<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 29, 1998
AMBAC FINANCIAL GROUP, INC.
(Exact name of Registrant as specified in its charter)
Delaware 1-10777 13-3621676
(State of incorporation) (Commission file number) (I.R.S. employer
identification no.)
One State Street Plaza
New York, New York 10004
(Address of principal executive offices) (Zip code)
(212) 668-0340
(Registrant's telephone number, including area code)
Page 1 of 13 Pages
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Index to Exhibits on Page 4
<PAGE>
ITEM 5. OTHER EVENTS
On January 29, 1998, Ambac Financial Group, Inc. (the "REGISTRANT") issued
a press release containing unaudited interim financial information and
accompanying discussion for the 1997 fourth quarter and full-year earnings.
Exhibit 99.05 is a copy of such press release and is incorporated herein by
reference.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits.
Exhibit Number Item
-------------- ----
99.05 Unaudited interim financial statements and
accompanying discussion for the three months
ended December 31, 1997 and the year ended
December 31, 1997 contained in the press
release issued by the Registrant on January
29, 1998.
Page 2 of 13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Ambac Financial Group, Inc.
(Registrant)
Dated: February 5, 1998 By: /s/FRANK J. BIVONA
-------------------------------
Frank J. Bivona
Executive Vice President,
Chief Financial Officer
and Treasurer
Page 3 of 13
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit
- -------
Number DESCRIPTION OF EXHIBIT
- ------ ----------------------
99.05 Unaudited interim financial statements and accompanying
discussion for the three months ended December 31, 1997 and the
year ended December 31, 1997 contained in the press release
issued by the Registrant on January 29, 1998.
Page 4 of 13
<PAGE>
EXHIBIT 99.05
AMBAC FINANCIAL GROUP, INC.
One State Street Plaza
New York, NY 10004
212.668.0340
NEWS RELEASE
FOR IMMEDIATE RELEASE
Investor/Media Contact: Brian S. Moore
(212) 208-3333
Website: www.ambac.com
AMBAC FINANCIAL GROUP, INC. ANNOUNCES
FOURTH QUARTER NET INCOME OF $58.9 MILLION, UP 13%
FOURTH QUARTER CORE EARNINGS PER DILUTED SHARE /(1)/ UP 16%,
OPERATING EARNINGS PER DILUTED SHARE /(1)/ UP 21%
FOURTH QUARTER ADJUSTED GROSS PREMIUMS WRITTEN /(2)/ UP 36%
January 29, 1998-New York, NY: Ambac Financial Group, Inc. (NYSE: ABK) (Ambac)
today announced fourth quarter 1997 net income of $58.9 million or $0.83 in net
income per diluted share. This represents a 13% increase from fourth quarter
1996 net income of $52.0 million, and a 14% increase in net income per diluted
share from $0.73 for the prior period. Under new accounting standards, all
companies must now present net income per share on a diluted basis (see Table
I).
For the full year 1997 net income was $223.0 million, a 19% decline from 1996
net income of $276.3 million. Net income per diluted share of $3.13 in 1997
decreased 20% from $3.91 in 1996. The decrease in net income was attributable
to a one-time gain from the sale of an affiliate in 1996.
Commenting on the results, Ambac Chairman and CEO, Phillip B. Lassiter noted,
"The final quarter of the year was strong across the board with excellent demand
for our services that translated into record adjusted gross premiums written.
We are well positioned, with strong momentum, as we enter 1998."
-MORE-
<PAGE>
AMBAC FOURTH QUARTER 1997 EARNINGS/2
NET INCOME PER SHARE
- --------------------
Under new accounting standards that went into effect for year end 1997,
companies must now report net income per diluted share in addition to net income
per share. Net income per share is determined by dividing net income by the
weighted average number of common shares outstanding for the period. Net income
per diluted share reflects the potential dilution that would occur if
securities, such as employee stock options, were exercised.
In addition to net income per share, Ambac presents core earnings and operating
earnings, as discussed in Footnote 1. These measures, though not substitutes
for net income, are useful for analysis in that they eliminate certain items,
such as capital gains or losses or the effect of refundings, to highlight the
more consistent elements of earnings.
The following table shows per share and diluted per share net income, operating
earnings and core earnings:
TABLE I
<TABLE>
<CAPTION>
4TH QUARTER FULL YEAR
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income per share $0.84 $0.74 $3.19 $3.95
Net income per diluted share $0.83 $0.73 $3.13 $3.91
Operating earnings per share $0.83 $0.69 $3.03 $2.69
Operating earnings per diluted share $0.82 $0.68 $2.97 $2.66
Core earnings per share $0.74 $0.64 $2.80 $2.44
Core earnings per diluted share $0.73 $0.63 $2.75 $2.41
</TABLE>
REVENUES
- --------
Total revenues in the fourth quarter 1997 were $102.4 million, an increase of
18% from $87.1 million in revenues for the fourth quarter of 1996. For the full
year 1997 total revenues were $381.8 million, a decrease of 16% from revenues of
$452.9 million in 1996. This decrease was primarily due to a gain from the sale
of an affiliate in 1996.
Lassiter also noted, "Although pricing pressures persisted in the municipal
market during 1997, we were able to pick up writings in the final quarter as a
result of winning some large individual deals at acceptable returns. In
addition, new business in the structured and asset-backed markets, both
domestically and internationally, continued to grow at rapid rates. Volume for
1998 in all markets appears promising, particularly if long rates remain in the
current band or lower."
-MORE-
<PAGE>
AMBAC FOURTH QUARTER 1997 EARNINGS/3
Highlights
. Adjusted gross premiums written/(2)/ in the fourth quarter of 1997 of
$123.0 million grew 36% from $90.6 million of adjusted gross premiums
written in the fourth quarter of 1996. Adjusted gross premiums written for
the full year 1997 of $339.6 million represented a 15% increase over the
comparable 1996 figure of $296.4 million. For 1997, a 5% decline in
municipal policies was more than offset by a 77% increase in domestic
structured finance policies and a 93% increase in international policies.
. Net premiums earned for the fourth quarter of 1997 of $44.9 million
represented a 28% increase from the $35.0 million earned in the fourth
quarter of 1996. This increase was almost equally attributable to net
premiums earned on the underlying book of insured business and accelerated
earnings from refunding activity in the quarter.
. Net premiums earned for the full year 1997 of $154.0 million grew by 13%
over $136.6 million of net premiums earned for 1996. The increase is due to
higher premiums earned on the underlying book of insured business. These
higher premiums were partially offset by a $3.3 million decline in
accelerated premiums.
. Net investment income for the fourth quarter 1997 of $41.9 million
increased 11% from $37.7 million in the comparable period of 1996. Net
investment income for the full year 1997 of $159.7 million increased 10%
from $144.9 million in 1996. Ambac earned higher investment income
primarily due to increased cash flow from premiums written, partially
offset by slightly lower market yields.
. Financial management services income of $12.8 million in the fourth quarter
more than doubled, rising from $5.8 million in the fourth quarter 1996.
Financial management services income for the full year 1997 of $35.2
million increased 60% from full year 1996 income of $22.0 million. These
increases reflect revenues of Cadre Financial Services, acquired at the end
of 1996, and higher revenues from investment agreements and interest rate
swaps.
EXPENSES
- --------
Highlights
. Financial guarantee insurance expenses of $12.4 million for the fourth
quarter 1997 increased by 31.9% over the $9.4 million of expenses for the
same quarter of 1996. This increase is primarily due to the effect that
refundings have on the recognition of expenses. Financial guarantee
insurance expenses for all of 1997 were $43.5 million, an increase of 6.1%
from $41.0 million in 1996.
-MORE-
<PAGE>
AMBAC FOURTH QUARTER 1997 EARNINGS/4
. Financial management services expenses for the fourth quarter of 1997 of
$7.8 million represented a 73% increase from $4.5 million in fourth quarter
of 1996. This increase reflects expenses for Cadre Financial Services,
acquired in late 1996, and start-up expenses for Ambac Connect, the new
electronic commerce initiative.
. Financial management services expenses for the full year 1997 of $28.0
million more than doubled from $12.0 million in 1996. In addition to Cadre
and Ambac Connect, 1997 expenses include a $3.5 million restructuring
charge ($0.03 per diluted share) to consolidate operations in New York.
BALANCE SHEET ITEMS
- --------------------
Highlights
. Total assets as of December 31, 1997 were $8.25 billion, an increase of 40%
over $5.88 billion at December 31, 1996. The increase was primarily due to
the increased volume in investment agreements, payment agreements, cash
flow from operations and the acquisition of Connie Lee Insurance Company in
December.
. As of December 31, 1997, the stockholders' equity was $1.87 billion, an
increase of 16% from $1.62 billion at year-end 1996. This increase was
primarily due to net income for the year and an unrealized gain on
investments of $76.2 million, partially offset by dividends to
shareholders.
REGULAR CASH DIVIDEND DECLARED
- ------------------------------
The Board of Directors of Ambac Financial Group, Inc. declared the regular
quarterly cash dividend of $0.09 per share of common stock. The dividend is
payable on March 4, 1998 to stockholders of record on February 10, 1998.
ANNUAL MEETING OF STOCKHOLDERS
- ------------------------------
The Board of Directors also set the 1998 Annual Meeting of Stockholders for
Wednesday, May 13, 1998, at 11:30 a.m. in New York City. The record date for
determining stockholders entitled to notice of, and to vote at, the annual
meeting will be the close of business, March 23, 1998.
************************
Ambac Financial Group, Inc., headquartered in New York City, is a holding
company whose affiliates provide financial guarantee insurance and financial
management services to clients in both the public and private sectors in the
U.S. and abroad. Ambac's principal operating subsidiary, Ambac Assurance
Corporation, a leading insurer of municipal and structured finance obligations,
has earned triple-A claims-paying ability ratings, the highest ratings available
from Moody's Investors Service, Inc., Standard & Poor's Ratings Group, Fitch
IBCA, Inc. and Nippon Investors Service, Inc. Ambac Financial Group, Inc. common
stock is listed on the New York Stock Exchange (ticker symbol ABK).
************************
-MORE-
<PAGE>
AMBAC FOURTH QUARTER 1997 EARNINGS/5
FOOTNOTES
- ---------
NOTE: Per share data has been retroactively adjusted to reflect the two-for-one
stock split effective September 10, 1997.
(1) Core earnings and operating earnings are not substitutes for net income
computed in accordance with Generally Accepted Accounting Principles (GAAP),
but are important measures used by management, equity analysts and investors
to measure the Ambac's financial results. Core earnings, which Ambac reports
as analytical data, exclude the effect on consolidated net income from net
realized gains and losses, net insurance premiums earned from refundings and
calls and certain non-recurring items. The definition of core earnings used
by Ambac may differ from definitions of core earnings used by other public
holding companies of financial guarantee insurers.
(2) Adjusted gross premiums written, which is not promulgated under GAAP, is
used by management, equity analysts and investors to measure the Ambac's
financial results. Adjusted gross premiums written, which Ambac reports as
analytical data, is defined as gross up-front premiums written plus the
present value of estimated future installment premiums written 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 guarantee insurers.
--TABLES WILL FOLLOW--
<PAGE>
Ambac Financial Group, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Periods Ended December 31, 1997 and 1996
(Dollars in Thousands Except Share Data) (1)
<TABLE>
<CAPTION>
Three Months Ended Years Ended
December 31, December 31,
----------------------- -----------------------
1997 1996 1997 1996
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenues:
Financial Guarantee Insurance:
Gross premiums written $ 108,260 $ 71,193 $ 286,163 $ 247,208
Ceded premiums written (13,330) (8,532) (32,452) (37,793)
----------- ----------- ------- -----------
Net premiums written 94,930 62,661 253,711 209,415
Increase in unearned premiums (50,021) (27,615) (99,711) (72,786)
----------- ----------- ------- -----------
Net premiums earned 44,909 35,046 154,000 136,629
Net investment income 41,895 37,729 159,709 144,941
Net realized gains (losses) 2,862 4,594 21,084 (20,531)
Other income 133 328 4,402 5,261
Financial Management Services:
Income 12,815 5,814 35,249 21,973
Net realized gains (losses) (1,785) 408 (637) 393
Other:
Income 1,616 2,486 7,207 7,929
Net realized gains - 700 748 156,313
----------- ----------- ------- -----------
Total revenues 102,445 87,105 381,762 452,908
----------- ----------- -------- -----------
Expenses:
Financial Guarantee Insurance:
Losses and loss adjustment expenses 732 (33) 2,854 3,778
Underwriting and operating expenses 11,675 9,437 40,672 37,182
Financial Management Services (2) 7,788 4,473 27,993 12,040
Interest 5,411 5,252 21,346 20,925
Other 712 1,939 2,901 3,477
----------- ----------- -------- ----------
Total expenses 26,318 21,068 95,766 77,402
----------- ----------- -------- -----------
Income before income taxes 76,127 66,037 285,996 375,506
Provision for income taxes 17,243 14,048 62,966 99,189
----------- ---------- -------- -----------
Net income $ 58,884 $ 51,989 $ 223,030 $ 276,317
=========== =========== ======= ===========
Net income per share $ 0.84 $ 0.74 $ 3.19 $ 3.95
=========== =========== ======= ===========
Net income per diluted share $ 0.83 $ 0.73 $ 3.13 $ 3.91
=========== =========== ======= ===========
Weighted average number of
shares outstanding 70,000,959 69,968,680 69,988,497 69,929,628
=========== =========== =========== ===========
Weighted average number of diluted
shares outstanding 71,334,503 70,834,078 71,227,347 70,748,470
=========== =========== =========== ===========
</TABLE>
(1) Per share data has been retroactively adjusted to reflect the two-for-one
stock split effective September 10, 1997.
(2) Full year 1997 includes a $3.5 million restructuring charge.
<PAGE>
Ambac Financial Group, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, 1997 and December 31, 1996
(Dollars in Thousands Except Share Data) (1)
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Assets
- ------
Investments:
Fixed maturity securities, at fair value
(amortized cost of $6,661,928 in 1997 and $4,979,017 in 1996) $ 6,773,844 $ 5,088,031
Short-term investments, at cost (approximates fair value) 136,278 112,511
Preferred stock 5,000 -
------------ ------------
Total investments 6,915,122 5,200,542
Cash 9,256 7,734
Securities purchased under agreements to resell 85,466 201,169
Receivable for municipal investment agreements - 33,299
Receivable for securities sold 106,246 18,467
Investment income due and accrued 78,690 65,920
Deferred acquisition costs 105,996 94,212
Reinsurance recoverable 4,219 393
Prepaid reinsurance 183,492 168,786
Loans 503,192 -
Receivable from broker 183,041 -
Other assets 75,002 85,836
------------ ------------
Total assets $ 8,249,722 $ 5,876,358
============ ============
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities:
Unearned premiums $ 1,178,990 $ 991,224
Losses and loss adjustment expenses 103,345 60,613
Ceded reinsurance balances payable 9,258 7,438
Obligations under investment and payment agreements 3,230,052 2,417,817
Obligations under investment repurchase agreements 1,090,912 336,773
Deferred income taxes 135,228 80,086
Current income taxes 9,016 6,538
Debentures 223,864 223,798
Accrued interest payable 46,017 29,958
Accounts payable and other liabilities 75,170 57,689
Payable for securities purchased 275,388 49,408
------------ -----------
Total liabilities 6,377,240 4,261,342
============ ===========
Stockholders' equity:
Preferred stock - -
Common stock 707 353
Additional paid-in capital 500,107 498,401
Unrealized gains on investments, net of tax 135,066 58,911
Retained earnings 1,262,740 1,072,418
Cumulative translation adjustment 157 -
Common stock held in treasury at cost (26,295) (15,067)
------------ -----------
Total stockholders' equity 1,872,482 1,615,016
------------ -----------
Total liabilities and stockholders' equity $ 8,249,722 $ 5,876,358
============ ===========
Number of shares outstanding (net of treasury shares) $ 69,947,437 70,180,770
============ ===========
Book value per share $26.77 $23.01
============ ===========
</TABLE>
(1) Per share data retroactively adjusted to reflect the two-for-one stock split
effective September 10, 1997.
<PAGE>
Ambac Financial Group, Inc. and Subsidiaries
Supplemental Analytical Data: Components of Core Earnings (1)
For The Periods Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Three Months Ended Years Ended
December 31, December 31,
-------------------------- --------------------------
1997 1996 1997 1996
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Net income $58,884 $51,989 $223,030 $276,317
Adjustments:
Net realized (gains) losses (700) (3,730) (13,332) (88,066)
Non-recurring item - - 2,101 -
-------- -------- --------- ---------
Operating earnings 58,184 48,259 211,799 188,251
Refundings, calls and
other accelerations (6,329) (3,506) (15,976) (17,770)
-------- -------- --------- ---------
Core earnings $51,855 $44,753 $195,823 $170,481
======== ======== ========= =========
</TABLE>
Ambac Financial Group, Inc. and Subsidiaries
Supplemental Analytical Data: Components of Adjusted
Book Value Per Share (2) (3) (4)
December 31, 1997 and December 31,1996
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
---- ----
<S> <C> <C>
Book value $26.77 $23.01
After-tax value of:
Net unearned premium reserve less
deferred acquisition costs 8.26 6.75
Present value of installment premiums 1.96 1.45
Unrealized gain (loss) on investment
agreement liabilities (0.40) 0.03
------- ------
Adjusted book value $36.59 $31.25
======= ======
</TABLE>
(1) See footnote (1) in January 29, 1998 press release
(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.
(3) Numbers may not add due to rounding.
(4) Per share data has been retroactively adjusted to reflect the two-for-one
stock split effective September 10, 1997.
<PAGE>
Ambac Assurance Corporation
Statutory Accounting, Financial and Capital Information (1)
December 31, 1997 and December 31, 1996
(Dollars in Thousands, Except Ratios)
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
------------- -------------
<S> <C> <C>
Capital and Claim-Paying Resources:
Contingency reserve $ 667,814 $ 567,537
Capital and surplus 1,006,829 899,023
------------ ------------
Qualified statutory capital 1,674,643 1,466,560
Unearned premiums 1,217,660 1,003,510
Losses and loss adjustment expenses 50,860 21,623
------------ ------------
Policyholders' reserves 2,943,163 2,491,693
Third party capital support (2) 500,000 350,000
Present value of installment premiums 210,781 157,689
------------ ------------
Total $ 3,653,944 $ 2,999,382
============ ============
Net insurance in force $275,930,651 $227,234,512
Capital ratio (3) 165:1 155:1
Financial resources ratio (4) 76:1 76:1
</TABLE>
(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
December 31, 1997 is $1.656 billion.
(2) Third party capital support represents a limited recourse irrevocable line
of credit with a group of AAA/Aaa-rated banks as fronting banks.
(3) Capital ratio is net insurance in force divided by qualified statutory
capital.
(4) Financial resources ratio is net insurance in force divided by the
aggregate of total policyholders' reserves, third party capital support and
net present value of installment premiums.
