total other comprehensive income $ 50,915 $ (17,820) $ 33,095
=============== ============== ==============
PREDECESSOR
---------------------------------------------
THREE MONTHS ENDED JUNE 30, 2003
---------------------------------------------
BEFORE NET OF
TAX TAX
AMOUNT TAX AMOUNT
--------------- --------------- -------------
Unrealized holding gains arising during the period $ 99,303 $ (34,756) $ 64,547
Less reclassification adjustment for gains realized
in net income (408) 143 (265)
--------------- --------------- -------------
Unrealized gains on investments 98,895 (34,613) 64,282
Foreign currency translation adjustment (219) 77 (142)
--------------- --------------- -------------
Total other comprehensive income $ 98,676 $ (34,536) $ 64,140
=============== =============== =============
</TABLE>
7
<PAGE>
Financial Guaranty Insurance Company
Notes to Financial Statements
(Unaudited) (continued)
(DOLLARS IN THOUSANDS)
5. VARIABLE INTEREST ENTITIES
In January 2003, the FASB issued Financial Interpretation No. 46, CONSOLIDATION
OF VARIABLE INTEREST ENTITIES ("FIN 46"), which the Company adopted on July 1,
2003. FIN 46's consolidation criteria are based upon analysis of risks and
rewards, not control, and represent a significant and complex modification of
previous accounting principles. FIN 46 represents an accounting change not a
change in the underlying economics associated with the transactions, which may
be affected by the Interpretation. FIN 46 clarifies the consolidation criteria
for certain entities in which equity investors do not have the characteristics
of a controlling financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional subordinated financial
support from other parties. FIN 46 requires variable interest entities to be
consolidated by their primary beneficiaries if the entities do not effectively
disperse risk among parties involved. Variable interest entities that
effectively disperse risks will not be consolidated. FIN 46 requires disclosures
for entities that have either a primary or significant variable interest in a
variable interest entity.
As a part of its structured finance business, the Company insures debt
obligations or certificates issued by special purposes entities. At June 30,
2004, the Company had approximately $906,000 of gross principal outstanding
related to insurance contracts issued to commercial paper conduits--variable
interest entities under FIN 46--which the Company does not believe requires
consolidation but which requires disclosure. With respect to the remainder of
the structured finance transactions insured, the Company has evaluated the
transactions, but does not believe any such transactions require consolidation
or disclosure under FIN 46.
6. SUBSEQUENT EVENTS
On July 19, 2004, FGIC closed on its new $300,000 "Soft Capital" facility of
"Money Market Committed Preferred Custodial Trust Securities ("CPS Securities").
This replaces the existing $300,000 "Soft Capital" facility previously provided
by GE Capital. The CPS securities are structured in six separate and newly
organized Delaware trusts, each trust will issue $50,000 in CPS Securities on a
rolling 28 day auction rate basis. Proceeds from these securities are invested
in high grade, short term securities (the "Eligible Assets") and held in the
respective trust. To draw down these funds, which are available completely at
the Company's discretion, the Company would exercise a put option against each
trust, whereby it issues in perpetual preferred shares in FGIC to the holders of
the securities in exchange for the Eligible Assets.
8
</TEXT>
</DOCUMENT>