EXHIBIT 99.02
AMBAC ASSURANCE CORPORATION AND SUBSIDIARIES
(a wholly owned subsidiary of Ambac Financial Group, Inc.)
Consolidated Unaudited Financial Statements
As of March 31, 2000 and December 31, 1999
and for the Periods Ended March 31, 2000 and 1999
Ambac Assurance Corporation and Subsidiaries
Notes to Consolidated Unaudited Financial Statements
(Dollars in Thousands)
(1) Basis of Presentation
Ambac Assurance Corporation ("Ambac Assurance") is a leading guarantor of
municipal and structured finance obligations. Ambac Assurance has earned
triple-A ratings, the highest ratings available from Moody's Investors Service,
Inc., Standard & Poor's Rating Group, Fitch IBCA, Inc., and Japan Rating and
Investment Information, Inc. Financial guarantees underwritten by Ambac
Assurance guarantee payment when due of the principal of and interest on the
obligation guaranteed. In the case of a monetary default on the guaranteed bond,
payments may not be accelerated by the policyholder without Ambac Assurance's
consent. As of March 31, 2000, Ambac Assurance's net guarantees in force
(principal and interest) were $378,655,000. Ambac Assurance is a wholly owned
subsidiary of Ambac Financial Group, Inc. ("AFGI"), a holding company whose
subsidiaries provide financial guarantees and financial services to clients in
both the public and private sectors around the world.
In December 1997, Ambac Assurance acquired Construction Loan Insurance
Corporation ("CLIC"). CLIC's wholly owned subsidiary, Connie Lee Insurance
Company ("Connie Lee"), a triple-A rated financial guarantee insurance company,
guaranteed bonds primarily for college and hospital infrastructure projects.
Ambac Assurance and Connie Lee have arrangements in place to ensure that Connie
Lee maintains a level of capital sufficient to support Connie Lee's outstanding
obligations and for Connie Lee insured bonds to retain their triple-A rating.
Ambac Assurance serves clients in international markets through its wholly-
owned subsidiary Ambac Assurance UK Limited. Additionally, Ambac Assurance had
served clients in international markets through its participation in MBIA. AMBAC
International, an unincorporated joint venture with MBIA Insurance Corporation
("MBIA"). On March 21, 2000, Ambac Assurance and MBIA announced the
restructuring of that arrangement. Ambac Assurance and MBIA will continue having
reciprocal reinsurance arrangements for international business until at least
the end of 2000, however, the companies will market and originate financial
guarantees independently. The restructuring did not affect business conducted in
Japan where the companies will continue to market and originate transactions
jointly under the original arrangement.
Ambac Credit Products L.L.C. ("ACP"), a wholly owned subsidiary of Ambac
Assurance, also provides credit protection in the form of structured credit
derivatives. These structured credit derivatives require that ACP make a payment
upon the occurrence of certain defined credit events relating to an underlying
obligation. Should a credit event occur, ACP would generally pay an amount
equivalent to the difference between the par value and market value of the
underlying obligation. The majority of ACP's structured credit derivatives have
been structured with certain first loss protection.
Ambac Assurance Corporation and Subsidiaries
Notes to Consolidated Unaudited Financial Statements, (Continued)
(Dollars in Thousands)
Ambac Assurance, as the sole limited partner, owns a limited partnership
interest representing 90% of the total partnership interests of Ambac Financial
Services, L..P. ("AFSLP"), a limited partnership which provides interest rate
swaps primarily to states, municipalities and their authorities. The sole
general partner of AFSLP, Ambac Financial Services Holdings, Inc., a wholly
owned subsidiary of AFGI, owns a general partnership interest representing 10%
of the total partnership interest in AFSLP.
The accompanying consolidated unaudited interim financial statements
have been prepared on the basis of U.S. 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 three months ended March
31, 2000 may not be indicative of the results that may be expected for the full
year ending December 31, 2000. These financial statements and notes should be
read in conjunction with the financial statements and notes included in the
audited consolidated financial statements of Ambac Assurance Corporation and its
subsidiaries as of December 31, 1999 and 1998, and for each of the years in the
three-year period ended December 31, 1999.
Ambac Assurance Corporation and Subsidiaries
Consolidated Balance Sheets
March 31, 2000 and December 31, 1999
(Dollars in Thousands Except Share Data)
March 31, 2000 December 31, 1999
-------------------- ---------------------
ASSETS
------
Investments:
Fixed income securities, at fair value
(amortized cost of $3,752,918 in 2000 and $3,657,146 in 1999) $3,698,593 $3,515,969
Short-term investments, at cost (approximates fair value) 96,363 207,121
Other 801 -
-------------------- ---------------------
Total investments 3,795,757 3,723,090
Cash 37,658 6,531
Securities purchased under agreements to resell 14,633 -
Receivable for securities sold 4,083 18,011
Investment income due and accrued 61,263 61,147
Deferred acquisition costs 138,408 135,324
Reinsurance recoverable 552 500
Prepaid reinsurance 222,657 217,977
Other assets 176,840 219,231
-------------------- ---------------------
Total assets $4,451,851 $4,381,811
==================== =====================
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Liabilities:
Unearned premiums $1,428,431 $1,441,679
Losses and loss adjustment expenses 124,323 121,475
Ceded reinsurance balances payable 15,081 15,028
Deferred income taxes 61,270 27,860
Current income taxes 49,047 33,782
Other liabilities 190,125 233,127
Payable for securities purchased 36,485 93,149
-------------------- ---------------------
Total liabilities 1,904,762 1,966,100
-------------------- ---------------------
Stockholder's equity:
Preferred stock, par value $1,000 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 March 31, 2000 and December 31, 1999 82,000 82,000
Additional paid-in capital 751,821 751,522
Accumulated other comprehensive loss (35,868) (92,049)
Retained earnings 1,749,136 1,674,238
-------------------- ---------------------
Total stockholder's equity 2,547,089 2,415,711
-------------------- ---------------------
Total liabilities and stockholder's equity $4,451,851 $4,381,811
==================== =====================
See accompanying Notes to Consolidated Unaudited Financial Statements.
Ambac Assurance Corporation and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
For The Periods Ended March 31, 2000 and 1999
(Dollars in Thousands)
Three Months Ended
March 31,
--------------------------------
2000 1999
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Revenues:
Gross premiums written $70,261 $91,041
Ceded premiums written (16,127) (5,086)
-------------- --------------
Net premiums written $54,134 $85,955
============== ==============
Net premiums earned $71,982 $61,029
Net fees earned and other income 7,492 5,748
Net investment income 57,783 49,587
Net realized gains 462 89
-------------- --------------
Total revenues 137,719 116,453
-------------- --------------
Expenses:
Losses and loss adjustment expenses 3,249 2,500
Underwriting and operating expenses 15,326 13,628
Interest expense 1,019 724
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Total expenses 19,594 16,852
-------------- --------------
Income before income taxes 118,125 99,601
Provision for income taxes 28,277 24,034
-------------- --------------
Net income $89,848 $75,567
============== ==============
See accompanying Notes to Consolidated Unaudited Financial Statements
Ambac Assurance Corporation and Subsidiaries
Consolidated Statements of Stockholder's Equity
For The Periods Ended March 31, 2000 and 1999
(Dollars in Thousands)
2000 1999
--------------------------- ---------------------------
Retained Earnings:
Balance at January 1 $1,674,238 $1,404,673
Net income 89,848 $89,848 75,567 75,567
------------- -------------
Dividends declared - common stock (14,950) (13,000)
-------------- --------------
Balance at March 31 $1,749,136 $1,467,240
-------------- --------------
Accumulated Other Comprehensive (Loss) Income:
Balance at January 1 ($92,049) $138,651
Unrealized gains (losses) on securities, $86,852
and ($40,033), pre-tax, in 2000 and 1999,
respectively (1) 56,454 (26,021)
Foreign currency loss (273) (607)
------------- -------------
Other comprehensive income (loss) 56,181 56,181 (26,628) (26,628)
--------------------------- ---------------------------
Comprehensive income $146,029 $48,939
============= =============
Balance at March 31 ($35,868) $112,023
-------------- --------------
Preferred Stock:
Balance at January 1 and March 31 $- $-
-------------- --------------
Common Stock:
Balance at January 1 and March 31 $82,000 $82,000
-------------- --------------
Additional Paid-in Capital:
Balance at January 1 $751,522 $541,021
Exercise of stock options 299 314
-------------- --------------
Balance at March 31 $751,821 $541,335
-------------- --------------
Total Stockholder's Equity at March 31 $2,547,089 $2,202,598
============== ==============
(1) Disclosure of reclassification amount:
Unrealized holding gains (losses) arising during period $56,754 ($25,963)
Less: reclassification adjustment for net gains
included in net income 300 58
-------------- --------------
Net unrealized gains (losses) on securities $56,454 ($26,021)
============== ==============
See accompanying Notes to Consolidated Unaudited Financial Statements.
Ambac Assurance Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For The Periods Ended March 31, 2000 and 1999
(Dollars in Thousands)
Three Months Ended
March 31,
----------------------------
2000 1999
------------ ------------
Cash flows from operating activities:
Net income $ 89,848 $ 75,567
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 711 532
Amortization of bond premium and discount (1,071) (1,355)
Current income taxes 15,265 15,932
Deferred income taxes 3,012 4,967
Deferred acquisition costs (3,084) (4,708)
Unearned premiums, net (17,928) 24,793
Losses and loss adjustment expenses 2,796 2,366
Ceded reinsurance balances payable 53 (2,572)
Gains on sales of investments (462) (89)
Premiums receivable 4,492 4,618
Other, net 2,430 4,411
--------- ---------
Net cash provided by operating activities 96,062 124,462
--------- ---------
Cash flows from investing activities:
Proceeds from sales of bonds 175,328 318,384
Proceeds from maturities of bonds 59,419 44,627
Purchases of bonds (371,642) (438,144)
Change in short-term investments 110,758 (26,613)
Securities purchased under agreements to resell (14,633) (1,908)
Other, net (1,285) (130)
--------- ---------
Net cash used in investing activities (42,055) (103,784)
--------- ---------
Cash flows from financing activities:
Dividends paid (14,950) (13,000)
Short-term financing (7,930) (5,000)
--------- ---------
Net cash used in financing activities (22,880) (18,000)
--------- ---------
Net cash flow 31,127 2,678
Cash at January 1 6,531 4,895
--------- ---------
Cash at March 31 $ 37,658 $ 7,573
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes $ 9,700 $-
========= =========
Interest expense on intercompany line of credit $ 15 $ 197
========= =========
See accompanying Notes to Consolidated Unaudited Financial Statements.