EXHIBIT 99.2
AMBAC ASSURANCE CORPORATION AND SUBSIDIARIES
(a wholly owned subsidiary of Ambac Financial Group, Inc.)
Consolidated Unaudited Financial Statements
As of March 31, 2001 and December 31, 2000
and for the Periods Ended March 31, 2001 and 2000
Ambac Assurance Corporation and Subsidiaries
Notes to Consolidated Unaudited Financial Statements
(Dollars in Thousands)
(1) Basis of Presentation
Ambac Assurance Corporation is a leading provider of financial guarantees
for 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 Ratings Services, Fitch, Inc., 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 March
31, 2001, Ambac Assurance's net guarantees in force (principal and interest)
were $427,841,047. Ambac Assurance is a wholly owned subsidiary of Ambac
Financial Group, Inc., a holding company whose subsidiaries provide financial
guarantees and financial services to clients in both the public and private
sectors around the world.
Ambac Assurance serves clients in international markets through its wholly-
owned subsidiary Ambac Assurance UK Limited.
Ambac Credit Products L.L.C., a wholly owned subsidiary of Ambac Assurance,
also provides credit protection in the form of structured credit derivatives.
These structured credit derivatives require that Ambac Credit Products make a
payment upon the occurrence of certain defined credit events relating to an
underlying obligation (generally a fixed income obligation). Should a credit
event occur, Ambac credit Products would generally pay an amount equivalent to
the difference between the par value and market value of the underlying
obligation. The majority of Ambac Credit Product's structured credit derivatives
have been structured with certain first loss protection.
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., a limited partnership which provides interest rate swaps
primarily to states, municipalities and their authorities. The sole general
partner of Ambac Financial Services, Ambac Financial Services Holdings, Inc., a
wholly owned subsidiary of Ambac Financial Group, owns a general partnership
interest representing 10% of the total partnership interest in Ambac Financial
Services.
Ambac Assurance Corporation and Subsidiaries
Notes to Consolidated Unaudited Financial Statements, (Continued)
(Dollars in Thousands)
The accompanying consolidated unaudited interim financial statements have
been prepared on the basis of accounting principles generally accepted in the
United States of America and, in the opinion of management, reflect all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of Ambac Assurance'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, 2001 may not be indicative of
the results that may be expected for the full year ending December 31, 2001.
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, 2000 and 1999, and for each of the years in the three-year period ended
December 31, 2000 which was filed with the Securities and Exchange Commission on
March 28, 2001 as Exhibit 99.01 to Ambac Financial Group Inc.'s Form 10-K.
The consolidated financial statements include the accounts of Ambac
Assurance and each of its subsidiaries. All significant intercompany balances
have been eliminated.
Certain reclassifications have been made to prior period's amounts to
conform to the current period's presentation.
(2) Accounting Change
In June 1998, the Financial Accounting Standards Board issued FAS Statement
133, "Accounting for Derivative Instruments and Hedging Activities". FAS 133, as
amended by FAS 138 and related guidance, established accounting and reporting
standards for derivative instruments and hedging activities. Ambac Assurance
adopted FAS 133 and its related guidance on January 1, 2001 that resulted in no
impact on the consolidated financial statements.
Ambac Assurance Corporation and Subsidiaries
Consolidated Balance Sheets
March 31, 2001 and December 31, 2000
(Dollars in Thousands Except Share Data)
March 31, 2001 December 31, 2000
---------------------- ------------------------
(unaudited)
ASSETS
Investments:
Fixed income securities, at fair value
(amortized cost of $4,125,059 in 2001 and $3,969,932 in 2000) $4,284,254 $4,098,511
Short-term investments, at cost (approximates fair value) 233,023 218,505
Other 1,480 715
---------------------- ------------------------
Total investments 4,518,757 4,317,731
Cash 20,477 11,893
Cash pledged as collateral 4,975 24,935
Securities purchased under agreements to resell 32,759 11,786
Receivable for securities sold 535 1,215
Investment income due and accrued 61,400 67,132
Deferred acquisition costs 160,294 153,424
Reinsurance recoverable 1,265 1,091
Prepaid reinsurance 238,983 242,604
Other assets 252,630 230,908
---------------------- ------------------------
Total assets $5,292,075 $5,062,719
====================== ========================
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Unearned premiums $1,563,811 $1,556,250
Losses and loss adjustment expense reserve 136,728 132,445
Ceded reinsurance balances payable 7,318 10,892
Deferred income taxes 163,643 146,839
Current income taxes 55,747 31,308
Other liabilities 269,624 255,308
Payable for securities purchased 66,052 3,935
---------------------- ------------------------
Total liabilities 2,262,923 2,136,977
---------------------- ------------------------
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, 2001 and December 31, 2000 82,000 82,000
Additional paid-in capital 760,006 760,006
Accumulated other comprehensive income 100,813 81,616
Retained earnings 2,086,333 2,002,120
---------------------- ------------------------
Total stockholder's equity 3,029,152 2,925,742
---------------------- ------------------------
Total liabilities and stockholder's equity $5,292,075 $5,062,719
====================== ========================
See accompanying Notes to Consolidated Unaudited Financial Statements.
Ambac Assurance Corporation and Subsidiaries
Consolidated Statements of Operations
(unaudited)
For The Periods Ended March 31, 2001 and 2000
(Dollars in Thousands)
Three Months Ended
March 31,
-------------------------------------
2001 2000
---------------- ----------------
Revenues:
Gross premiums written $110,291 $70,261
Ceded premiums written (12,701) (16,127)
---------------- ----------------
Net premiums written $97,590 $54,134
================ ================
Net premiums earned $86,088 $71,982
Net fees and other premiums earned 11,549 7,492
Net investment income 64,964 57,783
Net realized (losses) gains (4,282) 462
---------------- ----------------
Total revenues 158,319 137,719
---------------- ----------------
Expenses:
Losses and loss adjustment expenses 4,600 3,249
Underwriting and operating expenses 18,407 15,326
Interest expense 1,154 1,019
---------------- ----------------
Total expenses 24,161 19,594
---------------- ----------------
Income before income taxes 134,158 118,125
Provision for income taxes 32,945 28,277
---------------- ----------------
Net income $101,213 $89,848
================ ================
See accompanying Notes to Consolidated Unaudited Financial Statements
Ambac Assurance Corporation and Subsidiaries
Consolidated Statements of Stockholder's Equity
(unaudited)
For The Periods Ended March 31, 2001 and 2000
(Dollars in Thousands)
2001 2000
-------------------------------- --------------------------------
Retained Earnings:
Balance at January 1 $2,002,120 $1,674,238
Net income 101,213 $101,213 89,848 $89,848
---------------- ----------------
Dividends declared - common stock (17,000) (14,950)
---------------- ----------------
Balance at March 31 $2,086,333 $1,749,136
---------------- ----------------
Accumulated Other Comprehensive Income (Loss):
Balance at January 1 $81,616 ($92,049)
Unrealized gains (losses) on securities, $30,912
and $86,852, pre-tax, in 2001 and 2000,
respectively (1) 20,093 56,454
Foreign currency translation loss (896) (273)
---------------- ----------------
Other comprehensive income 19,197 19,197 56,181 56,181
-------------------------------- --------------------------------
Comprehensive income $120,410 $146,029
================ ================
Balance at March 31 $100,813 ($35,868)
---------------- ----------------
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 $760,006 $751,522
Exercise of stock options - 299
---------------- ----------------
Balance at March 31 $760,006 $751,821
---------------- ----------------
Total Stockholder's Equity at March 31 $3,029,152 $2,547,089
================ ================
(1) Disclosure of reclassification amount:
Unrealized holding gains arising during period 20,146 $56,754
Less: reclassification adjustment for net gains
included in net income 53 300
---------------- ----------------
Net unrealized gains on securities $20,093 $56,454
================ ================
See accompanying Notes to Consolidated Unaudited Financial Statements.
Ambac Assurance Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
For The Periods Ended March 31, 2001 and 2000
(Dollars in Thousands)
Three Months Ended
March 31,
-----------------------------------
2001 2000
--------------- ---------------
Cash flows from operating activities:
Net income $101,213 $89,848
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 753 711
Amortization of bond premium and discount (1,950) (1,071)
Current income taxes 24,439 15,265
Deferred income taxes 5,984 3,012
Deferred acquisition costs (6,870) (3,084)
Unearned premiums, net 11,182 (17,928)
Losses and loss adjustment expenses 4,109 2,796
Ceded reinsurance balances payable (3,574) 53
Net realized losses (gains) 4,282 (462)
Other, net (3,150) 6,922
--------------- ---------------
Net cash provided by operating activities 136,418 96,062
--------------- ---------------
Cash flows from investing activities:
Proceeds from sales of bonds 172,913 175,328
Proceeds from maturities of bonds 55,470 59,419
Purchases of bonds (319,400) (371,642)
Change in short-term investments (14,518) 110,758
Securities purchased under agreements to resell (20,973) (14,633)
Other, net (4,286) (1,285)
--------------- ---------------
Net cash used in investing activities (130,794) (42,055)
--------------- ---------------
Cash flows from financing activities:
Dividends paid (17,000) (14,950)
Short-term financing - (7,930)
--------------- ---------------
Net cash used in financing activities (17,000) (22,880)
--------------- ---------------
Net cash flow (11,376) 31,127
Cash and cash pledged as collateral at January 1 36,828 6,531
--------------- ---------------
Cash and cash pledged as collateral at March 31 $25,452 $37,658
=============== ===============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes $1,500 $9,700
=============== ===============
Interest expense on intercompany line of credit $- $15
=============== ===============
See accompanying Notes to Consolidated Unaudited Financial Statements.