Ambac Financial Group, Inc. (NYSE: ABK) (Ambac) today announced
second quarter 2007 net income of $173.0 million, or $1.67 per
diluted share. This represents a 27% decrease from second quarter
2006 net income of $238.6 million, and a 25% decrease in net income
per diluted share from $2.22. The decrease is primarily due to
unrealized mark-to-market losses amounting to ($56.9) million, or
($0.36) per diluted share, related to credit derivative exposures
in the second quarter 2007. The comparable quarter of 2006 included
net realized gains on investment securities of $44.4 million, or
$0.27 per diluted share, primarily resulting from cash recoveries
received related to a security in the investment agreement
portfolio that had been written down in prior years. The second
quarter 2007 unrealized mark-to-market losses on credit derivative
exposures is the result of unfavorable market pricing of
collateralized debt obligations with significant amounts of
sub-prime residential mortgage collateral. As further described
below, net mark-to-market gains and losses on credit derivatives
and net gains and losses from sales of investment securities are
excluded from the earnings measures used by research analysts. Net
Income Per Diluted Share Net income and net income per diluted
share are computed in conformity with U.S. generally accepted
accounting principles (GAAP). However, many research analysts and
investors do not limit their analysis of our earnings to a strictly
GAAP basis. In order to assist investors in their understanding of
quarterly results, Ambac provides other information. Earnings
measures reported by research analysts exclude the net income
impact of net gains and losses from sales of investment securities
and mark-to-market gains and losses on credit, total return and
non-trading derivative contracts (collectively �net security gains
and losses�) and certain other items. Certain research analysts and
investors further exclude the net income impact of accelerated
premiums earned on guaranteed obligations that have been refunded
and other accelerated earnings (�accelerated earnings�). During the
second quarter 2007, net security gains and losses had the effect
of decreasing net income by ($34.6) million, or ($0.34) on a per
diluted share basis. Accelerated earnings had the effect of
increasing net income by $25.6 million, or $0.25 per diluted share
during the quarter. Table I, below, provides second quarter and
six-month comparisons of earnings for 2007 and 2006. Table I
Earnings Per Diluted Share � Second Quarter Six Months 2007 � 2006
� % Change � 2007 � 2006 � % Change � Net income per diluted share
$1.67 $2.22 - 25 % $3.70 $4.28 - 14 % Effect of net security gains
$0.34 � ($0.31 ) n.a. $0.30 � ($0.38 ) n.a. Operating earnings
(a)(b) $2.01 $1.91 + 5 % $4.00 $3.90 + 3 % Effect of Accelerated
earnings ($0.25 ) ($0.21 ) n.a. ($0.48 ) ($0.32 ) n.a. Core
earnings(b) $1.76 � $1.70 � + 4 % $3.52 � $3.58 � - 2 % (a)
Consensus earnings that are reported by earnings estimate services,
such as First Call, are on this basis. (b) Operating and core
earnings are non-GAAP measures. See footnote 2, below. Commenting
on the overall results, Ambac Chairman and Chief Executive Officer,
Robert J. Genader, noted, �We are pleased with the breadth and
quality of our business production in the quarter. Our rigorous and
proven approach enabled us to deliver positive results despite the
turmoil in the sub-prime mortgage market that resulted in a
negative mark-to-market adjustment. Our triple-A business model
offers us key advantages, including our ability to hold insured
transactions to maturity; no collateral or margin requirements on
transactions insured; and, in the unlikely event of default we pay
scheduled principal and interest, thereby minimizing liquidity
risk.� Mr. Genader added, �Looking ahead, the disciplined execution
of our strategy positions us well to benefit from the improving
business conditions we see, with wider spreads, enhanced credit
terms and increased demand for our valuable financial guarantee
products.� Revenues Highlights Credit enhancement production(1) in
the second quarter of 2007 was $367.8 million, down 31% from
Ambac's record quarterly production of $531.0 million reported in
the second quarter of 2006. Credit enhancement production for the
six months of 2007 of $677.9 million was 11% lower than credit
enhancement production of $764.4 million in the same period of
2006. Table II, below, provides the second quarter and six-month
comparisons of credit enhancement production by market segment for
2007 and 2006. Table II Credit Enhancement Production (1) �
$-millions Second Quarter Six Months 2007 2006 % Change 2007 2006 %
Change Public Finance $ 114.5 $ 132.1 - 13% $ 229.1 $ 231.2 - 1%
Structured Finance 159.1 212.8 - 25% 294.4 303.5 - 3% International
94.2 186.1 - 49% 154.4 229.7 - 33% Total $ 367.8 $ 531.0 - 31% $
677.9 $ 764.4 - 11% In public finance, Ambac�s premium production
decreased even though overall market issuance was up approximately
13%, quarter on quarter. The increase in issuance for the quarter
was driven by strong refunding issuance. Ambac�s market share of
the insured market was approximately 21%, down slightly from 22% in
the comparable prior year quarter. Ambac wrote fewer large,
structured transactions in the second quarter of 2007 relative to
the comparable prior quarter resulting in the decline in credit
enhancement production. U.S. structured finance second quarter
credit enhancement production declined from the prior year as the
second quarter 2006 production included two large transactions
representing 46% of that quarter�s total production. Capital market
activity in the U.S. continues to be robust and during the current
quarter Ambac benefited from strong writings in pooled debt
obligations (CDOs) where both pricing and transaction structure
have improved significantly since the beginning of the year.
Competition from the senior/subordinated market has dissipated
significantly in mortgage-related asset classes. International
credit enhancement production also declined relative to an
exceptionally strong comparable prior year quarter. Second quarter
2006 international production included two large U.K. transactions
that represented almost 48% of the total international production
for that quarter. The current quarter saw strong flow in asset
backed securitizations. During the quarter Ambac closed deals in
seven different countries. Management continues to believe that the
broad international markets provide an array of opportunities and
will be a driver of short-term and long-term growth for Ambac. Net
premiums written (which represent premiums collected during the
period, net of reinsurance) in the second quarter of 2007 of $232.7
million were 9% lower than net premiums written of $255.7 million
in the comparable period of 2006. The decrease is primarily a
result of lower premiums collected up front in public finance and
international finance partially offset by lower premiums ceded to
reinsurers during the second quarter 2007. Ceded premiums as a
percentage of gross premiums written were 10.9% and 18.4% for the
second quarter of 2007 and 2006, respectively. Second quarter 2006
ceded premiums were impacted by the number of large deals utilizing
reinsurance capacity. Net premiums written for the six months of
2007 of $453.1 million were 6% lower than net premiums written of
$483.6 million in the same period of 2006. Excluding the impact of
$37.0 million of return premiums from reinsurance cancellations in
the first quarter of 2006, net premiums written are up 1%. A
breakdown of gross premiums written by market segment and ceded
premiums for the second quarter and six-month periods of 2007 and
2006 are included below in Table III. Table III Premiums Written �
$-millions Second Quarter Six Months 2007 � 2006 � % Change � 2007
� 2006 � % Change � Public Finance $ 111.7 $ 122.9 - 9 % $ 226.1 $
215.2 + 5 % Structured Finance 87.5 90.2 - 3 % 170.8 169.0 + 1 %
International 61.9 � 100.4 � - 38 % 114.1 � 148.4 � - 23 % Total
Gross Premiums Written 261.1 313.5 - 17 % 511.0 532.6 - 4 % Ceded
Premiums Written (28.4 ) (57.8 ) - 51 % (57.9 ) (49.0 ) + 18 % Net
Premiums Written $ 232.7 � $ 255.7 � - 9 % $ 453.1 � $ 483.6 � - 6
% Net premiums earned and other credit enhancement fees for the
second quarter of 2007 were $238.3 million, which represented a 6%
increase from the $225.0 million earned in the second quarter of
2006. The increase was driven by higher accelerated premiums from
refundings and policy termination fees, as well as higher normal
premiums and other credit enhancement fees. Net premiums earned
include accelerated premiums, which result from refundings, calls
and other accelerations recognized during the quarter. Accelerated
premiums were $43.0 million in the second quarter of 2007, up 15%
from $37.4 million in accelerated premiums in the second quarter of
2006. During the second quarter 2007 and 2006, approximately $31.6
million and $23.9 million, respectively, of the accelerated
premiums related to U.S. public finance transactions and the
remainder related to U.S. structured finance and international
transactions. Net premiums earned and other credit enhancement fees
for the first half of 2007 were $469.9 million, which represented
an 8% increase from the $433.4 million earned in the first half of
2006. Accelerated premiums were $82.8 million for the first half
2007, up 33% from $62.3 million in accelerated premiums for the
first half of 2006. Accelerated premiums in 2006 include $7.7
million related to the impact of reinsurance cancellations
occurring in the first quarter of 2006. A breakdown of net premiums
earned and other credit enhancement fees by market sector for 2007
and 2006 are included below in Table IV. Normal net premiums earned
exclude accelerated premiums that result from refundings, calls and
other accelerations. Table IV Net Premiums Earned and Other Credit
Enhancement Fees � $-millions Second Quarter Six Months 2007 2006 %
Change 2007 2006 % Change Public Finance $ 59.1 $ 58.1 + 2% $ 117.5
$ 114.0 + 3% Structured Finance 85.7 77.9 + 10% 167.7 154.8 + 8%
International 50.5 51.6 - 2% 101.9 102.3 0 % Total Normal
Premiums/Fees 195.3 187.6 + 4% 387.1 371.1 + 4% Accelerated
Premiums 43.0 37.4 + 15% 82.8 62.3 + 33% Total $ 238.3 $ 225.0 + 6%
$ 469.9 $ 433.4 + 8% Public finance earned premiums, before
accelerations, grew 2% this quarter. Earned premium growth in this
sector has been negatively impacted by the high level of refunding
activity in Ambac�s public finance book in recent years,
competitive pricing and the mix of business underwritten in recent
periods. Structured finance earned premiums and other credit
enhancement fees grew 10%. The rate of growth in structured finance
has improved recently, driven by strong premium production in asset
classes such as pooled debt obligations and commercial asset-backed
securities over the past several quarters. International earned
premiums and other credit enhancement fees decreased 2%. The
decrease has resulted from deal terminations and a slow down in
deal closings in 2007 relative to the prior year. Net investment
income for the second quarter of 2007 was $113.2 million,
representing an increase of 8% from $104.5 million in the
comparable period of 2006. This increase was due primarily to
growth in the investment portfolio driven by the ongoing collection
of financial guarantee premiums and fees. Net investment income for
the six months of 2007 was $225.3 million, representing an increase
of 9% from $206.2 million in the comparable period of 2006,
primarily as a result of the reasons provided above. Financial
services revenues. The financial services segment is comprised of
the investment agreement business and the derivative products
business. Gross interest income less gross interest expense from
investment and payment agreements plus results from the derivative
products business, excluding net realized investment gains and
losses and unrealized gains and losses on total return swaps and
non-trading derivative contracts, was $9.2 million in the second
quarter of 2007, down 15% from $10.8 million in the second quarter
of 2006. The decrease was primarily due to lower revenue from the
interest rate swap, total return swap and investment agreement
businesses in the second quarter 2007. Financial services revenues
were $19.9 million in the first half of 2007, down 12% from the
$22.5 million of revenues in the first half of 2006 primarily due
to the reason provided above. Expenses Highlights Financial
guarantee expenses of $50.5 million for the second quarter of 2007
increased 13% from $44.7 million of expenses for the second quarter
of 2006. Financial guarantee loss and loss expenses were $17.1
million in the second quarter of 2007, up from $12.8 million in the
second quarter of 2006. See "Loss Reserve Activity," below, for
additional information on losses. Net underwriting and operating
expenses of the financial guarantee sector totaled $33.4 million in
the second quarter of 2007, up 5% from $31.9 million in the second
quarter of 2006 primarily due to increased compensation expense.
Financial guarantee expenses of $98.3 million for the first six
months of 2007 increased 19% from $82.7 million of expenses for the
same period of 2006. The increase results primarily from higher
loss expenses during the period. Loss Reserve Activity Case basis
loss reserves (loss reserves for exposures that have defaulted)
increased $9.6 million during the second quarter of 2007 from $37.7
million at March 31, 2007 to $47.3 million at June 30, 2007.
Included in the March 31, 2007 case reserves balance were
offsetting receivables for claims previously paid on a European
transportation transaction that were deemed by management to be
recoverable upon the anticipated successful restructuring of that
transaction. The restructuring was finalized during the quarter and
the payments due to Ambac were received. Total net claim
payments/(receipts) during the quarter amounted to ($7.5) million.
Active credit reserves ("ACR") are established for probable and
estimable losses due to credit deterioration on certain adversely
classified insured transactions. The ACR increased by $14.9 million
during the quarter, from $188.8 million at March 31, 2007 to $203.7
million at June 30, 2007. The increase was driven primarily by
increases in reserves on certain credits primarily within the
transportation sector of the U.S. public finance portfolio and to a
lesser extent within the non-subprime RMBS sector of the structured
finance portfolio, partially offset by favorable credit activity
throughout both portfolios. Other Items Total net securities
gains/(losses) for the second quarter of 2007 were ($52.7) million,
consisting of net realized gains on investment securities of $1.2
million, net mark-to-market losses on credit and total return
derivatives of ($57.9) million and net mark-to-market gains on
non-trading derivative contracts of $4.0 million. During the
quarter a net mark-to-market loss amounting to ($56.9) million was
recorded related to insured collateralized debt obligations of
asset-backed securitizations containing sub-prime mortgage-backed
securities as collateral. The negative mark-to-market is driven by
current market concerns over the most recent vintages of subprime
RMBS and the recent lack of liquidity in the CDO of ABS market
resulting in a reduction in market-quoted prices. Ambac's exposure
on those transactions all attach at levels senior to the triple-A
attachment points as established by the rating agencies. For the
second quarter of 2006, net securities gains/(losses) were $51.0
million, consisting of net realized gains on investment securities
of $44.4 million, net mark-to-market gains on credit and total
return derivatives of $7.2 million and net mark-to-market losses on
non-trading derivative contracts of ($0.6) million. Approximately
$38 million of the second quarter 2006 net realized gains on
investment securities related to cash recoveries received from a
security in the investment agreement portfolio that had been
written down in previous years. Total net securities gains/(losses)
for the first half of 2007 were ($49.0) million, consisting of net
realized gains on investment securities of $7.8 million, net
mark-to-market losses on credit and total return derivatives of
($59.8) million and net mark-to-market gains on non-trading
derivative contracts of $3.0 million. For the first half of 2006
net securities gains were $64.4 million, consisting of net realized
gains on investment securities of $49.5 million, net mark-to-market
gains on credit and total return derivatives of $14.4 million and
net mark-to-market gains on non-trading derivative contracts of
$0.5 million. Balance Sheet Highlights Total assets as of June 30,
2007 were $21.06 billion, up 4% from total assets of $20.27 billion
at December 31, 2006. The increase was primarily driven by cash
generated from operations during the period, partially offset by a
decrease in unrealized gains in the investment portfolio due to a
rise in long-term interest rates. As of June 30, 2007,
stockholders' equity was $6.04 billion, a 2% decrease from year-end
2006 stockholders' equity of $6.18 billion. The decrease was
primarily the result of the $400 million share buyback and lower
Accumulated Other Comprehensive Income driven by higher long-term
interest rates, partially offset by net income during the period.
During the second quarter 2007, Ambac completed the buyback of $400
million of its common stock under its accelerated share buyback
program (originally announced on February 12, 2007). The total
number of shares purchased under the agreement amounted to 4.46
million shares. Ambac also bought back 194 thousand shares of its
common stock at a total cost of $16.9 million during the second
quarter that was unrelated to the accelerated share buyback
program. Increased Cash Dividend Declared At its July 2007 Board
meeting, the Board of Directors of Ambac Financial Group Inc.
approved a 17% increase in the regular quarterly cash dividend from
$0.18 to $0.21 per share of common stock. The dividend is payable
on September 5, 2007 to stockholders of record on August 10, 2007.
Ambac has declared an increased cash dividend in every year since
going public in 1991. Forward-Looking Statements This release, in
particular the Chairman and Chief Executive Officer�s remarks,
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; (7) changes
in capital requirement or other criteria of rating agencies; (8)
changes in accounting principles or practices that may impact the
Company�s reported financial results; (9) the amount of reserves
established for losses and loss expenses; (10) default of one or
more of the Company�s reinsurers; (11) market spreads and pricing
on insured pooled debt obligations and other derivative products
insured or issued by the Company; (12) prepayment speeds on insured
asset-backed securities and other factors that may influence the
amount of installment premiums paid to the Company; and (13) 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, except as required by law. 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 and Fitch, Inc. Ambac Financial
Group, Inc. common stock is listed on the New York Stock Exchange
(ticker symbol ABK). Footnotes (1) Credit enhancement production,
which is not promulgated under GAAP, is used by management, equity
analysts and investors as an indication of new business production
in the period. Credit enhancement production, which Ambac reports
as analytical data, is defined as gross (direct and assumed)
up-front premiums plus the present value of estimated installment
premiums on insurance policies and structured credit derivatives
issued in the period. The discount rate used to measure the present
value of estimated installment premiums was 5.4% and 5.6% during
the second quarter of 2007 and 2006, respectively. The definition
of credit enhancement production used by Ambac may differ from
definitions of credit enhancement production (or similar terms)
used by other public holding companies of financial guarantors. The
following table reconciles credit enhancement production to gross
premiums written calculated in accordance with GAAP: $-millions
Second Quarter Six Months 2007 � 2006 � 2007 � 2006 � Credit
enhancement production $ 368 $ 531 $ 678 $ 764 Present value of
estimated installment premiums written on insurance policies and
structured credit derivatives issued in the period � � � (242 � � �
) � � � (357 � � � ) � � � (440 � � � ) � � � (494 � � � ) Gross
up-front premiums written $ 126 $ 174 $ 238 $ 270 Gross installment
premiums written on insurance policies � 135 � � 140 � � 273 � �
263 � Gross premiums written $ 261 � $ 314 � $ 511 � $ 533 � (2)
Operating earnings and core earnings are not substitutes for net
income computed in accordance with GAAP, but are useful measures of
performance used by management, equity analysts and investors.
Operating earnings measures income from operations excluding the
impact of investment portfolio realized gains and losses,
mark-to-market gains and losses on credit, total return and
non-trading derivative contracts and certain other items. Core
earnings further exclude the impact of refundings, calls and other
accelerations. 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. Ambac Financial Group, Inc. and
Subsidiaries Consolidated Statements of Operations (Unaudited) For
the Three and Six Months Ended June 30, 2007 and 2006 (Dollars in
Thousands Except Share Data) � Three Months Ended Six Months Ended
June 30, June 30, 2007 � � 2006 � 2007 � � 2006 � Revenues:
Financial Guarantee: Gross premiums written $261,139 $313,500
$511,051 $532,558 Ceded premiums written (28,437 ) (57,747 )
(57,921 ) (48,990 ) Net premiums written $232,702 � $255,753 �
$453,130 � $483,568 � � Net premiums earned $221,019 $210,829
$437,025 $405,061 Other credit enhancement fees 17,332 � 14,155 �
32,885 � 28,343 � Net premiums earned and other credit enhancement
fees 238,351 224,984 469,910 433,404 Net investment income 113,190
104,455 225,254 206,189 Net realized investment gains 881 1,892
1,321 1,513 Net mark-to-market (losses) gains on credit derivative
contracts (56,867 ) 5,381 (61,991 ) 7,334 Other income 5,649 3,453
8,505 32,415 Financial Services: Investment income 107,903 98,048
213,873 179,983 Derivative products 2,464 3,321 6,070 8,007 Net
realized investment gains 310 41,728 6,471 47,231 Net
mark-to-market (losses) gains on total return swap contracts (982 )
1,818 2,233 7,041 Net mark-to-market gains (losses) on non-trading
derivatives 340 (306 ) (159 ) (62 ) Corporate: Net investment
income 1,341 3,396 2,922 6,396 Net realized investment gains - �
791 � - � 791 � � Total revenues 412,580 � 488,961 � 874,409 �
930,242 � � Expenses: Financial Guarantee: Loss and loss expenses
17,096 12,822 28,518 12,949 Underwriting and operating expenses
33,438 31,865 69,814 69,723 Financial Services: Interest on
investment and payment agreements 101,124 90,533 200,082 165,498
Operating expenses 3,117 3,303 6,405 6,875 Interest 22,091 19,475
41,380 38,950 Corporate 3,664 � 4,000 � 6,920 � 7,643 � � Total
expenses 180,530 � 161,998 � 353,119 � 301,638 � � Income before
income taxes 232,050 326,963 521,290 628,604 Provision for income
taxes 59,013 � 88,393 � 134,910 � 168,894 � � Net income $173,037 �
$238,570 � $386,380 � $459,710 � � Net income per share $1.69 �
$2.24 � $3.73 � $4.32 � � Net income per diluted share $1.67 �
$2.22 � $3.70 � $4.28 � � Weighted average number of common shares
outstanding: � Basic 102,557,554 � 106,485,245 � 103,600,542 �
106,462,001 � � Diluted 103,442,086 � 107,450,639 � 104,550,048 �
107,398,480 � Ambac Financial Group, Inc. and Subsidiaries
Consolidated Balance Sheets June 30, 2007 and December 31, 2006
(Dollars in Thousands Except Share Data) � June 30, 2007 December
31, 2006 (unaudited) Assets � Investments: Fixed income securities,
at fair value (amortized cost of $17,265,975 in 2007 and
$16,484,257 in 2006) $17,385,817 $16,800,338 Fixed income
securities pledged as collateral, at fair value (amortized cost of
$293,935 in 2007 and $311,546 in 2006) 285,605 307,101 Short-term
investments, at cost (approximates fair value) 291,979 311,759
Other (cost of $38,669 in 2007 and $13,427 in 2006) 39,928 � 14,391
� Total investments 18,003,329 17,433,589 � Cash 35,729 31,868
Securities purchased under agreements to resell 270,000 273,000
Receivable for securities sold 48,979 12,857 Investment income due
and accrued 183,207 193,199 Reinsurance recoverable on paid and
unpaid losses 4,793 3,921 Prepaid reinsurance 322,914 315,498
Deferred acquisition costs 271,235 252,115 Loans 861,364 625,422
Derivative assets 939,658 1,019,339 Other assets 120,533 � 107,005
� Total assets $21,061,741 � $20,267,813 � � Liabilities and
Stockholders' Equity � Liabilities: Unearned premiums $3,061,673
$3,037,544 Loss and loss expense reserve 255,825 220,074 Ceded
reinsurance balances payable 19,198 20,084 Obligations under
investment and payment agreements 8,395,689 8,202,590 Obligations
under investment repurchase agreements 135,465 154,287 Deferred
income taxes 183,117 263,483 Current income taxes 49,227 49,920
Long-term debt 1,664,705 991,804 Accrued interest payable 93,855
105,129 Derivative liabilities 675,290 667,066 Other liabilities
317,018 275,670 Payable for securities purchased 168,850 � 95,973 �
Total liabilities 15,019,912 � 14,083,624 � � Stockholders' equity:
Preferred stock - - Common stock 1,092 1,092 Additional paid-in
capital 829,853 790,168 Accumulated other comprehensive income
69,341 197,576 Retained earnings 5,773,888 5,454,575 Common stock
held in treasury at cost (632,345 ) (259,222 ) Total stockholders'
equity 6,041,829 � 6,184,189 � Total liabilities and stockholders'
equity $21,061,741 � $20,267,813 � � Number of shares outstanding
(net of treasury shares) 101,733,454 � 105,730,553 � Book value per
share $59.39 � $58.49 � Ambac Assurance Corporation and
Subsidiaries Capitalization Table - GAAP June 30, 2007 and December
31, 2006 (Dollars in Millions) � The following table sets forth
Ambac Assurance's consolidated capitalization as of June 30, 2007
and December 31, 2006, respectively, on the basis of accounting
principles generally accepted in the United States of America. �
June 30, December 31, 2007 2006 (unaudited) � Long-term debt (1)
$275 $0 � Stockholder's equity: Common stock 82 82 Additional
paid-in capital 1,545 1,509 Accumulated other comprehensive income
29 142 Retained earnings 5,576 5,259 Total stockholder's equity
$7,232 $6,992 � (1) Long-term debt relates entirely to variable
interest entity notes consolidated under the provisions of FIN 46R
"Consolidation of Variable Interest Entities".
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