-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NGPcxVyWJQHcu/s0tZApc18lmgRhhRFTKIcR5K+5OzyR6Du1xdwxfdBr3xKMuYeW NK/kdWa61cHi8GRT8E8Y/w== 0000814585-95-000006.txt : 19951107 0000814585-95-000006.hdr.sgml : 19951107 ACCESSION NUMBER: 0000814585-95-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951106 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MBIA INC CENTRAL INDEX KEY: 0000814585 STANDARD INDUSTRIAL CLASSIFICATION: SURETY INSURANCE [6351] IRS NUMBER: 061185706 STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09583 FILM NUMBER: 95587347 BUSINESS ADDRESS: STREET 1: 113 KING ST CITY: ARMONK STATE: NY ZIP: 10504 BUSINESS PHONE: 9142734545 MAIL ADDRESS: STREET 1: 113 KING ST CITY: ARMONK STATE: NY ZIP: 10504 10-Q 1 3RD QTR 10Q 95 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended September 30, 1995 OR ( ) TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from __________ to __________ Commission File No. 1-9583 I.R.S. Employer Identification No. 06-1185706 MBIA INC. A Connecticut Corporation 113 King Street, Armonk, N. Y. 10504 (914) 273-4545 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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_____ As of October 30, 1995 there were outstanding 41,911,356 shares of Common Stock, par value $1 per share, of the registrant. INDEX ----- PAGE ---- PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) MBIA Inc. and Subsidiaries Consolidated Balance Sheets - September 30, 1995 and December 31, 1994 3 Consolidated Statements of Income - Three months and nine months ended September 30, 1995 and 1994 4 Consolidated Statement of Changes in Shareholders' Equity - Nine months ended September 30, 1995 5 Consolidated Statements of Cash Flows - Nine months ended September 30, 1995 and 1994 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-15 PART II OTHER INFORMATION, AS APPLICABLE Item 6. Exhibits and Reports on Form 8-K 16 SIGNATURES 17 (2) MBIA INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands except per share amounts) September 30, 1995 December 31, 1994 ------------------ ----------------- (Unaudited) (Audited) ASSETS Investments: Fixed maturity securities held as available-for-sale at market (amortized cost $3,332,939 and $3,123,838) $3,480,987 $3,051,906 Short-term investments, at amortized cost (which approximates market value) 173,529 121,384 Other investments 16,446 17,550 ---------- ---------- 3,670,962 3,190,840 Municipal investment agreement portfolio, held as available- for-sale at market (amortized cost $2,423,173 and $1,738,375) 2,467,481 1,675,935 ---------- ---------- TOTAL INVESTMENTS 6,138,443 4,866,775 Cash and cash equivalents 12,821 7,940 Accrued investment income 79,174 68,486 Deferred acquisition costs 138,132 133,048 Prepaid reinsurance premiums 195,146 186,492 Goodwill (less accumulated amortization of $39,987 and $36,115) 107,880 111,252 Property and equipment, at cost (less accumulated depreciation of $16,685 and $13,917) 45,672 45,069 Receivable for investments sold 2,783 945 Other assets 38,060 36,432 ---------- ---------- TOTAL ASSETS $6,758,111 $5,456,439 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Deferred premium revenue $1,598,597 $1,512,211 Loss and loss adjustment expense reserves 45,246 40,148 Municipal investment agreements 2,314,339 1,526,133 Long-term debt 298,872 298,790 Short-term debt 23,000 17,000 Deferred income taxes 200,183 76,843 Payable for investments purchased 35,929 209,966 Securities sold under agreements to repurchase 69,000 --- Other liabilities 82,661 70,632 ---------- ---------- TOTAL LIABILITIES 4,667,827 3,751,723 ---------- ---------- Shareholders' Equity: Preferred stock, par value $1 per share; authorized shares--10,000,000; issued and outstanding--none --- --- Common stock, par value $1 per share; authorized shares--200,000,000; issued shares--42,077,387 42,077 42,077 Additional paid-in capital 722,478 719,750 Retained earnings 1,212,628 1,057,092 Cumulative translation adjustment 2,609 503 Unrealized appreciation (depreciation) of investments, net of deferred income tax provision (benefit) of $67,879 and $(46,292) 125,075 (86,560) Treasury stock, at cost; shares--248,331 and 461,763 (14,583) (28,146) ---------- ---------- TOTAL SHAREHOLDERS' EQUITY 2,090,284 1,704,716 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $6,758,111 $5,456,439 ========== ========== The accompanying notes are an integral part of the consolidated financial statements. (3) MBIA INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in thousands except per share amounts) Three months ended Nine months ended September 30 September 30 ---------------------- ----------------------- 1995 1994 1995 1994 ---------- ---------- ---------- ---------- Revenues: Insurance: Gross premiums written $ 92,022 $ 80,099 $269,199 $274,385 Ceded premiums (13,077) (12,011) (32,206) (38,686) ---------- ---------- ---------- ---------- Net premiums written 78,945 68,088 236,993 235,699 Increase in deferred premium revenue (23,336) (13,358) (76,422) (72,829) ---------- ---------- ---------- ---------- Premiums earned (net of ceded premiums of $8,900, $11,719, $23,552 and $26,087) 55,609 54,730 160,571 162,870 Net investment income 56,057 49,551 162,885 144,241 Net realized gains 4,665 752 8,087 9,659 Investment management services: Income 5,164 4,222 13,705 12,019 Net realized losses (3,186) (145) (3,360) (603) Other 421 902 1,555 1,527 ---------- ---------- ---------- ---------- Total revenues 118,730 110,012 343,443 329,713 ---------- ---------- ---------- ---------- Expenses: Insurance: Losses and loss adjustment 3,211 1,626 7,954 5,665 Policy acquisition costs, net 5,511 5,232 15,781 16,292 Operating 10,554 10,816 29,546 30,453 Investment management services 3,049 2,646 9,339 7,592 Interest 7,112 6,759 21,271 20,214 Other 285 420 1,256 1,053 ---------- --------- ---------- ---------- Total expenses 29,722 27,499 85,147 81,269 ---------- --------- ---------- ---------- Income before income taxes 89,008 82,513 258,296 248,444 Provision for income taxes 19,174 17,466 55,149 52,705 ---------- ---------- ---------- ---------- NET INCOME $ 69,834 $ 65,047 $203,147 $195,739 ========== ========== ========== ========== NET INCOME PER COMMON SHARE $ 1.65 $ 1.54 $ 4.82 $ 4.65 ========== ========== ========== ========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND COMMON STOCK EQUIVALENTS OUTSTANDING 42,254,807 42,105,144 42,176,243 42,111,624 ========== ========== ========== ========== The accompanying notes are an integral part of the consolidated financial statements. (4) MBIA INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited) For the nine months ended September 30, 1995 (In thousands except per share amounts)
Unrealized Common Stock Additional Cumulative Appreciation Treasury Stock --------------- Paid-in Retained Translation (Depreciation) ------------------ Shares Amount Capital Earnings Adjustment of Investments Shares Amount ------ ------- -------- ---------- ---------- -------------- -------- -------- Balance, January 1, 1995 42,077 $42,077 $719,750 $1,057,092 $ 503 $(86,560) 462 $28,146 Exercise of stock options --- --- 2,728 (7,333) --- --- (214) (13,563) Net income --- --- --- 203,147 --- --- --- --- Change in foreign currency translation --- --- --- --- 2,106 --- --- --- Change in unrealized appreciation of investments net of change in deferred income taxes of $114,171 --- --- --- --- --- 211,635 --- --- Dividends (declared per common share $.965, paid per common share $.930) --- --- --- (40,278) --- --- --- --- ------ ------- -------- ---------- ------ -------- ------ ------- Balance, September 30, 1995 42,077 $42,077 $722,478 $1,212,628 $2,609 $125,075 248 $14,583 ====== ======= ======== ========== ====== ======== ====== =======
The accompanying notes are an integral part of the consolidated financial statements. (5) MBIA INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Nine months ended September 30 --------------------- 1995 1994 ---------- ---------- Cash flows from operating activities: Net income $ 203,147 $ 195,739 Adjustments to reconcile net income to net cash provided by operating activities: Increase in accrued investment income (10,688) (8,262) Increase in deferred acquisition costs (5,084) (7,560) Increase in prepaid reinsurance premiums (8,654) (12,599) Increase in deferred premium revenue 85,076 85,428 Increase in loss and loss adjustment expense reserves 5,098 5,076 Depreciation 2,901 2,333 Amortization of goodwill 3,872 3,770 Amortization of bond discount, net (13,529) (5) Net realized gains on sale of investments (4,727) (9,056) Deferred income taxes 9,169 13,735 Other, net 17,509 6,134 ---------- --------- Total adjustments to net income 80,943 78,994 ---------- --------- Net cash provided by operating activities 284,090 274,733 ---------- --------- Cash flows from investing activities: Purchase of fixed maturity securities, net of payable for investments purchased (2,206,715) (781,908) Sale of fixed maturity securities, net of receivable for investments sold 1,429,309 355,441 Redemption of fixed maturity securities, net of receivable for investments redeemed 63,390 91,793 (Purchase) sale of short-term investments, net (204,006) 30,897 Sale of other investments, net 2,570 87,379 Purchases for municipal investment agreement portfolio, net of payable for investments purchased (177,818) (1,394,415) Sales from municipal investment agreement portfolio, net of receivable for investments sold (2,007) 378,171 Capital expenditures, net of disposals (3,471) (2,246) ---------- ---------- Net cash used by investing activities (1,098,748) (1,234,888) ---------- ---------- Cash flows from financing activities: Dividends paid (38,748) (32,582) Purchase of treasury stock --- (8,886) Proceeds from issuance of municipal investment agreements 1,628,063 1,563,308 Payments for drawdowns of municipal investment agreements (847,734) (554,297) Securities sold under agreements to repurchase 69,000 --- Exercise of stock options 8,958 1,985 --------- --------- Net cash provided by financing activities 819,539 969,528 --------- --------- Net increase in cash and cash equivalents 4,881 9,373 Cash and cash equivalents - beginning of period 7,940 2,492 --------- --------- Cash and cash equivalents - end of period $ 12,821 $ 11,865 ========= ========= Supplemental cash flow disclosures: Income taxes paid $ 41,910 $ 41,783 Interest paid: Municipal investment agreements $ 81,892 $ 22,279 Long-term debt 22,475 22,475 Short-term debt 835 56 The accompanying notes are an integral part of the consolidated financial statements. (6) MBIA INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, accordingly, do not include all of the information and disclosures required by generally accepted accounting principles. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in Form 10-K for the year ended December 31, 1994 for MBIA Inc. and Subsidiaries (the "Company"). The accompanying unaudited consolidated financial statements have not been audited by independent accountants in accordance with generally accepted auditing standards but in the opinion of management such financial statements include all adjustments, consisting only of normal recurring adjustments, necessary to summarize fairly the Company's financial position and results of operations. The results of operations for the nine months ended September 30, 1995 may not be indicative of the results that may be expected for the year ending December 31, 1995. The December 31, 1994 condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. 2. Dividends Declared Dividends declared by the Company during the nine months ended September 30, 1995 were $40.3 million. (7) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - --------------------- 1995 AND 1994 - THIRD QUARTER RESULTS - ------------------------------------- Third quarter 1995 consolidated net income for MBIA Inc. and Subsidiaries (the "Company") was $69.8 million compared to $65.0 million in 1994. Earnings per share grew 7% to $1.65 from $1.54 in the third quarter of 1994. The Company also measures its performance in terms of core earnings. Core earnings exclude the effects of the relatively less predictable elements of net income, which consist of premiums earned from refundings and calls of previously insured issues, realized gains or losses and non- recurring accounting changes. Core earnings increased by 12% to $1.50 per share compared with $1.34 per share in the third quarter of last year, reflecting the Company's continuing ability to produce consistent growth from its expanding portfolio of insured issues, its investment portfolio and its investment management services businesses. Insurance Operations: - -------------------- Total long-term new issue municipal bond par value volume was $31.7 billion in the third quarter of 1995, down modestly from $33.7 billion in the same period last year. The insured portion of the market was a record 51% compared with 37% in the third quarter of 1994. In the third quarter of 1995, the Company's principal operating subsidiary, MBIA Insurance Corporation (formerly, Municipal Bond Investors Assurance Corporation) ("MBIA Corp."), continued to lead the industry in market share, guaranteeing 44% of the insured long-term new issue municipal bond volume. In its domestic structured finance business, the Company insured $3.7 billion of par value compared with $1.7 billion insured in the same period last year. Gross premiums written by MBIA Corp. increased 15% to $92.0 million during the third quarter, from $80.1 million during the third quarter of 1994. Domestic new issue and secondary market municipal and asset-backed premiums, the major components of gross premiums written, increased 13% to $82.2 million compared with $72.5 million in the same period last year. Installment premiums received for policies issued in prior years, including net amounts assumed related to the installment business of the Association, were $9.3 million and $7.4 million for the third quarters of 1995 and 1994, respectively. International premiums (8) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) contributed $0.5 million of gross premium written in the third quarter of 1995, up from $0.2 million in the third quarter of 1994. Premiums ceded to reinsurers increased 9% to $13.1 million during the third quarter of 1995 compared with $12.0 million in the same period last year. This was due primarily to the overall increase in the volume of gross premiums this quarter over the third quarter of 1994. The percentage of ceded premiums written to gross premiums written decreased slightly to 14% for the third quarter of 1995 compared with 15% in the third quarter of 1994. Typically, insurance premiums are paid in full at the time the insurance policy is issued and are earned pro rata over the period of risk. Premiums are allocated to each bond maturity based on par amount and are earned on a straight- line basis over the term of each maturity. Accordingly, the portion of net premiums earned on each policy in any given year represents a relatively small percentage of the total net upfront premium received. The balance represents deferred premium revenue to be earned in the future over the remaining life of the bond. Approximately 10% of MBIA's premiums are collected on an installment basis. Installment premiums are not recorded as a component of deferred premium revenue until received and therefore represent an off-balance sheet value which will contribute to future earned premiums and cash flow. As of September 30, 1995, MBIA estimates the present value of this future stream of payments to be $186.6 million. The present value of future installment premiums originated in the third quarter of 1995 increased 65% to $19.5 million from $11.8 million in the third quarter of 1994. Premiums earned in the third quarter were $55.6 million, a slight increase over the $54.7 million earned in the third quarter of 1994. During the third quarter of 1995, the growth in deferred premium revenue from the addition of new business modestly offset the decline in earned premiums associated with bond refundings and calls, which were significantly lower than in the same period last year. When an MBIA-insured bond issue is refunded or retired prior to the end of the expected period of coverage, the outstanding exposure associated with the refunded or called portion is extinguished and the remaining deferred premium revenue is earned immediately, except for any portion which may be applied as a credit toward the premium charged on (9) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) the refunding bond issue if such refunding issue is insured by MBIA Corp. Earned premiums generated by refunded and called bonds in the third quarter of 1995 declined to $9.6 million from $13.9 million. The amount of bond refundings and calls is difficult to predict since it is influenced by a variety of factors such as prevailing interest rates relative to the coupon rates of the original issue, the issuer's desire to modify restrictive covenants and changing requirements under the Internal Revenue Code. The Company's investment portfolio related to its insurance operations was $3.67 billion as of September 30, 1995. This portfolio generated net investment income of $56.1 million in the third quarter of 1995, a 13% increase over $49.6 million generated in the corresponding period of 1994. The increase was primarily the result of the growth of investments from continued positive operating cash flows. Average invested assets during the third quarter of 1995 were $3.48 billion at amortized cost compared with $3.15 billion for the same period last year. Tax-exempt securities represented 73% of the portfolio at September 30, 1995 compared with 77% at September 30, 1994. The average quality of the fixed income investments is double-A. Net realized capital gains for the third quarter of 1995 increased to $4.7 million from $0.8 million in the same period of 1994. The provision for losses and loss adjustment expenses for the third quarter of 1995 was $3.2 million, compared with $1.6 million in 1994, representing additions to the loss reserves consistent with the Company's reserve methodology. At September 30, 1995, $18.5 million of the $45.2 million loss and loss adjustment expense reserve was allocated on a case basis, compared with $23.3 million of the $38.8 million reserve at September 30, 1994. During the third quarter of 1995 there were no new case reserves nor any material adjustments made to those reserves currently outstanding. For the third quarter of 1995, policy acquisition costs net of deferrals increased by $0.3 million to $5.5 million over the third quarter of 1994. This increase was offset by a comparable decrease in other insurance operating expenses for the same periods. For the third quarter of 1995, the Company's interest expense increased to $7.1 million from $6.8 million in the third quarter 1994. The increase resulted from utilization of short-term bank borrowings under existing lines of credit during the third quarter of 1995 for investment management services' capital needs. (10) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Investment Management Services: - ------------------------------ MBIA has undertaken the development of investment management services which capitalize on its capabilities, reputation and marketplace relationships. MBIA Municipal Investors Services Corporation ("MBIA/MISC"), a subsidiary of the Company, provides cash management services for local governments, school districts and similar authorities. As of September 30, 1995 MBIA/MISC had over 1,100 clients and over $2.3 billion of client assets under management. MBIA/MISC is operating in nine states and plans to continue its expansion into additional states. MBIA/MISC also provides fund administration services to 232 clients. MBIA Investment Management Corp. ("IMC"), another subsidiary of the Company, provides investment agreements guaranteed as to principal and interest, for states, municipalities and municipal authorities. At September 30, 1995, aggregate principal and accrued interest outstanding on investment agreements was $2.3 billion compared with $1.5 billion at September 30, 1994. The related assets are high quality securities and are recorded as a component of the Company's total investments as the municipal investment agreement portfolio. Municipal investment agreements are recorded as liabilities at the time such agreements are executed. The liability for a municipal investment agreement is carried at the principal value of the obligation plus accrued interest due. Interest expense on municipal investment agreements is computed daily based upon the outstanding liability balance at rates specified in the agreements. Such expense is deducted from the investment income arising from the related investment agreement assets, and the net amount is included in investment management services income. For the third quarter of 1995, these businesses contributed $5.2 million in operating revenues, a 22% increase over third quarter 1994's $4.2 million. For the same periods, operating expenses increased by 15% to $3.0 million from $2.6 million. Net realized capital losses for the third quarter of 1995 were $3.2 million compared to $0.1 million in the third quarter of 1994. (11) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) RESULTS OF OPERATIONS - --------------------- 1995 AND 1994 - FIRST NINE MONTHS RESULTS - ----------------------------------------- The Company's 1995 first nine months net income and earnings per share were $203.1 million and $4.82, respectively, compared with $195.7 million and $4.65 in the first nine months of 1994. For the first nine months of 1995, core earnings increased by 11% to $4.37 per share compared with $3.92 per share in the first nine months of last year, reflecting the Company's continuing ability to produce consistent growth from its expanding portfolio of insured issues and investment portfolio. Insurance Operations: - -------------------- Total long-term new issue municipal bond volume for the first nine months of 1995 was $95.9 billion of par value, down from $121.1 billion in the first nine months of 1994. The insured portion of new issue volume increased to 45% versus 39% in the comparable period last year. In the first nine months of 1995, MBIA Corp. led the industry in market share, guaranteeing 44% of the insured long-term new issue municipal bond volume compared with 42% in the first nine months of 1994. In its domestic structured finance business, for the first nine months of 1995, MBIA insured $6.8 billion of par value compared with $4.0 billion in the first nine months of last year. Gross premiums written by MBIA Corp. decreased 2% to $269.2 million during the first nine months of 1995 from $274.4 million during the first nine months of 1994. Domestic new issue and secondary market municipal and asset- backed premiums, the major components of gross premiums written, increased modestly to $232.8 million compared with $232.1 million in the same period last year. Installment premiums received for policies issued in prior years, including net amounts assumed related to the installment business of the Association, were $27.9 million and $23.0 million for the first nine months of 1995 and 1994, respectively. International premiums contributed $8.5 million of gross premium written in the first nine months of 1995, down from $19.1 million in the same period last year. Included in last year's premium is $15.2 million relating to one unusually large transaction. Excluding this transaction international premiums increased by $4.6 million over the first nine months of 1994. Gross premiums written also included portfolio assumptions of $0.2 million for the first nine months of 1994. (12) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The present value of future installment premiums originated in the first nine months of 1995 increased 57% to $44.9 million from $28.6 million in the same period last year. With the decrease in the volume of gross premiums written, premiums ceded to reinsurers declined 17% to $32.2 million during the first nine months of 1995 compared to $38.7 million in the same period last year. In the first nine months of 1995, premiums ceded as a percentage of gross premiums written decreased to 12% from 14% last year. For the first nine months of 1995, net premium writings were $237.0 million, reflecting a 1% increase over $235.7 million in the same period last year. Premiums earned in the first nine months of 1995 decreased 1% to $160.6 million from $162.9 million in the first nine months of 1994. This decrease reflected the decline in earned premiums resulting from lower bond refundings and calls during 1995, partially mitigated by the growth in deferred premium revenues from the addition of new business in 1994. Earned premiums generated by refunded and called bonds in the first nine months of 1995 and 1994 were $26.8 million and $39.9 million, respectively. Net investment income increased 13% to $162.9 million in the first nine months of 1995 compared with $144.2 million in the corresponding period of 1994. The increase was a result of the growth of invested assets from continued positive operating cash flows. Average invested assets during the first nine months of 1995 were $3.39 billion at amortized cost compared with $3.08 billion for the same period last year. Net realized capital gains in the first nine months of 1995 decreased to $8.1 million from $9.7 million in the same period of 1994. The provision for losses and loss adjustment expenses for the first nine months of 1995 was $8.0 million, compared with $5.7 million in 1994, representing additions to the loss reserves consistent with the Company's reserve methodology. During the first nine months of 1995 there were no new case reserves nor any material adjustments made to those reserves currently outstanding. (13) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Other insurance related expenses, which are composed of net policy acquisition costs and operating expenses, were $45.3 million compared with $46.7 million in the previous year. The Company's interest expense increased to $21.3 million for the first nine months of 1995 from $20.2 million in 1994. The increase resulted from utilization of short-term bank borrowings under existing lines of credit during the first nine months of 1995 for investment management services' capital needs. Investment Management Services: - ------------------------------ For the first nine months of 1995, MBIA's investment management services operating revenues were $13.7 million, a 14% increase over the first nine month 1994 operating revenues of $12.0 million. Included in 1994's first nine months was $1.8 million of net proceeds from the sale of MBIA's 49% interest in a joint venture. Investment management services income, excluding the sale, increased 34% over the first nine months of 1994. For the same periods, operating expenses increased by 23% to $9.3 million from $7.6 million. Net realized capital losses for the first nine months of 1995 were $3.4 million compared to $0.6 million for the first nine months of 1994. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- At September 30, 1995, the market value of the Company's consolidated investment portfolio was $6.14 billion, an increase of 26% from $4.87 billion at year-end 1994. The increase was substantially due to continued positive operating cash flow from the Company's insurance and municipal investment agreement operations, as well as a $325.8 million increase in the market value of its investments from year end 1994. MBIA Inc.'s liquidity is in part dependent upon MBIA Corp.'s ability to pay dividends to MBIA Inc. MBIA Corp.'s net income, consisting of premium earnings and investment income less losses and expenses, is a source of continuing additions to earned surplus and dividend paying capability. Under New York insurance law, without prior approval of the Superintendent of the New York State Insurance Department, MBIA Corp. may pay a dividend only from earned surplus subject to the maintenance of a minimum capital requirement, and the dividends in any 12-month period may not exceed the lesser of 10% of its policyholders' surplus as shown on its last filed statutory-based financial statements or adjusted (14) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) net investment income, as defined in the law, for such 12- month period. MBIA Corp. paid dividends of $66.5 million in the first nine months of 1995 and at September 30, 1995 had in excess of $35 million available for payment of further dividends to the Company without prior approval. MBIA Corp. has an irrevocable standby line of credit of $650 million with a group of major banks to provide funds for the payment of claims in the event that severe losses should occur. The agreement is for a seven-year term expiring on September 30, 2002 but, subject to approval by the banks, the agreement may be renewed annually to extend the term to seven years beyond the renewal date. MBIA Inc. and MBIA Corp. maintain short-term liquidity facilities totaling $250 million with major banks for general corporate purposes including immediate liquidity for payment of claims should they occur. At September 30, 1995, $23 million was outstanding under these facilities to fund investment management services' capital requirements. MBIA Corp. also maintains a high degree of liquidity within its investment portfolio in the form of readily marketable high quality fixed income securities and short- term investments. In management's opinion, the capital resources of MBIA Corp., represented by the liquidity of its investment portfolio, its cash flows from operations and bank lines of credit, are more than adequate to meet the Company's expected cash requirements. At September 30, 1995, MBIA Corp. had $18.5 million in case specific loss reserves. Any related payments are expected to be funded from operating cash flows. (15) PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits 11. Computation of Earnings Per Share Assuming Full Dilution 27. Financial Data Schedule 99. Additional Exhibits - MBIA Insurance Corporation and Subsidiaries Consolidated Financial Statements (b) Reports on Form 8-K - No Reports on Form 8-K were filed in this quarter. (16) 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. MBIA INC. ---------------------------------------- Registrant Date: November 2, 1995 /s/ JULLIETTE S. TEHRANI --------------------- ----------------------------- Julliette S. Tehrani Senior Vice President, Chief Financial Officer Date: November 2, 1995 /s/ ELIZABETH B. SULLIVAN --------------------- ----------------------------- Elizabeth B. Sullivan Vice President, Controller (Principal Accounting Officer) (17) EX-11 2 3RD QTR 95 EXHIBIT 11 EXHIBIT 11 MBIA INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE ASSUMING FULL DILUTION (In thousands except per share amounts) Three months ended Nine months ended September 30 September 30 ------------------ ------------------ 1995 1994 1995 1994 ------- ------- -------- -------- Net income $69,834 $65,047 $203,147 $195,739 ======= ======= ======== ======== Fully diluted shares: Average number of common shares outstanding 41,767 41,703 41,701 41,702 Assumed exercise of dilutive stock options 516 427 541 431 ------- ------- -------- -------- 42,283 42,130 42,242 42,133 ======= ======= ======== ======== Earnings per share assuming full dilution $1.65 $1.54 $4.81 $4.65 ======= ======= ======== ======== EX-27 3 3RD QTR 95 EX.27 (FDS)
7 1,000 9-MOS DEC-31-1995 JAN-01-1995 SEP-30-1995 3,480,987 0 0 0 0 0 6,138,443 12,821 0 138,132 6,758,111 45,246 1,598,597 0 0 298,872 42,077 0 0 2,048,207 6,758,111 160,571 162,885 8,087 11,900 7,954 15,781 29,546 258,296 55,149 203,147 0 0 0 203,147 4.82 4.81 0 0 0 0 0 0 0
EX-99 4 3RD QTR 95 CORP GAAP MBIA INSURANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1995 AND DECEMBER 31, 1994 AND FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 MBIA INSURANCE CORPORATION AND SUBSIDIARIES I N D E X --------- PAGE ---- Consolidated Balance Sheets - September 30, 1995 (Unaudited) and December 31, 1994 (Audited) 3 Consolidated Statements of Income - Three months and nine months ended September 30, 1995 and 1994 (Unaudited) 4 Consolidated Statement of Changes in Shareholder's Equity - Nine months ended September 30, 1995 (Unaudited) 5 Consolidated Statements of Cash Flows - Nine months ended September 30, 1995 and 1994 (Unaudited) 6 Notes to Consolidated Financial Statements (Unaudited) 7 - 2 - MBIA INSURANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands except per share amounts) September 30, 1995 December 31, 1994 ------------------ ----------------- (Unaudited) (Audited) ASSETS Investments: Fixed maturity securities held as available-for-sale at market (amortized cost $3,332,939 and $3,123,838) $3,480,987 $3,051,906 Short-term investments, at amortized cost (which approximates market value) 173,529 121,384 Other investments 13,228 11,970 ---------- ---------- TOTAL INVESTMENTS 3,667,744 3,185,260 Cash and cash equivalents 2,202 1,332 Accrued investment income 57,092 55,347 Deferred acquisition costs 138,132 133,048 Prepaid reinsurance premiums 195,146 186,492 Goodwill (less accumulated amortization of $36,134 and $32,437) 106,846 110,543 Property and equipment, at cost (less accumulated depreciation of $11,457 and $9,501) 40,839 39,648 Receivable for investments sold 776 945 Other assets 48,050 46,552 ---------- ---------- TOTAL ASSETS $4,256,827 $3,759,167 ========== ========== LIABILITIES AND SHAREHOLDER'S EQUITY Liabilities: Deferred premium revenue $1,598,597 $1,512,211 Loss and loss adjustment expense reserves 45,246 40,148 Deferred income taxes 184,053 97,828 Payable for investments purchased 10,333 6,552 Other liabilities 56,694 46,925 ---------- ---------- TOTAL LIABILITIES 1,894,923 1,703,664 ---------- ---------- Shareholder's Equity Common stock, par value $150 per share; authorized, issued and outstanding - 100,000 shares 15,000 15,000 Additional paid-in capital 963,645 953,655 Retained earnings 1,285,606 1,134,061 Cumulative translation adjustment 2,464 427 Unrealized appreciation (depreciation) of investments, net of deferred income tax provision (benefit) of $51,786 and $(25,334) 95,189 (47,640) ---------- ----------- TOTAL SHAREHOLDER'S EQUITY 2,361,904 2,055,503 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $4,256,827 $3,759,167 ========== ========== The accompanying notes are an integral part of the consolidated financial statements. - 3 - MBIA INSURANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in thousands) Three months ended Nine months ended September 30 September 30 ------------------ ------------------- 1995 1994 1995 1994 -------- -------- -------- -------- Revenues: Gross premiums written $ 92,362 $ 80,313 $270,139 $274,841 Ceded premiums (13,077) (12,011) (32,206) (38,686) -------- -------- -------- -------- Net premiums written 79,285 68,302 237,933 236,155 Increase in deferred premium revenue (23,336) (13,358) (76,422) (72,829) -------- -------- -------- -------- Premiums earned (net of ceded premiums of $8,900, $11,719, $23,552 and $26,087) 55,949 54,944 161,511 163,326 Net investment income 55,988 49,676 162,836 144,070 Net realized gains 2,902 751 6,324 9,659 Other income 421 887 1,553 1,505 -------- -------- -------- -------- Total revenues 115,260 106,258 332,224 318,560 -------- -------- -------- -------- Expenses: Losses and loss adjustment expenses 3,211 1,626 7,954 5,665 Underwriting and operating expenses 10,554 10,820 29,553 30,466 Policy acquisition costs, net 5,511 5,232 15,781 16,292 -------- -------- --------- -------- Total expenses 19,276 17,678 53,288 52,423 -------- -------- -------- -------- Income before income taxes 95,984 88,580 278,936 266,137 Provision for income taxes 20,811 19,293 60,891 59,070 -------- -------- -------- -------- Net income $ 75,173 $ 69,287 $218,045 $207,067 ======== ======== ======== ======== The accompanying notes are an integral part of the consolidated financial statements. - 4 - MBIA INSURANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY (Unaudited) For the nine months ended September 30, 1995 (Dollars in thousands except per share amounts) Unrealized Common Stock Additional Cumulative Appreciation --------------- Paid-in Retained Translation (Depreciation) Shares Amount Capital Earnings Adjustment of Investments ------- ------- -------- ---------- ---------- -------------- Balance, January 1, 1995 100,000 $15,000 $953,655 $1,134,061 $ 427 $(47,640) Net income --- --- --- 218,045 --- --- Change in foreign currency translation --- --- --- --- 2,037 --- Change in unrealized apprec- iation of investments net of change in deferred income taxes of $77,120 --- --- --- --- --- 142,829 Dividends declared (per common share $665) --- --- --- (66,500) --- --- Tax reduction related to tax shar- ing agree- ment with MBIA Inc. --- --- 9,990 --- --- --- ------- ------- -------- ---------- ------- --------- Balance, September 30, 1995 100,000 $15,000 $963,645 $1,285,606 $2,464 $95,189 ======= ======= ======== ========== ====== ========= The accompanying notes are an integral part of the consolidated financial statements. - 5 - MBIA INSURANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands) Nine months ended September 30 -------------------- 1995 1994 -------- -------- Cash flows from operating activities: Net income $218,045 $207,067 Adjustments to reconcile net income to net cash provided by operating activities: Increase in accrued investment income (1,745) (1,214) Increase in deferred acquisition costs (5,084) (7,560) Increase in prepaid reinsurance premiums (8,654) (12,599) Increase in deferred premium revenue 85,076 85,499 Increase in loss and loss adjustment expense reserves 5,098 5,076 Depreciation 1,975 1,027 Amortization of goodwill 3,697 3,721 Amortization of bond discount, net (1,389) (3) Net realized gains on sale of investments (6,324) (9,659) Deferred income taxes 9,105 13,807 Other, net 21,247 (4,339) -------- -------- Total adjustments to net income 103,002 73,756 -------- -------- Net cash provided by operating activities 321,047 280,823 -------- -------- Cash flows from investing activities: Purchase of fixed maturity securities, net of payable for investments purchased (664,949) (824,635) Sale of fixed maturity securities, net of receivable for investments sold 376,589 355,441 Redemption of fixed maturity securities, net of receivable for investments redeemed 55,513 91,793 (Purchase) sale of short-term investments, net (17,035) 30,897 (Purchase) sale of other investments (664) 87,376 Capital expenditures, net of disposals (3,131) (132) -------- -------- Net cash used in investing activities (253,677) (259,260) -------- -------- Cash flows from financing activities: Dividends paid (66,500) (21,000) -------- -------- Net cash used by financing activities (66,500) (21,000) -------- -------- Net increase in cash and cash equivalents 870 563 Cash and cash equivalents-beginning of period 1,332 747 -------- -------- Cash and cash equivalents-end of period $ 2,202 $ 1,310 ======== ======== Supplemental cash flow disclosures: Income taxes paid $ 40,290 $ 41,530 The accompanying notes are an integral part of the consolidated financial statements. - 6 - MBIA INSURANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION - ------------------------- The accompanying consolidated financial statements are unaudited and include the accounts of MBIA Insurance Corporation and its Subsidiaries (the "Company"). The statements do not include all of the information and disclosures required by generally accepted accounting principles. These statements should be read in conjunction with the Company's consolidated financial statements and notes thereto for the year ended December 31, 1994. The accompanying consolidated financial statements have not been audited by independent accountants in accordance with generally accepted auditing standards but in the opinion of management such financial statements include all adjustments, consisting only of normal recurring adjustments, necessary to summarize fairly the Company's financial position and results of operations. The results of operations for the nine months ended September 30, 1995 may not be indicative of the results that may be expected for the year ending December 31, 1995. The December 31, 1994 condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. 2. DIVIDENDS DECLARED - ---------------------- Dividends declared by the Company during the nine months ended September 30, 1995 were $66.5 million. - 7 - -----END PRIVACY-ENHANCED MESSAGE-----