EX-99.04 3 dex9904.htm PRESS RELEASE CONTAINING FINANCIAL STATEMENTS Prepared by R.R. Donnelley Financial -- PRESS RELEASE CONTAINING FINANCIAL STATEMENTS
 
 
 
 
 
 
Ambac Financial Group, Inc.
One State Street Plaza
New York, NY 10004
212.668.0340
 
News Release
 
For Immediate Release
 
Investor/Media Contact: Peter R. Poillon
(212) 208-3333
ppoillon@ambac.com
Web site: www.ambac.com
 
LOGO
 
AMBAC FINANCIAL GROUP, INC. ANNOUNCES
SECOND QUARTER NET INCOME OF $119.8 MILLION, UP 11%
 
Second Quarter Operating Earnings Per Diluted Share(1) of $1.12 up 14%,
Core Earnings Per Diluted Share(1) Up 15%
 
Second Quarter Adjusted Gross Premiums Written(2) Decrease 10%
 
NEW YORK, July 17, 2002—Ambac Financial Group, Inc. (NYSE: ABK) (Ambac) today announced second quarter 2002 net income of $119.8 million or $1.09 per diluted share. This represents an 11% increase from second quarter 2001 net income of $107.6 million and a 10% increase in net income per diluted share from $0.99 per diluted share in the second quarter of 2001.
 
Commenting on the results, Ambac Chairman and CEO Phillip B. Lassiter noted, “Business activity was vibrant across our markets in the second quarter. Domestic public finance was the standout in terms of premiums booked. International business closed slowed from a year ago but is not indicative of our strong pipeline, particularly in Europe. The overall outlook for the balance of the year remains decidedly upbeat.”
 
Earnings Per Diluted Share
 
In addition to net income, Ambac currently presents operating earnings and core earnings, as discussed in Footnote 1. These measures are not substitutes for net income computed in accordance with accounting principles generally accepted in the United States of America (GAAP). They are useful for analysis in that they eliminate certain items, such as realized and unrealized gains and losses, the effect of refundings and calls and certain non-recurring items, to highlight the more consistent elements of earnings. Although these measures are appropriate and

 
Ambac Second Quarter 2002 Earnings/2
 
useful for the analysis of the business, starting in the third quarter of 2002, Ambac will eliminate the reporting of operating earnings and will change its definition of core earnings in order to establish consistency in reporting in the marketplace. The new definition will conform to Standard and Poor’s Ratings Services’ (“S&P”) recommendations to all public companies. See “Changes in Measures of Corporate Earnings” below for more detail.
 
For the second quarter of 2002, operating earnings were $122.3 million, up 15% from $106.8 million in operating earnings for the second quarter of 2001. Core earnings for the second quarter of 2002 were $115.9 million, an increase of 15% from $100.7 million in core earnings for the second quarter of 2001.
 
The following table shows net income, operating earnings and core earnings, all per diluted share:
 
Table I
 
    
Second Quarter
     
Six Months
  
    
2002
   
2001
   
% Change
     
2002
   
2001
   
% Change
  
Net income per diluted share
   
$
1.09
   
$
0.99
   
+10
%
   
$
2.17
   
$
1.88
   
+15
%
Operating earnings per diluted share
   
$
1.12
   
$
0.98
   
+14
%
   
$
2.21
   
$
1.90
   
+16
%
Core earnings per diluted share
   
$
1.06
   
$
0.92
   
+15
%
   
$
2.12
   
$
1.81
   
+17
%
 
Revenues
 
Total revenues in the second quarter of 2002, excluding net gains and losses on investment securities and structured credit derivatives, were $206.5 million, an increase of 16% from $178.2 million in revenues for the second quarter of 2001.
 
Highlights
 
 
•
 
Adjusted gross premiums written(2) in the second quarter of 2002 were $276.7 million, down 10% from a very strong second quarter of 2001 of $307.8 million. A strong flow of business in public finance and structured finance was offset by a decline in transactions closed in international finance.
 
In public finance, Ambac benefited from the significant increase in new issuance of municipal bonds. Ambac saw healthy writings of transportation, tax-backed and student loans transactions and more complex structured transactions, particularly in the housing sector. Structured finance growth during the quarter was led by strong asset-backed, collateralized debt obligations and investor-owned utilities activity, partially offset by a

Ambac Second Quarter 2002 Earnings/3
 
decline in consumer mortgage-backed business. In international finance, deal activity was strong in the asset-backed markets in Japan and the UK but slow in UK infrastructure transactions. Several international transactions are in process and expected to close by year end.
 
A breakdown of adjusted gross premiums written by market sector is included below as Table II.
 
Table II
 
Adjusted Gross Premiums Written
 
$-millions
   
Second Quarter
   
Six Months
    
2002
   
2001
   
% Change
   
2002
   
2001
   
% Change
Public Finance
   
$
135.4
   
$
126.2
   
+7%
   
$
209.0
   
$
170.0
   
+23%
Structured Finance
   
 
101.8
   
 
98.9
   
+3%
   
 
180.9
   
 
161.2
   
+12%
International
   
 
39.5
   
 
82.7
   
-52%
   
 
98.7
   
 
134.3
   
-27%
    
  
  
  
  
  
Total
   
$
276.7
   
$
307.8
   
-10%
   
$
488.6
   
$
465.5
   
+5%
 
 
•
 
Net premiums written in the second quarter of 2002 of $171.0 million were 20% lower than net premiums written of $212.9 million in the same period of 2001. Gross premiums written for the second quarter of 2002 were offset by $24.7 million in ceded premiums. In the second quarter of 2001, ceded premiums were $23.8 million.
 
Net premiums written for the six months of 2002 of $300.8 million were 3% lower than net premiums written of $309.9 million in the same period of 2001.
 
 
•
 
Net premiums earned and other credit enhancement fees for the second quarter of 2002 were $120.2 million, which represented a 22% increase from the $98.4 million earned in the second quarter of 2001. Net premiums earned increased for all market segments. Public finance earned premium growth resulted from increased activity in that market over the past several quarters, enhanced by the company’s continued focus on structured municipal obligations – a growing market that exhibits solid pricing and risk adjusted returns. Earned premium growth for structured finance continues to be driven by strong writings in consumer asset backed transactions and CDO’s. The growth was partially offset by the continued high level of pay-downs of the existing mortgage-backed book. International net earned premium and other credit enhancement fee growth also accelerated during the quarter, primarily as a result of strong activity in Japan and UK asset-backed transactions over the past few quarters.
 
Net premiums earned include accelerated premiums, which result from refundings and calls recognized during the quarter. Accelerated premiums were $11.2 million in the second

Ambac Second Quarter 2002 Earnings/4
 
quarter of 2002 (which had a net income per diluted share effect of $0.06), up 6% from $10.6 million ($0.06 per diluted share) in accelerated premiums in the second quarter of 2001.
 
Net premiums earned and other credit enhancement fees for the six months of 2002 were $230.1 million, which represented a 22% increase from the $188.2 million earned in the first half of 2001. Accelerated premiums were $18.5 million for the first half 2002 (which had a net income per diluted share effect of $0.09), up 11% from $16.7 million ($0.09 per diluted share) in accelerated premiums for the first half of 2001.
 
A breakdown of net premiums earned and other credit enhancement fees by market sector is included below as Table III. Normal net premiums earned exclude accelerated premiums that result from refundings and calls.
 
Table III
Net Premiums Earned and Other Credit Enhancement Fees
 
$-millions
   
Second Quarter
   
Six Months
    
2002
   
2001
   
% Change
   
2002
  
2001
   
% Change
Public Finance
   
$
38.2
   
$
33.7
   
+13%
   
$
75.2
  
$
66.4
   
+13%
Structured Finance
   
 
43.3
   
 
36.6
   
+18%
   
 
84.7
  
 
71.2
   
+19%
International
   
 
27.5
   
 
17.5
   
+57%
   
 
51.7
  
 
33.9
   
+53%
    
  
       
 
    
Total Normal Premiums/Fees
   
 
109.0
   
 
87.8
   
+24%
   
 
211.6
  
 
171.5
   
+23%
Accelerated Premiums
   
 
11.2
   
 
10.6
   
+6%
   
 
18.5
  
 
16.7
   
+11%
    
  
       
 
    
Total
   
$
120.2
   
$
98.4
   
+22%
   
$
230.1
  
$
188.2
   
+22%
 
 
•
 
Net investment income for the second quarter of 2002 was $73.6 million, representing an increase of 13% from $65.1 million in the comparable period of 2001. This increase was due primarily to the growth in the investment portfolio from ongoing operations, partially offset by a lower reinvestment rate stemming from the current interest rate environment. Investment income was also positively impacted by the proceeds from Ambac’s $200 million debt offering in October 2001.
 
Net investment income for the six months of 2002 was $146.1 million, representing an increase of 13% from $129.5 million in the comparable period of 2001.
 
 
•
 
Financial services revenues, excluding gains and losses, were $11.0 million in the second quarter of 2002, down 7% from $11.8 million in revenues for the second quarter of 2001.

Ambac Second Quarter 2002 Earnings/5
 
Financial services revenues include revenues from swaps, investment agreements and money management. While investment agreement revenues grew on improved interest spreads and higher volume, money management revenues were relatively flat during the quarter and swap revenues declined. The decline in swap revenue during the second quarter resulted primarily from a revenue adjustment of $3.8 million on a transaction executed in early 2000 and terminated this quarter. Excluding the swap revenue adjustment, financial services revenues would have grown 25%, quarter on quarter.
 
Financial services revenues, excluding gains and losses, were $27.6 million in the first half of 2002, up 5% from the $26.2 million of revenues in the first half of 2001.
 
Expenses
 
Highlights
 
 
•
 
Financial guarantee expenses of $24.5 million for the second quarter of 2002 increased by 10% over the $22.2 million of expenses for the same quarter of 2001. This increase was primarily due to higher compensation costs and additions to the general loss provision.
 
Financial guarantee expenses of $48.8 million for the first six months of 2002 increased by 12% over the $43.5 million of expenses for the same period of 2001.
 
 
•
 
Financial services expenses for the second quarter of 2002 of $5.7 million declined by 5% from $6.0 million in expenses for the second quarter of 2001.
 
Financial services expenses for the first half of 2002 of $10.8 million decreased by 7% from $11.6 million in expenses for the first half of 2001.
 
Other Items
 
 
•
 
Total net securities gains/(losses) for the second quarter of 2002 were ($4.5) million, consisting of net realized gains on investment securities of $3.5 million and net mark-to-market losses on credit derivatives of ($8.0) million. For the second quarter of 2001 net gains were $1.4 million, consisting of net realized gains on investment securities of $0.7 million and net mark-to-market gains on credit derivatives of $0.7 million.
 
Total net securities gains/(losses) for the first half of 2002 were ($8.8) million, consisting of net realized gains on investment securities of $3.3 million and mark-to-market losses on credit derivatives of ($12.1) million. For the first half of 2001 net losses were ($3.2) million, primarily consisting of net realized losses on investment securities.

Ambac Second Quarter 2002 Earnings/6
 
 
•
 
Interest expense for the second quarter of 2002 was $10.8 million, up 14% from $9.5 million for the second quarter of 2001. The increase is attributable to Ambac’s issuance of $200 million in 50-year debentures in October 2001.
 
Balance Sheet
 
Highlights
 
 
•
 
Total assets as of June 30, 2002 were $13.87 billion, up 13% from total assets of $12.27 billion at December 31, 2001. This increase was due primarily to cash generated from business written during the period and increased volume in the guaranteed investment contract business. As of June 30, 2002, stockholders’ equity was $3.36 billion, a 13% increase from year-end 2001 stockholders’ equity of $2.98 billion. The increase stemmed primarily from net income during the period.
 
Changes in Measures of Corporate Earnings
 
Ambac also announced today that, starting with the third quarter 2002 earnings release, it will eliminate the reporting of operating earnings and will change its definition of core earnings. The definition of core earnings will comply with the S&P recommendations published in its report titled “Measures of Corporate Earnings” in May of this year. Core earnings will be defined as net income less the estimated effect of stock options if they were expensed, less the effect of certain other non-operating items as defined by S&P (“S&P core earnings”). In all future earnings releases, Ambac will report net income in conformity with GAAP and S&P core earnings. Commenting on Ambac’s decision to change reporting measures, Mr. Lassiter stated, “Ambac has a long history of high quality transparent financial reporting to the financial community. Although we believe our current pro-forma measures are very useful to investors, we will adopt S&P’s proposal for financial reporting because we believe improved consistency in financial reporting measures can serve as the foundation for providing useful comparative information.”
 
The following table reconciles net income per diluted share to S&P core earnings per diluted share for the three and six-month periods ended June 30, 2002 and 2001:
 
    
Second Quarter
   
Six Months
    
2002
     
2001
     
% Change
   
2002
     
2001
     
% Change
Net Income per diluted share
   
$
1.09
 
   
$
0.99
 
   
+10%
   
$
2.17
 
   
$
1.88
 
   
+15%
Est. stock options expense
   
 
(0.03
)
   
 
(0.03
)
   
—  
   
 
(0.06
)
   
 
(0.05
)
   
-20%
    
  
       
  
    
S&P core earnings
   
$
1.06
 
   
$
0.96
 
   
+10%
   
$
2.11
 
   
$
1.83
 
   
+15%

Ambac Second Quarter 2002 Earnings/7
 
2002 Earnings Guidance
 
Ambac management reconfirms its previous top range of operating earnings guidance of $4.60 for 2002 while raising the bottom range from $4.50 to $4.54. Since Ambac will eliminate the reporting of operating earnings and change its definition of core earnings to conform to S&P’s definition of core earnings, Ambac’s guidance will change accordingly. This guidance will include year-to-date net realized gains or losses on investment securities and mark-to-market gains or losses on credit derivatives but will be exclusive of such future gains or losses. Management cannot forecast market factors such as interest rates and credit spreads with sufficient accuracy to make such forecast useful. As such, management currently anticipates S&P core earnings per diluted share for 2002 of $4.36—$4.42.
 
Increased Cash Dividend Declared
 
At its July 2002 Board meeting, the Board of Directors of Ambac Financial Group Inc. approved an 11% increase in the regular quarterly cash dividend from $0.09 to $0.10 per share of common stock. The dividend is payable on September 4, 2002 to stockholders of record on August 12, 2002. Ambac has declared an increased cash dividend in every year since going public in 1991.
 
Forward-Looking Statements
 
This release, in particular the Chairman’s remarks and the section titled “2002 Operating Earnings Guidance”, contains statements about our future results that may be considered “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and the current economic environment. We caution you that these statements are not guarantees of future performance. They involve a number of risks and uncertainties that are difficult to predict. Our actual results could differ materially from those expressed or implied in the forward-looking statements. Among the factors that could cause actual results to differ materially are (1) changes in the economic, credit, or interest rate environment in the United States and abroad; (2) the level of activity within the national and worldwide debt markets; (3) competitive conditions and pricing levels; (4) legislative and regulatory developments; (5) changes in tax laws; (6) the policies and actions of the United States and other governments; and (7) other risks and uncertainties that have not been identified at this time. We undertake no obligation to publicly correct or update any forward-looking statement if we later become aware that it is not likely to be achieved.
 
*******************
 
Ambac Financial Group, Inc., headquartered in New York City, is a holding company whose affiliates provide financial guarantees and financial services to clients in both the public and private sectors around the world. Ambac’s principal operating subsidiary, Ambac Assurance Corporation, a leading guarantor of public finance and structured finance obligations, 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. Ambac

 
Ambac Second Quarter 2002 Earnings/8
 
Financial Group, Inc. common stock is listed on the New York Stock Exchange (ticker symbol ABK).
 
********************
 
Footnotes
 
(1)
 
Core earnings, S&P core earnings (as newly defined above) and operating earnings are not substitutes for net income computed in accordance with accounting principles generally accepted in the United States of America (GAAP), but are important measures used by management, equity analysts and investors to measure Ambac’s financial results. The Company defines operating earnings as net income, less the effect of realized and unrealized gains and losses and certain non-recurring items. Core earnings, as currently reported, which Ambac provides as analytical data, is defined as operating earnings less net insurance premiums earned from refundings and calls. The definitions of operating earnings and core earnings used by Ambac may differ from definitions of operating earnings and core earnings used by other public holding companies of financial guarantors.
 
(2)
 
Adjusted gross premiums written, which is not promulgated under GAAP, is used by management, equity analysts and investors to measure Ambac’s financial results. Adjusted gross premiums written, which Ambac reports as analytical data, are defined as gross (direct and assumed) up-front premiums written plus the present value of estimated installment premiums written on insurance policies and structured credit derivatives issued in the period. The definition of adjusted gross premiums written used by Ambac may differ from definitions of adjusted gross premiums written used by other public holding companies of financial guarantors.

 
Ambac Financial Group, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
For the Periods Ended June 30, 2002 and 2001
(Dollars in Thousands Except Share Data)
 
    
Three Months Ended June 30,
     
Six Months Ended June 30,
  
    
2002
     
2001
     
2002
     
2001
  
Revenues:
                                    
Financial Guarantee:
                                    
Gross premiums written
   
$
195,683
 
   
$
236,668
 
   
$
345,044
 
   
$
346,335
 
Ceded premiums written
   
 
(24,705
)
   
 
(23,767
)
   
 
(44,254
)
   
 
(36,468
)
    
  
  
  
Net premiums written
   
$
170,978
 
   
$
212,901
 
   
$
300,790
 
   
$
309,867
 
    
  
  
  
Net premiums earned
   
$
113,630
 
   
$
93,412
 
   
$
217,284
 
   
$
178,528
 
Other credit enhancement fees
   
 
6,576
 
   
 
4,995
 
   
 
12,864
 
   
 
9,648
 
    
  
  
  
Net premiums earned and other credit enhancement fees
   
 
120,206
 
   
 
98,407
 
   
 
230,148
 
   
 
188,176
 
Net investment income
   
 
73,593
 
   
 
65,058
 
   
 
146,140
 
   
 
129,534
 
Net securities (losses) gains (1)
   
 
(4,510
)
   
 
1,350
 
   
 
(9,081
)
   
 
(3,588
)
Other income
   
 
800
 
   
 
2,284
 
   
 
2,114
 
   
 
3,416
 
Financial Services:
                                    
Revenue
   
 
10,966
 
   
 
11,767
 
   
 
27,557
 
   
 
26,226
 
Net securities gains
   
 
408
 
   
 
—  
 
   
 
766
 
   
 
438
 
Other:
                                    
Revenue
   
 
956
 
   
 
678
 
   
 
1,685
 
   
 
2,307
 
Net securities losses
   
 
(444
)
   
 
—  
 
   
 
(444
)
   
 
—  
 
    
  
  
  
Total revenues
   
 
201,975
 
   
 
179,544
 
   
 
398,885
 
   
 
346,509
 
    
  
  
  
Expenses:
                                    
Financial Guarantee:
                                    
Losses and loss adjustment expenses
   
 
5,900
 
   
 
4,800
 
   
 
11,600
 
   
 
9,400
 
Underwriting and operating expenses
   
 
18,603
 
   
 
17,426
 
   
 
37,164
 
   
 
34,069
 
Financial Services
   
 
5,699
 
   
 
5,973
 
   
 
10,835
 
   
 
11,604
 
Interest
   
 
10,816
 
   
 
9,485
 
   
 
21,482
 
   
 
18,968
 
Other
   
 
2,015
 
   
 
1,714
 
   
 
3,481
 
   
 
3,451
 
    
  
  
  
Total expenses
   
 
43,033
 
   
 
39,398
 
   
 
84,562
 
   
 
77,492
 
    
  
  
  
Income before income taxes
   
 
158,942
 
   
 
140,146
 
   
 
314,323
 
   
 
269,017
 
Provision for income taxes
   
 
39,181
 
   
 
32,509
 
   
 
77,610
 
   
 
63,865
 
    
  
  
  
Net income
   
$
119,761
 
   
$
107,637
 
   
$
236,713
 
   
$
205,152
 
    
  
  
  
Net income per share:
                                    
Basic
   
$
1.13
 
   
$
1.02
 
   
$
2.23
 
   
$
1.94
 
    
  
  
  
Diluted
   
$
1.09
 
   
$
0.99
 
   
$
2.17
 
   
$
1.88
 
    
  
  
  
Weighted average number of common shares outstanding:
                                    
Basic
   
 
106,124,220
 
   
 
105,816,151
 
   
 
105,978,049
 
   
 
105,739,608
 
    
  
  
  
Diluted
   
 
109,515,722
 
   
 
109,051,506
 
   
 
109,260,209
 
   
 
108,954,037
 
    
  
  
  
 
(1)
 
Includes net gains (losses) on investment securities sold of $3,472, $658, $2,972 and ($3,624) for the second quarter of 2002 and 2001 and the six months ended June 30, 2002 and 2001, respectively, and change in fair value of credit derivatives of ($7,982), $692, ($12,053) and $36 for the second quarter of 2002 and 2001 and the six months ended June 30, 2002 and 2001, respectively.

 
Ambac Financial Group, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30, 2002 and December 31, 2001
(Dollars in Thousands Except Share Data)
 
    
June 30, 2002
     
December 31, 2001
  
    
(Unaudited)
         
Assets
              
Investments:
                  
Fixed income securities, at fair value
                  
(amortized cost of $10,204,539 in 2002 and $8,355,596 in 2001)
   
$
10,456,533
 
   
$
8,469,157
 
Fixed income securities pledged as collateral, at fair value
                  
(amortized cost of $939,509 in 2002 and $1,393,193 in 2001)
   
 
948,177
 
   
 
1,401,528
 
Short-term investments, at cost (approximates fair value)
   
 
220,426
 
   
 
415,002
 
Other
   
 
2,633
 
   
 
2,163
 
    
  
Total investments
   
 
11,627,769
 
   
 
10,287,850
 
Cash
   
 
27,713
 
   
 
76,580
 
Cash pledged as collateral
   
 
9,418
 
   
 
—  
 
Securities purchased under agreements to resell
   
 
14,005
 
   
 
11,200
 
Receivable for investment agreements
   
 
169
 
   
 
4,101
 
Receivable for securities sold
   
 
8,649
 
   
 
8,922
 
Investment income due and accrued
   
 
156,133
 
   
 
144,463
 
Reinsurance recoverable
   
 
1,894
 
   
 
2,259
 
Prepaid reinsurance
   
 
272,946
 
   
 
267,655
 
Deferred acquisition costs
   
 
170,345
 
   
 
163,477
 
Loans
   
 
932,213
 
   
 
901,194
 
Other assets
   
 
648,212
 
   
 
399,994
 
    
  
Total assets
   
$
13,869,466
 
   
$
12,267,695
 
    
  
Liabilities and Stockholders' Equity
              
Liabilities:
                  
Unearned premiums
   
$
1,869,659
 
   
$
1,780,272
 
Losses and loss adjustment expense reserve
   
 
161,497
 
   
 
152,352
 
Ceded reinsurance balances payable
   
 
9,831
 
   
 
10,146
 
Obligations under investment and payment agreements
   
 
5,220,984
 
   
 
4,089,777
 
Obligations under investment repurchase agreements
   
 
1,190,564
 
   
 
1,422,151
 
Securities sold under agreement to repurchase
   
 
409,000
 
   
 
425,000
 
Deferred income taxes
   
 
183,214
 
   
 
123,077
 
Current income taxes
   
 
18,750
 
   
 
98,145
 
Debentures
   
 
612,472
 
   
 
619,315
 
Accrued interest payable
   
 
78,630
 
   
 
84,225
 
Other liabilities
   
 
595,637
 
   
 
416,632
 
Payable for securities purchased
   
 
158,027
 
   
 
62,915
 
    
  
Total liabilities
   
 
10,508,265
 
   
 
9,284,007
 
    
  
Stockholders' equity:
                  
Preferred stock
   
 
—  
 
   
 
—  
 
Common stock
   
 
1,062
 
   
 
1,060
 
Additional paid-in capital
   
 
602,478
 
   
 
538,135
 
Accumulated other comprehensive income
   
 
158,746
 
   
 
62,476
 
Retained earnings
   
 
2,599,073
 
   
 
2,403,473
 
Common stock held in treasury at cost
   
 
(158
)
   
 
(21,456
)
    
  
Total stockholders' equity
   
 
3,361,201
 
   
 
2,983,688
 
    
  
Total liabilities and stockholders' equity
   
$
13,869,466
 
   
$
12,267,695
 
    
  
Number of shares outstanding (net of treasury shares)
   
 
106,203,509
 
   
 
105,584,049
 
    
  
Book value per share
   
 
$31.65
 
   
 
$28.26
 
    
  

 
Ambac Financial Group, Inc. and Subsidiaries
Supplemental Analytical Data: Components of Core Earnings (1)
(Unaudited)
For The Periods Ended June 30, 2002 and 2001
(Dollars in Thousands)
 
    
Three Months Ended
June 30,
     
Six Months Ended
June 30,
  
    
2002
     
2001
     
2002
     
2001
  
Net income
   
$
119,761
 
   
$
107,637
 
   
$
236,713
 
   
$
205,152
 
Adjustments:
                                    
Net securities losses (gains)
   
 
2,500
 
   
 
(878
)
   
 
5,238
 
   
 
2,047
 
    
  
  
  
Operating earnings
   
 
122,261
 
   
 
106,759
 
   
 
241,951
 
   
 
207,199
 
Refundings, calls and other accelerations
   
 
(6,410
)
   
 
(6,057
)
   
 
(10,569
)
   
 
(9,529
)
    
  
  
  
Core earnings
   
$
115,851
 
   
$
100,702
 
   
$
231,382
 
   
$
197,670
 
    
  
  
  
 
Ambac Financial Group, Inc. and Subsidiaries
Supplemental Analytical Data: Components of Adjusted Book Value Per Share(2)
June 30, 2002 and December 31, 2001
 
    
June 30,
2002
     
December 31,
2001
  
Book value
   
$
31.65
 
   
$28.26
 
After-tax value of:
                
Net unearned premium reserve less deferred acquisition costs
   
 
8.72
 
   
8.31
 
Present value of future installment premiums
   
 
6.37
 
   
6.07
 
Unrealized loss on investment agreement liabilities
   
 
(1.09
)
   
(0.61
)
    
  
Adjusted book value
   
$
45.65
 
   
$42.03
 
    
  
 
(1)
 
Core earnings and operating earnings are not substitutes for net income computed in accordance with accounting principles generally accepted in the United States of America (GAAP), but are important measures used by management, equity analysts and investors to measure Ambac's financial results. The Company defines operating earnings as net income, less the effect of realized and unrealized gains and losses and certain non-recurring items. Core earnings, which Ambac reports as analytical data, is defined as operating earnings less net insurance premiums earned from refundings and calls. The definitions of operating earnings and core earnings used by Ambac may differ from definitions of operating earnings and core earnings used by other public holding companies of financial guarantors.
 
 
(2)
 
Adjusted book value (ABV), which is not promulgated under GAAP, is used by management, equity analysts and investors as a measurement of the Company's intrinsic value with no benefit given for ongoing business activity. Management derives ABV by beginning with stockholders' equity (book value) and adding or subtracting the after-tax value of: the net unearned premium reserve; deferred acquisition costs; the present value of estimated net future installment premiums; and the unrealized gain or loss on investment agreement liabilities. These adjustments will not be realized until future periods and may differ materially from the amounts used in determining ABV. The definition of ABV used by the Company may differ from definitions of ABV used by other public holding companies of financial guarantee insurers.

 
Ambac Assurance Corporation
Statutory Accounting, Financial and Capital Information(1)
June 30, 2002 and December 31, 2001
(Dollars in Thousands, Except Ratios)
 
    
June 30,
2002
   
December 31, 2001
Capital and Claim-Paying Resources:
              
Contingency reserve
   
$
1,374,533
   
$
1,265,652
Capital and surplus
   
 
2,101,092
   
 
1,996,284
    
  
Qualified statutory capital
   
 
3,475,625
   
 
3,261,936
Unearned premiums
   
 
1,960,671
   
 
1,860,090
Losses and loss adjustment expenses
   
 
38,227
   
 
27,835
    
  
Policyholders’ reserves
   
 
5,474,573
   
 
5,149,861
Third party capital support(2)
   
 
800,000
   
 
800,000
Present value of future installment premiums
   
 
1,040,799
   
 
986,760
               
Total claims-paying resources
   
$
7,315,372
   
$
6,936,621
    
  
Net financial guarantees in force
   
$
502,956,334
   
$
476,189,690
Capital ratio(3)
   
 
145:1
   
 
146:1
Financial resources ratio(4)
   
 
69:1
   
 
69:1
 
(1)
 
Statutory accounting information for Ambac Assurance Corporation and Connie Lee Insurance Company are combined for purposes of this schedule. Qualified statutory capital for Ambac Assurance, on a stand alone basis, as of June 30, 2002 and December 31, 2001 are $3.453 billion and $3.240 billion, respectively.
(2)
 
Third party capital support at June 30, 2002 represents pre-funded capital which provides for the unconditional ability to issue up to $800 million of preferred stock to high quality asset-backed trusts.
(3)
 
Capital ratio is net financial guarantees in force divided by qualified statutory capital.
(4)
 
Financial resources ratio is net financial guarantees in force divided by total claims-paying resources.

Ambac Assurance Corporation and Subsidiaries
Capitalization Table - GAAP
June 30, 2002 and December 31, 2001
(Dollars in Millions)
 
The following table sets forth Ambac Assurance's consolidated capitalization as of June 30, 2002
and December 31, 2001, respectively, on the basis of accounting principles generally accepted in
the United States of America.
 
    
June 30,
2002
   
December 31,
2001
    
(unaudited)
     
Unearned premiums
   
$
1,880
   
$
1,790
Other liabilities
   
 
1,138
   
 
888
    
  
Total liabilities
   
 
3,018
   
 
2,678
    
  
Stockholder’s equity:
              
Common stock
   
 
82
   
 
82
Additional paid-in capital
   
 
922
   
 
928
Accumulated other comprehensive income
   
 
142
   
 
81
Retained earnings
   
 
2,592
   
 
2,386
    
  
Total stockholder’s equity
   
 
3,738
   
 
3,477
    
  
Total liabilities and stockholder’s equity
   
$
6,756
   
$
6,155