EX-99.1 2 a4944234ex991.txt MBIA INC. EXHIBIT 99.1 Exhibit 99.1 MBIA Inc. Reports 4 Percent Decline in First Half Net Income Per Share; Operating Income Per Share up 5 Percent ARMONK, N.Y.--(BUSINESS WIRE)--Aug. 2, 2005--MBIA Inc. (NYSE: MBI), the holding company for MBIA Insurance Corporation, reported today that net income per share declined 4 percent to $2.80 in the first six months of 2005 from $2.91 during the first six months of 2004. Net income for the first half of 2005 was $388.1 million compared with $427.0 million in the same period last year, a 9 percent decrease. First half results in 2004 were positively impacted by $61.0 million, or $0.27 per share, of net gains versus $7.2 million, or $0.04 per share, of net gains in the first half of 2005. Operating income per share, which excludes the effects of net realized gains, net gains and losses on derivative instruments and foreign exchange, increased 5 percent in the first six months of 2005 to $2.76 from $2.62 in last year's first half. Excluding refundings, which represent the acceleration of earned premium when an issue is defeased, first half 2005 operating income per share rose 7 percent to $2.47 from $2.30 during the same period of 2004. Diluted earnings per share information -------------------------------------- Three Months Six Months Ended June 30 Ended June 30 ---------------- ---------------- 2005 2004 2005 2004 ------- -------- -------- ------- Net income $1.37 $1.49 $2.80 $2.91 Income from discontinued operations 0.00 0.02 0.00 0.02 ------- -------- -------- ------- Net income from continuing operations 1.37 1.47 2.80 2.89 Net realized gains (losses) 0.00 0.07 0.01 0.26 Net gains (losses) on derivative instruments and foreign exchange 0.00 0.05 0.03 0.01 ------- -------- -------- ------- Operating income (1) $1.37 $1.35 $2.76 $2.62 (1) Presented on the same basis as analysts' estimates. For the second quarter of 2005, net income per share declined 8 percent to $1.37 from $1.49 during the same period of 2004. Net income for the second quarter was $187.6 million compared with $218.4 million in the same period last year, a 14 percent decrease. Second quarter per share results in 2004 were positively impacted by $27.4 million of net gains versus $0.3 million of net gains in the second quarter of 2005. For the second quarter of 2005, operating income per share increased 1 percent to $1.37 from $1.35 in the second quarter of 2004. Excluding refundings, second quarter 2005 operating income per share rose 3 percent to $1.23 from $1.19 during the same period of 2004. Gary C. Dunton, MBIA Chief Executive Officer, said, "MBIA reported satisfactory results for the first half of 2005 given the challenging market conditions. Business production was solid for the period in the face of tight spreads and significant competition. Our broad global footprint in the capital markets provides us with attractive new business opportunities, even in less-than-ideal markets." Mr. Dunton added, "Given these market conditions together with stubbornly low interest rates and increased expenses associated with the regulatory reviews, we expect it will be very difficult to achieve the 10 to 12 percent operating earnings per share growth, excluding refundings, that we expected at the beginning of the year. We continue to anticipate that operating ROE will be at the lower end of the 12 to 14 percent range in 2005. We remain committed to our disciplined approach to underwriting and pricing and we continue to manage MBIA to provide long-term growth in shareholder value." Insurance Operations Adjusted direct premium (ADP), a non-GAAP measure, which includes both upfront premiums written and the present value of estimated installment premiums for new business writings and excludes premiums assumed or ceded, increased 18 percent to $646.6 million from $546.3 million in the first half of 2004. For the second quarter of 2005, ADP declined 19 percent to $329.0 million from the very strong $408.3 million in the second quarter of last year. Adjusted Direct Premium ----------------------- (dollars in millions) Three Months Six Months Ended June 30 Ended June 30 ----------------------- ---------------------- 2005 2004 % Change 2005 2004 % Change ------ ------ --------- ------ ------ -------- Public Finance United States $143.9 $200.2 (28%) $287.5 $255.4 13% Non-United States 57.5 102.9 (44%) 65.1 106.6 (39%) ------ ------ --------- ------ ------ -------- Total 201.4 303.1 (34%) 352.6 362.0 (3%) Structured Finance United States 33.2 38.9 (15%) 169.6 98.9 72% Non-United States 94.4 66.3 42% 124.4 85.4 46% ------ ------ --------- ------ ------ -------- Total 127.6 105.2 21% 294.0 184.3 60% Total $329.0 $408.3 (19%) $646.6 $546.3 18% Global Public Finance ADP decreased 3 percent as solid U.S. production offset weak non-U.S. production in the first half of 2005 compared with the same period last year. Domestic public finance production was strong, driven by large transactions in the military housing and transportation sectors. Non-U.S. production for the first half of 2005 was down 39 percent, reflecting a lack of large transactions such as those that closed in the first half of 2004. Credit quality for global public finance remained very high, with 91 percent of insured business written rated Single-A or above in the first half of 2005. Global Structured Finance ADP in the first half of 2005 increased 60 percent, as strong domestic and non-U.S. production compared favorably with the same period last year. U.S. production increased 72 percent, and non-U.S. production increased 46 percent as the company guaranteed several large CDO, future flow and rental car fleet transactions. In global structured finance, 64 percent of insured business written in the first half of 2005 was rated Single-A or higher. Net scheduled earned premiums in the first half of 2005 increased 4 percent to $347.1 million from $334.0 million during the same period in 2004. With heavy refunding activity over the last several quarters and a decline in U.S. structured finance installment business, the growth of net scheduled earned premiums was slower than in 2004. Earned premiums from refundings were $68.1 million, which, while significant, was down 13 percent from $78.7 million in first half of 2004. Pre-tax net investment income in the first half of 2005, excluding net realized gains, was $240.1 million, a 1 percent increase from $236.7 million in the same period of 2004 as average invested assets increased only slightly in a year-over-year comparison. MBIA's advisory fees in the first six months of 2005 were down 54 percent to $10.6 million from $23.1 million in the first half of 2004, reflecting a lack of large, complex transactions that provide the opportunity for advisory services. Insurance expenses, which include the amortization of deferred acquisition costs and operating expenses, increased 6 percent for the first half of 2005 to $94.2 million from $88.8 million in last year's first half. The GAAP expense ratio increased to 22.7 percent in the first half of 2005 as compared to 21.5 percent in last year's first half due to primarily slower growth in overall earned premium. MBIA's pre-tax operating income from insurance operations decreased 2 percent to $530.1 million in the first half of 2005 from $543.6 million in last year's first half. Risk Management and Loss Reserves The company incurred $41.7 million in loss and loss adjustment expenses in the first half of 2005, a 4 percent increase compared with $40.1 million in last year's first half due to the growth in scheduled earned premium, which is the basis of the company's loss reserving formula. Case incurred activity for the first half of 2005 totaled $37.7 million related primarily to tax liens and Fort Worth Osteopathic Hospital. The insured portfolio continued to show improvement in credit quality during the first half of 2005. The portion of the portfolio rated below investment grade continues to be less than 2 percent. Investment Management Services The market value of quarterly average fixed-income assets under management was $43.5 billion in the second quarter of 2005, up 14.4 percent from $38.0 billion in the second quarter of last year. Pre-tax operating income from MBIA's investment management businesses, which excludes the effects of net realized gains and net gains and losses on derivative instruments and foreign exchange, increased 59 percent in the first half of 2005 to $42.7 million from $26.9 million in 2004 driven by strong demand for the company's asset/liability products. Corporate The corporate segment includes net investment income, interest expense and corporate expenses. Net corporate segment expenses in the first half increased 1 percent to $41.4 million from $40.9 million in the same period last year. Significant growth in investment income helped offset an increase in legal and consulting expenses related to ongoing regulatory inquiries, which totaled $4.4 million. Gains and Losses In the first half of 2005, MBIA recorded net realized gains of $1.3 million, compared with net realized gains of $59.7 million in the first half of 2004. In 2004, net realized gains were primarily the result of the sale of a common stock investment the company purchased in 2002, whereas this year, gains and losses have been generated from the ongoing management of the company's portfolios. The company recorded pre-tax mark-to-market net gains on derivative instruments and foreign exchange of $5.9 million for all business operations in the first half of 2005, compared to pre-tax mark-to-market net gains of $1.3 million in the first half of 2004. Book Value and Adjusted Book Value MBIA's book value per share at June 30, 2005 was $49.15, up 4 percent from $47.20 at December 31, 2004. The increase was principally driven by net income from operations, partially offset by the effect of repurchasing shares. Adjusted book value (ABV) per share, a non-GAAP measure, at June 30, 2005 rose 4 percent to $68.81 from $66.29 at December 31, 2004. ABV includes the after-tax effects of deferred premium revenue less prepaid reinsurance premiums and deferred acquisition costs, the present value of installment premiums, unrealized gains or losses on investment contract liabilities and a provision for loss and loss adjustment expenses. Share Repurchase During the first half of 2005, the company repurchased over 5.9 million shares at an average cost of $57.77 per share. The company now has approximately 5.0 million shares remaining in the share buyback program, which was authorized by the Board of Directors in 2004. Conference Call MBIA will host a conference call for investors today at 11 a.m. EDT. The conference call will consist of brief comments by Nicholas Ferreri, the company's chief financial officer, followed by a question and answer session. The conference call will be Web cast live on MBIA's Web site at http://investor.mbia.com (then click "Conference Call"). Those who are unable to participate in the conference call may listen to a replay by dialing 1-800-396-1244 in the United States and 1-402-998-1607 for international calls. A recording will also be available on MBIA's Web site approximately two hours after the end of the conference call. MBIA Inc., through its subsidiaries, is a leading financial guarantor and provider of specialized financial services. MBIA's innovative and cost-effective products and services meet the credit enhancement, financial and investment needs of its public and private sector clients, domestically and internationally. MBIA Inc.'s principal operating subsidiary, MBIA Insurance Corporation, has a financial strength rating of Triple-A from Moody's Investors Service, Standard & Poor's Ratings Services, Fitch Ratings, and Rating and Investment Information, Inc. Please visit MBIA's Web site at http://www.mbia.com. This news release contains forward-looking statements. Important factors such as general market conditions and the competitive environment could cause actual results to differ materially from those projected in these forward-looking statements. The company undertakes no obligation to revise or update any forward-looking statements to reflect changes in events or expectations. Explanation of Non-GAAP Financial Measures The following are explanations of why MBIA believes that the non-GAAP financial measures typically used in the company's press releases, which serve to supplement GAAP information, are meaningful to investors. Operating Income: The company believes operating income is a useful measurement of performance because it measures income from operations, unaffected by investment portfolio realized gains and losses, gains and losses on derivative instruments and foreign exchange and non-recurring items. Operating income is also provided to assist research analysts and investors who use this information in their analysis of the company. Adjusted Direct Premiums: The company believes adjusted direct premiums are a meaningful measure of the total value of the insurance business written during a reporting period since they represent the present value of all premiums collected and expected to be collected on policies closed during the period. As such, it gives investors an opportunity to measure the value of new business activities in a given period and compare it to new business activities in other periods. Other measures, such as premiums written and premiums earned, include the value of premiums resulting from business closed in prior periods and do not provide the same information to investors. Adjusted Book Value: The company believes the presentation of adjusted book value, which includes items that are expected to be realized in future periods, provides additional information that gives a comprehensive measure of the value of the company. Since the company expects these items to affect future results and, in general, they do not require any additional future performance obligation on the company's part, ABV provides an indication of the company's value in the absence of any new business activity. ABV is not a substitute for GAAP book value but does provide investors with additional information when viewed in conjunction with GAAP book value. MBIA INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS --------------------------- (dollars in thousands) June 30, December 31, 2005 2004 -------------- -------------- Assets ------ Investments: Fixed-maturity securities held as available-for-sale, at fair value (amortized cost $21,898,408 and $18,802,894) $22,919,879 $19,679,905 Investments held-to-maturity, at amortized cost (fair value $6,551,271 and $7,535,787) 6,572,895 7,540,218 Investment agreement portfolio pledged as collateral, at fair value (amortized cost $885,502 and $713,704) 937,760 730,870 Short-term investments, at amortized cost (which approximates fair value) 1,548,726 2,405,192 Other investments 274,076 261,865 -------------- -------------- Total investments 32,253,336 30,618,050 Cash and cash equivalents 512,341 366,236 Accrued investment income 348,573 312,208 Deferred acquisition costs 383,006 360,496 Prepaid reinsurance premiums 451,113 471,375 Reinsurance recoverable on unpaid losses 42,869 33,734 Goodwill 79,406 79,406 Property and equipment (net of accumulated depreciation) 110,817 114,692 Receivable for investments sold 96,654 67,205 Derivative assets 252,637 288,811 Other assets 253,843 315,197 -------------- -------------- Total assets $34,784,595 $33,027,410 ============== ============== Liabilities and Shareholders' Equity ------------------------------------ Liabilities: Deferred premium revenue $3,228,018 $3,211,181 Loss and loss adjustment expense reserves 667,570 726,617 Investment agreements 10,005,780 8,678,036 Commercial paper 1,859,764 2,598,655 Medium-term notes 7,688,290 6,943,840 Variable interest entity floating rate notes 801,038 600,505 Securities sold under agreements to repurchase 835,359 647,104 Short-term debt 58,745 58,745 Long-term debt 1,314,238 1,332,540 Deferred income taxes, net 661,184 610,545 Deferred fee revenue 22,498 26,780 Payable for investments purchased 173,175 94,609 Derivative liabilities 484,842 528,562 Other liabilities 396,596 390,620 -------------- -------------- Total liabilities 28,197,097 26,448,339 Shareholders' Equity: Common stock 156,412 155,608 Additional paid-in capital 1,462,914 1,410,799 Retained earnings 5,527,063 5,215,191 Accumulated other comprehensive income 630,628 611,173 Unearned compensation - restricted stock (53,169) (34,686) Treasury stock (1,136,350) (779,014) -------------- -------------- Total shareholders' equity 6,587,498 6,579,071 Total liabilities and shareholders' equity $34,784,595 $33,027,410 ============== ============== MBIA INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME --------------------------------- (dollars in thousands except per share amounts) Three Months Ended Six Months Ended June 30 June 30 ------------------------- ------------------------- 2005 2004 2005 2004 ------------ ------------ ------------ ------------ Restated Restated Insurance operations Revenues: Gross premiums written $248,965 $372,909 $531,584 $577,602 Ceded premiums (33,641) (45,059) (69,329) (75,791) ------------ ------------ ------------ ------------ Net premiums written 215,324 327,850 462,255 501,811 Scheduled premiums earned 177,207 171,956 347,080 333,950 Refunding premiums earned 31,726 38,826 68,091 78,702 ------------ ------------ ------------ ------------ Premiums earned 208,933 210,782 415,171 412,652 Net investment income 121,002 114,856 240,148 236,697 Advisory fees 4,214 17,190 10,639 23,055 Net realized gains (losses) 996 16,935 1,207 63,228 Net gains (losses) on derivative instruments and foreign exchange 4,119 210 (1,956) 1,280 ------------ ------------ ------------ ------------ Total insurance revenues 339,264 359,973 665,209 736,912 Expenses: Losses and loss adjustment 21,265 20,635 41,650 40,074 Amortization of deferred acquisition costs 16,506 16,493 32,799 32,079 Operating 32,268 29,155 61,434 56,681 ------------ ------------ ------------ ------------ Total insurance expenses 70,039 66,283 135,883 128,834 Insurance income 269,225 293,690 529,326 608,078 ------------ ------------ ------------ ------------ Investment management services Revenues 206,543 126,256 392,778 247,716 Net realized gains (losses) (1,478) (1,126) 1,716 (2,943) Net gains (losses) on derivative instruments and foreign exchange (3,439) 11,737 7,739 4 ------------ ------------ ------------ ------------ Total investment management services revenues 201,626 136,867 402,233 244,777 Interest expense 167,164 92,438 316,582 183,473 Expenses 19,090 18,757 33,467 37,344 ------------ ------------ ------------ ------------ Total investment management services expenses 186,254 111,195 350,049 220,817 ------------ ------------ ------------ ------------ Investment management services income 15,372 25,672 52,184 23,960 ------------ ------------ ------------ ------------ Municipal services Revenues 5,398 5,752 10,934 11,711 Net realized gains (losses) -- (37) (85) (42) Net gains (losses) on derivative instruments and foreign exchange 6 -- 136 -- ------------ ------------------------- ------------- Total municipal services revenues 5,404 5,715 10,985 11,669 Expenses 5,108 5,526 10,513 11,380 ------------ ------------ ------------ ------------ Municipal services income 296 189 472 289 ------------ ------------ ------------ ------------ Corporate Net investment income 5,776 2,457 13,703 4,577 Net realized gains (losses) 81 (356) (1,527) (576) Interest expense 22,040 17,771 44,061 35,545 Corporate expenses 7,398 4,070 11,079 9,960 ------------ ------------ ------------ ------------ Corporate loss (23,581) (19,740) (42,964) (41,504) ------------ ------------ ------------ ------------ Income from continuing operations before income taxes 261,312 299,811 539,018 590,823 Provision for income taxes 73,722 84,096 150,924 166,520 ------------ ------------ ------------ ------------ Income from continuing operations 187,590 215,715 388,094 424,303 Loss from discontinued operations, net of tax -- (510) -- (481) Gain on sale of discontinued operations, net of tax -- 3,178 -- 3,178 ------------ ------------ ------------ ------------ Income from discontinued operations -- 2,668 -- 2,697 Net income $187,590 $218,383 $388,094 $427,000 ============ ============ ============ ============ Net income per common share: Basic $1.40 $1.52 $2.86 $2.97 Diluted $1.37 $1.49 $2.80 $2.91 Weighted-average common shares outstanding: Basic 133,938,175 143,454,174 135,589,284 143,530,690 Diluted 136,886,153 146,289,467 138,680,637 146,600,213 MBIA INC. AND SUBSIDIARIES Reconciliation of Adjusted Direct Premiums to Gross Premiums Written -------------------------------------------------------------------- (dollars in millions) Three Months Six Months Ended June 30 Ended June 30 ---------------- ---------------- 2005 2004 2005 2004 ------- -------- ------- -------- Adjusted direct premiums (1) $329.0 $408.3 $646.6 $546.3 Adjusted premiums assumed 1.0 0.0 1.0 (2.9) ------- -------- ------- -------- Adjusted gross premiums 330.0 408.3 647.6 543.4 Present value of estimated future installment premiums (2) (200.8) (206.6) (376.6) (288.9) ------- -------- ------- -------- Gross upfront premiums written 129.2 201.7 271.0 254.5 Gross installment premiums received 119.8 171.2 260.6 323.1 ------- -------- ------- -------- Gross premiums written $249.0 $372.9 $531.6 $577.6 ======= ======== ======= ======== (1) A non-GAAP measure. (2) At June 30, 2005 and March 31, 2005 the discount rate was 5.0% and 4.8%, respectively, and at June 30, 2004 and March 31, 2004 the discount rate was 4.7%. Components of Net Income per Share (1) -------------------------------------- Three Months Six Months Ended June 30 Ended June 30 ---------------- ---------------- 2005 2004 2005 2004 ------- -------- ------- -------- Restated Restated Net income $1.37 $1.49 $2.80 $2.91 Income from discontinued operations -- 0.02 -- 0.02 ------- -------- ------- -------- Net income from continuing operations 1.37 1.47 2.80 2.89 Net realized gains (losses) 0.00 0.07 0.01 0.26 Net gains (losses) on derivative instruments and foreign exchange 0.00 0.05 0.03 0.01 ------- -------- ------- -------- Operating income (2) $1.37 $1.35 $2.76 $2.62 ======= ======== ======= ======== (1) May not add due to rounding. (2) A non-GAAP measure. MBIA INC. AND SUBSIDIARIES Components of Adjusted Book Value per Share ------------------------------------------- June 30, 2005 December 31, 2004 ----------------- ----------------- Book value $49.15 $47.20 After-tax value of: Deferred premium revenue 15.65 14.97 Prepaid reinsurance premiums (2.19) (2.20) Deferred acquisition costs (1.86) (1.68) ------ ------ Net deferred premium revenue 11.60 11.09 Present value of installment premiums (1) 10.43 9.83 Unrealized gains on investment contract liabilities 0.49 0.88 Loss provision (2) (2.86) (2.71) ----------- ----------- Adjusted book value (3) $68.81 $66.29 =========== =========== (1) At June 30, 2005 and December 31, 2004, the discount rate was 5.0% and 4.8%, respectively. (2) The loss provision is calculated by applying 12% to the following items on an after-tax basis: (a) deferred premium revenue; (b) prepaid reinsurance premiums; and, (c) the present value of installment premiums. (3) A non-GAAP measure. CONSOLIDATED INSURANCE OPERATIONS --------------------------------- Selected Financial Data Computed on a Statutory Basis ----------------------------------------------------- (dollars in millions) June 30, December 31, 2005 2004 ------------ ------------- Capital and surplus $3,710.1 $3,394.7 Contingency reserve 2,690.4 2,666.0 ----------- ----------- Capital base 6,400.5 6,060.7 Unearned premium reserve 3,432.4 3,346.0 Present value of installment premiums (1) 2,151.6 2,108.3 ----------- ----------- Premium resources 5,584.0 5,454.3 Loss and loss adjustment expense reserves 203.4 272.5 Soft capital credit facilities 850.0 1,100.0 ----------- ----------- Total claims-paying resources $13,037.9 $12,887.5 =========== =========== Net debt service outstanding $885,444.9 $890,222.1 Capital ratio (2) 138:1 147:1 Claims-paying ratio (3) 80:1 81:1 (1) At June 30, 2005 and December 31, 2004, the discount rate was 5.0% and 4.8%, respectively. (2) Net debt service outstanding divided by the capital base. (3) Net debt service outstanding divided by the sum of the capital base, unearned premium reserve (after-tax), present value of installment premiums (after-tax), loss and loss adjustment expense reserves and soft capital credit facilities. CONTACT: MBIA Inc. Michael C. Ballinger, 914-765-3893