EX-99.2 5 d301347.txt UNAUDITED FINANCIAL STATEMENTS OF FGIC EXHIBIT 99.2 FINANCIAL STATEMENTS Financial Guaranty Insurance Company and Subsidiaries September 30, 2004 Financial Guaranty Insurance Company and Subsidiaries Financial Statements September 30, 2004

SEE ACCOMPANYING NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS. 1 Financial Guaranty Insurance Company and Subsidiaries Statements of Income (Unaudited) (DOLLARS IN THOUSANDS)

SEE ACCOMPANYING NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS. 2

SEE ACCOMPANYING NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS. 3 FGIC Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) September 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. During 2004, the Company formed two subsidiaries; FGIC U.K. Services Limited and FGIC U.K. Limited, both U.K. corporations. 4 Financial Guaranty Insurance Company and Subsidiaries Notes to Financial Statements (Unaudited) (continued) (DOLLARS IN THOUSANDS) 1. BASIS OF PRESENTATION (CONTINUED) 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 accruals) considered necessary for fair presentation have been included. Operating results for the nine-month period ended September 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. CONSOLIDATION The consolidated financial statements include the accounts of the Company and its Subsidiaries, FGIC U.K. Services Limited and FGIC U.K. Limited both U.K. Corporations. All significant intercompany balances have been eliminated. 3. INCOME TAXES The Company's effective federal corporate tax rate (23.5% and 21.7% for the nine months ended September 30, 2004 and 2003, and 25.1% and 17.1% for the three months ended September 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. 5 4. REINSURANCE Net premiums earned are shown net of ceded premiums earned of $15,140 and $16,900, respectively, for the nine months ended September 30, 2004 and 2003, and $6,111 and $8,000 for the three months ended September 30, 2004 and 2003, respectively. 5. 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 total comprehensive income (loss) for the three month and nine month periods ended September 30, 2004 and 2003 are as follows:

The components of other comprehensive income (loss) for the three month and nine month periods ended September 30, 2004 and 2003 are as follows:

6 5. COMPREHENSIVE INCOME (CONTINUED)

7 6. 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. On September 30, 2004, the Company had approximately $1,110,405 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. 7. ISSUANCE OF PREFERRED TRUST SECURITIES 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. During the three and nine month periods ended September 30, 2004, the Company recorded expense of $387 for the right to put its shares to the Trusts. These Trusts are considered variable interest entities under FIN46, however, the Company is not considered the primary beneficiary and therefore is not required to consolidate the Trusts. 8

RESIDENTIAL FUNDING MORTGAGE SECURITIES II INC 8-K