<PAGE>
===========================================================================
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 26, 2000
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 10004
New York, New York (Zip code)
(Address of principal executive offices)
(212) 668-0340
(Registrant's telephone number, including area code)
Page 1 of 15 Pages
===========================================================================
Index to Exhibits on Page 4
<PAGE>
Item 5. Other Events
On January 26, 2000, Ambac Financial Group, Inc. (the "Registrant") issued a
press release containing unaudited interim financial information and
accompanying discussion for the 1999 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, 1999 and the year ended
December 31, 1999 contained in the press release
issued by the Registrant on January 26, 2000.
Page 2 of 15
<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: January 27, 2000 By: /s/ Frank J. Bivona
-------------------
Frank J. Bivona
Executive Vice President and
Chief Financial Officer
Page 3 of 15
<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, 1999 and the year ended
December 31, 1999 contained in the press release issued by the
Registrant on January 26, 2000.
Page 4 of 15
<PAGE>
EXHIBIT 99.05
Ambac Financial Group, Inc.
One State Street
New York, NY 10004
212.668.0340
News Release
For Immediate Release
Investor/Media Contact: Brian S. Moore
(212) 208-3333
[email protected]
Website: www.ambac.com
[LOGO OF AMBAC]
AMBAC FINANCIAL GROUP, INC. ANNOUNCES
FOURTH QUARTER NET INCOME OF $84.0 MILLION, UP 35%
Fourth Quarter Core Earnings Per Diluted Share (1) Up 25%,
Operating Earnings Per Diluted Share (1) Up 22%
Fourth Quarter Adjusted Gross Premiums Written (2) Up 14%
January 26, 2000-New York, NY: Ambac Financial Group, Inc. (NYSE: ABK) (Ambac)
today announced fourth quarter 1999 net income of $84.0 million or $1.18 per
diluted share. This represents a 35% increase from fourth quarter 1998 net
income of $62.2 million and a 36% increase from fourth quarter 1998 net income
per diluted share of $0.87.
Commenting on the results, Ambac Chairman and CEO Phillip B. Lassiter noted, "We
closed out the year with another superb quarter. While there may have been a
degree of Y2K influenced slowdown/postponement of bond issuance toward the end
of the quarter, Ambac still posted a record quarter in premiums written. We
have entered the New Year with strong momentum and ample attractive market
opportunities. At this juncture I see no reason why we should not continue to
meet or exceed our 15% long-term core earnings growth target."
--MORE--
<PAGE>
Ambac Fourth Quarter 1999 Earnings/2
Earnings Per Diluted Share
- --------------------------
In addition to net income, Ambac presents operating earnings and core 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 and losses, the effect of refundings and calls and certain non-
recurring items, to highlight the more consistent elements of earnings.
For the fourth quarter of 1999, operating earnings were $83.9 million, up 21%
from the $69.1 million in operating earnings for the fourth quarter of 1998.
Core earnings for the fourth quarter of 1999 were $79.2 million, an increase of
25% from $63.5 million in core earnings for the fourth quarter of 1998.
The following table shows net income, operating earnings and core earnings, all
per diluted share:
Table I
<TABLE>
<CAPTION>
Fourth Quarter Full Year
% %
1999 1998 Change 1999 1998 Change
---- ---- ------ --- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Net income per diluted share $1.18 $0.87 +36% $4.31 $3.56 +21%
Operating earnings per diluted share $1.18 $0.97 +22% $4.39 $3.69 +19%
Core earnings per diluted share $1.11 $0.89 +25% $4.10 $3.32 +23%
</TABLE>
Revenues
- --------
Total revenues in the fourth quarter of 1999 were $144.2 million, an increase of
26% from $114.2 million in revenues for the fourth quarter of 1998. Total
revenues for the full year 1999 were $533.3 million, up 17% from $457.0 million
in total revenues for the full year 1998.
Highlights
. Adjusted gross premiums written(2) in the fourth quarter of 1999 were $165.2
million, up 14% from $145.3 million in the fourth quarter of 1998. On the
municipal side, a decline in total municipal volume was offset by an increase
in Ambac's market share for the quarter. However, adjusted gross premiums
increased primarily as a result of increased principal and interest
guaranteed. Although the principal guaranteed was relatively flat, the
interest component increased in tandem with the overall interest rate
environment. Ambac also saw strong premium growth in the asset-backed and
other structured finance areas of its business with total adjusted gross
premiums written in structured finance up 70%. International adjusted gross
premiums written declined by
--MORE--
<PAGE>
Ambac Fourth Quarter 1999 Earnings/3
33%. This decline stems from the fact that the fourth quarter of 1998
included a few relatively large transactions. While the size of the
transactions insured declined in the fourth quarter of 1999, the number of
deals which had adjusted gross premiums written greater than $1 million
increased from seven to twelve.
A breakdown of adjusted gross premiums written by market sector is included
below as Table II.
Table II
Adjusted Gross Premiums Written
<TABLE>
<CAPTION>
$-millions Fourth Quarter Full Year
% %
1999 1998 Change 1999 1998 Change
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Municipal Finance $97.1 $ 73.0 +33% $322.0 $266.9 +21%
Structured Finance 32.8 19.3 +70% 156.4 68.5 +128%
International 35.3 53.0 -33% 116.6 122.6 -5%
------ ------ ------ ------
Total $165.2 $145.3 +14% $595.0 $458.0 +30%
</TABLE>
. Net premiums written in the fourth quarter of 1999 of $121.1 million were 23%
higher than net premiums written of $98.1 million in the same period of 1998.
Gross premiums written for the fourth quarter of 1999 were offset by $28.4
million in ceded premiums. In the fourth quarter of 1998, ceded premiums were
$8.7 million. The increase in ceded premiums stems primarily from
international activity and a higher cession of municipal business.
Net premiums written for the full year 1999 were $383.4 million, up 23% from
the $311.4 million written for the full year 1998.
. Net premiums earned for the fourth quarter of 1999 were $71.9 million, which
represented a 28% increase from the $56.0 million earned in the fourth
quarter of 1998. This growth is the result of strong business written
throughout the year in all areas, particularly structured finance. Net
premiums earned include accelerated premiums, which result from refundings
and calls recognized during the quarter. Accelerated premiums were $8.2
million in the fourth quarter of 1999 (which had a net income per diluted
share effect of $0.07), a 16% decline from $9.8 million ($0.08 per diluted
share) in accelerated premiums in the fourth quarter of 1998.
Net premiums earned for the full year 1999 were $264.4 million. This
represented a 24% increase from $212.7 million for the full year 1998.
Accelerated premiums for the full year 1999 of $35.9 million declined 23%
from accelerated premiums of $46.9 million for the full year 1998.
--MORE--
<PAGE>
Ambac Fourth Quarter 1999 Earnings/4
A breakdown of normal net premiums earned by market sector is included below as
Table III. Normal net premiums earned exclude accelerated premiums which result
from refundings and calls.
Table III
Normal Net Premiums Earned
<TABLE>
<CAPTION>
$-millions Fourth Quarter Full Year
% %
1999 1998 Change 1999 1998 Change
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Municipal Finance $33.5 $30.8 +9% $130.7 $115.9 +13%
Structured Finance 21.2 11.1 +91% 68.1 36.1 +89%
International 9.0 4.3 +109% 29.7 13.8 +115%
----- ----- ------ ------ ------
Total $63.7 $46.2 +38% $228.5 $165.8 +38%
</TABLE>
. Net investment income for the fourth quarter of 1999 was $55.6 million,
representing an increase of 16% from $47.8 million in the comparable period
of 1998. This increase was due primarily to the growth in the investment
portfolio from ongoing operations. Additionally, investment income grew as a
result of capital contributions from the parent company to the insurance
company totaling $200 million over the course of the year. Because of these
capital contributions, there is a corresponding reduction in Other Revenue.
Net investment income for the full year 1999 was $209.3 million, a 12%
increase in investment income from the full year 1998 of $186.2 million.
. Financial management services revenues, excluding realized gains and losses,
were $13.7 million in the fourth quarter of 1999, up 30% from $10.5 million
in revenues for the fourth quarter of 1998. The increase in revenues related
to higher municipal interest rate swap revenues and higher investment
agreement revenues.
Financial management services revenues, excluding realized gains and losses,
were $51.7 million for the full year 1999, up 4% from $49.5 million for the
full year 1998.
--MORE--
<PAGE>
Ambac Fourth Quarter 1999 Earnings/5
Expenses
- --------
Highlights
. Financial guarantee insurance expenses of $16.0 million for the fourth
quarter of 1999 increased by 21% over the $13.2 million of expenses for the
same quarter of 1998. This increase was due to an increase in loss and loss
adjustment expenses and an increase in underwriting expenses. Both are
associated with the higher volume of insured business.
Financial guarantee insurance expenses for the full year 1999 of $59.8
million increased by 13% over the $52.7 million of expenses for the full year
of 1998.
. Financial management services expenses for the fourth quarter of 1999 of $5.9
million declined by 48% from $11.3 million in expenses for the fourth quarter
of 1998. The decrease was primarily due to savings related to the closing of
Ambac Connect, Inc. in the fourth quarter of 1998. The fourth quarter of 1998
also included a $3.0 million restructuring charge taken to close operations
of Ambac Connect.
Financial management services expenses for the full year 1999 of $25.8
million declined by 27% from $35.5 million for the full year 1998.
Other Items
- -----------
. Total net realized gains for the fourth quarter of 1999 were less than $0.1
million and had no impact on net income per diluted share. For the fourth
quarter of 1998 net realized losses were $7.2 million ($0.07 per diluted
share).
. Interest expense for the fourth quarter of 1999 was $9.2 million, relatively
flat from 1998.
Balance Sheet
- -------------
Highlights
. Total assets as of December 31, 1999 were $11.35 billion, a 1% increase from
total assets of $11.21 billion at December 31, 1998. As of December 31, 1999,
stockholders' equity was $2.02 billion, decreasing 4% from year-end 1998
stockholders' equity of $2.10 billion. Net income for the year was more than
offset by the after-tax effect of the market value decline in the investment
portfolio resulting from higher interest rates.
--MORE--
<PAGE>
Ambac Fourth Quarter 1999 Earnings/6
Cash Dividend Declared
- ----------------------
At its January 2000 Board Meeting, the Board of Directors of Ambac Financial
Group, Inc. declared the regular quarterly cash dividend of $0.11 per share of
common stock. The dividend is payable on March 1, 2000 to stockholders of
record on February 10, 2000.
Annual Meeting of Stockholders
- ------------------------------
The Board of Directors also set the 2000 Annual Meeting of Stockholders for
Wednesday, May 10, 2000, 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 close of business, March 20, 2000.
************************
Ambac Financial Group, Inc., headquartered in New York City, is a holding
company whose affiliates provide financial guarantees and financial management
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 municipal and structured finance obligations, has earned triple-A
ratings, the highest ratings available from Moody's Investors Service, Inc.,
Standard & Poor's Ratings Group, Fitch IBCA, Inc. and Japan Rating and
Investment Information, Inc. Ambac Financial Group, Inc. common stock is listed
on the New York Stock Exchange (ticker symbol ABK).
************************
Forward-Looking Statements
- --------------------------
In his remarks, the Chairman made 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; and (6) 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.
--MORE--
<PAGE>
Ambac Fourth Quarter 1999 Earnings/7
Footnotes
- ---------
(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 Ambac's financial results. The Company defines
operating earnings as net income, less the effect of realized 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 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, is defined as gross up-front premiums written plus the
present value of estimated future 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.
All reinsurance cessions to MBIA Insurance Corporation under the joint
venture reinsurance agreement reduce adjusted gross premiums written.
Consequently, adjusted gross premiums written recorded by Ambac includes
only the net retention on business written under the joint venture
agreement.
--MORE--
<PAGE>
Ambac Financial Group, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Periods Ended December 31, 1999 and 1998
(Dollars in Thousands Except Share Data)
<TABLE>
<CAPTION>
Three Months Ended Years Ended
December 31, December 31,
----------------------------------- -----------------------------------
1999 1998 1999 1998
----------------------------------- -----------------------------------
<S> <C> <C> <C> <C>
Revenues:
Financial Guarantee:
Gross premiums written $149,539 $106,751 $445,242 $361,011
Ceded premiums written (28,405) (8,664) (61,845) (49,563)
---------------- ---------------- ---------------- ----------------
Net premiums written $121,134 $98,087 $383,397 $311,448
================ ================ ================ ================
Net premiums earned $71,860 $56,039 $264,426 $212,684
Net fees earned and other income 1,730 3,196 6,034 5,781
Net investment income 55,558 47,842 209,284 186,190
Net realized (losses) gains (133) 2,532 (5,675) 3,735
Financial Management Services:
Revenue 13,722 10,483 51,669 49,510
Net realized gains (losses) 168 (10,004) (3,124) (17,096)
Other:
Revenue 1,319 3,872 9,906 13,725
Net realized gains 22 281 797 2,507
---------------- ---------------- ---------------- ----------------
Total revenues 144,246 114,241 533,317 457,036
---------------- ---------------- ---------------- ----------------
Expenses:
Financial Guarantee:
Losses and loss adjustment expenses 3,000 1,500 11,000 6,000
Underwriting and operating expenses 13,039 11,668 48,804 46,720
Financial Management Services 5,894 11,257 25,824 35,540
Interest 9,203 9,113 36,525 32,761
Other 1,771 1,700 6,506 7,103
---------------- ---------------- ---------------- ----------------
Total expenses 32,907 35,238 128,659 128,124
---------------- ---------------- ---------------- ----------------
Income before income taxes 111,339 79,003 404,658 328,912
Provision for income taxes 27,387 16,845 96,741 74,918
---------------- ---------------- ---------------- ----------------
Net income $83,952 $62,158 $307,917 $253,994
================ ================ ================ ================
Net income per share $1.20 $0.89 $4.40 $3.63
================ ================ ================ ================
Net income per diluted share $1.18 $0.87 $4.31 $3.56
================ ================ ================ ================
Weighted average number of
shares outstanding 69,944,319 69,880,837 69,913,147 69,939,710
================ ================ ================ ================
Weighted average number of diluted
shares outstanding 71,347,953 71,275,198 71,366,210 71,330,053
================ ================ ================ ================
</TABLE>
<PAGE>
Ambac Financial Group, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, 1999 and December 31, 1998
(Dollars in Thousands Except Share Data)
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Assets
- ------
Investments:
Fixed income securities, at fair value
(amortized cost of $9,028,184 in 1999 and $8,307,046 in 1998) $8,738,471 $8,622,282
Short-term investments, at cost (approximates fair value) 220,896 119,528
Other 3,168 6,567
------------------------ ------------------------
Total investments 8,962,535 8,748,377
Cash 13,588 8,239
Securities purchased under agreements to resell 103,000 252,295
Receivable for investment agreements 45,918 73,142
Receivable for securities sold 15,369 16,233
Investment income due and accrued 128,668 125,929
Deferred acquisition costs 135,324 120,619
Deferred income taxes 57,377 -
Reinsurance recoverable 500 3,638
Prepaid reinsurance 217,977 199,920
Loans 685,488 673,930
Receivable from brokers and dealers 717,000 750,000
Other assets 262,352 239,989
------------------------ ------------------------
Total assets $11,345,096 $11,212,311
======================== ========================
Liabilities and Stockholders' Equity
Liabilities:
Unearned premiums $1,431,076 $1,294,214
Losses and loss adjustment expenses 121,475 115,794
Ceded reinsurance balances payable 15,028 6,576
Obligations under investment and payment agreements 4,180,513 4,774,953
Obligations under investment repurchase agreements 1,959,741 1,181,810
Deferred income taxes - 145,782
Current income taxes 24,831 6,949
Debentures 423,995 423,929
Accrued interest payable 91,142 89,615
Other liabilities 268,696 262,423
Payable to brokers and dealers 717,000 750,000
Payable for securities purchased 93,149 64,176
------------------------ ------------------------
Total liabilities 9,326,646 9,116,221
------------------------ ------------------------
Stockholders' equity:
Preferred stock - -
Common stock 707 707
Additional paid-in capital 525,012 519,305
Accumulated other comprehensive (loss) income (187,540) 159,313
Retained earnings 1,713,446 1,449,832
Common stock held in treasury at cost (33,175) (33,067)
------------------------ ------------------------
Total stockholders' equity 2,018,450 2,096,090
------------------------ ------------------------
Total liabilities and stockholders' equity $11,345,096 $11,212,311
======================== ========================
Number of shares outstanding (net of treasury shares) 69,957,792 69,942,003
======================== ========================
======================== ========================
Book value per share $28.85 $29.97
======================== ========================
</TABLE>
<PAGE>
Ambac Financial Group, Inc. and Subsidiaries
Supplemental Analytical Data: Components of Core Earnings (1)
For The Periods Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Three Months Ended Years Ended
December 31, December 31,
--------------------------------------- -------------------------------------
1999 1998 1999 1998
--------------------------------------- -------------------------------------
<S> <C> <C> <C> <C>
Net income $83,952 $62,158 $307,917 $253,994
Adjustments:
Net realized losses (gains) (37) 4,674 5,201 7,055
Non-recurring item - 2,230 - 2,230
-------------- -------------------- --------------- -----------------
Operating earnings 83,915 69,062 313,118 263,279
Refundings, calls and other accelerations (4,676) (5,589) (20,486) (26,746)
-------------- -------------------- --------------- -----------------
Core earnings $79,239 $63,473 $292,632 $236,533
============== ==================== =============== =================
</TABLE>
Ambac Financial Group, Inc. and Subsidiaries
Supplemental Analytical Data: Components of Adjusted Book Value Per Share (2)
December 31, 1999 and 1998
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
---- ----
<S> <C> <C>
Book value $28.85 $29.97
After-tax value of:
Net unearned premium reserve less
deferred acquisition costs 10.02 9.05
Present value of installment premiums (3) 4.90 2.86
Net unrealized gains on investment
agreement liabilities 0.91 0.10
-------------------- --------------------
Adjusted book value $44.68 $41.98
==================== ====================
</TABLE>
(1) See footnote (1) in January 26, 2000 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 net unrealized gains or losses 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
guarantors and should be considered in such context.
(3) The 1999 amount uses an interest rate of 7% to discount future installment
premiums whereas previous estimates used 9% and have not been restated.
<PAGE>
Ambac Assurance Corporation
Statutory Accounting, Financial and Capital Information (1)
December 31, 1999 and 1998
(Dollars in Thousands, Except Ratios)
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------------------ -------------------------
<S> <C> <C>
Capital and Claim-Paying Resources:
Contingency reserve $917,152 $773,464
Capital and surplus 1,503,303 1,162,639
------------------------ -------------------------
Qualified statutory capital 2,420,455 1,936,103
Unearned premiums 1,485,654 1,334,117
Losses and loss adjustment expenses 26,205 33,917
------------------------ -------------------------
Policyholders' reserves 3,932,314 3,304,137
Third party capital support (2) 750,000 555,000
Present value of future installment premiums(3) 527,199 308,419
------------------------ -------------------------
Total claims-paying resources $5,209,513 $4,167,556
======================== =========================
Net financial guarantees in force $374,484,153 $317,668,096
Capital ratio (4) 155:1 164:1
Financial resources ratio (5) 72:1 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, 1999 and 1998 are $2.402 billion and $1.920 billion,
respectively.
(2) Third party capital support represents a limited recourse irrevocable line
of credit with a group of high quality banks.
(3) The 1999 amount uses an interest rate of 7% to discount future installment
premiums whereas previous estimates used 9% and have not been restated.
(4) Capital ratio is net financial guarantees in force divided by qualified
statutory capital.
(5) Financial resources ratio is net financial guarantees in force divided by
the aggregate of total claims-paying resources.
