EXHIBIT 99.03
AMBAC ASSURANCE CORPORATION AND SUBSIDIARIES
(a wholly owned subsidiary of Ambac Financial Group, Inc.)
Consolidated Unaudited Financial Statements
As of March 31, 2002 and December 31, 2001
and for the Periods Ended March 31, 2002 and 2001
Ambac Assurance Corporation and Subsidiaries
Consolidated Balance Sheets
March 31, 2002 and December 31, 2001
(Dollars in Thousands Except Share Data)
March 31, 2002 December 31, 2001
-------------------- ---------------------
(unaudited)
ASSETS
Investments:
Fixed income securities, at fair value
(amortized cost of $5,053,550 in 2002 and $4,955,542 in 2001) $5,140,072 $5,083,039
Short-term investments, at cost (approximates fair value) 157,299 185,943
Other 2,287 1,394
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Total investments 5,299,658 5,270,376
Cash 24,398 33,678
Cash pledged as collateral 7,453 -
Receivable for securities sold 665 281
Investment income due and accrued 68,883 73,456
Reinsurance recoverable 2,055 2,259
Prepaid reinsurance 267,989 267,655
Deferred acquisition costs 167,423 163,477
Other assets 364,524 343,866
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Total assets $6,203,048 $6,155,048
==================== =====================
LIABILITIES AND STOCKHOLDER'S EQUITY
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Liabilities:
Unearned premiums $1,816,927 $1,790,084
Losses and loss adjustment expense reserve 155,893 152,352
Ceded reinsurance balances payable 7,710 10,146
Deferred income taxes 137,123 147,642
Current income taxes 63,456 126,039
Note payable to affiliate 63,500 63,500
Payable for securities purchased 36,898 26,097
Other liabilities 370,573 362,465
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Total liabilities 2,652,080 2,678,325
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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, 2002 and December 31, 2001 82,000 82,000
Additional paid-in capital 927,862 928,094
Accumulated other comprehensive income 53,504 80,556
Retained earnings 2,487,602 2,386,073
-------------------- ------------------------
Total stockholder's equity 3,550,968 3,476,723
-------------------- ------------------------
Total liabilities and stockholder's equity $6,203,048 $6,155,048
==================== ========================
See accompanying Notes to Consolidated Unaudited Financial Statements.
Ambac Assurance Corporation and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
For The Periods Ended March 31, 2002 and 2001
(Dollars in Thousands)
Three Months Ended
March 31,
-------------------------
2002 2001
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Revenues:
Gross premiums written $ 151,469 $ 110,291
Ceded premiums written (19,549) (12,701)
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Net premiums written $ 131,920 $ 97,590
========== =========
Net premiums earned $ 105,212 $ 86,088
Other credit enhancement fees 6,288 4,653
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Net premiums earned and other
credit enhancement fees 111,500 90,741
Net investment income 72,400 64,964
Net securities losses (4,571) (4,938)
Other income 8,678 7,552
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Total revenues 188,007 158,319
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Expenses:
Losses and loss adjustment expenses 5,700 4,600
Underwriting and operating expenses 20,294 18,407
Interest expense 551 1,154
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Total expenses 26,545 24,161
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Income before income taxes 161,462 134,158
Provision for income taxes 40,433 32,945
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Net income $ 121,029 $ 101,213
========== =========
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, 2002 and 2001
(Dollars in Thousands)
2002 2001
--------------------------- --------------------------
Retained Earnings:
Balance at January 1 $2,386,073 $2,002,120
Net income 121,029 $ 121,029 101,213 $ 101,213
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Dividends declared - common stock (19,500) (17,000)
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Balance at March 31 $2,487,602 $2,086,333
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Accumulated Other Comprehensive Income:
Balance at January 1 $ 80,556 $ 81,616
Unrealized (losses) gains on securities, ($40,974)
and $30,912, pre-tax, in 2002 and 2001, respectively /(1)/ (26,633) 20,093
Foreign currency translation loss (419) (896)
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Other comprehensive (loss) income (27,052) (27,052) 19,197 19,197
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Comprehensive income $ 93,977 $ 120,410
============= ============
Balance at March 31 $ 53,504 $ 100,813
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Preferred Stock:
Balance at January 1 and March 31 $ - $ -
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Common Stock:
Balance at January 1 and March 31 $ 82,000 $ 82,000
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Additional Paid-in Capital:
Balance at January 1 $ 928,094 $ 760,006
Capital issuance costs (607) -
Exercise of stock options 375 -
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Balance at March 31 $ 927,862 $ 760,006
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Total Stockholder's Equity at March 31 $3,550,968 $3,029,152
========== ==========
/(1)/ Disclosure of reclassification amount:
Unrealized holding (losses) gains arising during period (26,349) 20,146
Less: reclassification adjustment for net securities gains
included in net income 284 53
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Net unrealized (losses) gains on securities ($26,633) $ 20,093
========== ==========
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, 2002 and 2001
(Dollars in Thousands)
Three Months Ended
March 31,
-----------------------------
2002 2001
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Cash flows from operating activities:
Net income $ 121,029 $ 101,213
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 704 753
Amortization of bond premium and discount (1,666) (1,950)
Current income taxes (62,583) 24,439
Deferred income taxes 3,822 5,984
Deferred acquisition costs (3,946) (6,870)
Unearned premiums, net 26,509 11,182
Losses and loss adjustment expenses 3,745 4,109
Ceded reinsurance balances payable (2,436) (3,574)
Net securities losses 4,571 4,282
Other, net (8,457) (3,150)
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Net cash provided by operating activities 81,292 136,418
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Cash flows from investing activities:
Proceeds from sales of bonds 79,569 172,913
Proceeds from maturities of bonds 67,497 55,470
Purchases of bonds (232,954) (319,400)
Change in short-term investments 35,944 (14,518)
Securities purchased under agreements to resell - (20,973)
Other, net (5,768) (4,286)
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Net cash used in investing activities (55,712) (130,794)
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Cash flows from financing activities:
Dividends paid (19,500) (17,000)
Capital issuance costs (607) -
Short-term financing (7,300) -
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Net cash used in financing activities (27,407) (17,000)
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Net cash flow (1,827) (11,376)
Cash and cash pledged as collateral at January 1 33,678 36,828
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Cash and cash pledged as collateral at March 31 $ 31,851 $ 25,452
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes $ 68,149 $ 1,500
========= =========
See accompanying Notes to Consolidated Unaudited Financial Statements.
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
to clients for both the public and private sectors around the world. Ambac
Assurance provides financial guarantees on public finance 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. Insurance
policies insured by Ambac Assurance guarantee payment when due of the principal
of and interest on the obligation guaranteed. As of March 31, 2002, Ambac
Assurance's net guarantees in force (principal and interest) were $484,147,214.
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
payments 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. Substantially all of Ambac Credit Product's contracts are partially
hedged with various financial institutions or structured with 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.
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 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, 2002 may not be indicative of
the results that may be expected for the full year ending December 31, 2002.
These consolidated financial statements and notes should be read in conjunction
with the financial statements and notes included in the audited
Ambac Assurance Corporation and Subsidiaries
Notes to Consolidated Unaudited Financial Statements (Continued)
consolidated financial statements of Ambac Assurance Corporation and its
subsidiaries as of December 31, 2001 and 2000, and for each of the years in the
three-year period ended December 31, 2001 which was filed with the Securities
and Exchange Commission on March 26, 2002 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) Goodwill and Other Intangible Assets
In July 2001, the FASB issued FAS Statement 142, "Goodwill and Other
Intangible Assets". FAS 142 addresses the initial recognition and measurement of
intangible assets either singly or within a group of assets, as well as the
measurement of goodwill and other intangible assets subsequent to their initial
acquisition. FAS 142 changes the accounting for goodwill and intangible assets
that have indefinite useful lives from an amortization approach to an
impairment-only approach that requires that those assets be tested at least
annually for impairment. Intangible assets that have finite useful lives will
continue to be amortized over their useful lives, but without an arbitrary
ceiling on their useful lives. Ambac adopted FAS 142 effective January 1, 2002
and has determined that it has no impact on its consolidated results of
operations and financial position.
(3) Accounting for Asset Retirement Obligations
In August 2001, the FASB issued FAS Statement 143, "Accounting for Asset
Retirement Obligations"("SFAS 143".) SFAS 143 requires companies to record the
fair value of an asset retirement obligation as a liability in the period in
which it incurs a legal obligation associated with the retirement of tangible
long-lived assets that result from the acquisition, construction, development
and/or normal use of the assets. Companies also record a corresponding asset
which is depreciated over the life of the asset. Subsequent to the initial
measurement of the asset retirement obligation, the obligation is adjusted at
the end of each period to reflect the passage of time and changes in the
estimated future cash flows underlying the obligation. Ambac Assurance is
required to adopt SFAS 143 on January 1, 2003.
Ambac Assurance Corporation and Subsidiaries
Notes to Consolidated Unaudited Financial Statements (Continued)
(4) Accounting for the Impairment or Disposal of Long-Lived Assets
In October 2001, the FASB issued FAS Statement 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets"("SFAS 144".) SFAS 144 addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. This Statement requires that long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. SFAS Statement 144 requires
companies to separately report discontinued operations and extends that
reporting to a component of an entity that either has been disposed of (by sale,
abandonment, or in a distribution to owners) or is classified as held for sale.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value less cost to sell. This statement did not have an effect on Ambac
Assurance's first quarter of 2002 results.