-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, l4bKA5YhPQgwbUuSG+ghi3tRs2lLL9u46GqJZzvOjyx6JwrOTBy0tCkTzUZQMETE 7jccNcwuwOG9CqnOVDOwWg== 0000814585-94-000025.txt : 19940817 0000814585-94-000025.hdr.sgml : 19940817 ACCESSION NUMBER: 0000814585-94-000025 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940812 SROS: NYSE 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: 1934 Act SEC FILE NUMBER: 001-09583 FILM NUMBER: 94543433 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 2ND QTR 10Q 94 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, 1994 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 July 29, 1994 there were outstanding 41,692,056 shares of Common Stock, par value $1 per share, of the registrant. PAGE 1 OF 18 INDEX ----- PART I FINANCIAL INFORMATION
PAGE ---- Item 1. Financial Statements (Unaudited) MBIA Inc. and Subsidiaries Consolidated Balance Sheets - June 30, 1994 and December 31, 1993 (Audited) 3 Consolidated Statements of Income - Three months and six months ended June 30, 1994 and 1993 4 Consolidated Statement of Changes in Shareholders' Equity - Six months ended June 30, 1994 5 Consolidated Statements of Cash Flows - Six months ended June 30, 1994 and 1993 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 - 16 PART II OTHER INFORMATION, AS APPLICABLE Item 6. Exhibits and Reports on Form 8-K 17 SIGNATURES 18
(2) MBIA INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands except per share amounts)
June 30, 1994 December 31, 1993 ---------------- ----------------- (Unaudited) (Audited) ASSETS Investments: Fixed maturity securities, at amortized cost (market value $3,015,527) $ --- $2,796,699 Fixed maturity securities held as available-for-sale at market (amortized cost $3,005,263) 3,038,991 --- Short-term investments, at amortized cost (which approximates market value) 105,610 104,205 Other investments 17,103 104,681 ---------- ---------- 3,161,704 3,005,585 Municipal investment agreement portfolio, at amortized cost (market value $536,590) --- 538,751 Municipal investment agreement portfolio, at market (amortized cost $1,276,558) 1,240,376 --- ---------- ---------- TOTAL INVESTMENTS 4,402,080 3,544,336 Cash and cash equivalents 12,272 2,492 Accrued investment income 62,944 54,794 Deferred acquisition costs 126,064 120,484 Prepaid reinsurance premiums 182,858 170,551 Goodwill (less accumulated amortization of $33,601 and $31,088) 113,766 116,279 Property and equipment, at cost (less accumulated depreciation of $12,270 and $10,734) 44,252 44,115 Receivable for investments sold 54,368 31,903 Other assets 38,583 21,359 ---------- ---------- TOTAL ASSETS $5,037,187 $4,106,313 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Deferred premium revenue $1,474,801 $1,402,807 Loss and loss adjustment expense reserves 37,577 33,735 Long-term debt 298,735 298,680 Municipal investment agreements 1,264,933 493,014 Current income taxes payable --- 1,811 Deferred income taxes 112,279 107,881 Payable for investments purchased 73,546 111,279 Other liabilities 84,465 60,748 ---------- ---------- TOTAL LIABILITIES 3,346,336 2,509,955 ---------- ---------- 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--100,000,000; issued shares -- 42,077,387 and 42,074,387 42,077 42,074 Additional paid-in capital 719,769 719,281 Retained earnings 953,933 844,916 Cumulative translation adjustment 226 (1,218) Unrealized (depreciation) appreciation of investments, net of deferred income tax (benefit) provision of $(236) and $3,813 (986) 7,080 Treasury stock, at cost; shares -- 385,731 and 260,243 (24,168) (15,775) ---------- ---------- TOTAL SHAREHOLDERS' EQUITY 1,690,851 1,596,358 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $5,037,187 $4,106,313 ========== ==========
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 ---------------------- ---------------------- 1994 1993 1994 1993 ---------- ---------- ---------- ---------- Revenues: Gross premiums written $ 109,975 $ 154,315 $ 194,286 $ 252,340 Ceded premiums (18,877) (20,323) (26,675) (29,159) ---------- ---------- ---------- ---------- Net premiums written 91,098 133,992 167,611 223,181 Increase in deferred premium revenue (37,410) (75,071) (59,471) (110,795) ---------- ---------- ---------- ---------- Premiums earned (net of ceded premiums of $7,114, $9,644, $14,368 and $17,734) 53,688 58,921 108,140 112,386 Net investment income 47,806 44,272 94,690 86,919 Net realized gains 2,537 2,987 8,907 5,326 Non-insurance revenues 5,579 884 7,797 1,988 Non-insurance net realized gains (losses) 159 --- (458) --- Other income 305 1,870 625 2,628 ---------- ---------- ---------- ---------- Total revenues 110,074 108,934 219,701 209,247 ---------- ---------- ---------- ---------- Expenses: Insurance: Losses and loss adjustment expenses 2,114 2,619 4,039 4,156 Policy acquisition costs, net 5,101 6,346 11,060 12,509 Operating expenses 10,295 9,703 19,637 18,619 Non-insurance expenses 2,612 1,048 4,946 2,083 Interest expense 6,720 6,743 13,455 13,462 Other expenses 210 71 633 635 ---------- ---------- ---------- ---------- Total expenses 27,052 26,530 53,770 51,464 ---------- ---------- ---------- ---------- Income before income taxes 83,022 82,404 165,931 157,783 Provision for income taxes 18,071 18,563 35,239 34,214 ---------- ---------- ---------- ---------- Income before cumulative effect of accounting changes 64,951 63,841 130,692 123,569 Cumulative effect of accounting changes --- --- --- 12,923 ---------- ---------- ---------- ---------- NET INCOME $ 64,951 $ 63,841 $ 130,692 $ 136,492 ========== ========== ========== ========== Income per common share before cumulative effect of accounting changes $ 1.54 $ 1.50 $ 3.10 $ 2.91 NET INCOME PER COMMON SHARE $ 1.54 $ 1.50 $ 3.10 $ 3.22 ========== ========== ========== ========== Weighted average number of common shares and common stock equivalents outstanding 42,074,096 42,446,881 42,114,939 42,429,191 ========== ========== ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. (4) MBIA INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited) For the six months ended June 30, 1994 (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, 1994 42,074 $42,074 $719,281 $844,916 $(1,218) $ 7,080 260 $15,775 Treasury shares acquired --- --- --- --- --- --- 147 8,886 Exercise of stock options 3 3 488 --- --- --- (21) (493) Net income --- --- --- 130,692 --- --- --- --- Change in foreign currency translation --- --- --- --- 1,444 --- --- --- Change in unrealized appreciation (depreciation) of investments net of change in deferred income taxes of $(4,049) --- --- --- --- --- (8,066) --- --- Dividends (declared and paid per common share $.52) --- --- --- (21,675) --- --- --- --- ------ ------- -------- -------- ------- ------- -------- ------- BALANCE, JUNE 30, 1994 42,077 $42,077 $719,769 $953,933 $ 226 $ (986) 386 $24,168 ====== ======= ======== ======== ======= ======= ======== =======
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)
Six Months Ended June 30 ----------------------- 1994 1993 ---------- ---------- Cash flows from operating activities: Net income $ 130,692 $ 136,492 Adjustments to reconcile net income to net cash provided by operating activities: Increase in accrued investment income (8,150) (2,484) Increase in deferred acquisition costs (5,580) (3,875) Increase in prepaid reinsurance premiums (12,307) (11,426) Increase in deferred premium revenue 71,778 122,221 Increase in loss and loss adjustment expense reserves 3,842 3,949 Depreciation 1,531 1,393 Amortization of goodwill 2,513 2,534 Amortization of bond premium (discount), net 54 (563) Net realized gains on sale of investments (8,449) (5,326) Deferred income taxes 8,447 (8,853) Other, net 11,936 15,729 ---------- ---------- Total adjustments to net income 65,615 113,299 ---------- ---------- Net cash provided by operating activities 196,307 249,791 ---------- ---------- Cash flows from investing activities: Purchase of fixed maturity securities, net of payable for investments purchased (603,085) (419,381) Sale of fixed maturity securities, net of receivable for investments sold 309,219 169,599 Redemption of fixed maturity securities, net of receivable for investments redeemed 68,414 104,717 Purchase of short-term investments, net (6,949) (58,304) Sale (purchase) of other investments, net 87,743 (13,128) Purchases for municipal investment agreement portfolio, net of payable for investments purchased (1,022,331) --- Sales from municipal investment agreement portfolio, net of receivable for investments sold 245,367 --- Capital expenditures, net of disposals (1,655) (5,575) ---------- ---------- Net cash used by investing activities (923,277) (222,072) ---------- ---------- Cash flows from financing activities: Dividends paid (21,743) (17,601) Purchase of treasury stock (8,886) --- Proceeds from issuance of municipal investment agreements 1,072,779 --- Payments for drawdowns of municipal investment agreements (306,384) --- Exercise of stock options 984 3,636 ---------- ---------- Net cash provided (used) by financing activities 736,750 (13,965) ---------- ---------- Net increase in cash and cash equivalents 9,780 13,754 Cash and cash equivalents - beginning of period 2,492 11,226 ---------- ---------- Cash and cash equivalents - end of period $ 12,272 $ 24,980 ========== ========== SUPPLEMENTAL CASH FLOW DISCLOSURES: Income taxes paid $ 30,099 $ 25,543 Interest paid: Long-term debt $ 13,288 $ 13,128 Municipal investment agreements 11,467 ---
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 the Form 10-K for the year ended December 31, 1993 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 six months ended June 30, 1994 may not be indicative of the results that may be expected for the year ending December 31, 1994. The December 31, 1993 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 six months ended June 30, 1994 were $21.7 million. 3. Investments in Debt and Equity Securities As of March 31, 1994 the Company adopted Statement of Financial Accounting Standards ("SFAS") 115, "Accounting for Certain Investments in Debt and Equity Securities." Fixed-income investments, which were previously carried at amortized cost were deemed by management to be available-for-sale and therefore are reported at market value with net unrealized gains and losses reported in shareholders' equity. The adoption of SFAS 115 resulted in a decrease of $2.5 million as of June 30, 1994 in the reported value of the Company's investment portfolio and a decrease in shareholders' equity of $1.6 million as of June 30, 1994. There was no income statement impact. (7) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - - --------------------- 1994 AND 1993 - SECOND QUARTER RESULTS - - -------------------------------------- MBIA Inc.'s (the "Company") 1994 second quarter net income and earnings per share were $65.0 million and $1.54, reflecting a 2% and 3% increase, respectively, over second quarter 1993. The Company also measures its performance in terms of core earnings, which exclude the net income effects of the relatively less predictable elements of net premiums earned from refundings and calls of previously insured issues, realized gains and other non-recurring items such as accounting changes. Core earnings increased by 15% to $1.31 per share compared with $1.14 a year ago, reflecting the Company's ability to produce earnings growth from its expanding portfolio of insured issues and investment portfolio, even during a period of declining municipal volume. According to THE BOND BUYER, long-term new issue municipal bond volume was $39.4 billion of par value in the second quarter of 1994, down from $81.4 billion in the second quarter of 1993. The insured portion of the market increased to 45% from 41% for the same period last year. In the second quarter of 1994, the Company's principal operating subsidiary, Municipal Bond Investors Assurance Corporation ("MBIA Corp."), led the industry in market share, guaranteeing 45% of the insured long-term new issue municipal bond volume. In addition, MBIA Corp. led the insured new issue structured finance market in the United States and Europe. With the decline in overall market volume, gross premiums written decreased 29% to $110.0 million during the second quarter, from $154.3 million during the second quarter of 1993. New issue and secondary market municipal and asset-backed premiums, the major components of gross premiums written, decreased 29% to $101.8 million compared with $143.3 million in the same period last year. MBIA Assurance, the Company's wholly-owned French subsidiary, wrote gross premiums of $3.0 million for the quarter. Installment premiums received for policies issued in prior years, including net amounts assumed related to the installment business of MBIA Corp.'s predecessor, the Municipal Bond Insurance Association (8) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) (the "Association"), were $8.2 million and $8.4 million for the second quarters of 1994 and 1993, respectively. Included in gross premiums written for the second quarter of 1993 was $1.3 million of portfolio assumptions. With the decrease in the volume of gross premiums written, premiums ceded to reinsurers declined 7% to $18.9 million during the second quarter of 1994 compared to $20.3 million in the same period last year. In the second quarter of 1994, premiums ceded as a percentage of gross premiums written increased to 17% compared to 13% for the same period last year, reflecting a higher level of cessions for European business. Net premium writings of $91.1 million for the second quarter of 1994 also decreased 32% from $134.0 million in the same period last year. 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 premium received. The balance represents deferred premium revenue which will be earned in the future over the remaining life of the bond. Installment premiums are not recorded as a component of deferred premium revenues until received and therefore represent an off-balance sheet value which will contribute to future earned premiums. As of June 30, 1994, MBIA estimates the present value of its future stream of payments to be $188.6 million. Premiums earned in the second quarter decreased 9% to $53.7 million from $58.9 million in the second quarter of 1993. This decrease reflects the decline in earned premiums resulting from lower bond refundings and calls during 1994, mitigated by the growth in deferred premium revenues from the addition of new business in 1993. (9) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) When an MBIA-insured bond issue is refunded or retired early, the outstanding liability 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 the refunding bond issue if such refunding issue is insured by MBIA Corp. Earned premiums generated by refunded and called bonds in the second quarter of 1994 and 1993 were $11.5 million and $22.8 million, respectively. Of these amounts, $2.8 million and $18.4 million, respectively, related to issues for which MBIA Corp. insured the replacement bonds. 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 total investments were $4.40 billion as of June 30, 1994, including $1.24 billion related to the Company's municipal investment agreement business. Net investment income (excluding the amounts earned on investment agreement assets which are recorded as a component of non-insurance revenues) increased 8% to $47.8 million in the second quarter of 1994 compared with $44.3 million in the corresponding period of 1993. The increase was a result of the growth of invested assets from continued positive operating cash flows. Average investments excluding investment agreement assets were $3.08 billion in the second quarter of 1994 compared with $2.69 billion for the same period last year. Tax-exempt investments as of June 30, 1994 represented 77% of total investments excluding investment agreement assets, compared with 70% at December 31, 1993. Net realized capital gains in the second quarter of 1994 were $2.5 million, down from $3.0 million in the same period of 1993. The Company has undertaken the development of non-insurance businesses which capitalize on its core capabilities. In aggregate, these businesses contributed $5.7 million in revenues in the second quarter of 1994, a significant increase over the $0.9 million generated in the same period last year. (10) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) MBIA Municipal Investors Services Corporation ("MBIA/MISC") provides cash management services for local governments, school districts and similar authorities. As of June 30, 1994 MBIA/MISC had over $1.5 billion of client assets under management. MBIA/MISC is operating in seven states and plans to continue its expansion into additional states in the near term. In 1993, the Company formed MBIA Investment Management Corp. ("IMC"), which provides investment vehicles in the form of investment agreements guaranteed as to principal and interest, for states, municipalities and municipal authorities. At June 30, 1994, IMC had outstanding investment agreement liabilities of $1.3 billion. The related assets are invested in high quality securities and are recorded as a component of the Company's total investments, exclusive of payables and receivables for investments not settled. Municipal investment agreements are recorded as balance sheet 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, and that expense is deducted from the investment income from the related assets in non-insurance revenues. Also included in non-insurance revenues are the proceeds of the sale of MBIA's 49% interest in MBIA Investors Capital Corp. which offered the tender option program TOPSTAR. The provision for losses and loss adjustment expenses for the second quarter of 1994 was $2.1 million, compared with $2.6 million in 1993, representing additions to the loss reserves consistent with the Company's reserve methodology. At June 30, 1994, $23.2 million of the $37.6 million loss and loss adjustment expense reserve was allocated on a case basis, compared with $7.2 million of the $29.5 million reserve at June 30, 1993. The increase in case reserves had no impact on net income, since the increase in the Company's case-specific reserve was offset by a corresponding decrease in the unallocated portion of its general loss reserve. (11) 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 virtually flat with the corresponding quarter last year. Expenses related to the Company's non-insurance business lines increased to $2.6 million in the second quarter of 1994 from $1.0 million in the second quarter of 1993 due to the expansion of these new businesses. The Company's interest expense was constant at $6.7 million for the second quarters of 1994 and 1993. In aggregate, expenses for the second quarter of 1994 increased by 2% over the second quarter of 1993. The Company's effective tax rate at 21.8% decreased nominally from 22.5% for the second quarter 1993. This was due principally to the shift towards a higher proportion of tax-exempt securities in the Company's investment portfolio. As of March 31, 1994, the Company adopted Statement of Financial Accounting Standards ("SFAS") 115, "Accounting for Certain Investments in Debt and Equity Securities." Fixed-income investments, which were previously carried at amortized cost are now classified as available-for-sale and reported at market value. As of June 30, 1994, the Company's fixed-income investment portfolio related to insurance operations had unrealized gains of $33.7 million, which were more than offset by $36.2 million of unrealized loss of investment agreement assets. Changes in the market value of securities classified as available-for-sale have no income statement impact. RESULTS OF OPERATIONS - - --------------------- 1994 AND 1993 - FIRST SIX MONTHS RESULTS - - ---------------------------------------- The Company's 1994 first six months net income and earnings per share were $130.7 million and $3.10, respectively. The Company's 1993 first (12) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) half results of $136.5 million and $3.22 earnings per share included the benefit of non-recurring accounting changes, primarily related to deferred taxes. Excluding these effects, 1994 first half net income and earnings per share increased 6% and 7%, respectively, over first half 1993. For the first half of 1994, core earnings increased by 15% to $2.58 per share compared with $2.24 per share a year ago, reflecting the Company's continuing ability to produce consistent growth from its expanding portfolio of insured issues and investment portfolio. According to THE BOND BUYER, long-term new issue municipal bond volume for the first half of 1994 was $89.2 billion of par value, down from $148.7 billion in the first half of 1993. The insured portion of new issue volume increased slightly to 41% versus 40% in the comparable period last year. In the first half of 1994, MBIA Corp. led the industry in market share, guaranteeing 40% of the insured long-term new issue municipal bond volume compared with 38% in the first half of 1993. With the decline in overall market volume, gross premiums written by MBIA Corp. decreased 23% to $194.3 million during the first half of 1994, from $252.3 million during the first half of 1993. New issue and secondary market municipal and asset-backed premiums, the major components of gross premiums written, decreased 23% to $178.6 million compared with $230.9 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 $15.5 million and $14.9 million for the first half of 1994 and 1993, respectively. Gross premiums written also included portfolio assumptions of $0.2 million and $5.0 million for the first half of 1994 and 1993, respectively. With the decrease in the volume of gross premiums written, premiums ceded to reinsurers declined 9% to $26.7 million during the first half of 1994 compared to $29.2 million in the same period last year. In the first half of 1994, premiums ceded as a percentage of gross premiums written increased to 14% from 12% last year. Net premium writings of $167.6 million for 1994 also decreased 25% from $223.2 million in the same period last year. (13) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Premiums earned in the first half of 1994 decreased 4% to $108.1 million from $112.4 million in the first half of 1993. This decrease reflected the decline in earned premiums resulting from lower bond refundings and calls during 1994, partially mitigated by the growth in deferred premium revenues from the addition of new business in 1993. Earned premiums generated by refunded and called bonds in the first half of 1994 and 1993 were $26.0 million and $42.7 million, respectively. Of these amounts, $11.7 million and $29.6 million, respectively, related to issues for which MBIA Corp. insured the replacement bonds. Net investment income (excluding the amount earned on investment agreement assets which are recorded as a component of non-insurance revenues) increased 9% to $94.7 million in the first half of 1994 compared with $86.9 million in the corresponding period of 1993. The increase was a result of the growth of invested assets from continued positive operating cash flows. Average invested assets excluding investment agreement assets were $3.05 billion in the first half of 1994 compared with $2.64 billion for the same period last year. Net realized capital gains in the first half of 1994 increased to $8.9 million from $5.3 million in the same period of 1993. The Company realized $9.4 million in gains from the liquidation of its investment in an S&P indexed fund, which was partially offset by realized losses in its fixed-income portfolio. MBIA's non-insurance businesses contributed $7.8 million in revenues in the first half of 1994, more than triple the first half 1993 revenues of $2.0 million. The provision for losses and loss adjustment expenses for the first half of 1994 was $4.0 million, compared with $4.2 million in 1993, representing additions to the loss reserves consistent with the Company's reserve methodology. During the first half of 1994, the Company's case reserves increased by $15.7 million of which $14.1 million related to five issues added to the case specific portion of the (14) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) total reserve. None of these issues are currently in default. The increase in case reserves had no impact on net income, since the increase in the Company's case-specific reserve was offset by a corresponding decrease in the unallocated portion of its general loss reserve. Other insurance related expenses which are composed of net policy acquisition costs and operating expenses of $30.7 million were virtually unchanged from a year ago. Expenses related to the Company's non-insurance business lines increased to $4.9 million in the first half of 1994 from $2.1 million in the first half of 1993 due to the expansion of these new businesses. The Company's interest expense was $13.5 million for the first half of both 1994 and 1993. In aggregate, expenses for the first half of 1994 increased by 4% over the first half of 1993. The Company's effective tax rate at 21.2% for the first half of 1994 was virtually unchanged from the same period in 1993 despite the increase in the Federal corporate tax rate. This was due principally to the shift towards a higher proportion of tax- exempt securities in the Company's investment portfolio. LIQUIDITY AND CAPITAL RESOURCES - - ------------------------------- The Company's consolidated reported invested assets and cash grew 24% to $4.41 billion at June 30, 1994 from $3.55 billion at year- end 1993. The increase was due to continued positive operating cash flows from MBIA Corp.'s insurance premiums and investment income, and an increase in the municipal investment agreement portfolio. (15) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The Company's liquidity is largely dependent upon MBIA Corp.'s ability to pay dividends to the Company. MBIA Corp.'s net income, comprised of premium earnings and investment income less losses, expenses and taxes, is a source of continuing additions to capital 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 net investment income, as defined, for such 12-month period. MBIA Corp. paid no dividends in the first half of 1994 and at June 30, 1994 had in excess of $83 million available for payment of further dividends to the Company without prior approval. MBIA Corp. has an irrevocable standby line of credit of $575 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 December 31, 2000 but, subject to approval by the banks, the agreement may be renewed annually to extend the term to seven years beyond the renewal date. To further facilitate the immediate payment of claims, should they occur, MBIA Corp. has established lines of credit totaling $130 million with four other major banks. The Company also maintains a $25 million revolving line of credit with a major bank for general corporate purposes. 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 June 30, 1994, MBIA Corp. had $23.2 million in case- specific loss reserves. Any related payments are expected to be funded from operating cash flows. (16) PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits 11. Computation of Earnings Per Share Assuming Full Dilution
(17) 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 5, 1994 /s/ ARTHUR M. WARREN ---------------- --------------------------------- Arthur M. Warren Senior Vice President, Chief Financial Officer & Treasurer Date: August 5, 1994 /s/ JULLIETTE S. TEHRANI ---------------- --------------------------------- Julliette S. Tehrani Senior Vice President, Controller & Assistant Treasurer (Principal Accounting Officer) (18) EX-11 2 2ND QTR 94 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 Six Months Ended June 30 June 30 ------------------ ------------------ 1994 1993 1994 1993 ------------------ ------------------ Net income $64,951 $63,841 $130,692 $136,492 ======== ======= ======== ======== Fully diluted shares: Average number of common shares outstanding 41,684 41,950 41,701 41,925 Assumed exercise of dilutive stock options 414 524 416 534 -------- -------- -------- -------- 42,098 42,474 42,117 42,459 -------- -------- -------- -------- Earnings per share assuming full dilution $1.54 $1.50 $3.10 $3.21 ======== ======= ======== ========
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