EX-99.1 2 a4756729ex99.txt EXHIBIT 99.1 PRESS RELEASE Exhibit 99.1 MBIA Inc. Reports 4 Percent Decrease in First Nine Months Net Income Per Share; Operating Earnings Per Share up 10 Percent in First Nine Months ARMONK, N.Y.--(BUSINESS WIRE)--Nov. 2, 2004--MBIA Inc. (NYSE: MBI), the holding company for MBIA Insurance Corporation, reported today that diluted earnings per share decreased 4 percent in the first nine months of 2004 to $4.19 from $4.36 in last year's first nine months. Net income for the first nine months of 2004 was $610.8 million compared with $631.6 million in the same period last year, a 3 percent decrease. The decrease was the result of small mark-to-market net unrealized losses on MBIA's derivative exposure recorded for the first nine months of 2004, compared with large net unrealized gains for the comparable period of 2003. Excluding the effects of the net unrealized gains and losses, net income for the first nine months of 2004 was $611.2 million, compared to $563.8 million for the first nine months of 2003, an 8 percent increase. Third quarter diluted earnings per share decreased 2 percent to $1.29 from $1.31 in last year's third quarter. Net income for the third quarter was $186.0 million compared to $190.4 million in last year's third quarter. Diluted earnings per share information ---------------------------------------- Three Months Nine Months Ended Ended September 30 September 30 ------------ ------------ 2004 2003 2004 2003 ------------ ------------ Net income $1.29 $1.31 $4.19 $4.36 Income from discontinued operations 0.00 0.01 0.02 0.01 ----- ------ ----- ------ Net income from continuing operations 1.29 1.30 4.17 4.34 Net realized gains 0.00 0.08 0.27 0.31 Net unrealized gains (losses) on derivative instruments and foreign exchange (0.01) 0.00 0.00 0.47 ----- ------ ----- ------ Operating income (1) $1.30 $1.22 $3.91 $3.57 (1) Presented on the same basis as analysts' estimates. Operating income per share, which excludes the effects of net realized gains, net unrealized gains and losses on derivative instruments and foreign exchange, and income from discontinued operations, rose 10 percent to $3.91 per share for the first nine months of 2004 compared with $3.57 per share in the same period last year. Gary C. Dunton, MBIA Chief Executive Officer, said, "MBIA posted solid operating results for the first nine months of 2004, despite the challenging market environment for new business production. We remain determined to aggressively pursue high-quality, profitable business without compromising our underwriting and pricing discipline. Although top line production can fluctuate considerably from year to year, we are confident that we can profitably grow our business at historical levels over the longer term." 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, declined 35 percent to $762.2 million in the first nine months from $1.2 billion in the first nine months of 2003. The decline is primarily due to tighter credit spreads, increased competition from the uninsured market and other monolines, and uneven new business production in the company's international operations. In the third quarter of 2004, ADP declined by 62 percent to $215.9 million. The decrease was the result of the factors cited above as well as a very difficult comparison to the record $568.4 million in ADP written in the third quarter of 2003. Adjusted Direct Premium ------------------------- (dollars in millions) Three Months Nine Months Ended Ended September 30 September 30 ------------ ------------ 2004 2003 % Change 2004 2003 % Change ------- ------ -------- ------- ------- -------- Public Finance United States $95.2 $153.1 (38) $350.6 $502.5 (30) Non-United States 35.2 195.1 (82) 141.8 255.0 (44) ------ ------- ------ ------- ------- ------- Total 130.4 348.2 (63) 492.4 757.5 (35) Structured Finance United States 59.6 127.6 (53) 158.5 240.7 (34) Non-United States 25.9 92.6 (72) 111.3 182.6 (39) ------ ------- ------ ------- ------- ------- Total 85.5 220.2 (61) 269.8 423.3 (36) Total $215.9 $568.4 (62) $762.2 $1,180.8 (35) Global public finance ADP declined 35 percent in the first nine months of 2004 compared with the same period last year. U.S. public finance production declined 30 percent for the first nine months of 2004, due to lower market issuance, increased competition and lower overall pricing. Non-U.S. production dropped 44 percent as fewer large infrastructure transactions have come to market this year. Credit quality for global public finance transactions remained very high, with 87 percent of insured business written rated Single-A or above in the first nine months of 2004. Global structured finance ADP in the first nine months of 2004 declined 36 percent from record production in 2003. This sector continues to be adversely impacted by tight spreads and greater investor demand for uninsured transactions. In structured finance, 59 percent of insured business written in the first nine months of 2004 was rated Single-A or higher. Premiums earned in the first nine months of 2004 rose 13 percent to $609.9 million from $541.2 million in last year's first nine months, due to strong levels of new business written over the last few years as well as refunding activity. Earned premiums from refundings were up 22 percent to $109.8 million in the first nine months of 2004, driven by the low interest rate environment. Excluding refundings, earned premiums were up 11 percent. Pre-tax net investment income in the first nine months of 2004, excluding net realized gains, was $354.1 million, a 10 percent increase from $320.5 million in the same period of 2003, driven by a 10 percent increase in average invested assets. MBIA's advisory fees in the first nine months of 2004 were down 32 percent to $29.2 million from $42.9 million during the same period of 2003, primarily reflecting lower new business production and a mix of business that included fewer large, complex transactions. Insurance expenses, which include the amortization of deferred acquisition costs and operating expenses, were up 9 percent for the first nine months of 2004 to $130.3 million from $120.0 million in last year's first nine months. The statutory expense ratio for insurance operations increased to 19.1 percent, compared to 12.8 percent in the first nine months of 2003. The increase in the statutory expense ratio was driven by lower ceding commission income resulting from lower cessions in the first nine months of this year as well as the effect of portfolio reassumptions and cessions in the first quarter related to the establishment of Channel Re. However, the GAAP expense ratio decreased slightly to 21.4 percent in the first nine months of 2004, as compared to 22.2 percent in last year's first nine months. MBIA's pre-tax operating income from insurance operations rose 10 percent to $802.8 million in the first nine months of 2004 from $730.4 million in last year's first nine months. Risk Management and Loss Reserves The company incurred $60.0 million in loss and loss adjustment expenses in the first nine months of 2004, an 11 percent increase compared with $54.1 million in last year's first nine months due to the growth in scheduled earned premium, which is the basis of the company's loss reserving formula. Total case-incurred activity was $106.0 million for the first nine months of 2004, primarily related to a health care credit and MBIA's guaranteed tax lien portfolios. As previously announced, MBIA established a case loss reserve of approximately $49 million in the third quarter resulting from its $70.6 million net par exposure to Fort Worth Osteopathic Hospital. The case reserve was covered by a portion of MBIA's unallocated loss reserve, which, after giving effect to third quarter case reserve activity, totaled $283.3 million as of September 30, 2004. As a result of the actions surrounding Fort Worth Osteopathic Hospital and related publicity, MBIA has received investor inquiries concerning the nature and extent of the information it provides to the rating agencies about troubled credits. On a quarterly basis, MBIA provides the bond insurance rating groups at each of the rating agencies with copies of the list of credits on its internal classified and watch lists, and the related detailed reports about those credits. For each credit, the report includes a summary of MBIA's exposure to the credit, its internal credit rating, any recent changes in the credit's profile, the occurrence of any default and a description of any waivers granted, and MBIA's action plan for remediating the credit. Investment Management Services The market value of quarterly average fixed-income assets under management was $37.4 billion in the third quarter of 2004, up 12 percent from $33.2 billion in last year's third quarter. In addition, conduit assets totaled $6.0 billion at the end of the quarter. Pre-tax operating income from MBIA's fixed-income investment management businesses increased 25 percent in the first nine months to $43.2 million from $34.5 million in last year's first nine months. The increase was driven by strong results in the company's investment agreement business. Corporate The corporate segment includes net investment income, interest expense and corporate expenses. Net corporate segment expenses in the first nine months increased 14 percent to $61.0 million from $53.4 million in the same period last year. The increase primarily reflects MBIA's minority share of costs incurred by ASIA Ltd. prior to MBIA's acquisition of its portfolio in the first quarter. Gains and Losses In the first nine months of 2004, MBIA recorded net realized gains of $60.0 million, compared with net realized gains of $69.0 million in the first nine months of 2003. The 2004 net realized gains were primarily the result of the sale of a common stock investment that the company purchased in 2002. The company recorded pre-tax mark-to-market net unrealized losses of $0.6 million for the first nine months of 2004 on its derivative exposure, compared with pre-tax mark-to-market net unrealized gains of $104.2 million for the first nine months of 2003. While there was little movement in credit spreads during the first nine months of 2004, the tightening of credit spreads in the investment-grade bond market in the first nine months of 2003 resulted in large net unrealized gains, primarily attributable to insured synthetic CDOs. Book Value and Adjusted Book Value MBIA's book value per share at September 30, 2004 was $46.20, up 6 percent from $43.50 at December 31, 2003. The increase was principally driven by net income from operations offset by a significant decrease in the unrealized appreciation of the company's investment portfolio and a significant increase in treasury stock resulting from share repurchases. Adjusted book value (ABV) per share, a non-GAAP measure, at September 30, 2004 rose 8 percent to $64.45 from $59.84 at December 31, 2003. 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 Through November 1, the company has repurchased approximately 5.1 million shares in 2004 at an average cost of $56.13 per share. Approximately 11.6 million shares remain in the company's share buyback program which was authorized in August 2004. Conference Call MBIA will host a conference call for investors today at 11 a.m. ET. 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 used in this press release, 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) September 30, December 31, 2004 2003 --------------------------- Assets ------ Investments: Fixed-maturity securities held as available-for-sale at fair value (amortized cost $18,384,292 and $15,628,937) $19,270,348 $16,493,338 Conduit investments held-to-maturity 6,002,934 8,386,280 Investment agreement portfolio pledged as collateral at fair value (amortized cost $431,511 and $581,633) 437,228 596,366 Short-term investments 2,013,085 1,873,477 Other investments 261,941 357,346 ------------ ------------ Total investments 27,985,536 27,706,807 Cash and cash equivalents 241,100 172,129 Accrued investment income 294,985 269,610 Deferred acquisition costs 345,243 319,728 Prepaid reinsurance premiums 563,630 535,728 Reinsurance recoverable on unpaid losses 32,492 61,085 Goodwill 79,406 79,406 Property and equipment (net of accumulated depreciation) 115,307 120,691 Receivable for investments sold 174,374 20,376 Derivative assets 234,428 256,744 Variable interest entity assets 600,307 600,322 Other assets 133,627 125,108 ------------ ------------ Total assets $30,800,435 $30,267,734 ============ ============ Liabilities and Shareholders' Equity ------------------------------------ Liabilities: Deferred premium revenue $3,163,773 $3,079,851 Loss and loss adjustment expense reserves 567,830 559,510 Investment agreement and medium-term note obligations 11,183,068 8,840,125 Securities sold under agreements to repurchase 372,049 505,883 Conduit debt obligations 5,655,868 7,848,060 Short-term debt 58,745 57,337 Long-term debt 1,018,959 1,021,795 Current income taxes 18,661 14,554 Deferred income taxes, net 532,991 552,740 Deferred fee revenue 19,444 21,543 Payable for investments purchased 240,535 47,059 Derivative liabilities 415,987 437,683 Variable interest entity liabilities 600,307 600,322 Other liabilities 420,903 422,257 ------------ ------------ Total liabilities 24,269,120 24,008,719 Shareholders' Equity: Common stock 155,137 153,551 Additional paid-in capital 1,388,095 1,295,638 Retained earnings 5,101,003 4,593,486 Accumulated other comprehensive income 562,552 632,623 Unearned compensation - restricted stock (38,457) (12,299) Treasury stock (637,015) (403,984) ------------ ------------ Total shareholders' equity 6,531,315 6,259,015 Total liabilities and shareholders' equity $30,800,435 $30,267,734 ============ ============ MBIA INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME --------------------------------- (dollars in thousands except per share amounts) Three Months Ended Nine Months Ended September 30 September 30 ------------------------- ------------------------- 2004 2003 2004 2003 ------------ ------------ ------------ ------------ Insurance operations Revenues: Gross premiums written $255,609 $346,052 $833,211 $961,293 Ceded premiums (51,914) (70,095) (136,169) (189,785) ------------ ------------ ------------ ------------ Net premiums written 203,695 275,957 697,042 771,508 Scheduled premiums earned 169,873 158,784 500,144 451,025 Refunding premiums earned 31,904 35,574 109,755 90,184 ------------ ------------ ------------ ------------ Premiums earned 201,777 194,358 609,899 541,209 Net investment income 117,363 106,328 354,060 320,477 Advisory fees 6,156 12,272 29,211 42,916 ------------ ------------ ------------ ------------ Total insurance revenues 325,296 312,958 993,170 904,602 Expenses: Losses and LAE incurred 20,384 19,052 60,017 54,122 Amortization of deferred acquisition costs 15,680 15,354 47,759 42,755 Operating 26,485 24,315 82,588 77,276 ------------ ------------ ------------ ------------ Total insurance expenses 62,549 58,721 190,364 174,153 Insurance income 262,747 254,237 802,806 730,449 ------------ ------------ ------------ ------------ Investment management services Revenues 142,323 98,944 390,039 283,883 Interest expense 106,431 73,588 289,904 212,974 ------------ ------------ ------------ ------------ Net revenues 35,892 25,356 100,135 70,909 Expenses 19,620 12,625 56,964 36,434 ------------ ------------ ------------ ------------ Investment management services income 16,272 12,731 43,171 34,475 ------------ ------------ ------------ ------------ Municipal services Revenues 8,245 6,672 19,956 20,133 Expenses 7,633 6,420 19,013 19,702 ------------ ------------ ------------ ------------ Municipal services income 612 252 943 431 ------------ ------------ ------------ ------------ Corporate Net investment income 1,934 2,179 6,511 6,760 Interest expense 17,798 16,983 53,343 50,864 Corporate expenses 4,174 2,294 14,134 9,341 ------------ ------------ ------------ ------------ Corporate loss (20,038) (17,098) (60,966) (53,445) ------------ ------------ ------------ ------------ Gains and losses Net realized gains 304 17,979 59,971 68,958 Net gains (losses) on derivative instruments and foreign exchange (1,914) 872 (630) 104,213 ------------ ------------ ------------ ------------ Net gains and losses (1,610) 18,851 59,341 173,171 ------------ ------------ ------------ ------------ Income from continuing operations before income taxes 257,983 268,973 845,295 885,081 Provision for income taxes 71,937 79,690 237,228 255,450 ------------ ------------ ------------ ------------ Income from continuing operations 186,046 189,283 608,067 629,631 Income (loss) from discontinued operations, net of tax -- 1,102 (481) 1,934 Gain on sale of discontinued operations, net of tax -- -- 3,178 -- ------------ ------------ ------------ ------------ Income from discontinued operations -- 1,102 2,697 1,934 Net income $186,046 $190,385 $610,764 $631,565 ============ ============ ============ ============ Net income per common share: Basic $1.32 $1.33 $4.28 $4.40 Diluted $1.29 $1.31 $4.19 $4.36 Weighted-average common shares outstanding: Basic 141,408,855 143,256,514 142,819,366 143,474,181 Diluted 144,125,409 145,119,028 145,781,763 144,994,227 MBIA INC. AND SUBSIDIARIES Reconciliation of Adjusted Direct Premiums to Gross Premiums Written -------------------------------------------------------------------- (dollars in millions) Three Months Nine Months Ended Ended September 30 September 30 ---------------- ----------------- 2004 2003 2004 2003 ------- ------- ------- --------- Adjusted direct premiums (1) $215.9 $568.4 $762.2 $1,180.8 Adjusted premiums assumed 0.0 0.0 (2.9) 31.8 ------- ------- ------- --------- Adjusted gross premiums 215.9 568.4 759.3 1,212.6 Present value of estimated future installment premiums (2) (105.1) (377.7) (394.0) (678.0) ------- ------- ------- --------- Gross upfront premiums written 110.8 190.7 365.3 534.6 Gross installment premiums received 144.8 155.4 467.9 426.7 ------- ------- ------- --------- Gross premiums written $255.6 $346.1 $833.2 $961.3 ======= ======= ======= ========= (1) A non-GAAP measure. (2) At September 30, 2004, June 30, 2004 and March 31, 2004 the discount rate was 4.6%, 4.7% and 4.7%, respectively, and at September 30, 2003, June 30, 2003 and March 31, 2003 the discount rate was 5.1%, 5.3% and 5.6%, respectively. Components of Net Income per Share (1) -------------------------------------- Three Months Nine Months Ended Ended September 30 September 30 ---------------- ----------------- 2004 2003 2004 2003 ------- ------- ------- --------- Net income $1.29 $1.31 $4.19 $4.36 Income from discontinued operations 0.00 0.01 0.02 0.01 ------- ------- ------- --------- Net income from continuing operations 1.29 1.30 4.17 4.34 Net realized gains 0.00 0.08 0.27 0.31 Net gains (losses) on derivative instruments and foreign exchange (0.01) 0.00 0.00 0.47 ------- ------- ------- --------- Operating income (2) $1.30 $1.22 $3.91 $3.57 ======= ======= ======= ========= (1) May not add due to rounding. (2) A non-GAAP measure. MBIA INC. AND SUBSIDIARIES Components of Adjusted Book Value per Share -------------------------------------------- September 30, December 31, 2004 2003 ----------------- ----------------- Book value $46.20 $43.50 After-tax value of: Deferred premium revenue 14.55 13.91 Prepaid reinsurance premiums (2.59) (2.42) Deferred acquisition costs (1.59) (1.44) ------ ------ Net deferred premium revenue 10.37 10.05 Present value of installment premiums (1) 9.40 9.27 Unrealized gains (losses) on investment contract liabilities 1.05 (0.49) Loss provision (2) (2.57) (2.49) ----------- ----------- Adjusted book value (3) $64.45 $59.84 =========== =========== (1) At September 30, 2004 and December 31, 2003, the discount rate was 4.6% and 4.7%, 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) September 30, December 31, 2004 2003 ------------- ------------- Capital and surplus $3,722.6 $3,715.0 Contingency reserve 2,550.5 2,368.2 ----------- ----------- Capital base 6,273.1 6,083.2 Unearned premium reserve 3,160.9 3,066.6 Present value of installment premiums (1) 2,044.1 2,052.9 ----------- ----------- Premium resources 5,205.0 5,119.5 Loss and loss adjustment expense reserves 277.7 200.7 Soft capital credit facilities 1,100.0 1,236.0 ----------- ----------- Total claims-paying resources $12,855.8 $12,639.4 =========== =========== Net debt service outstanding $835,370.7 $835,773.8 Capital ratio (2) 133:1 137:1 Claims-paying ratio (3) 76:1 77:1 (1) At September 30, 2004 and December 31, 2003, the discount rate was 4.6% and 4.7%, 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