(Exhibit 99.05)
AMBAC Indemnity Corporation and Subsidiaries
(a wholly-owned subsidiary of AMBAC Inc.)
Consolidated Unaudited Financial Statements
as of September 30, 1996 and December 31, 1995
and for the periods ended September 30, 1996 and 1995
AMBAC Indemnity Corporation and Subsidiaries
Consolidated Balance Sheets
September 30, 1996 and December 31, 1995
(Dollars in Thousands Except Share Data)
September 30, 1996 December 31, 1995
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(unaudited)
Assets
- ------
Investments:
Bonds held in available for sale account, at fair value
(amortized cost of $2,224,021 in 1996 and $2,090,101 in 1995) $2,302,605 $2,224,528
Short-term investments, at cost (approximates fair value) 151,107 163,953
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Total investments 2,453,712 2,388,481
Cash 9,138 6,912
Securities purchased under agreements to resell 8,466 4,120
Receivable for securities 23,433 8,136
Investment income due and accrued 39,135 38,319
Investment in affiliate - 25,827
Deferred acquisition costs 90,022 82,620
Current income taxes - 2,171
Prepaid reinsurance 166,588 153,372
Other assets 51,443 48,472
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Total assets $2,841,937 $2,758,430
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Liabilities and Stockholder's Equity
- ------------------------------------
Liabilities:
Unearned premiums $ 965,192 $ 906,136
Losses and loss adjustment expenses 60,170 65,996
Ceded reinsurance balances payable 11,280 14,654
Deferred income taxes 67,253 85,008
Current income taxes 12,963 -
Accounts payable and other liabilities 48,982 43,625
Payable for securities 80,737 86,304
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Total liabilities 1,246,577 1,201,723
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Stockholder's equity:
Preferred stock, par value $1,000.00 per share; authorized
shares - 285,000; issued and outstanding shares - none - -
Common stock, par value $2.50 per share; authorized shares
- 40,000,000; issued and outstanding shares - 32,800,000
at September 30, 1996 and December 31, 1995 82,000 82,000
Additional paid-in capital 514,809 481,059
Unrealized gains on investments, net of tax 51,079 87,112
Retained earnings 947,472 906,536
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Total stockholder's equity 1,595,360 1,556,707
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Total liabilities and stockholder's equity $2,841,937 $2,758,430
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See accompanying Notes to Consolidated Financial Statements.
AMBAC Indemnity Corporation and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
For The Periods Ended September 30, 1996 and 1995
(Dollars in Thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -------------------
1996 1995 1996 1995
------- ----- ------ ------
Revenues:
Gross premiums written $67,875 $43,960 $177,935 $121,425
Ceded premiums written (9,813) (7,369) (29,261) (4,314)
-------- ------- -------- --------
Net premiums written 58,062 36,591 148,674 117,111
Increase in unearned premiums (23,900) (9,919) (45,840) (37,482)
-------- ------- -------- --------
Net premiums earned 34,162 26,672 102,834 79,629
Net investment income 36,977 33,320 107,466 97,613
Net realized gains (losses) (5,381) (2,455) 64,555 (9,331)
Other income 2,377 1,762 13,182 3,747
-------- ------- -------- --------
Total revenues 68,135 59,299 288,037 171,658
-------- ------- -------- --------
Expenses:
Losses and loss adjustment expenses 1,301 841 3,811 2,210
Underwriting and operating expenses 9,713 8,900 31,379 28,146
Interest expense 514 505 1,542 1,142
-------- ------- -------- --------
Total expenses 11,528 10,246 36,732 31,498
-------- ------- -------- --------
Income before income taxes 56,607 49,053 251,305 140,160
-------- ------- -------- --------
Income tax expense:
Current taxes 10,521 5,113 62,834 18,656
Deferred taxes 888 5,123 1,648 8,789
-------- ------- -------- --------
Total income taxes 11,409 10,236 64,482 27,445
-------- ------- -------- --------
Net income 45,198 38,817 186,823 112,715
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See accompanying Notes to Consolidated Unaudited Financial Statements
AMBAC Indemnity Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
For The Periods Ended September 30, 1996 and 1995
(Dollars in Thousands)
Nine Months Ended
September 30,
-----------------------------
1996 1995
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Cash flows from operating activities:
Net income $ 186,823 $ 112,715
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,463 1,240
Amortization of bond premium and discount (1,525) (707)
Current income taxes payable 15,134 4,282
Deferred income taxes payable 1,648 8,789
Deferred acquisition costs (7,402) (11,398)
Unearned premiums 45,840 37,482
Losses and loss adjustment expenses (5,826) 218
Ceded reinsurance balances payable (3,374) 2,089
(Gain) loss on sales of investments (64,555) 9,331
Other, net (2,004) (1,978)
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Net cash provided by operating activities 166,222 162,063
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Cash flows from investing activities:
Proceeds from sales of bonds at amortized cost 1,210,927 1,085,062
Proceeds from maturities of bonds at amortized cost 78,368 121,470
Purchases of bonds at amortized cost (1,462,567) (1,323,132)
Change in short-term investments 12,846 (15,125)
Proceeds from sale of affiliate 115,865
Securities purchased under agreements to resell (4,346) (531)
Other, net (1,724) (959)
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Net cash used in investing activities (50,631) (133,215)
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Cash flows from financing activities:
Dividends paid (145,865) (30,000)
Capital contribution 32,500 -
----------- -----------
Net cash used in financing activities (113,365) (30,000)
----------- -----------
Net cash flow 2,226 (1,152)
Cash at beginning of year 6,912 2,117
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Cash at September 30 $ 9,138 $ 965
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes $ 13,300 $ 13,700
=========== ===========
See accompanying Notes to Consolidated Financial Statements.
AMBAC Indemnity Corporation and Subsidiaries
Notes to Consolidated Unaudited Financial Statements
(1) Basis of Presentation
AMBAC Indemnity Corporation ("AMBAC Indemnity") is a leading insurer of
municipal and structured finance obligations. Financial guarantee insurance
underwritten by AMBAC Indemnity guarantees payment when due of the principal of
and interest on the obligation insured. In the case of a default on the insured
obligation, payments under the insurance policy may not be accelerated by the
policyholder without AMBAC Indemnity's consent. As of September 30, 1996, AMBAC
Indemnity's net insurance in force (principal and interest) was $215.4 billion.
AMBAC Indemnity is a wholly-owned subsidiary of AMBAC Inc., which is a holding
company that provides through its affiliates financial guarantee insurance and
financial services to clients in both the public and private sectors.
AMBAC Indemnity has one wholly-owned subsidiary, American Municipal
Bond Holding Company ("AMBH"), which is a holding company for certain real
estate interests.
On May 6, 1996, AMBAC Inc. sold its 4,159,505 shares of common stock of
its affiliate, HCIA Inc. (NASDAQ:HCIA) ("HCIA") in a secondary public offering.
Prior to consummation of the secondary public offering, AMBAC Indemnity
delivered to AMBAC Inc. (in the form of an extraordinary dividend) its 2,378,672
shares of HCIA common stock, at fair value. The fair value of the HCIA shares
was $115.9 million, based on the offering price per share of HCIA common stock
in the secondary public offering. The carrying value of AMBAC Indemnity's HCIA
shares was $26.2 million, and the resulting gain to AMBAC Indemnity from the
disposition of the shares was $89.7 million. As a result of the secondary public
offering, neither AMBAC Indemnity, nor AMBAC Inc. own any shares of HCIA.
AMBAC Indemnity, as the sole limited partner, owns 90% of the total
partnership interests of AMBAC Financial Services, Limited Partnership ("AFS"),
a limited partnership which provides interest rate swaps primarily to states,
municipalities and municipal authorities. The sole general partner of AFS, AMBAC
Financial Services Holdings, Inc., a wholly-owned subsidiary of AMBAC Inc., owns
a general partnership interest representing 10% of the total partnership
interest in AFS.
AMBAC Indemnity's consolidated unaudited interim financial statements
have been prepared on the basis of generally accepted accounting principles
("GAAP") and, in the opinion of management, reflect all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
Company's financial condition, results of operations and cash flows for the
periods presented. The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the reported
revenues and expenses during the reporting period. Actual results could differ
from those estimates. The results of operations for the nine months ended
September 30, 1996 may not be indicative of the results that may be expected for
the full year ending December 31, 1996. These financial statements and notes
should be read in conjunction with the financial statements and notes included
in
AMBAC Indemnity Corporation and Subsidiaries
Notes to Consolidated Unaudited Financial Statements (Continued)
the audited consolidated financial statements of AMBAC Indemnity Corporation and
its subsidiaries as of December 31, 1995 and 1994, and for each of the years in
the three-year period ended December 31, 1995.
(2) Income Taxes
The tax provisions in the accompanying financial statements reflect
effective tax rates differing from prevailing federal corporate income tax
rates, primarily as a result of tax-exempt interest income.