UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the Quarterly Period Ended March 31, 2003 |
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| Commission File Number: 1-10777 |
Ambac Financial Group, Inc.
(Exact name of Registrant as specified in its charter)
| Delaware |
13-3621676 | |
| (State of incorporation) |
(I.R.S. employer identification no.) | |
| One State Street Plaza |
10004 | |
| (Address of principal executive offices) |
(Zip code) |
(212) 668-0340
(Registrant’s telephone number, including area code)
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes x No ¨
As of April 30, 2003, 106,264,914 shares of Common Stock, par value $0.01 per share, (net of 108,386 treasury shares) of the Registrant were outstanding.
Ambac Financial Group, Inc. and Subsidiaries
| PAGE | ||||
| PART I FINANCIAL INFORMATION |
||||
| Item 1. |
Financial Statements of Ambac Financial Group, Inc. and Subsidiaries |
|||
| Consolidated Balance Sheets – March 31, 2003 and December 31, 2002 |
3 | |||
| Consolidated Statements of Operations – three months ended March 31, 2003 and 2002 |
4 | |||
| Consolidated Statements of Stockholders’ Equity – three months ended March 31, 2003 and 2002 |
5 | |||
| Consolidated Statements of Cash Flows – three months ended March 31, 2003 and 2002 |
6 | |||
| 7 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
11 | ||
| Item 3. |
27 | |||
| Item 4. |
28 | |||
| PART II OTHER INFORMATION |
||||
| Item 6. |
29 | |||
| 31 | ||||
| 32 | ||||
| 34 | ||||
PART 1 – FINANCIAL INFORMATION
Item 1 – Financial Statements of Ambac Financial Group, Inc. and Subsidiaries
Ambac Financial Group, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31, 2003 and December 31, 2002
(Dollars in Thousands)
| March 31, 2003 |
December 31, 2002 |
|||||||
| (unaudited) |
||||||||
| Assets |
||||||||
| Investments: |
||||||||
| Fixed income securities, at fair value |
$ |
12,829,600 |
|
$ |
11,597,623 |
| ||
| Fixed income securities pledged as collateral, at fair value |
|
633,073 |
|
|
543,572 |
| ||
| Short-term investments, at cost (approximates fair value) |
|
214,911 |
|
|
395,761 |
| ||
| Other (cost of $4,504 in 2003 and $3,518 in 2002) |
|
3,225 |
|
|
2,354 |
| ||
| Total investments |
|
13,680,809 |
|
|
12,539,310 |
| ||
| Cash |
|
51,056 |
|
|
25,816 |
| ||
| Securities purchased under agreements to resell |
|
7,002 |
|
|
260,818 |
| ||
| Receivable for investment agreements |
|
20,655 |
|
|
169 |
| ||
| Receivable for securities sold |
|
16,478 |
|
|
6,936 |
| ||
| Investment income due and accrued |
|
121,911 |
|
|
142,406 |
| ||
| Reinsurance recoverable on paid and unpaid losses |
|
5,381 |
|
|
4,842 |
| ||
| Prepaid reinsurance |
|
299,400 |
|
|
296,126 |
| ||
| Deferred acquisition costs |
|
174,440 |
|
|
174,055 |
| ||
| Loans |
|
838,609 |
|
|
843,809 |
| ||
| Derivative product assets |
|
1,080,086 |
|
|
1,010,081 |
| ||
| Other assets |
|
49,115 |
|
|
51,170 |
| ||
| Total assets |
$ |
16,344,942 |
|
$ |
15,355,538 |
| ||
| Liabilities and Stockholders’ Equity |
||||||||
| Liabilities: |
||||||||
| Unearned premiums |
$ |
2,163,232 |
|
$ |
2,128,847 |
| ||
| Losses and loss adjustment expense reserve |
|
177,788 |
|
|
172,137 |
| ||
| Ceded reinsurance balances payable |
|
11,572 |
|
|
16,930 |
| ||
| Obligations under investment and payment agreements |
|
6,655,698 |
|
|
6,434,497 |
| ||
| Obligations under investment repurchase agreements |
|
792,590 |
|
|
848,358 |
| ||
| Securities sold under agreement to repurchase |
|
278,390 |
|
|
132,235 |
| ||
| Deferred income taxes |
|
189,108 |
|
|
185,641 |
| ||
| Current income taxes |
|
61,541 |
|
|
44,807 |
| ||
| Debentures |
|
991,731 |
|
|
616,715 |
| ||
| Accrued interest payable |
|
54,621 |
|
|
81,252 |
| ||
| Derivative product liabilities |
|
933,752 |
|
|
836,146 |
| ||
| Other liabilities |
|
131,086 |
|
|
154,640 |
| ||
| Payable for securities purchased |
|
140,321 |
|
|
78,154 |
| ||
| Total liabilities |
|
12,581,430 |
|
|
11,730,359 |
| ||
| Stockholders’ equity: |
||||||||
| Preferred stock |
|
— |
|
|
— |
| ||
| Common stock |
|
1,064 |
|
|
1,062 |
| ||
| Additional paid-in capital |
|
553,078 |
|
|
550,289 |
| ||
| Accumulated other comprehensive income |
|
272,776 |
|
|
265,427 |
| ||
| Retained earnings |
|
2,946,246 |
|
|
2,820,281 |
| ||
| Common stock held in treasury at cost |
|
(9,652 |
) |
|
(11,880 |
) | ||
| Total stockholders’ equity |
|
3,763,512 |
|
|
3,625,179 |
| ||
| Total liabilities and stockholders’ equity |
$ |
16,344,942 |
|
$ |
15,355,538 |
| ||
See accompanying Notes to Consolidated Financial Statements
3
Ambac Financial Group, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended March 31, 2003 and 2002
(Dollars in Thousands Except Share Data)
| Three Months Ended March 31, |
||||||||
| 2003 |
2002 |
|||||||
| Revenues: |
||||||||
| Financial Guarantee: |
||||||||
| Gross premiums written |
$ |
197,219 |
|
$ |
149,361 |
| ||
| Ceded premiums written |
|
(31,168 |
) |
|
(19,549 |
) | ||
| Net premiums written |
$ |
166,051 |
|
$ |
129,812 |
| ||
| Net premiums earned |
$ |
134,752 |
|
$ |
103,654 |
| ||
| Other credit enhancement fees |
|
10,364 |
|
|
6,288 |
| ||
| Net premiums earned and other credit enhancement fees |
|
145,116 |
|
|
109,942 |
| ||
| Net investment income |
|
76,595 |
|
|
72,547 |
| ||
| Net realized investment gains (losses) |
|
13,943 |
|
|
(500 |
) | ||
| Net mark-to-market losses on credit derivative contracts |
|
(12,176 |
) |
|
(4,071 |
) | ||
| Other income |
|
825 |
|
|
1,314 |
| ||
| Financial Services: |
||||||||
| Interest from investment and payment agreements |
|
58,996 |
|
|
59,991 |
| ||
| Other revenue |
|
8,517 |
|
|
10,716 |
| ||
| Net realized investment gains |
|
308 |
|
|
191 |
| ||
| Net mark-to-market gains on derivative hedge contracts |
|
677 |
|
|
167 |
| ||
| Corporate: |
||||||||
| Net investment income |
|
931 |
|
|
729 |
| ||
| Total revenues |
|
293,732 |
|
|
251,026 |
| ||
| Expenses: |
||||||||
| Financial Guarantee: |
||||||||
| Losses and loss adjustment expenses |
|
9,800 |
|
|
5,700 |
| ||
| Underwriting and operating expenses |
|
22,166 |
|
|
18,561 |
| ||
| Financial Services: |
||||||||
| Interest from investment and payment agreements |
|
53,432 |
|
|
54,116 |
| ||
| Other expenses |
|
6,158 |
|
|
5,136 |
| ||
| Interest |
|
12,454 |
|
|
10,666 |
| ||
| Corporate |
|
8,273 |
|
|
1,466 |
| ||
| Total expenses |
|
112,283 |
|
|
95,645 |
| ||
| Income before income taxes |
|
181,449 |
|
|
155,381 |
| ||
| Provision for income taxes |
|
43,526 |
|
|
38,429 |
| ||
| Net income |
$ |
137,923 |
|
$ |
116,952 |
| ||
| Net income per share: |
||||||||
| Basic |
$ |
1.30 |
|
$ |
1.11 |
| ||
| Diluted |
$ |
1.27 |
|
$ |
1.07 |
| ||