<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 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
<PAGE>
INDEX
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<TABLE>
PART I FINANCIAL INFORMATION
<CAPTION>
PAGE
----
<S> <S> <C>
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
</TABLE>
(2)
<PAGE>
MBIA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
June 30, 1994 December 31, 1993
---------------- -----------------
(Unaudited) (Audited)
ASSETS
<S> <C> <C>
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
========== ==========
</TABLE>
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)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
---------------------- ----------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
========== ========== ========== ==========
</TABLE>
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 six months ended June 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 3 488 --- --- --- (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
====== ======= ======== ======== ======= ======= ======== =======
</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)
<TABLE>
<CAPTION>
Six Months Ended
June 30
-----------------------
1994 1993
---------- ----------
<S> <C> <C>
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 ---
</TABLE>
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 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)
<PAGE>
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)
<PAGE>
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)
<PAGE>
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)
<PAGE>
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)
<PAGE>
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)
<PAGE>
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)
<PAGE>
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)
<PAGE>
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)
<PAGE>
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)
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
<TABLE>
<C> <S>
11. Computation of Earnings Per Share Assuming Full Dilution
</TABLE>
(17)
<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: 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)
<PAGE>
EXHIBIT 11
MBIA INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE ASSUMING FULL DILUTION
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------ ------------------
1994 1993 1994 1993
------------------ ------------------
<S> <C> <C> <C> <C>
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
======== ======= ======== ========
</TABLE>
