<PAGE>
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 September 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 November 2, 1994, there were outstanding 41,615,624 shares
of Common Stock, par value $1 per share, of the registrant.
PAGE 1 OF 18
<PAGE>
INDEX
-----
PAGE
- - ----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
MBIA Inc. and Subsidiaries
Consolidated Balance Sheets - September 30, 1994
and December 31, 1993 (Audited) 3
Consolidated Statements of Income - Three months
and nine months ended September 30, 1994 and 1993 4
Consolidated Statement of Changes in Shareholders'Equity
- Nine months ended September 30, 1994 5
Consolidated Statements of Cash Flows
- Nine months ended September 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 - 15
PART II OTHER INFORMATION, AS APPLICABLE
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
(2)
<PAGE>
MBIA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except per share amounts)
September 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 $3,064,590) 3,063,011 ---
Short-term investments, at
amortized cost (which
approximates market value) 107,887 104,205
Other investments 17,633 104,681
---------- ----------
3,188,531 3,005,585
Municipal investment agreement
portfolio, at amortized cost
(market value $536,590) --- 538,751
Municipal investment agreement
portfolio, at market
(amortized cost $1,542,360) 1,494,536 ---
---------- ----------
TOTAL INVESTMENTS 4,683,067 3,544,336
Cash and cash equivalents 11,865 2,492
Accrued investment income 63,056 54,794
Deferred acquisition costs 128,044 120,484
Prepaid reinsurance premiums 183,150 170,551
Goodwill (less accumulated
amortization of $34,858 and $31,088) 112,509 116,279
Property and equipment, at cost
(less accumulated depreciation
of $13,070 and $10,734) 44,045 44,115
Receivable for investments sold 935 31,903
Other assets 37,335 21,359
---------- ----------
TOTAL ASSETS $5,264,006 $4,106,313
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deferred premium revenue $1,488,522 $1,402,807
Loss and loss adjustment
expense reserves 38,811 33,735
Long-term debt 298,763 298,680
Municipal investment agreements 1,514,413 493,014
Current income taxes payable --- 1,811
Deferred income taxes 101,290 107,881
Payable for investments purchased 34,562 111,279
Other liabilities 73,464 60,748
---------- ----------
TOTAL LIABILITIES 3,549,825 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 719,973 719,281
Retained earnings 1,005,299 844,916
Cumulative translation adjustment 810 (1,218)
Unrealized (depreciation)
appreciation of investments,
net of deferred income tax
(benefit) provision of $(16,514)
and $3,813 (31,357) 7,080
Treasury stock, at cost;
shares-- 362,663 and 260,243 (22,621) (15,775)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 1,714,181 1,596,358
---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $5,264,006 $4,106,313
========== ==========
The accompanying notes are an integral part of the
consolidated financial statements.
(3)
<PAGE> MBIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands except per share amounts)
Three Months Ended Nine Months Ended
September 30 September 30
---------------------- ----------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
Revenues:
Gross premiums written $ 80,099 $110,022 $274,385 $362,362
Ceded premiums (12,011) (6,487) (38,686) (35,646)
Net premiums written 68,088 103,535 235,699 326,716
-------- -------- -------- --------
Increase in deferred
premium revenue (13,358) (42,298) (72,829) (153,093)
-------- -------- -------- --------
Premiums earned (net
of ceded premiums of
$11,719, $10,674,
$26,087 and $28,408) 54,730 61,237 162,870 173,623
Net investment income 49,551 44,932 144,241 131,850
Net realized gains 752 1,372 9,659 6,698
Non-insurance revenues 4,222 1,018 12,019 3,005
Non-insurance net
realized losses (145) --- (603) ---
Other income 902 1,663 1,527 4,293
-------- -------- -------- --------
Total revenues 110,012 110,222 329,713 319,469
-------- -------- -------- --------
Expenses:
Insurance:
Losses and loss
adjustment expenses 1,626 1,862 5,665 6,018
Policy acquisition
costs, net 5,232 6,413 16,292 18,922
Operating expenses 10,816 9,102 30,453 27,721
Non-insurance expenses 2,646 1,279 7,592 3,362
Interest expense 6,759 6,719 20,214 20,181
Other expenses 420 442 1,053 1,077
-------- -------- -------- --------
Total expenses 27,499 25,817 81,269 77,281
-------- -------- -------- --------
Income before income taxes 82,513 84,405 248,444 242,188
Provision for income taxes 17,466 24,588 52,705 58,802
-------- -------- -------- --------
Income before
cumulative effect of
accounting changes 65,047 59,817 195,739 183,386
Cumulative effect of
accounting changes --- --- --- 12,923
-------- -------- -------- --------
NET INCOME $ 65,047 $ 59,817 $195,739 $196,309
======== ======== ======== ========
Income per common
share before cumulative
effect of accounting
changes $ 1.54 $ 1.41 $ 4.65 $ 4.32
NET INCOME PER
COMMON SHARE $ 1.54 $ 1.41 $ 4.65 $ 4.62
======== ======== ======== ========
Weighted average number of
common shares and common
stock equivalents
outstanding 42,105,144 42,529,415 42,111,624 42,470,708
========== ========== ========== ==========
The accompanying notes are an integral part of the
consolidated financial statements.
(4)
<PAGE>
MBIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
For the nine months ended September 30, 1994
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Unrealized
Common Stock Additional Cumulative Appreciation Treasury Stock
---------------- Paid-in Retained Translation (Depreciation) --------------
Shares Amount Capital Earnings Adjustment of Investments Shares Amount
------ ------- ---------- ----------- ----------- -------------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 3 692 (750) --- --- (44) (2,040)
Net income --- --- --- 195,739 --- --- --- ---
Change in foreign currency
translation --- --- --- --- 2,028 --- --- ---
Change in unrealized
appreciation
(depreciation) of
investments net of change
in deferred income taxes
of $(20,326) --- --- --- --- --- (38,437) --- ---
Dividends (declared per
common share $.83; paid
per common share $.78) --- --- --- (34,606) --- --- --- ---
------ ------- -------- ---------- ---------- -------------- ------ -------
BALANCE,
SEPTEMBER 30, 1994 42,077 $42,077 $719,973 $1,005,299 $ 810 $(31,357) 363 $22,621
====== ======= ======== ========== ========== ============== ====== =======
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
(5)
<PAGE>
MBIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Nine Months Ended
September 30
---------------------------
1994 1993
---------- ----------
Cash flows from operating activities:
Net income $ 195,739 $ 196,309
Adjustments to reconcile net income to net
cash provided by operating activities:
(Increase) decrease in accrued
investment income (8,262) 126
Increase in deferred acquisition costs (7,560) (7,315)
Increase in prepaid reinsurance premiums (12,599) (7,238)
Increase in deferred premium revenue 85,428 160,331
Increase in loss and loss adjustment
expense reserves 5,076 7,470
Depreciation 2,333 2,102
Amortization of goodwill 3,770 3,802
Amortization of bond discount, net (5) (679)
Net realized gains on sale of investments (9,056) (6,698)
Deferred income taxes 13,735 3,610
Other, net 6,134 15,275
---------- ----------
Total adjustments to net income 78,994 170,786
---------- ----------
Net cash provided by operating activities 274,733 367,095
---------- ----------
Cash flows from investing activities:
Purchase of fixed maturity securities, net
of payable for investments purchased (781,908) (629,281)
Sale of fixed maturity securities, net of
receivable for investments sold 355,441 185,950
Redemption of fixed maturity securities,
net of receivable for investments redeemed 91,793 170,848
Sale (purchase) of short-term investments, net 30,897 (41,844)
Sale (purchase) of other investments, net 87,379 (23,019)
Purchases for municipal investment agreement
portfolio, net of payable for
investments purchased (1,394,415) (46,718)
Sales from municipal investment agreement
portfolio, net of receivable for
investments sold 378,171 ---
Capital expenditures, net of disposals (2,246) (5,482)
---------- ----------
Net cash used by investing activities (1,234,888) (389,546)
---------- ----------
Cash flows from financing activities:
Dividends paid (32,582) (26,416)
Purchase of treasury stock (8,886) ---
Proceeds from issuance of municipal
investment agreements 1,563,308 46,302
Payments for drawdowns of municipal
investment agreements (554,297) (378)
Exercise of stock options 1,985 5,908
---------- ----------
Net cash provided by financing activities 969,528 25,416
---------- ----------
Net increase in cash and cash equivalents 9,373 2,965
Cash and cash equivalents - beginning of period 2,492 11,226
---------- ----------
Cash and cash equivalents - end of period $ 11,865 $ 14,191
========== ==========
Supplemental cash flow disclosures:
Income taxes paid $ 41,783 $ 36,384
Interest paid:
Long-term debt $ 22,475 $ 22,316
Municipal investment agreements 22,279 ---
The accompanying notes are an integral part of the
consolidated financial statements.
(6)
<PAGE>
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 nine months ended September 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 nine months ended
September 30, 1994 were $34.6 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 $49.4 million as of September 30, 1994
in the reported value of the Company's investment portfolio and a
decrease in shareholders' equity of $32.1 million as of September
30, 1994. There was no income statement impact.
(7)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- - ---------------------
1994 AND 1993 - THIRD QUARTER RESULTS
- - -------------------------------------
MBIA Inc.'s (the "Company") 1994 third quarter net income
increased 9% to $65.0 million compared with $59.8 million for
third quarter of 1993. Earnings per share also rose 9% to $1.54
from $1.41.
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 and the 1993 tax
adjustments. Core earnings increased by 14% to $1.34 per share
compared with $1.18 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 $37.4 billion of par value in the third quarter of
1994, down from $75.4 billion in the third quarter of 1993. The
insured portion of the market decreased to 32% from 34% for the
same period last year. In the third 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 27% to $80.1 million during the third quarter,
from $110.0 million during the third quarter of 1993. New issue
and secondary market municipal and asset-backed premiums, the
major components of gross premiums written, decreased 18% to $72.0
million compared with $88.0 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 MBIA Corp.'s predecessor, the Municipal Bond Insurance
Association (the "Association"), were $8.1 million and $9.7
million for the third quarters of 1994 and 1993, respectively.
Although MBIA's gross premium writings decreased for the period,
premiums ceded to reinsurers increased 85% to $12.0 million during the
third quarter of 1994 compared to $6.5 million in the same
period last year. In the third quarter of 1994, premiums ceded as
a percentage of gross premiums written increased to 15% compared
to 6% for the same period last year, reflecting a higher level of
cessions on business where MBIA has capacity constraints.
(8)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Net premium writings for the third quarter of 1994 were
$68.1 million, a 34% decrease from $103.5 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 September 30, 1994, MBIA estimates the present
value of its future stream of payments increased to $192.2 million
from $183.3 million a year ago.
Premiums earned in the third quarter decreased 11% to $54.7
million from $61.2 million in the third 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.
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 third quarter of
1994 and 1993 were $13.9 million and $23.4 million, respectively.
Of these amounts, $2.8 million and $14.5 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 $4.68 billion as of
September 30, 1994, including $1.49 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 10% to $49.6 million in the third quarter of
1994 compared with $44.9
(9)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
million in the corresponding period of 1993. The increase was
primarily the result of growth in invested assets from continued
positive operating cash flows. Average investments excluding
investment agreement assets were $3.15 billion in the third
quarter of 1994 compared with $2.84 billion for the same period
last year. Tax-exempt investments as of September 30, 1994
represented 78% of total investments excluding investment
agreement assets, compared with 70% at December 31, 1993. Net
realized capital gains in the third quarter of 1994 were $0.8
million, down from $1.4 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 $4.1 million in revenues
in the third quarter of 1994, a significant increase over the $1.0
million generated in the same period last year.
MBIA Municipal Investors Services Corporation ("MBIA/MISC")
provides cash management services for local governments, school
districts and similar authorities. As of September 30, 1994
MBIA/MISC had approximately $2.0 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 September
30, 1994, IMC had outstanding investment agreement liabilities of
$1.5 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.
The provision for losses and loss adjustment expenses for the
third quarter of 1994 was $1.6 million, compared with $1.9 million
in 1993, representing additions to the loss reserves consistent
with the Company's reserve methodology. At September 30, 1994,
$23.3 million of the $38.8 million loss and loss adjustment
expense reserve was allocated on a case basis, compared with $7.8
million of the $33.0 million reserve at September 30, 1993. The
(10)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
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 were 3% higher
than the corresponding quarter last year.
Expenses related to the Company's non-insurance business lines
increased to $2.6 million in the third quarter of 1994 from $1.3
million in the third quarter of 1993 due to the expansion of
these new businesses.
The Company's interest expense was virtually unchanged at $6.8
million for the third quarters of 1994 and 1993.
In aggregate, expenses for the third quarter of 1994 increased
by 7% over the third quarter of 1993.
The Company's effective tax rate at 21.2% decreased from 29.1%
for the third quarter 1993. The unusually high rate for 1993 was
due principally to the year-to-date adjustment in the increase in
the Corporate income tax rates from 34% to 35%.
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.
Changes in the market value of securities classified as available-
for-sale have no income statement impact, but are recorded, net of
taxes, as a component of shareholders' equity. As of September
30, 1994, the after tax effects of the change in market value of
fixed-income investments included in shareholders' equity and book
value per share were declines of $30.5 million and $0.73 per
share, respectively.
RESULTS OF OPERATIONS
- - ---------------------
1994 AND 1993 - FIRST NINE MONTHS RESULTS
- - -----------------------------------------
The Company's 1994 first nine months net income and earnings per
share were $195.7 million and $4.65, respectively. The Company's
1993 first nine months results of $196.3 million and $4.62
earnings per share included the benefit of
(11)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
non-recurring accounting changes, primarily related to deferred
taxes. Excluding these effects, net income and earnings per share
for the first nine months of 1994 increased 3% and 4%,
respectively, over the same period in 1993.
For the first nine months of 1994, core earnings increased by
15% to $3.92 per share compared with $3.40 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 nine months of 1994 was $126.6 billion of par
value, a 44% decrease over the first nine months of 1993. The
insured portion of new issue volume was 38%, the same percentage
as in the comparable period last year. In the first nine months of
1994, MBIA Corp. led the industry in market share, guaranteeing 41% of
the insured long-term new issue municipal bond volume compared with
37% in the first nine months of 1993, and a record 16% of all new
issue bonds sold.
With the decline in overall market volume, gross premiums
written by MBIA Corp. decreased 24% to $274.4 million during the
first nine months of 1994, from $362.4 million during the first
nine months of 1993. New issue and secondary market municipal and
asset-backed premiums, the major components of gross premiums
written, decreased 21% to $250.6 million compared with $318.9
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 $23.6 million and $24.6 million for the first nine months of
1994 and 1993, respectively. Gross premiums written also included
portfolio assumptions of $0.2 million and $15.8 million for the
first nine months of 1994 and 1993, respectively.
Premiums ceded to reinsurers increased 9% to $38.7 million
during the first nine months of 1994 compared to $35.6 million in
the same period last year. In the first nine months of 1994,
premiums ceded as a percentage of gross premiums written increased
to 14% from 10% last year.
Net premium writings of $235.7 million for 1994 decreased 28%
from $326.7 million in the same period last year.
Premiums earned in the first nine months of 1994 decreased 6% to
$162.9 million from $173.6 million in the first nine months 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.
(12)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Earned premiums generated by refunded and called bonds in the
first nine months of 1994 and 1993 were $39.9 million and $66.2
million, respectively. Of these amounts, $14.5 million and $44.1
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 $144.2 million in the first
nine months of 1994 compared with $131.9 million in the
corresponding period of 1993. The increase was primarily the
result of growth in invested assets from continued positive
operating cash flows. Average invested assets excluding
investment agreement assets were $3.08 billion in the first nine
months of 1994 compared with $2.73 billion for the same period
last year. Net realized capital gains in the first nine months of
1994 increased to $9.7 million from $6.7 million in the same
period of 1993. For 1994, 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 $11.4 million in
revenues in the first nine months of 1994, more than triple the
first nine months of 1993 revenues of $3.0 million.
The provision for losses and loss adjustment expenses for the
first nine months of 1994 was $5.7 million, compared with $6.0
million in 1993, representing additions to the loss reserves
consistent with the Company's reserve methodology. During the
first nine months of 1994, the Company's case reserves increased
by $15.8 million of which $14.0 million related to five issues
added to the case specific portion of the 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 $46.7 million
were virtually unchanged from a year ago.
Expenses related to the Company's non-insurance business lines
increased to $7.6 million in the first nine months of 1994 from
$3.4 million in the first nine months of 1993 due to the expansion
of these new businesses.
The Company's interest expense was $20.2 million for the first
nine months of both 1994 and 1993.
(13)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
In aggregate, expenses for the first nine months of 1994
increased by 5% over the first nine months of 1993.
The Company's effective tax rate for the first nine months of
1994 was 21.2% compared with 24.3% for the same period in 1993.
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
32% to $4.69 billion at September 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.
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 dividends of $21.0 million in the first nine months of 1994
and at September 30, 1994 had in excess of $75 million available for
payment of further dividends to the Company without prior
approval.
MBIA Corp. has an irrevocable standby line of credit of $600
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 September 30,
2001 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 $225 million with seven other major banks. The
Company also maintains a $25 million revolving line of credit with
a major bank for general corporate purposes.
(14)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
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 September 30, 1994, MBIA Corp. had $23.3 million in case-
specific loss reserves. Any related payments are expected to be
funded from operating cash flows.
(15)
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
11. Computation of Earnings Per Share Assuming Full Dilution
(16)
<PAGE>
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: November 11, 1994 /s/ ARTHUR M. WARREN
------------------------- --------------------------------------
Arthur M. Warren
Senior Vice President,
Chief Financial Officer
Date: November 11, 1994 /s/ JULLIETTE S. TEHRANI
------------------------ -------------------------------------
Julliette S. Tehrani
Senior Vice President,
Controller & Assistant Treasurer
(Principal Accounting Officer)
(17)
<PAGE>
EXHIBIT 11
MBIA INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE ASSUMING FULL DILUTION
(In thousands except per share amounts)
Three Months Ended Nine Months Ended
September 30 September 30
------------------ ------------------
1994 1993 1994 1993
-------- -------- -------- --------
Net income $ 65,047 $ 59,817 $195,739 $196,309
======== ======== ======== ========
Fully diluted shares:
Average number of common
shares outstanding 41,703 42,002 41,702 41,957
Assumed exercise of
dilutive stock options 427 581 431 595
-------- -------- -------- --------
42,130 42,583 42,133 42,552
-------- -------- -------- --------
Earnings per share assuming
full dilution $1.54 $1.40 $4.65 $4.61
======== ======== ======== ========
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<CAPTION>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<DEBT-HELD-FOR-SALE> 3,063,011
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 4,683,067
<CASH> 11,865
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 128,044
<TOTAL-ASSETS> 5,264,006
<POLICY-LOSSES> 38,811
<UNEARNED-PREMIUMS> 1,488,522
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 298,763
<COMMON> 42,077
0
0
<OTHER-SE> 1,672,104
<TOTAL-LIABILITY-AND-EQUITY> 5,264,006
162,870
<INVESTMENT-INCOME> 144,241
<INVESTMENT-GAINS> 9,659
<OTHER-INCOME> 12,943
<BENEFITS> 5,665
<UNDERWRITING-AMORTIZATION> 16,292
<UNDERWRITING-OTHER> 30,453
<INCOME-PRETAX> 248,444
<INCOME-TAX> 52,705
<INCOME-CONTINUING> 195,739
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 195,739
<EPS-PRIMARY> 4.65
<EPS-DILUTED> 4.65
<RESERVE-OPEN> 33,735
<PROVISION-CURRENT> 5,665
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 38,811
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
