-----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, Kc3Ykab+pJUoRQ8hWbeq8ys4i0REIAztOfu8l2N8EHi86K1zIskGcgWtX8GGkSx9 X2h6V5PqGwFS3nTkzikctw== /in/edgar/work/20000811/0000814585-00-500004/0000814585-00-500004.txt : 20000921 0000814585-00-500004.hdr.sgml : 20000921 ACCESSION NUMBER: 0000814585-00-500004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MBIA INC CENTRAL INDEX KEY: 0000814585 STANDARD INDUSTRIAL CLASSIFICATION: [6351 ] IRS NUMBER: 061185706 STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09583 FILM NUMBER: 694412 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 0001.txt 2ND QTR 2000 10Q UNITED STATES 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 June 30, 2000 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 August 4, 2000 there were outstanding 100,360,258 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 - June 30, 2000 and December 31, 1999 3 Consolidated Statements of Income - Three months and six months ended June 30, 2000 and 1999 4 Consolidated Statement of Changes in Shareholders' Equity - Six months ended June 30, 2000 5 Consolidated Statements of Cash Flows - Six months ended June 30, 2000 and 1999 6 Notes to Consolidated Financial Statements 7 - 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 - 22 PART II OTHER INFORMATION, AS APPLICABLE Item 4. Submission of Matters to a Vote of Security Holders 23 Item 6. Exhibits and Reports on Form 8-K 23 SIGNATURES 24 (2) MBIA INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Dollars in thousands except per share amounts)
June 30, 2000 December 31, 1999 ---------------- ------------------- ASSETS Investments: Fixed-maturity securities held as available-for-sale at fair value (amortized cost $6,189,584 and $6,006,506) $ 6,027,101 $ 5,783,979 Short-term investments, at amortized cost (which approximates fair value) 293,384 274,022 Other investments 139,343 146,038 ------------ ------------ 6,459,828 6,204,039 Municipal investment agreement portfolio held as available-for-sale at fair value (amortized cost $4,657,819 and $4,583,920) 4,577,308 4,489,551 ------------ ------------ TOTAL INVESTMENTS 11,037,136 10,693,590 Cash and cash equivalents 70,182 93,559 Securities borrowed or purchased under agreements to resell 197,111 261,171 Accrued investment income 143,428 135,344 Deferred acquisition costs 257,657 251,922 Prepaid reinsurance premiums 435,983 403,210 Reinsurance recoverable on unpaid losses 27,250 30,819 Goodwill (less accumulated amortization of $64,121 and $68,388) 106,673 110,023 Property and equipment, at cost (less accumulated depreciation of $57,303 and $50,469) 131,461 128,733 Receivable for investments sold 203,230 24,922 Other assets 107,136 130,606 ------------ ------------ TOTAL ASSETS $12,717,247 $12,263,899 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Deferred premium revenue $ 2,360,138 $ 2,310,758 Loss and loss adjustment expense reserves 443,694 467,279 Municipal investment agreements 3,500,919 3,483,911 Municipal repurchase agreements 971,197 1,028,921 Long-term debt 589,320 689,204 Short-term debt 160,194 68,751 Securities loaned or sold under agreements to repurchase 305,711 288,750 Deferred income taxes 83,109 32,805 Deferred fee revenue 36,049 36,536 Payable for investments purchased 300,066 102,666 Other liabilities 250,006 241,217 ------------ ------------ TOTAL LIABILITIES 9,000,403 8,750,798 ------------ ------------ 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 -- 100,353,537 and 100,072,846 100,354 100,073 Additional paid-in capital 1,200,610 1,191,108 Retained earnings 2,707,917 2,486,478 Accumulated other comprehensive loss, net of deferred income tax benefit of $(87,689) and $(112,920) (182,296) (224,511) Unallocated ESOP shares (3,537) (4,363) Unearned compensation--restricted stock (8,983) (9,986) Treasury stock -- 2,110,922 shares in 2000 and 520,722 shares in 1999 (97,221) (25,698) ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 3,716,844 3,513,101 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $12,717,247 $12,263,899 ============ ============
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 SIX MONTHS ENDED JUNE 30 JUNE 30 --------------------------------- --------------------------------- 2000 1999 2000 1999 ------------- ------------- ------------- ------------- INSURANCE Revenues: Gross premiums written $189,295 $146,817 $338,132 $301,727 Ceded premiums (61,810) (35,356) (104,776) (95,352) ------------- ------------- ------------- ------------- Net premiums written 127,485 111,461 233,356 206,375 (Increase) decrease in deferred premium revenue (18,333) (4,244) (19,500) 12,953 ------------- ------------- ------------- ------------- Premiums earned (net of ceded premiums of $33,624, $27,738, $72,003, and $58,187) 109,152 107,217 213,856 219,328 Net investment income 99,472 88,861 194,842 176,626 Advisory fees 6,219 6,550 14,194 11,515 ------------- ------------- ------------- ------------- Total insurance revenues 214,843 202,628 422,892 407,469 Expenses: Losses and loss adjustment 13,735 10,239 22,322 172,169 Policy acquisition costs, net 8,736 9,231 17,322 18,424 Operating 21,281 20,115 40,675 38,213 ------------- ------------- ------------- ------------- Total insurance expenses 43,752 39,585 80,319 228,806 ------------- ------------- ------------- ------------- Insurance income 171,091 163,043 342,573 178,663 ------------- ------------- ------------- ------------- INVESTMENT MANAGEMENT SERVICES Revenues 28,943 20,301 55,821 39,643 Expenses 15,174 10,762 28,770 20,729 ------------- ------------- ------------- ------------- Investment management services income 13,769 9,539 27,051 18,914 ------------- ------------- ------------- ------------- MUNICIPAL SERVICES Revenues 11,313 6,310 18,935 9,989 Expenses 11,378 9,417 19,429 20,383 ------------- ------------- ------------- ------------- Municipal services loss (65) (3,107) (494) (10,394) ------------- ------------- ------------- ------------- CORPORATE Net realized gains 7,425 7,291 19,310 16,955 Interest expense 13,355 13,497 26,851 26,993 Other expenses 4,754 4,888 8,401 6,810 One-time corporate charges -- 105,023 -- 105,023 ------------- ------------- ------------- ------------- Corporate loss (10,684) (116,117) (15,942) (121,871) ------------- ------------- ------------- ------------- Income before income taxes 174,111 53,358 353,188 65,312 Income tax provision (benefit) 44,718 (3,435) 91,475 (901) ------------- ------------- ------------- ------------- NET INCOME $129,393 $ 56,793 $261,713 $ 66,213 ============= ============= ============= ============= NET INCOME PER COMMON SHARE: BASIC $ 1.32 $ 0.57 $ 2.65 $ 0.66 DILUTED $ 1.31 $ 0.56 $ 2.64 $ 0.66 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: BASIC 98,323,037 99,671,350 98,711,735 99,609,359 DILUTED 98,932,392 100,592,588 99,302,974 100,532,884
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 SIX MONTHS ENDED JUNE 30, 2000 (In thousands except per share amounts)
Accumulated Common Stock Additional Other ---------------------- Paid-in Retained Comprehensive Shares Amount Capital Earnings Loss ---------- --------- ------------ ----------- ------------- Balance, January 1, 2000 100,073 $100,073 $1,191,108 $2,486,478 $(224,511) Comprehensive income: Net income --- --- --- 261,713 --- Other comprehensive income: Change in unrealized depreciation of investments net of change in deferred income taxes of $(25,231) --- --- --- --- 46,484 Change in foreign currency translation --- --- --- --- (4,269) Other comprehensive income Total comprehensive income Treasury shares acquired --- --- --- --- --- Exercise of stock options 273 273 9,238 --- --- Unallocated ESOP shares --- --- (41) --- --- Unearned compensation- restricted stock 8 8 305 --- --- Dividends (declared and paid per common share $0.41) --- --- --- (40,274) --- ---------- --------- ------------ ----------- ------------- Balance, June 30, 2000 100,354 $100,354 $1,200,610 $2,707,917 $(182,296) ========== ========= ============ =========== ============= Unearned Unallocated Compensation- Treasury Stock Total ESOP Restricted -------------------- Shareholders' Shares Stock Shares Amount Equity -------------- -------------- --------- --------- ------------- Balance, January 1, 2000 $(4,363) $(9,986) (521) $(25,698) $3,513,101 Comprehensive income: Net income --- --- --- --- 261,713 Other comprehensive income: Change in unrealized depreciation of investments net of change in deferred income taxes of $(25,231) --- --- --- --- 46,484 Change in foreign currency translation --- --- --- --- (4,269) ------------ Other comprehensive income 42,215 ------------ Total comprehensive income 303,928 ------------ Treasury shares acquired --- --- (1,590) (71,523) (71,523) Exercise of stock options --- --- --- --- 9,511 Unallocated ESOP shares 826 --- --- --- 785 Unearned compensation- restricted stock --- 1,003 --- --- 1,316 Dividends (declared and paid per common share $0.41) --- --- --- --- (40,274) -------------- -------------- --------- --------- ------------- Balance, June 30, 2000 $(3,537) $(8,983) (2,111) $(97,221) $3,716,844 ============== ============== ========= ========= =============
The accompanying notes are an integral part of the consolidated financial statements. 2000 ----------- Disclosure of reclassification amount: Unrealized appreciation of investments arising during the period, net of taxes $53,340 Reclassification of adjustment, net of taxes (6,856) ----------- Net unrealized appreciation, net of taxes $46,484 =========== (5) MBIA INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands)
Six months ended June 30 --------------------------- 2000 1999 ----------- ----------- Cash flows from operating activities: Net income $261,713 $ 66,213 Adjustments to reconcile net income to net cash provided by operating activities: Increase in accrued investment income (8,084) (995) Increase in deferred acquisition costs (5,735) (4,600) Increase in prepaid reinsurance premiums (32,773) (37,165) Increase in deferred premium revenue 52,273 24,212 (Decrease) increase in loss and loss adjustment expense reserves, net (20,016) 158,631 Depreciation 6,834 4,923 Amortization of goodwill 3,350 3,552 Amortization of bond discount, net (15,351) (10,092) Net realized gains on sale of investments (19,310) (16,955) Deferred income tax provision (benefit) 25,097 (91,287) Other, net 28,253 19,198 ----------- ----------- Total adjustments to net income 14,538 49,422 ----------- ----------- Net cash provided by operating activities 276,251 115,635 ----------- ----------- Cash flows from investing activities: Purchase of fixed-maturity securities, net of payable for investments purchased (3,399,501) (3,512,961) Sale of fixed-maturity securities, net of receivable for investments sold 3,061,188 3,145,933 Redemption of fixed-maturity securities, net of receivable for investments redeemed 133,480 161,559 (Purchase) sale of short-term investments, net (2,407) 168,968 Sale of other investments, net 5,316 17,613 Purchases for municipal investment agreement portfolio, net of payable for investments purchased (1,069,705) (1,275,646) Sales from municipal investment agreement portfolio, net of receivable for investments sold 1,045,166 849,215 Capital expenditures, net of disposals (9,739) (15,964) Other, net 8,385 (2,173) ----------- ----------- Net cash used by investing activities (227,817) (463,456) ----------- ----------- Cash flows from financing activities: Net repayment from retirement of short-term debt (8,500) -- Dividends paid (40,516) (39,874) Purchase of treasury stock (71,523) -- Proceeds from issuance of municipal investment and repurchase agreements 1,036,880 1,258,565 Payments for drawdowns of municipal investment and repurchase agreements (1,078,684) (801,998) Securities loaned or sold under agreements to repurchase, net 81,021 (35,071) Exercise of stock options 9,511 11,471 ----------- ----------- Net cash (used) provided by financing activities (71,811) 393,093 ----------- ----------- Net (decrease) increase in cash and cash equivalents (23,377) 45,272 Cash and cash equivalents - beginning of period 93,559 20,757 ----------- ----------- Cash and cash equivalents - end of period $ 70,182 $ 66,029 =========== =========== Supplemental cash flow disclosures: Income taxes paid $ 37,686 $ 88,999 Interest paid: Municipal investment and repurchase agreements $128,044 $102,293 Long-term debt 26,194 26,144
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, 1999 for MBIA Inc. and Subsidiaries (the company). 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 six months ended June 30, 2000 may not be indicative of the results that may be expected for the year ending December 31, 2000. The December 31, 1999 balance sheet was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. The consolidated financial statements include the accounts of the company and its wholly owned subsidiaries. All significant intercompany balances have been eliminated. Business segment results are presented gross of intersegment transactions, which are not material to each segment. 2. DIVIDENDS DECLARED ------------------ Dividends declared by the company during the six months ended June 30, 2000 were $40.3 million. 3. RECENT ACCOUNTING PRONOUNCEMENTS -------------------------------- In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards 133, "Accounting for Derivative Instruments and Hedging Activities." (SFAS 133) SFAS 133 is effective for all quarters of all fiscal years beginning after June 15, 2000 (January 1, 2001 for the company). SFAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in the current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. For fair value hedge transactions in which the company is hedging changes in an asset's, liability's, or firm commitment's fair value, changes in the fair value of the derivative instrument will generally be offset in the income statement by changes in the hedged item's fair value. For cash-flow hedge transactions in which the company is hedging the variability of cash flows related to a variable-rate asset, liability, or a forecasted transaction, changes in the fair value of the derivative instrument will be reported in other comprehensive income. The gains and losses on the derivative instrument that are reported in other comprehensive income will be reclassified as earnings in the period in which earnings are impacted by the variability of the cash flows of the (7) MBIA Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) hedged item. The ineffective portion of all hedges will be recognized in current-period earnings. The company is currently evaluating the impact that the adoption of SFAS 133 will have on its earnings and statement of financial position. 4. UNALLOCATED LOSS RESERVE METHODOLOGY UPDATE ------------------------------------------- The company completed an update of its unallocated loss reserving methodology in the first quarter of 1999. The update included an analysis of loss-reserve factors based on the latest available industry data. The company included the analysis of historical default and recovery experience for the relevant sectors of the fixed-income market. Also factored in was the changing mix of the company's book of business. The study resulted in an increase in the company's quarterly loss provision and a one-time charge in the first quarter of 1999 of $153 million to incorporate the new factors on the existing insured portfolio. 5. CAPITAL ASSET WRITE-DOWN ------------------------ Early in 1999, the company concluded that its investment in Capital Asset was not consistent with its strategic objectives and took steps to restructure it for divestiture. As part of this process, the company evaluated the recoverability of its investment in Capital Asset. Through a detailed valuation exercise, management estimated the total pretax impairment to be $102 million and, accordingly, a write-down for that amount was recorded in the consolidated statement of income as a one-time corporate charge during the second quarter of 1999. (8) MBIA Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations OVERVIEW - -------- MBIA Inc. and Subsidiaries (the company) turned in a solid quarter as we continue to focus on our triple-A ratings, no-loss underwriting standards, and building of shareholder value. We continued our disciplined approach to pricing and risk selection enabling the company to add another quarter of high quality future earnings to our balance sheet. Our asset management business posted very strong results for the quarter as operating income rose 44%. The company is well positioned to capitalize on strong long-term growth prospects in our insurance and investment management business segments and, particularly, in our international financial guarantee sector. FORWARD-LOOKING AND CAUTIONARY STATEMENTS - ----------------------------------------- Statements included in this discussion which are not historical or current facts are "forward-looking statements" made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1998. The words "believe," "anticipate," "project," "plan," "expect," "intend," "will likely result," or "will continue," and similar expressions identify forward-looking statements. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of their respective dates. The following are some of the factors that could affect our financial performance or could cause actual results to differ materially from estimates contained in or underlying our company's forward-looking statements: o fluctuations in the economic, credit or interest rate environment in the United States and abroad; o level of activity within the national and international credit markets; o competitive conditions and pricing levels; o legislative and regulatory developments; o technological developments; o changes in tax laws; o the effects of mergers, acquisitions and divestitures; and o uncertainties that have not been identified at this time. Our company undertakes no obligation to publicly correct or update any forward-looking statement if we later become aware that such results are not likely to be achieved. (9) MBIA Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) RESULTS OF OPERATIONS - --------------------- SUMMARY The following chart presents highlights of our consolidated financial results for the second quarter and first six months of 2000 and 1999.
Percent Change -------------------------- 2nd Quarter Year-to-date ----------- ------------ 2nd Quarter June 30 2000 2000 ----------------- ------------------ vs. vs. 2000 1999 2000 1999 1999 1999 - --------------------------------------------------------------------------------------------------------------- Net income (in millions): As reported $ 129 $ 57 $ 262 $ 66 128% 295% Excluding one-time charges $ 129 $ 122 $ 262 $ 246 6% 6% Per share data: * Net income: As reported $ 1.31 $ 0.56 $ 2.64 $ 0.66 134% 300% Excluding one-time charges $ 1.31 $ 1.21 $ 2.64 $ 2.45 8% 8% Operating earnings $ 1.26 $ 1.16 $ 2.51 $ 2.34 9% 7% Core earnings $ 1.20 $ 1.07 $ 2.44 $ 2.11 12% 16% Book value $ 37.88 $ 35.56 7% Adjusted book value $ 55.58 $ 51.52 8% - ---------------------------------------------------------------------------------------------------------------
*All earnings per share calculations are diluted. Core earnings, which exclude the effects of refundings and calls on our insured issues, realized gains and losses on our investment portfolio and nonrecurring charges, provide the most indicative measure of our underlying profit. For the second quarter and first six months of 2000, core earnings per share increased 12% and 16%, respectively, over the second quarter and first six months of 1999, reflecting strong results in our investment management services segment and a near breakeven result in our municipal services segment. Our second quarter and first six months of 2000 net income and earnings per share, excluding one-time charges, grew 6% and 8%, respectively. Including the one-time charges, second quarter net income increased by 128% over 1999 and our first half net income increased 295% over 1999. Operating earnings per share, which exclude the impact of realized gains and losses and one-time charges, increased by 9% and 7%, respectively, over the second quarter and first half of 1999. Our book value at June 30, 2000 was $37.88 per share, up from $35.56 at June 30, 1999. A more appropriate measure of a financial guarantee company's intrinsic value is its adjusted book value. It is defined as book value plus the after-tax effects of net (10) MBIA Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) deferred premium revenue net of deferred acquisition costs, the present value of unrecorded future installment premiums, and the unrealized gains or losses on investment contract liabilities. Our adjusted book value per share was $55.58 at June 30, 2000, an 8% increase from second quarter-end 1999. The following table presents the components of our adjusted book value per share: Percent Change June 30, June 30, -------------- 2000 1999 2000 vs. 1999 - ------------------------------------------------------------------------------- Book value $37.88 $35.56 7% After-tax value of: Net deferred premium revenue, net of deferred acquisition costs 11.04 10.74 3% Present value of future installment premiums* 5.29 4.33 22% Unrealized gain on investment contract liabilities 1.37 0.89 54% - ------------------------------------------------------------------------------- Adjusted book value $55.58 $51.52 8% - ------------------------------------------------------------------------------- *The discount rate used to present value future installment premiums was 9% for both periods. INSURANCE The company's production in terms of adjusted gross premiums (AGP), gross premiums written (GPW) and par insured for the second quarter and first six months of 2000 and 1999 is presented in the following table:
Percent Change -------------------------- 2nd Quarter Year-to-date ----------- ------------ 2nd Quarter June 30 2000 2000 ------------ ------------- vs. vs. 2000 1999 2000 1999 1999 1999 - ----------------------------------------------------------------------------------------------- Premiums written: (in millions) AGP $226 $144 $381 $326 58% 17% GPW $189 $147 $338 $302 29% 12% Par insured (in billions) $ 27 $ 19 $ 42 $ 43 38% (4)%
In the second quarter of 2000, bond issuance was down significantly from 1999 levels. However, we were able to maintain our pricing discipline and continued to write business of levels A and above for the period. As a result, AGP was up by 58% compared to the second quarter of 1999, while par insured was up by only 38%. AGP includes our upfront premiums as well as the estimated present value of current and future premiums from installment-based insurance policies issued during the period. GPW, as reported in our financial statements, primarily reflects cash receipts and does not include the value of future premium receipts expected from installment policies (11) MBIA Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) originated in the period. GPW was $189 million, up 29% over the second quarter of 1999. For the first six months of 2000 AGP was up by 17% compared to the same period a year ago, while par insured was down by 4%. GPW was $338 million for the first half of 2000, up 12% over the first half of 1999. We estimate the present value of our total future installment premium stream on outstanding policies to be $799 million at June 30, 2000, compared with $664 million at June 30, 1999. MUNICIPAL MARKET Domestic new issue municipal market information and MBIA's par and premium writings in both the new issue and secondary domestic municipal markets are shown in the following table:
Percent Change -------------------------- 2nd Quarter Year-to-date ----------- ------------ 2nd Quarter June 30 2000 2000 ------------ ------------- vs. vs. Domestic Municipal 2000 1999 2000 1999 1999 1999 - ----------------------------------------------------------------------------------------------- Total new issue market:* Par value (in billions) $ 45 $ 49 $ 81 $ 102 (8)% (21)% Insured penetration 44% 52% 46% 54% MBIA market share 35% 26% 29% 24% MBIA insured: Par insured (in billions) $ 11 $ 9 $ 16 $ 18 23% (14)% Premiums (in millions): AGP $ 104 $ 90 $ 176 $ 186 16% (5)% GPW $ 95 $ 83 $ 170 $ 176 15% (3)% - -----------------------------------------------------------------------------------------------
* Market data are reported on a sale date basis while MBIA's insured data are based on closing date information. Typically, there can be a one- to four-week delay between the sale date and closing date of an insured issue. New issuance was lower in the municipal market, decreasing by 8% to $45 billion for the second quarter of 2000, compared with $49 billion in the second quarter of 1999. The insured penetration also decreased in the second quarter to 44% in 2000 from 52% in the second quarter of 1999. MBIA's market share of insured par was 35% for the quarter compared with 26% in last year's second quarter. For the first six months of 2000, new issuance in the municipal market was down 21% to $81 billion and insured penetration was 46%, down from 54% last year. MBIA captured 29% of the insured municipal market this year compared with 24% in the first six months of 1999. Somewhat offsetting the lower new issue market was a strong secondary market, as activity in this market is frequently counter-cyclical to activity in the new issue market, and returns tend to be higher. By taking advantage of our strong secondary operations (12) MBIA Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) and some unique opportunities, we were able to improve our overall returns and maintain strong credit quality in the business we wrote. MBIA's domestic municipal AGP increased by 16% over 1999's second quarter while par insured increased by 23%. On a year-to-date basis, par insured was down 14% while AGP was down only 5%, significantly less than the reduction in par insured and the market in general. Looking ahead to the third quarter in the municipal market, we are expecting stronger issuance, a better mix of business, and firm pricing. STRUCTURED FINANCE MARKET Details regarding the asset-backed market and MBIA's par and premium writings in both the domestic new issue and secondary structured finance markets are shown in the table below:
Percent Change -------------------------- 2nd Quarter Year-to-date ----------- ------------ 2nd Quarter June 30 2000 2000 Domestic ------------ ------------- vs. vs. Structured Finance 2000 1999 2000 1999 1999 1999 - ----------------------------------------------------------------------------------------------- Total asset-backed market:* Par value (in billions) $ 59 $ 50 $111 $99 18% 12% MBIA insured: Par written (in billions) $ 11 $ 9 $ 17 $21 21% (18)% Premiums (in millions): AGP $ 58 $ 42 $ 96 $84 40% 15% GPW $ 42 $ 36 $ 87 $77 16% 13% - -----------------------------------------------------------------------------------------------
* Market data exclude mortgage-backed securities and private placements. Issuance in the asset backed market increased 18% over the second quarter of 1999. For the six month period, issuance is up 12%, still below what we expect for the full year. MBIA regained some momentum during the second quarter, insuring $11 billion of par value, up 21% compared with the second quarter of last year. AGP was up 40% for the quarter, again due to our pricing discipline. For the year par insured was down 18% while AGP was up 15%. Credit quality improved modestly during the quarter, with 40% of the business written rated A or better. Looking ahead to the third quarter, volume has been picking up and our business prospects look strong. (13) MBIA Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) INTERNATIONAL MARKET The international results were up sharply over the second quarter of 1999. The quarterly mix of business included several very large deals, and a good diversification by bond type and by country. During the quarter 86% of international business insured was rated A or above, up from 82% in the first quarter of the year. For the first half of 2000 global CDO deals dominated the mix of business, followed by CDO volume from Europe and Australia. Our municipal and structured finance international business volume in the new issue and secondary markets for the second quarter and first six months of 2000 and 1999 are illustrated as follows:
Percent Change -------------------------- 2nd Quarter Year-to-date ----------- ------------ 2nd Quarter June 30 2000 2000 ------------ ------------- vs. vs. International 2000 1999 2000 1999 1999 1999 - ----------------------------------------------------------------------------------------------- Par insured (in billions) $ 6 $ 2 $ 9 $ 5 177% 93% Premiums (in millions): AGP $ 64 $ 12 $ 109 $ 55 423% 97% GPW $ 51 $ 27 $ 82 $ 49 90% 65% - -----------------------------------------------------------------------------------------------
International par insured was up 177% to $6 billion in the second quarter and AGP was $64 million, up over 400%. For the six month period par and AGP were up 93% and 97%, respectively, as we have reported almost as much AGP in the first six months of 2000 as we did for the entire year of 1999. On March 21, 2000 the company and Ambac Financial Group, Inc. (Ambac) announced the restructuring of the international joint marketing and reinsurance arrangements that have been in place since 1995 with the formation of the MBIA-AMBAC International joint venture. The company and Ambac will continue having reciprocal reinsurance and surveillance arrangements for international business in 2000. The companies will market and originate international financial guarantee insurance independently. The restructuring did not affect business conducted in Japan where the market for financial guarantees is just beginning to develop. The companies will continue to market and originate transactions jointly under the original arrangement in Japan. We believe the decision to dissolve the MBIA/AMBAC joint venture is working better than expected for both parties. Reinsurance Premiums ceded to reinsurers from all insurance operations were $62 million and $35 million in the second quarter of 2000 and 1999, respectively. Cessions as a percentage of GPW increased to 33% in 2000 from 24% in 1999. For the first six months of 2000 we have ceded 31% of GPW, slightly less than the 32% we ceded in last year's first half. (14) MBIA Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Reinsurance is a very good capital source for MBIA. It allows us to write better quality, better return business, and yet stay within our very strict single risk and credit guidelines. We have continued the initiative begun in the fourth quarter of 1998 as we focused on reducing larger single risks across the portfolio. Most of our reinsurers are rated Double-A or higher by S&P, or Single-A or higher by A. M. Best Co. Although we remain liable for all reinsured risks, we are confident that we will recover the reinsured portion of any losses, should they occur. PREMIUMS EARNED The composition of MBIA's premiums earned in terms of its scheduled and refunded components is illustrated below:
Percent Change -------------------------- 2nd Quarter Year-to-date ----------- ------------ 2nd Quarter June 30 2000 2000 ------------ ------------- vs. vs. In millions 2000 1999 2000 1999 1999 1999 - -------------------------------------------------------------------------------------------------- Premiums earned: Scheduled $ 100 $ 92 $ 202 $ 181 9% 11% Refunded 9 15 12 38 (40)% (68)% - -------------------------------------------------------------------------------------------------- Total $ 109 $ 107 $ 214 $ 219 2% (2)% - --------------------------------------------------------------------------------------------------
Premiums are recognized over the life of the bonds we insure. The extended premium recognition coupled with compounding investment income from investing our premiums and capital form a solid foundation for consistent revenue growth. In the second quarter and first six months of 2000 premiums earned from scheduled amortization increased by 9% and 11%, respectively, over the second quarter and first six months of 1999, indicating that the benefits of the increased pricing strategy established in early 1999 are beginning to emerge. Refunded premiums earned declined significantly this year compared with the second quarter of 1999, reflecting the higher interest rate environment. When an MBIA-insured bond issue is refunded or retired early, the related deferred premium revenue is earned immediately. The amount of bond refundings and calls is influenced by a variety of factors such as prevailing interest rates, the coupon rates of the bond issue, the issuer's desire or ability to modify bond covenants and applicable regulations under the Internal Revenue Code. INVESTMENT INCOME Our insurance-related investment income (exclusive of realized gains) increased 12% to $99 million in the second quarter of 2000, up from $89 million in the second quarter of 1999. In the first six months of 2000 investment income is up 10% over 1999. This increase was primarily due to a shift in the investment portfolio from tax-exempt to taxable investments, and the growth of cash flow available for investment. Our cash flows were generated from operations and the compounding of previously earned and reinvested investment income. (15) MBIA Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) ADVISORY FEES The company collects fee revenues in conjunction with certain structured finance transactions. Fees are generally deferred and earned over the life of the related transactions. In the second quarter of 2000, advisory fee revenues decreased 5% to $6 million from $7 million. This decrease was primarily due to the non-deferrable type of fees recognized during the quarter. Advisory fees are up 23% for the first six months of 2000 compared with the first six months of 1999. LOSSES AND LOSS ADJUSTMENT EXPENSES (LAE) We maintain a loss reserve based on our estimate of unidentified losses from our insured obligations. The total reserve is calculated by applying a risk factor based on a study of bond defaults to net debt service written. To the extent that we identify specific insured issues as currently or likely to be in default, the present value of our expected payments, net of expected reinsurance and collateral recoveries, is allocated within the total loss reserve as case-specific reserves. We periodically evaluate our estimates for losses and LAE and any resulting adjustments are reflected in current earnings. We believe that our reserving methodology and the resulting reserves are adequate to cover the ultimate net cost of claims. However, the reserves are based on estimates, and there can be no assurance that any ultimate liability will not exceed such estimates. In 1999, we completed an update of our loss reserving methodology. The update included an analysis of loss-reserve factors based on the latest available industry data. We included the analysis of historical default and recovery experience for the relevant sectors of the fixed-income market. Also factored in was the changing mix of our book of business. The study resulted in an increase in our company's loss reserving factors and a one-time charge of $153 million in the first quarter of 1999, to incorporate the new factors on the existing insured portfolio. The following table shows the case-specific, reinsurance recoverable and unallocated components of our total loss and LAE reserves at the end of the second quarter of 2000 and 1999, as well as our loss provision for the second quarter of 2000 and 1999:
Percent Change June 30, June 30, -------------- In millions 2000 1999 2000 vs. 1999 - -------------------------------------------------------------------------------------- Case-specific: Gross $199 $217 (8)% Reinsurance recoverable on unpaid losses 27 30 (9)% - -------------------------------------------------------------------------------------- Net case reserves 172 187 (8)% Unallocated 244 242 1 % - -------------------------------------------------------------------------------------- Net loss and LAE reserves $416 $429 (3)% Provision $ 14 $ 10 34%
(16) MBIA Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) OPERATING EXPENSES Expenses related to the production of our insurance business (policy acquisition costs) are deferred and recognized over the period in which the related premiums are earned. Our company's policy acquisition costs, general operating expenses and total insurance operating expenses, as well as related expense ratios, are shown below:
Percent Change -------------------------- 2nd Quarter Year-to-date ----------- ------------ 2nd Quarter June 30 2000 2000 ------------ ------------- vs. vs. In millions 2000 1999 2000 1999 1999 1999 - -------------------------------------------------------------------------------------------------- Policy acquisition costs, net $ 9 $ 9 $ 17 $ 18 --- (6)% Operating 21 20 41 38 6% 6% ----------------------------------------------------------------- Total insurance operating expenses $ 30 $ 29 $ 58 $ 56 2% 2% Expense ratio: GAAP 27.5% 27.4% 27.1% 25.8% Statutory 19.7% 24.4% 20.3% 22.8% - --------------------------------------------------------------------------------------------------
For the second quarter of 2000, policy acquisition costs net of deferrals remained consistent with the second quarter of 1999. The ratio of policy acquisition costs net of deferrals to earned premiums decreased to 8.0% for the second quarter of 2000 compared with 8.6% for the comparable 1999 period. For the first half of 2000, policy acquisition costs net of deferrals decreased 6% to $17 million compared with the first six months of 1999. The ratio of policy acquisition costs net of deferrals to earned premiums decreased to 8.1% for the first half of 2000 compared with 8.4% for the comparable 1999 period. Operating expenses increased 6% over the second quarter and the first six months of 1999. Total insurance operating expenses increased modestly over the second quarter and the first half of 1999, reflecting the company's increased emphasis on expense management. Financial guarantee insurance companies use the statutory expense ratio (expenses before deferrals divided by net premiums written) as a measure of expense management. Our company's second quarter 2000 statutory expense ratio of 19.7% is significantly below the second quarter 1999 ratio of 24.4%. The GAAP expense ratio remained relatively flat with the second quarter of 1999. For the first six months of 2000 the statutory expense ratio of 20.3% is also below the comparable 1999 period ratio of 22.8%. INSURANCE INCOME The company's insurance income of $171 million for the second quarter of 2000 increased 5% over the second quarter of 1999. For the first half, insurance income, excluding the one-time pre-tax charge of $152.7 million in 1999 to increase loss reserves, rose 3 percent to $343 million from $331 million a year ago. (17) MBIA Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) INVESTMENT MANAGEMENT SERVICES In 1998 after our merger with 1838 Investment Advisors, Inc. (1838), the company formed a holding company, MBIA Asset Management Corporation, to consolidate the resources and capabilities of our four investment management services. The table below summarizes our consolidated investment management results for the second quarter and first six months of 2000 and 1999:
Percent Change -------------------------- 2nd Quarter Year-to-date ----------- ------------ 2nd Quarter June 30 2000 2000 ------------ ------------- vs. vs. In millions 2000 1999 2000 1999 1999 1999 - -------------------------------------------------------------------------------------------------- Revenues $ 29 $ 20 $ 56 $ 40 43% 41% Expenses 15 10 29 21 41% 39% - -------------------------------------------------------------------------------------------------- Income $ 14 $ 10 $ 27 $ 19 44% 43%
The success of the merger with 1838 is reflected in the investment management services operating results, with consolidated revenues up 43% over the second quarter of 1999, while expenses were up slightly less at 41%. As a result, operating income increased by 44% for the second quarter of 2000 over the same period in 1999. We ended the quarter with over $34 billion in assets under management, up 24% from June 30, 1999. MBIA Asset Management Corporation is comprised of 1838, MBIA Municipal Investors Service Corp. (MBIA-MISC), MBIA Investment Management Corp. (IMC) and MBIA Capital Management Corp. (CMC). The following provides a summary of each of these businesses: 1838 is a full-service asset management firm with a strong institutional focus. It manages over $14 billion in equity, fixed-income and balanced portfolios for a client base comprised of municipalities, endowments, foundations, corporate employee benefit plans and high-net-worth individuals. MBIA-MISC provides cash management, investment fund administration and fixed-rate investment placement services directly to local governments and school districts. MBIA-MISC is a Securities and Exchange Commission (SEC)-registered investment adviser and at June 30, 2000 had $7.5 billion in assets under management, up 13% over June 30, 1999. IMC provides state and local governments with tailored investment agreements for bond proceeds and other public funds, such as construction, loan origination, capitalized interest and debt service reserve funds. At June 30, 2000, principal and accrued interest outstanding on investment and repurchasing agreements was $4.5 billion, compared with $3.9 billion at June 30, 1999. At amortized cost, the assets supporting IMC's investment agreements were $4.7 billion and $4.0 billion at June 30, 2000 and (18) MBIA Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) 1999. These assets are comprised of high-quality securities with an average credit quality rating of Double-A. IMC from time-to-time uses derivative financial instruments to manage interest rate risk. We have established policies limiting the amount, type and concentration of such instruments. By matter of policy, derivative positions can only be used to hedge interest rate exposures and not for speculative trading purposes. At second quarter-end 2000, our exposure to derivative financial instruments was not material. CMC is an SEC-registered investment adviser and National Association of Securities Dealers member firm. CMC specializes in fixed-income management for institutional funds and provides investment management services for IMC's investment agreements, MBIA-MISC's municipal cash management programs and the company's insurance related portfolios. At June 30, 2000, CMC's third party assets under management were $1.8 billion compared with $1.6 billion at June 30, 1999. MUNICIPAL SERVICES MBIA MuniServices Company (MBIA MuniServices)(formerly known as Strategic Services, Inc.) was established in 1996 as part of the company's strategy to broaden its product offerings to its core clients, leveraging its relationships and presence as a leading provider of products and services to the public sector. During 1999, the company completed a reorganization of the operations of two of its subsidiaries, Municipal Tax Bureau (MTB) and Municipal Resource Consultants (MRC). With the reorganization complete, this business, operating as MBIA MuniServices, is now focused on delivering revenue enhancement services and products to public-sector clients nationwide, consisting of discovery, audit, collections/recovery, enforcement and information (data) services. The Municipal Services segment also includes Capital Asset Holdings, Inc. (Capital Asset), a servicer of delinquent tax certificates. In the second quarter of 2000 the municipal services operations lost $0.1 million compared with a loss of $3 million during the same period of 1999. For the first half of 2000, municipal services reported a $0.5 million loss compared with a loss of $10 million in the comparable 1999 period. CORPORATE NET REALIZED GAINS Net realized gains were $7 million in the second quarter of 2000, the same as in the second quarter of 1999. For the first half of 2000, net realized gains were $19 million compared with $17 million in the comparable 1999 period. INTEREST EXPENSE In the second quarter of 2000, we incurred $13 million of interest expense, the same as in the second quarter of 1999. For the first half of 2000, interest expense was $27 million, the same as in the first half of 1999. (19) MBIA Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) OTHER EXPENSES Other expenses were comprised primarily of non-insurance goodwill amortization and general corporate overhead. In the second quarter of 2000 other expenses were $5 million, the same as the comparable 1999 period. For the first half of 2000, other expenses were $8 million, slightly higher than the first half of 1999. ONE-TIME CORPORATE CHARGES In the second quarter of 1999 one-time corporate charges were comprised of a $102 million charge for the write-down of the carrying value of the company's investment in Capital Asset and the value of the loans provided by the company to Capital Asset, as well as a $3 million loss on the sale of MuniFinancial. TAXES Our tax policy is to optimize our after-tax income by maintaining the appropriate mix of taxable and tax-exempt investments. However, we will see our tax rate fluctuate from time-to-time as we manage our investment portfolio on a total return basis. Our effective tax rate has increased over last year's second quarter primarily due to a shift from tax-exempt investments into taxable investments. CAPITAL RESOURCES - ----------------- We carefully manage our capital resources to optimize our cost of capital while maintaining appropriate claims-paying resources to sustain our Triple-A claims-paying ratings. At June 30, 2000, our total shareholders' equity was $3.7 billion, with total long-term borrowings at $589 million. We use debt financing to lower our overall cost of capital, thereby increasing our return on shareholders' equity. We maintain debt at levels we consider to be prudent based on our cash flow and total capital. The following table shows our long-term debt and the ratio we use to measure it: June 30, December 31, 2000 1999 - -------------------------------------------------------------------------------- Long-term debt (in millions) $589 $689 Long-term debt to total capital 14% 16% In July 1999, the Board of Directors authorized the repurchase of 7.5 million shares of common stock of the company. The company began the repurchase program in the fourth quarter of 1999. As of June 30, 2000 the company has repurchased a total of 2,090,200 shares at an average price of $46.03. (20) MBIA Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) In addition, our insurance company has a $900 million irrevocable standby line of credit facility with a group of major Triple-A Rated 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, which expires on October 31, 2006, and, subject to approval by the banks, may be renewed annually to extend the term to seven years beyond the renewal date. Our insurance company also maintains stop-loss reinsurance coverage of $175 million in excess of incurred losses of $700 million. At quarter end, total claims-paying resources for our insurance company stood at $8.8 billion, an 8% increase over second quarter-end 1999. LIQUIDITY Cash flow needs at the parent company level are primarily for dividends to our shareholders and interest payments on our debt. These requirements have historically been met by upstreaming dividend payments from the insurance company, which generates substantial cash flow from premium writings and investment income. In the first half of 2000, operating cash flow totaled $276 million. Under New York state insurance law, without prior approval of the superintendent of the state insurance department, financial guarantee insurance companies can pay dividends from earned surplus subject to retaining a minimum capital requirement. In our case, dividends in any 12-month period cannot be greater than 10% of policyholders' surplus. During the second quarter of 2000 our insurance company paid dividends of $14 million and at June 30, 2000 had dividend capacity in excess of $60 million without special regulatory approval. The company has significant liquidity supporting its businesses. At the end of the second quarter of 2000, cash equivalents and short-term investments totaled $364 million. Should significant cash flow reductions occur in any of our businesses, for any combination of reasons, we have additional alternatives for meeting ongoing cash requirements. They include selling or pledging our fixed-income investments from our investment portfolio, tapping existing liquidity facilities and new borrowings. The company has substantial external borrowing capacity. We maintain two short-term bank lines totaling $650 million with a group of worldwide banks. At June 30, 2000, there were no balances outstanding under these lines. The investment portfolio provides a high degree of liquidity since it is comprised of readily marketable high-quality fixed-income securities and short-term investments. At June 30, 2000, the fair value of our consolidated investment portfolio was $11.0 billion, as shown below: (21) MBIA Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
June 30, December 31, Percent Change In millions 2000 1999 2000 vs. 1999 - --------------------------------------------------------------------------------------------------- Insurance operations: Amortized cost $ 6,622 $ 6,427 3% Unrealized loss (162) (223) (27)% - --------------------------------------------------------------------------------------------------- Fair value $ 6,460 $ 6,204 4% - --------------------------------------------------------------------------------------------------- Municipal investment Agreements: Amortized cost $ 4,658 $ 4,584 2% Unrealized loss (81) (94) (15)% - --------------------------------------------------------------------------------------------------- Fair value $ 4,577 $ 4,490 2% - --------------------------------------------------------------------------------------------------- Total portfolio at fair value $11,037 $10,694 3%
The growth of our insurance-related investments in 2000 was the result of positive cash flows. The fair value of investments related to our municipal investment agreement business has increased to $4.6 billion from $4.5 billion at December 31, 1999. The investment portfolios are considered to be available-for-sale, and the differences between their fair value and amortized cost, net of applicable taxes, are reflected as an adjustment to shareholders' equity. Differences between fair value and amortized cost arise primarily as a result of changes in interest rates occurring after a fixed-income security is purchased, although other factors influence fair value, including credit-related actions, supply and demand forces and other market factors. The weighted-average credit quality of our fixed-income portfolios has been maintained at Double-A since our inception. Since we generally intend to hold most of our investments to maturity as part of our risk management strategy, we expect to realize a value substantially equal to amortized cost. (22) PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- The following matters were voted upon at the Annual Meeting of Shareholders of the company held on May 11, 2000, and received the votes set forth below: 1: The proposal to adopt the company's 2000 Stock Option Plan was adopted, with 76,599,008 votes in favor, 4,873,671 votes against and 408,153 votes abstaining. 2: The proposal to ratify the appointment by the Board of Directors of PricewaterhouseCoopers LLP, certified public accountants, as independent auditors for the company for the year 2000 was adopted, with 81,483,135 votes in favor, 184,107 votes against and 213,590 votes abstaining. Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits 11. Computation of Earnings Per Share Assuming 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. (23) 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: August 11, 2000 /s/ Neil G. Budnick ------------------- ----------------------------- Neil G. Budnick Chief Financial Officer Date: August 11, 2000 /s/ Douglas C. Hamilton ------------------- ------------------------------ Douglas C. Hamilton Controller (Principal Accounting Officer) (24) EX-11 2 0002.txt 2ND QTR 2000 - EXHIBIT 11 EXHIBIT 11 MBIA INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE ASSUMING DILUTION (In thousands except per share amounts)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 -------------------- -------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Net income $129,393 $56,793 $261,713 $66,213 ======== ======== ======== ======== Diluted weighted average shares: Basic weighted average shares outstanding 98,323 99,671 98,712 99,609 Effect of stock options 498 775 480 777 Unallocated ESOP shares 111 147 111 147 -------- -------- -------- -------- Diluted weighted average shares: 98,932 100,593 99,303 100,533 ======== ======== ======== ======== Basic EPS $ 1.32 $ 0.57 $ 2.65 $ 0.66 ======== ======== ======== ======== Diluted EPS $ 1.31 $ 0.56 $ 2.64 $ 0.66 ======== ======== ======== ========
EX-27 3 0003.txt 2ND QTR 2000 FDS - ARTICLE 7
7 (Replace this text with the legend) 0000814585 MBIA Inc. 1,000 U.S.DOLLARS 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 1 6,027,101 0 0 0 0 0 11,037,136 70,182 27,250 257,657 12,717,247 443,694 2,360,138 0 0 749,514 0 0 100,354 3,616,490 12,717,247 213,856 194,842 19,310 88,950 22,322 17,322 40,675 353,188 91,475 261,713 0 0 0 261,713 2.65 2.64 0 0 0 0 0 0 0
EX-99 4 0004.txt 2ND QTR. CORP GAAP 2000 MBIA INSURANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2000 AND DECEMBER 31, 1999 AND FOR THE PERIODS ENDED JUNE 30, 2000 AND 1999 MBIA INSURANCE CORPORATION AND SUBSIDIARIES I N D E X --------- PAGE ---- Consolidated Balance Sheets - June 30, 2000 and December 31, 1999 (Unaudited) 3 Consolidated Statements of Income - Three months and six months ended June 30, 2000 and 1999 (Unaudited) 4 Consolidated Statement of Changes in Shareholder's Equity - Six months ended June 30, 2000 (Unaudited) 5 Consolidated Statements of Cash Flows - Six months ended June 30, 2000 and 1999 (Unaudited) 6 Notes to Consolidated Financial Statements (Unaudited) 7-8 -2- MBIA INSURANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Dollars in thousands except per share amounts)
JUNE 30, 2000 DECEMBER 31, 1999 ------------- ----------------- ASSETS Investments: Fixed-maturity securities held as available-for-sale at fair value (amortized cost $6,185,631 and $6,006,506) $6,023,633 $5,783,979 Short-term investments, at amortized cost (which approximates fair value) 292,623 273,816 Other investments 16,008 8,425 ----------- ----------- TOTAL INVESTMENTS 6,332,264 6,066,220 Cash and cash equivalents 18,173 33,702 Securities purchased under agreements to resell 265,000 205,000 Accrued investment income 102,060 93,512 Deferred acquisition costs 257,657 251,922 Prepaid reinsurance premiums 435,983 403,210 Reinsurance recoverable on unpaid losses 27,250 30,819 Goodwill (less accumulated amortization of $59,345 and $56,906) 83,635 86,075 Property and equipment, at cost (less accumulated depreciation of $35,792 and $31,104) 114,506 111,549 Receivable for investments sold 38,451 2,882 Other assets 183,208 161,082 ----------- ----------- TOTAL ASSETS $7,858,187 $7,445,973 =========== =========== LIABILITIES AND SHAREHOLDER'S EQUITY Liabilities: Deferred premium revenue $2,360,138 $2,310,758 Loss and loss adjustment expense reserves 443,694 467,279 Securities sold under agreements to repurchase 265,000 205,000 Deferred income taxes 126,754 79,895 Deferred fee revenue 28,853 28,478 Payable for investments purchased 41,827 18,948 Other liabilities 117,477 107,988 ----------- ----------- TOTAL LIABILITIES 3,383,743 3,218,346 ----------- ----------- 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 1,525,440 1,514,014 Retained earnings 3,058,022 2,858,210 Accumulated other comprehensive loss, net of deferred income tax benefit of $(56,294) and $(77,942) (124,018) (159,597) ----------- ----------- TOTAL SHAREHOLDER'S EQUITY 4,474,444 4,227,627 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $7,858,187 $7,445,973 =========== ===========
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 SIX MONTHS ENDED JUNE 30 JUNE 30 ------------------------ ------------------------ 2000 1999 2000 1999 --------- --------- --------- --------- Revenues: Gross premiums written $189,295 $146,817 $338,132 $301,727 Ceded premiums (61,810) (35,356) (104,776) (95,352) --------- --------- --------- --------- Net premiums written 127,485 111,461 233,356 206,375 (Increase) decrease in deferred premium revenue (18,333) (4,244) (19,500) 12,953 --------- --------- --------- --------- Premiums earned (net of ceded premiums of $33,624, $27,738, $72,003, and $58,187) 109,152 107,217 213,856 219,328 Net investment income 98,858 88,530 193,446 176,537 Net realized gains 5,143 10,005 11,718 17,764 Advisory fees 5,015 4,050 11,546 9,015 Other -- 6 -- 6 --------- --------- --------- --------- Total revenues 218,168 209,808 430,566 422,650 --------- --------- --------- --------- Expenses: Losses and loss adjustment 13,735 10,239 22,322 172,169 Policy acquisition costs, net 8,736 9,231 17,322 18,424 Operating 20,271 18,787 39,033 36,885 --------- --------- --------- --------- Total expenses 42,742 38,257 78,677 227,478 --------- --------- --------- --------- Income before income taxes 175,426 171,551 351,889 195,172 Provision for income taxes 40,201 33,968 91,077 35,180 --------- --------- --------- --------- Net income $135,225 $137,583 $260,812 $159,992 ========= ========= ========= =========
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 SIX MONTHS ENDED JUNE 30, 2000 (Dollars in thousands except per share amounts)
Accumulated Common Stock Additional Other Total --------------------------- Paid-in Retained Comprehensive Shareholder's Shares Amount Capital Earnings Loss Equity ----------- ----------- ----------- ----------- ------------- ------------ Balance, January 1, 2000 100,000 $15,000 $1,514,014 $2,858,210 $(159,597) $4,227,627 Comprehensive income: Net income -- -- -- 260,812 -- 260,812 Other comprehensive income: Change in unrealized depreciation of investments net of change in deferred income taxes of $(21,648) -- -- -- -- 39,830 39,830 Change in foreign currency translation -- -- -- -- (4,251) (4,251) ----------- Other comprehensive income 35,579 ----------- Comprehensive income 296,391 ----------- Dividends declared (per common share $610.00) -- -- -- (61,000) -- (61,000) Tax reduction related to tax sharing agreement with MBIA Inc. -- -- 11,426 -- -- 11,426 ----------- ----------- ----------- ----------- ----------- ----------- Balance, June 30, 2000 100,000 $15,000 $1,525,440 $3,058,022 $(124,018) $4,474,444 =========== =========== =========== =========== =========== ===========
Disclosure of reclassification amount: Unrealized appreciation of investments arising during the period, net of taxes $47,282 Reclassification of adjustment, net of taxes (7,452) ---------- Net unrealized appreciation, net of taxes $39,830 ========== 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)
SIX MONTHS ENDED JUNE 30 --------------------------------- 2000 1999 ----------- ----------- Cash flows from operating activities: Net income $260,812 $159,992 Adjustments to reconcile net income to net cash provided by operating activities: Increase in accrued investment income (8,548) (25) Increase in deferred acquisition costs (5,735) (4,600) Increase in prepaid reinsurance premiums (32,773) (37,165) Increase in deferred premium revenue 52,273 24,212 (Decrease) increase in loss and loss adjustment expense reserves, net (20,016) 158,631 Depreciation 4,688 3,229 Amortization of goodwill 2,440 2,438 Amortization of bond discount, net (9,517) (7,281) Net realized gains on sale of investments (11,718) (17,764) Deferred income tax provision (benefit) 25,237 (55,632) Other, net (7,956) (104,944) ----------- ----------- Total adjustments to net income (11,625) (38,901) ----------- ----------- Net cash provided by operating activities 249,187 121,091 ----------- ----------- Cash flows from investing activities: Purchase of fixed-maturity securities, net of payable for investments purchased (1,247,988) (1,109,536) Sale of fixed-maturity securities, net of receivable for investments sold 926,972 754,752 Redemption of fixed-maturity securities, net of receivable for investments redeemed 133,480 161,559 (Purchase) sale of short-term investments, net (1,852) 169,288 (Purchase) sale of other investments, net (6,648) 8,553 Capital expenditures, net of disposals (7,680) (14,678) ----------- ----------- Net cash used by investing activities (203,716) (30,062) ----------- ----------- Cash flows from financing activities: Dividends paid (61,000) (60,000) ----------- ----------- Net cash used by financing activities (61,000) (60,000) ----------- ----------- Net (decrease) increase in cash and cash equivalents (15,529) 31,029 Cash and cash equivalents - beginning of period 33,702 6,546 ----------- ----------- Cash and cash equivalents - end of period $ 18,173 $ 37,575 =========== =========== Supplemental cash flow disclosures: Income taxes paid $ 35,946 $ 87,978
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, 1999. 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 six months ended June 30, 2000 may not be indicative of the results that may be expected for the year ending December 31, 2000. The December 31, 1999 balance sheet was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. 2. DIVIDENDS DECLARED ------------------ Dividends declared and paid by the company during the six months ended June 30, 2000 were $61.0 million. 3. RECENT ACCOUNTING PRONOUNCEMENTS -------------------------------- In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards 133, "Accounting for Derivative Instruments and Hedging Activities." (SFAS 133) SFAS 133 is effective for all quarters of all fiscal years beginning after June 15, 2000 (January 1, 2001 for the company). SFAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in the current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. For fair value hedge transactions in which the company is hedging changes in an asset's, liability's, or firm commitment's fair value, changes in the fair value of the derivative instrument will generally be offset in the income statement by changes in the hedged item's fair value. For cash-flow hedge transactions in which the company is hedging the variability of cash flows related to a variable-rate asset, liability, or a forecasted transaction, changes in the fair value of the derivative instrument will be reported in other comprehensive income. The gains and losses on the derivative instrument that are reported in other comprehensive income will be reclassified as earnings in the period in which earnings are impacted by the variability of the cash flows of the hedged item. The ineffective portion of all hedges will be -7- MBIA INSURANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) recognized in current-period earnings. The company is currently evaluating the impact that the adoption of SFAS 133 will have on its earnings and statement of financial position. 4. UNALLOCATED LOSS RESERVE METHODOLOGY UPDATE ------------------------------------------- The company completed an update of its unallocated loss reserving methodology in the first quarter of 1999. The update included an analysis of loss-reserve factors based on the latest available industry data. The company included the analysis of historical default and recovery experience for the relevant sectors of the fixed-income market. Also factored in was the changing mix of the company's book of business. The study resulted in an increase in the company's quarterly loss provision and a one-time charge in the first quarter of 1999 of $153 million to incorporate the new factors on the existing insured portfolio. -8- -----END PRIVACY-ENHANCED MESSAGE-----