EXHIBIT 99.03
Ambac Assurance Corporation and Subsidiaries (a wholly
owned subsidiary of Ambac Financial Group, Inc.)
Consolidated Unaudited Financial Statements
as of June 30, 1997 and December 31, 1996
and for the periods ended June 30, 1997 and 1996
Ambac Assurance Corporation and Subsidiaries
Notes to Consolidated Unaudited Financial Statements
(1) Basis of Presentation
Ambac Assurance Corporation ("Ambac Assurance") is a leading insurer of
municipal and structured finance obligations and has been assigned triple-A
claims-paying ability ratings, the highest ratings available from Moody's
Investors Service, Inc., Standard & Poor's Ratings Group, Fitch Investors
Service, L.P., and Nippon Investors Services, Inc. Financial guarantee insurance
underwritten by Ambac Assurance 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 Assurance's consent. As of June 30, 1997, Ambac
Assurance's net insurance in force (principal and interest) was $241.6 billion.
Ambac Assurance is a wholly-owned subsidiary of Ambac Financial Group, 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.
American Municipal Bond Holding Company ("AMBH"), a wholly-owned subsidiary
of Ambac Assurance, is a holding company for certain real estate interests.
During the first quarter of 1997, Ambac Assurance established a new
subsidiary in the United Kingdom, AMBAC Insurance UK Limited ("AMBAC UK"), which
was authorized to conduct certain classes of general insurance business in the
United Kingdom. As of February 4, 1997, AMBAC UK is the primary vehicle for the
issuance of financial guarantee insurance policies in the United Kingdom and
Europe.
Ambac Assurance, 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 Ambac Financial
Group, Inc., owns a general partnership interest representing 10% of the total
partnership interest in AFS.
Ambac Assurance'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 six months ended June 30, 1997 may
not be indicative of the results that may be expected for the full year ending
December 31, 1997. 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, 1996 and 1995, and for each of the years in the
three-year period ended December 31, 1996.
Ambac Assurance Corporation and Subsidiaries
Consolidated Balance Sheets
(Dollars in Thousands Except Share Data)
June 30, 1997 December 31, 1996
------------- -----------------
(unaudited)
Assets
Investments:
Bonds held in available for sale account, at fair value
(amortized cost of $2,426,222 in 1997 and $2,323,259 in 1996) $2,524,873 $2,424,524
Short-term investments, at cost (approximates fair value) 98,486 91,320
---------- ----------
Total investments 2,623,359 2,515,844
Cash 4,346 5,025
Securities purchased under agreements to resell 4,832 4,369
Receivable for securities sold 57,876 18,462
Investment income due and accrued 44,263 42,263
Deferred acquisition costs 101,391 94,212
Prepaid reinsurance 169,194 168,786
Other assets 60,080 59,544
---------- ----------
Total assets $3,065,341 $2,908,505
========== ==========
Liabilities and Stockholder's Equity
Liabilities:
Unearned premiums $1,035,524 $ 995,220
Losses and loss adjustment expenses 61,041 60,220
Ceded reinsurance balances payable 11,723 7,438
Deferred income taxes 89,594 84,842
Current income taxes 7,325 8,974
Accounts payable and other liabilities 43,464 50,244
Payable for securities purchased 71,308 46,246
---------- ----------
Total liabilities 1,319,979 1,253,184
---------- ----------
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 June 30, 1997 and December 31, 1996 82,000 82,000
Additional paid-in capital 520,381 515,684
Unrealized gains on investments, net of tax 64,123 65,822
Cumulative translation adjustment 397 --
Retained earnings 1,078,461 991,815
---------- ----------
Total stockholder's equity 1,745,362 1,655,321
---------- ----------
Total liabilities and stockholder's equity $3,065,341 $2,908,505
========== ==========
See accompanying Notes to Consolidated Financial Statements.
Ambac Assurance Corporation and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
For The Periods Ended June 30, 1997 and 1996
(Dollars in Thousands)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
Revenues:
Gross premiums written $ 74,593 $ 58,768 $ 126,763 $ 110,060
Ceded premiums written (7,195) (9,836) (12,627) (19,448)
--------- --------- --------- ---------
Net premiums written 67,398 48,932 114,136 90,612
Increase in unearned premiums (30,595) (8,870) (39,883) (21,940)
--------- --------- --------- ---------
Net premiums earned 36,803 40,062 74,253 68,672
Net investment income 39,363 35,584 77,894 70,489
Net realized gains 3,479 67,580 4,291 69,936
Other income 3,331 4,753 6,316 10,805
--------- --------- --------- ---------
Total revenues 82,976 147,979 162,754 219,902
--------- --------- --------- ---------
Expenses:
Losses and loss adjustment expenses 664 1,700 1,392 2,510
Underwriting and operating expenses 10,763 11,583 21,817 21,666
Interest expense 565 514 1,130 1,028
--------- --------- --------- ---------
Total expenses 11,992 13,797 24,339 25,204
--------- --------- --------- ---------
Income before income taxes 70,984 134,182 138,415 194,698
--------- --------- --------- ---------
Income tax expense:
Current taxes 12,706 38,665 24,125 52,313
Deferred taxes 2,728 806 5,667 760
--------- --------- --------- ---------
Total income taxes 15,434 39,471 29,792 53,073
--------- --------- --------- ---------
Net income $ 55,550 $ 94,711 $ 108,623 $ 141,625
========= ========= ========= =========
See accompanying Notes to Consolidated Unaudited Financial Statements
Ambac Assurance Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
For The Periods Ended June 30, 1997 and 1996
(Dollars in Thousands)
Six Months Ended
June 30,
----------------------
1997 1996
--------- ---------
Cash flows from operating activities:
Net income $ 108,623 $ 141,625
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 871 950
Amortization of bond premium and discount (591) (811)
Current income taxes (1,649) 5,287
Deferred income taxes 5,667 760
Deferred acquisition costs (7,179) (5,487)
Unearned premiums 39,896 21,940
Losses and loss adjustment expenses 821 (6,567)
Ceded reinsurance balances payable 4,285 (7,889)
Gain on sales of investments (4,291) (69,936)
Other, net (4,316) (8,685)
--------- ---------
Net cash provided by operating activities 142,137 71,187
--------- ---------
Cash flows from investing activities:
Proceeds from sales of bonds at amortized cost 711,775 742,407
Proceeds from maturities of bonds at amortized cost 55,411 43,165
Purchases of bonds at amortized cost (880,479) (901,331)
Change in short-term investments (7,166) 30,324
Proceeds from sale of affiliate -- 115,865
Securities purchased under agreements to resell (463) 128
Other, net 106 (1,404)
--------- ---------
Net cash used in investing activities (120,816) 29,154
--------- ---------
Cash flows from financing activities:
Dividends paid (22,000) (135,865)
Capital contribution -- 32,500
--------- ---------
Net cash used in financing activities (22,000) (103,365)
--------- ---------
Net cash flow (679) (3,024)
Cash at January 1 5,025 6,912
--------- ---------
Cash at June 30 $ 4,346 $ 3,888
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes $ 22,600 $ 13,300
========= =========
See accompanying Notes to Consolidated Financial Statements.