EX-99 4 dex99.txt MBIA INSURANCE CORP. CONSOLIDATED FINANCIAL STATEMENTS EXHIBIT 99 MBIA INSURANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2001 AND DECEMBER 31, 2000 AND FOR THE PERIODS ENDED JUNE 30, 2001 AND 2000 MBIA INSURANCE CORPORATION AND SUBSIDIARIES I N D E X ---------
PAGE ---- Consolidated Balance Sheets - June 30, 2001 and December 31, 2000 (Unaudited) 3 Consolidated Statements of Income - Three months and six months ended June 30, 2001 and 2000 (Unaudited) 4 Consolidated Statement of Changes in Shareholder's Equity - Six months ended June 30, 2001 (Unaudited) 5 Consolidated Statements of Cash Flows - Six months ended June 30, 2001 and 2000 (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, 2001 December 31, 2000 -------------------------- --------------------- Assets Investments: Fixed-maturity securities held as available-for-sale at fair value (amortized cost $6,185,035 and $6,153,981) $ 6,304,129 $ $6,274,595 Fixed-maturity securities pledged as collateral at fair value (amortized cost $612,207 and $385,910) 617,538 390,938 Short-term investments, at amortized cost (which approximates fair value) 343,563 269,900 Other investments 28,391 9,663 --------------- --------------- Total investments 7,293,621 6,945,096 Cash and cash equivalents 4,362 12,541 Securities purchased under agreements to resell 475,850 330,000 Accrued investment income 109,189 106,822 Deferred acquisition costs 280,511 274,355 Prepaid reinsurance premiums 457,894 442,622 Reinsurance recoverable on unpaid losses 31,065 31,414 Goodwill (less accumulated amortization of $64,113 and $61,784) 78,867 81,196 Property and equipment, at cost (less accumulated depreciation of $43,616 and $38,309) 114,127 117,338 Receivable for investments sold 13,544 2,497 Other assets 140,234 105,846 --------------- --------------- Total assets $ 8,999,264 $8,449,727 =============== =============== Liabilities and Shareholder's Equity Liabilities: Deferred premium revenue $ 2,453,450 $ 2,397,578 Loss and loss adjustment expense reserves 508,725 499,279 Securities sold under agreements to repurchase 475,850 330,000 Deferred income taxes 246,840 253,363 Deferred fee revenue 23,924 26,138 Payable for investments purchased 64,724 2,334 Other liabilities 224,032 133,429 --------------- ---------------- Total liabilities 3,997,545 3,642,121 --------------- ---------------- 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 1,556,282 1,540,071 Retained earnings 3,377,245 3,191,536 Accumulated other comprehensive income, net of deferred income tax provision of $43,339 and $43,910 53,192 60,999 --------------- --------------- Total shareholder's equity 5,001,719 4,807,606 --------------- --------------- Total liabilities and shareholder's equity $ 8,999,264 $ 8,449,727 =============== ===============
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 ----------------------------- ---------------------------- 2001 2000 2001 2000 ------------- ------------ ------------ ------------ Revenues: Gross premiums written $ 206,559 $ 189,295 $ 391,464 $ 338,132 Ceded premiums (42,996) (61,810) (98,145) (104,776) ------------- ----------- ------------ ----------- Net premiums written 163,563 127,485 293,319 233,356 (Increase) decrease in deferred premium revenue (35,324) (18,333) (44,945) (19,500) ------------- ----------- ------------ ----------- Premiums earned (net of ceded premiums of $41,937, $32,813, $80,253, and $70,344) 128,239 109,152 248,374 213,856 Net investment income 101,778 98,858 204,150 193,446 Net realized gains 486 5,143 5,045 11,718 Change in fair value of derivative instruments (3,339) --- (7,106) --- Advisory fees 12,194 5,015 18,186 11,546 Other 193 --- 387 --- ------------ ----------- ----------- ----------- Total revenues 239,551 218,168 469,036 430,566 ------------ ----------- ----------- ----------- Expenses: Losses and loss adjustment 16,819 13,735 31,041 22,322 Amortization of deferred acquisition costs 10,259 8,736 19,870 17,322 Operating 19,675 20,271 37,730 39,033 ------------ ----------- ----------- ----------- Total expenses 46,753 42,742 88,641 78,677 ------------ ----------- ----------- ----------- Income before income taxes 192,798 175,426 380,395 351,889 Provision for income taxes 51,723 40,201 97,704 91,077 ------------ ----------- ----------- ----------- Income before cumulative effect of accounting change 141,075 135,225 282,691 260,812 Cumulative effect of accounting change --- --- (11,082) --- ------------ ----------- ----------- ----------- Net income $ 141,075 $ 135,225 $ 271,609 $ 260,812 ============ =========== =========== ===========
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, 2001 (Dollars in thousands except per share amounts)
Accumulated Common Stock Additional Other ----------------------- Paid-in Retained Comprehensive Shares Amount Capital Earnings Loss ----------- ----------- --------------- --------------- -------------------- Balance, January 1, 2001 100,000 $15,000 $1,540,071 $3,191,536 $ 60,999 Comprehensive income: Net income -- -- -- 271,609 -- Other comprehensive income: Change in unrealized depreciation of investments net of change in deferred income taxes of $(571) -- -- -- -- (1,008) Change in foreign currency translation -- -- -- -- (6,799) Other comprehensive income Comprehensive income Dividends declared (per common share $859.00) -- -- -- (85,900) -- Tax reduction related to tax sharing agreement with MBIA Inc. -- -- 16,211 -- -- ----------- ----------- --------------- --------------- -------------------- Balance, June 30, 2001 100,000 $15,000 $1,556,282 $3,377,245 $ 53,192 =========== =========== =============== =============== ==================== Total Shareholder's Equity ------------------ Balance, January 1, 2001 $ 4,807,606 Comprehensive income: Net income 271,609 Other comprehensive income: Change in unrealized depreciation of investments net of change in deferred income taxes of $(571) (1,008) Change in foreign currency translation (6,799) ------------------ Other comprehensive income (7,807) ------------------ Comprehensive income 263,802 ------------------ Dividends declared (per common share $859.00) (85,900) Tax reduction related to tax sharing agreement with MBIA Inc. 16,211 ------------------ Balance, June 30, 2001 $ 5,001,719 ================== Disclosure of reclassification amount: Unrealized appreciation of investments arising during the period, net of taxes $ 2,178 Reclassification of adjustment, net of taxes (3,186) ----------- Net unrealized depreciation, net of taxes $ (1,008) ===========
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 ---------------------------------- 2001 2000 ---------------- ------------- Cash flows from operating activities: Net income $ 271,609 $ 260,812 Adjustments to reconcile net income to net cash provided by operating activities: Increase in accrued investment income (2,367) (8,548) Increase in deferred acquisition costs (6,156) (5,735) Increase in prepaid reinsurance premiums (15,272) (32,773) Increase in deferred premium revenue 60,217 52,273 Increase (decrease) in loss and loss adjustment expense reserves, net 9,795 (20,016) Depreciation 5,307 4,688 Amortization of goodwill 2,329 2,440 Amortization of bond discount, net (1,878) (9,517) Net realized gains on sale of investments (5,044) (11,718) Deferred income tax (benefit) provision (5,913) 25,237 Fair value of derivative instruments 24,155 --- Other, net 35,015 (7,956) -------------- -------------- Total adjustments to net income 100,188 (11,625) -------------- -------------- Net cash provided by operating activities 371,797 249,187 -------------- -------------- Cash flows from investing activities: Purchase of fixed-maturity securities, net of payable for investments purchased (1,832,800) (1,247,988) Sale of fixed-maturity securities, net of receivable for investments sold 1,442,865 926,972 Redemption of fixed-maturity securities, net of receivable for investments redeemed 190,752 133,480 Purchase of short-term investments, net (73,665) (1,852) Purchase of other investments, net (18,991) (6,648) Capital expenditures, net of disposals (2,237) (7,680) -------------- -------------- Net cash used by investing activities (294,076) (203,716) -------------- -------------- Cash flows from financing activities: Dividends paid (85,900) (61,000) -------------- -------------- Net cash used by financing activities (85,900) (61,000) -------------- -------------- Net decrease in cash and cash equivalents (8,179) (15,529) Cash and cash equivalents - beginning of period 12,541 33,702 -------------- -------------- Cash and cash equivalents - end of period $ 4,362 $ 18,173 ============== ============== Supplemental cash flow disclosures: Income taxes paid $ 88,485 $ 35,946
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 accounting principles generally accepted in the United States of America. These statements should be read in conjunction with the company's consolidated financial statements and notes thereto for the year ended December 31, 2000. The accompanying consolidated financial statements have not been audited by independent accountants in accordance with auditing standards generally accepted in the United States of America 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, 2001 may not be indicative of the results that may be expected for the year ending December 31, 2001. The December 31, 2000 balance sheet was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. 2. Dividends Declared ------------------ Dividends declared and paid by the company during the six months ended June 30, 2001 were $86 million. 3. Recent Accounting Pronouncements -------------------------------- In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 133, "Accounting for Derivative Instruments and Hedging Activities" which was effective for the company as of January 1, 2001. SFAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives will be recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge, and if so, the use and type of the hedge. The company has entered into derivative transactions that do not qualify for the financial guarantee scope exception under SFAS 133 and, therefore, must be stated at fair value. The company's derivative exposure and mark-to-market as of January 1, 2001, primarily consists of credit default swaps. The revenues and expenses include revenues and expenses related to derivative activity. The related change in fair value of those derivative instruments is included in gains and losses. Adoption of SFAS 133 on January 1, 2001 resulted in cumulative after-tax reductions in net income of $11 million. In addition, the company increased its assets by $31 million and liabilities by $42 million. -7- MBIA INSURANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) In September 2000, the FASB issued SFAS 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which was effective for the Company as of April 1, 2001. In accordance with SFAS 140, the Company no longer reflects on its balance sheet financial assets involving the borrowing of securities that meet specific criteria. The fair value of securities received for security borrowing transactions at June 30, 2001 and December 31, 2000 was $476 million and $428 million, respectively. None of the accepted collateral for securities borrowed has been sold or repledged for all periods presented. SFAS 140 also requires the Company to reclassify financial assets pledged as collateral under certain agreements and to report those assets at fair value as a separate line item on the balance sheet. As of June 30, 2001, the Company had $618 million in financial assets pledged as collateral. It is the Company's policy to take possession of securities borrowed or purchased under agreements to resell. These contracts are primarily the Company's collateralized municipal investment and repurchase agreement activity and are only transacted with high-quality dealer firms. The Company minimizes the credit risk that counterparties to transactions might be unable to fulfill their contractual obligations by monitoring customer credit exposure and collateral value and requiring additional collateral to be deposited with the company when deemed necessary. In June 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible Assets", which is effective for fiscal years beginning after December 15, 2001. SFAS 142 requires that goodwill no longer be amortized, but instead be reviewed for impairment. The company will adopt SFAS 142 effective January 1, 2002 and is currently evaluating the impact that the adoption will have on its earnings and statement of financial position. -8-