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, 1997 AND DECEMBER 31, 1996
AND FOR THE PERIODS ENDED SEPTEMBER 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 September 30, 1997, Ambac
Assurance's net insurance in force (principal and interest) was $249.4 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 nine months ended
September 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)
September 30, 1997 December 31, 1996
-------------------- -------------------
(unaudited)
Assets
- ------
Investments:
Bonds held in available for sale account, at fair value
(amortized cost of $2,530,218 in 1997 and $2,323,259 in 1996) $2,667,860 $2,424,524
Short-term investments, at cost (approximates fair value) 104,541 91,320
-------------------- -------------------
Total investments 2,772,401 2,515,844
Cash 295 5,025
Securities purchased under agreements to resell 10,158 4,369
Receivable for securities sold 41,194 18,462
Investment income due and accrued 42,944 42,263
Deferred acquisition costs 103,922 94,212
Prepaid reinsurance 169,962 168,786
Other assets 39,148 59,544
-------------------- -------------------
Total assets $3,180,024 $2,908,505
==================== ===================
Liabilities and Stockholder's Equity
- ------------------------------------
Liabilities:
Unearned premiums $1,047,131 $995,220
Losses and loss adjustment expenses 61,087 60,220
Ceded reinsurance balances payable 4,544 7,438
Deferred income taxes 110,431 84,842
Current income taxes 11,050 8,974
Accounts payable and other liabilities 47,860 50,244
Payable for securities purchased 75,801 46,246
-------------------- -------------------
Total liabilities 1,357,904 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 September 30, 1997 and December 31, 1996 82,000 82,000
Additional paid-in capital 521,123 515,684
Unrealized gains on investments, net of tax 89,467 65,822
Cumulative translation adjustment (154) -
Retained earnings 1,129,684 991,815
-------------------- -------------------
Total stockholder's equity 1,822,120 1,655,321
-------------------- -------------------
Total liabilities and stockholder's equity $3,180,024 $2,908,505
==================== ===================
See accompanying Notes to Consolidated Unaudited Financial Statements.
AMBAC ASSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
(DOLLARS IN THOUSANDS)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------------- --------------------------------------
1997 1996 1997 1996
------------------ ------------------ ------------------ ------------------
Revenues:
Gross premiums written $53,444 $67,875 $180,207 $177,935
Ceded premiums written (6,495) (9,813) (19,122) (29,261)
------------------ ------------------ ------------------ ------------------
Net premiums written 46,949 58,062 161,085 148,674
Increase in unearned premiums (10,860) (23,900) (50,743) (45,840)
------------------ ------------------ ------------------ ------------------
Net premiums earned 36,089 34,162 110,342 102,834
Net investment income 40,206 36,977 118,100 107,466
Net realized gains 13,931 (5,381) 18,222 64,555
Other income 4,120 2,377 10,436 13,182
------------------ ------------------ ------------------ ------------------
Total revenues 94,346 68,135 257,100 288,037
------------------ ------------------ ------------------ ------------------
Expenses:
Losses and loss adjustment expenses 730 1,301 2,122 3,811
Underwriting and operating expenses 11,244 9,713 33,061 31,379
Interest expense 566 514 1,696 1,542
------------------ ------------------ ------------------ ------------------
Total expenses 12,540 11,528 36,879 36,732
------------------ ------------------ ------------------ ------------------
Income before income taxes 81,806 56,607 220,221 251,305
------------------ ------------------ ------------------ ------------------
Income tax expense:
Current taxes 12,051 10,521 36,176 62,834
Deferred taxes 7,190 888 12,857 1,648
------------------ ------------------ ------------------ ------------------
Total income taxes 19,241 11,409 49,033 64,482
------------------ ------------------ ------------------ ------------------
Net income $62,565 $45,198 $171,188 186,823
================== ================== ================== ==================
See accompanying Notes to Consolidated Unaudited Financial Statements.
AMBAC ASSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
(DOLLARS IN THOUSANDS)
Nine Months Ended
September 30,
-------------------------------------
1997 1,996
---------------- -----------------
Cash flows from operating activities:
Net income $171,188 $186,823
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,292 1,463
Amortization of bond premium and discount (779) (1,525)
Current income taxes 2,076 15,134
Deferred income taxes 12,857 1,648
Deferred acquisition costs (9,710) (7,402)
Unearned premiums 50,735 45,840
Losses and loss adjustment expenses 867 (5,826)
Ceded reinsurance balances payable (2,894) (3,374)
Gain on sales of investments (18,222) (64,555)
Other, net 22,932 (2,004)
---------------- -----------------
Net cash provided by operating activities 230,342 166,222
---------------- -----------------
Cash flows from investing activities:
Proceeds from sales of bonds at amortized cost 1,085,317 1,210,927
Proceeds from maturities of bonds at amortized cost 87,000 78,368
Purchases of bonds at amortized cost (1,358,009) (1,462,567)
Change in short-term investments (13,221) 12,846
Proceeds from sale of affiliate - 115,865
Securities purchased under agreements to resell (5,789) (4,346)
Other, net 2,630 (1,724)
---------------- -----------------
Net cash used in investing activities (202,072) (50,631)
---------------- -----------------
Cash flows from financing activities:
Dividends paid (33,000) (145,865)
Capital contribution - 32,500
---------------- -----------------
Net cash used in financing activities (33,000) (113,365)
---------------- -----------------
Net cash flow (4,730) 2,226
Cash at January 1 5,025 6,912
---------------- -----------------
Cash at September 30 $295 $9,138
================ =================
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes $29,900 $13,300
================ =================
See accompanying Notes to Consolidated Unaudited Financial Statements.