EXHIBIT 99.04
AMBAC ASSURANCE CORPORATION AND SUBSIDIARIES
(a wholly owned subsidiary of Ambac Financial Group, Inc.)
Consolidated Unaudited Financial Statements
As of September 30, 2000 and December 31, 1999 and
for the Periods Ended September 30, 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, and 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
September 30, 2000, Ambac Assurance's net guarantees in force (principal and
interest) were $402,115,636. 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. Originally, the restructuring would not have applied
to joint venture activities in Japan. Ambac Assurance and MBIA subsequently
determined to include the Japan market in the restructuring in order to use a
consistent approach to the conduct of business in the global markets.
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 accounting principles generally accepted in
the United States of America ("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, 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
September 30, 2000 and December 31, 1999
(Dollars in Thousands Except Share Data)
September 30, 2000 December 31, 1999
----------------------- ------------------------
ASSETS
------
Investments:
Fixed income securities, at fair value
(amortized cost of $3,963,061 in 2000 and $3,657,146 in 1999) $3,937,675 $3,515,969
Short-term investments, at cost (approximates fair value) 124,351 207,121
Other 785 -
---------------------- ------------------------
Total investments 4,062,811 3,723,090
Cash 6,740 6,531
Securities purchased under agreements to resell 16,009 -
Receivable for securities sold 324 18,011
Investment income due and accrued 63,847 61,147
Deferred acquisition costs 147,413 135,324
Reinsurance recoverable 826 500
Prepaid reinsurance 239,281 217,977
Other assets 187,206 219,231
---------------------- ------------------------
Total assets $4,724,457 $4,381,811
====================== ========================
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Liabilities:
Unearned premiums $1,507,863 $1,441,679
Losses and loss adjustment expenses 128,517 121,475
Ceded reinsurance balances payable 13,607 15,028
Deferred income taxes 84,742 27,860
Current income taxes 30,861 33,782
Other liabilities 198,654 233,127
Payable for securities purchased 22,853 93,149
---------------------- ------------------------
Total liabilities 1,987,097 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 September 30, 2000 and December 31, 1999 82,000 82,000
Additional paid-in capital 757,863 751,522
Accumulated other comprehensive loss (17,235) (92,049)
Retained earnings 1,914,732 1,674,238
---------------------- ------------------------
Total stockholder's equity 2,737,360 2,415,711
---------------------- ------------------------
Total liabilities and stockholder's equity $4,724,457 $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 September 30, 2000 and 1999
(Dollars in Thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------- -------------------------------------
2000 1999 2000 1999
---------------- ---------------- ---------------- ----------------
Revenues:
Gross premiums written $148,755 $108,415 $341,125 $299,465
Ceded premiums written (20,077) (11,896) (62,451) (33,440)
---------------- ---------------- ---------------- ----------------
Net premiums written $128,678 $96,519 $278,674 $266,025
================ ================ ================ ================
Net premiums earned $79,510 $69,056 $233,208 $194,763
Net fees earned and other income 7,949 4,430 31,387 15,376
Net investment income 61,302 53,045 178,172 154,003
Net realized losses (2,535) (62) (2,103) (5,542)
---------------- ---------------- ---------------- ----------------
Total revenues 146,226 126,469 440,664 358,600
---------------- ---------------- ---------------- ----------------
Expenses:
Losses and loss adjustment expenses 3,908 3,000 10,757 8,000
Underwriting and operating expenses 14,399 13,167 46,509 40,401
Interest expense 1,004 755 3,043 2,212
---------------- ---------------- ---------------- ----------------
Total expenses 19,311 16,922 60,309 50,613
---------------- ---------------- ---------------- ----------------
Income before income taxes 126,915 109,547 380,355 307,987
Provision for income taxes 31,641 26,611 95,011 73,746
---------------- ---------------- ---------------- ----------------
Net income $95,274 $82,936 $285,344 $234,241
================ ================ ================ ================
See accompanying Notes to Consolidated Unaudited Financial Statements
Ambac Assurance Corporation and Subsidiaries
Consolidated Statements of Stockholder's Equity
For The Nine Months Ended September 30, 2000 and 1999
(Dollars in Thousands)
2000 1999
----------------------------- --------------------------------
Retained Earnings:
Balance at January 1 $1,674,238 $1,404,673
Net income 285,344 $285,344 234,241 $234,241
---------------- ----------------
Dividends declared - common stock (44,850) (39,000)
------------- ----------------
Balance at September 30 $1,914,732 $1,599,914
------------- ----------------
Accumulated Other Comprehensive (Loss) Income:
Balance at January 1 ($92,049) $138,651
Unrealized gains (losses) on securities,
$117,992 and ($151,059), pre-tax, in 2000
and 1999, respectively (1) 76,695 (161,829)
Foreign currency loss (1,881) (205)
---------------- ----------------
Other comprehensive income (loss) 74,814 74,814 (162,034) (162,034)
----------------------------- --------------------------------
Comprehensive income $360,158 $72,207
================ ================
Balance at September 30 ($17,235) ($23,383)
------------- ----------------
Preferred Stock:
Balance at January 1 and September 30 $- $-
------------- ----------------
Common Stock:
Balance at January 1 and September 30 $82,000 $82,000
------------- ----------------
Additional Paid-in Capital:
Balance at January 1 $751,522 $541,021
Capital contribution - 101,479
Exercise of stock options 6,341 1,225
------------- ----------------
Balance at September 30 $757,863 $643,725
------------- ----------------
Total Stockholder's Equity at September 30 $2,737,360 $2,302,256
============= ================
(1) Disclosure of reclassification amount:
Unrealized holding gains (losses) arising during period 75,328 ($165,431)
Less: reclassification adjustment for net losses
included in net income (1,367) (3,602)
------------- ----------------
Net unrealized gains (losses) on securities $76,695 ($161,829)
============= ================
See accompanying Notes to Consolidated Unaudited Financial Statements.
Ambac Assurance Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For The Nine Months Ended September 30, 2000 and 1999
(Dollars in Thousands)
Nine Months Ended
September 30,
-----------------------------------
2000 1999
--------------- ---------------
Cash flows from operating activities:
Net income $285,344 $234,241
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,198 1,703
Amortization of bond premium and discount (3,826) (3,477)
Current income taxes (2,921) 11,387
Deferred income taxes 15,585 7,429
Deferred acquisition costs (12,089) (12,460)
Unearned premiums, net 44,880 71,237
Losses and loss adjustment expenses 6,716 7,183
Ceded reinsurance balances payable (1,421) (2,494)
Net realized losses 2,103 5,542
Premiums receivable (2,042) 5,050
Other, net 9,185 12,841
--------------- ---------------
Net cash provided by operating activities 343,712 338,182
--------------- ---------------
Cash flows from investing activities:
Proceeds from sales of bonds 449,308 913,028
Proceeds from maturities of bonds 93,633 126,435
Purchases of bonds (896,433) (1,236,499)
Change in short-term investments 82,770 (84,888)
Securities purchased under agreements to resell (16,009) (4,552)
Other, net (3,992) (3,547)
--------------- ---------------
Net cash used in investing activities (290,723) (290,023)
--------------- ---------------
Cash flows from financing activities:
Dividends paid (44,850) (39,000)
Short-term financing (7,930) (6,000)
--------------- ---------------
Net cash used in financing activities (52,780) (45,000)
--------------- ---------------
Net cash flow 209 3,159
Cash at January 1 6,531 4,895
--------------- ---------------
Cash at September 30 $6,740 $8,054
=============== ===============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes $76,005 $50,860
=============== ===============
Interest expense on intercompany line of credit $15 $479
=============== ===============
See accompanying Notes to Consolidated Unaudited Financial Statements.