EX-99 4 dex99.txt MBIA INSURANCE CORPORATION CONSOLIDATED FINANCIAL STATEMENTS EXHIBIT 99 MBIA INSURANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2001 AND DECEMBER 31, 2000 AND FOR THE PERIODS ENDED SEPTEMBER 30, 2001 AND 2000 MBIA INSURANCE CORPORATION AND SUBSIDIARIES I N D E X --------- PAGE ---- Consolidated Balance Sheets - September 30, 2001 and December 31, 2000 (Unaudited) 3 Consolidated Statements of Income - Three months and nine months ended September 30, 2001 and 2000 (Unaudited) 4 Consolidated Statement of Changes in Shareholder's Equity - Nine months ended September 30, 2001 (Unaudited) 5 Consolidated Statements of Cash Flows - Nine months ended September 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)
September 30, 2001 December 31, 2000 ------------------ -------------------- Assets ------ Investments: Fixed-maturity securities held as available-for-sale at fair value (amortized cost $6,380,488 and $6,153,981) $6,629,909 $6,274,595 Fixed-maturity securities pledged as collateral at fair value (amortized cost $581,433 and $385,910) 607,316 390,938 Short-term investments, at amortized cost (which approximates fair value) 303,676 269,900 Other investments 28,793 9,663 --------------- ---------------- Total investments 7,569,694 6,945,096 Cash and cash equivalents 6,572 12,541 Securities purchased under agreements to resell 546,906 330,000 Accrued investment income 110,446 106,822 Deferred acquisition costs 276,728 274,355 Prepaid reinsurance premiums 490,364 442,622 Reinsurance recoverable on unpaid losses 35,659 31,414 Goodwill (less accumulated amortization of $65,277 and $61,784) 77,703 81,196 Property and equipment, at cost (less accumulated depreciation of $46,110 and $38,309) 114,596 117,338 Receivable for investments sold 107,072 2,497 Other assets 169,162 105,846 --------------- ---------------- Total assets $9,504,902 $8,449,727 =============== ================ Liabilities and Shareholder's Equity ------------------------------------ Liabilities: Deferred premium revenue $2,496,334 $2,397,578 Loss and loss adjustment expense reserves 526,712 499,279 Securities sold under agreements to repurchase 546,906 330,000 Deferred income taxes 305,182 253,363 Deferred fee revenue 25,054 26,138 Payable for investments purchased 102,424 2,334 Other liabilities 249,025 133,429 --------------- ---------------- Total liabilities 4,251,637 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 1,562,497 1,540,071 Retained earnings 3,519,810 3,191,536 Accumulated other comprehensive income, net of deferred income tax provision of $96,339 and $43,910 155,958 60,999 --------------- ---------------- Total shareholder's equity 5,253,265 4,807,606 Total liabilities and shareholder's equity $9,504,902 $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 Nine months ended September 30 September 30 ----------------------------- ---------------------------- 2001 2000 2001 2000 ------------- ------------ ------------ ------------ Revenues: Gross premiums written $218,722 $172,010 $610,186 $510,142 Ceded premiums (75,264) (49,221) (173,409) (153,997) ------------- ------------ ------------ ------------ Net premiums written 143,458 122,789 436,777 356,145 Increase in deferred premium revenue (9,008) (9,636) (53,953) (29,136) ------------- ------------ ------------ ------------ Premiums earned (net of ceded premiums of $43,512, $40,993, $123,765 and $111,337) 134,450 113,153 382,824 327,009 Net investment income 105,310 99,308 309,460 292,754 Net realized gains 858 6,599 5,903 18,317 Change in fair value of derivative instruments 6,349 --- (757) --- Advisory fees 5,507 5,358 23,693 16,904 Other 205 206 592 206 ------------- ------------ ------------ ------------ Total revenues 252,679 224,624 721,715 655,190 ------------- ------------ ------------ ------------ Expenses: Losses and loss adjustment 10,325 13,873 41,366 36,195 Amortization of deferred acquisition costs 11,139 9,166 31,009 26,488 Operating 19,362 19,724 57,092 58,757 ------------- ------------ ------------ ------------ Total expenses 40,826 42,763 129,467 121,440 ------------- ------------ ------------ ------------ Income before income taxes 211,853 181,861 592,248 533,750 Provision for income taxes 55,788 46,165 153,492 137,242 ------------- ------------ ------------ ------------ Income before cumulative effect of accounting change 156,065 135,696 438,756 396,508 Cumulative effect of accounting change --- --- (11,082) --- ------------- ------------ ------------ ------------ Net income $156,065 $135,696 $427,674 $396,508 ============= ============ ============ ============ The accompanying notes are an integral part of the consolidated financial statements.
-4- MBIA INSURANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY (Unaudited) For the nine months ended September 30, 2001 (dollars in thousands except per share amounts)
Accumulated Common Stock Additional Other Total ----------------------- Paid-in Retained Comprehensive Shareholder's Shares Amount Capital Earnings Income Equity ------------ ---------- ------------- ------------- ------------------ ---------------- Balance, January 1, 2001 100,000 $15,000 $1,540,071 $3,191,536 $ 60,999 $ 4,807,606 Comprehensive income: Net income --- --- --- 427,674 --- 427,674 Other comprehensive income: Change in unrealized depreciation of investments net of change in deferred income taxes of $52,429 --- --- --- --- 97,625 97,625 Change in foreign currency translation --- --- --- --- (2,666) (2,666) ---------------- Other comprehensive income 94,959 ---------------- Comprehensive income 522,633 ---------------- Dividends declared (per common share $994.00) --- --- --- (99,400) --- (99,400) Tax reduction related to tax sharing agreement with MBIA Inc. --- --- 22,426 --- --- 22,426 ------------ ---------- ------------- ------------- ------------------ ---------------- Balance, September 30, 2001 100,000 $15,000 $1,562,497 $3,519,810 $155,958 $ 5,253,265 ============ ========== ============= ============= ================== ================ Disclosure of reclassification amount: Unrealized appreciation of investments arising during the period, net of taxes $102,990 Reclassification of adjustment, net of taxes (5,365) ------------ Net unrealized appreciation, net of taxes $97,625 ============ The accompanying notes are an integral part of the consolidated financial statements.
-5- MBIA INSURANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (dollars in thousands)
Nine months ended September 30 ------------------------------------- 2001 2000 ----------------- ---------------- Cash flows from operating activities: Net income $ 427,674 $ 396,508 Adjustments to reconcile net income to net cash provided by operating activities: Increase in accrued investment income (3,624) (4,456) Increase in deferred acquisition costs (2,373) (10,742) Increase in prepaid reinsurance premiums (47,742) (39,274) Increase in deferred premium revenue 101,695 68,410 Increase (decrease) in loss and loss adjustment expense reserves, net 23,188 (8,285) Depreciation 7,801 4,679 Amortization of goodwill 3,493 3,659 Amortization of bond discount, net (6,445) (12,997) Net realized gains on sale of investments (5,903) (18,317) Deferred income tax (benefit) provision (662) 32,807 Fair value of derivative instruments 17,806 --- Other, net 50,342 53,066 ----------------- ---------------- Total adjustments to net income 137,576 68,550 ----------------- ---------------- Net cash provided by operating activities 565,250 465,058 ----------------- ---------------- Cash flows from investing activities: Purchase of fixed-maturity securities, net of payable for investments purchased (2,531,250) (1,974,313) Sale of fixed-maturity securities, net of receivable for investments sold 1,804,283 1,486,244 Redemption of fixed-maturity securities, net of receivable for investments redeemed 312,704 201,665 Purchase of short-term investments, net (33,778) (53,547) (Purchase) sale of other investments, net (18,639) 42 Capital expenditures, net of disposals (5,139) (8,321) ----------------- ---------------- Net cash used by investing activities (471,819) (348,230) ----------------- ---------------- Cash flows from financing activities: Dividends paid (99,400) (126,800) ----------------- ---------------- Net cash used by financing activities (99,400) (126,800) ----------------- ---------------- Net decrease in cash and cash equivalents (5,969) (9,972) Cash and cash equivalents - beginning of period 12,541 33,702 ----------------- ---------------- Cash and cash equivalents - end of period $ 6,572 $ 23,730 ================= ================ Supplemental cash flow disclosures: Income taxes paid $ 117,470 $ 56,728 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 nine months ended September 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 nine months ended September 30, 2001 were $99 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 type of the hedge. The Company has entered into derivative transactions that it views as an extension of its core financial guaranty business but 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. -7- MBIA INSURANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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. 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 lending transactions at September 30, 2001 and December 31, 2000 was $547 million and $428 million, respectively. None of the accepted collateral for securities loaned has been sold or repledged for any 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 September 30, 2001, the Company had $607 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. 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-