-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WMspNsFMi5u2E2MKrZ51uQ77RIPhtOonWxtSexSNlPtwAF9zoQUz88klLnSAkaHU F0BOx62fhXYWKTT4ysLY4g== 0000814585-00-000004.txt : 20000516 0000814585-00-000004.hdr.sgml : 20000516 ACCESSION NUMBER: 0000814585-00-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MBIA INC CENTRAL INDEX KEY: 0000814585 STANDARD INDUSTRIAL CLASSIFICATION: SURETY INSURANCE [6351] IRS NUMBER: 061185706 STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09583 FILM NUMBER: 634526 BUSINESS ADDRESS: STREET 1: 113 KING ST CITY: ARMONK STATE: NY ZIP: 10504 BUSINESS PHONE: 9142734545 MAIL ADDRESS: STREET 1: 113 KING ST CITY: ARMONK STATE: NY ZIP: 10504 10-Q 1 1Q00 10Q UNITED STATES 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 March 31, 2000 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 May 10, 2000 there were outstanding 98,383,764 shares of Common Stock, par value $1 per share, of the registrant. INDEX ----- PAGE ---- PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) MBIA Inc. and Subsidiaries Consolidated Balance Sheets - March 31, 2000 and December 31, 1999 3 Consolidated Statements of Income - Three months ended March 31, 2000 and 1999 4 Consolidated Statement of Changes in Shareholders' Equity - Three months ended March 31, 2000 5 Consolidated Statements of Cash Flows - Three months ended March 31, 2000 and 1999 6 Notes to Consolidated Financial Statements 7 - 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 - 21 PART II OTHER INFORMATION, AS APPLICABLE Item 6. Exhibits and Reports on Form 8-K 22 SIGNATURES 23 (2) MBIA INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Dollars in thousands except per share amounts)
March 31, 2000 December 31, 1999 -------------- ----------------- ASSETS Investments: Fixed-maturity securities held as available-for-sale at fair value (amortized cost $6,150,880 and $6,006,506) $ 6,008,500 $ 5,783,979 Short-term investments, at amortized cost (which approximates fair value) 260,945 274,022 Other investments 147,323 146,038 ------------ ------------ 6,416,768 6,204,039 Municipal investment agreement portfolio held as available-for-sale at fair value (amortized cost $4,542,245 and $4,583,920) 4,481,227 4,489,551 ------------ ------------ TOTAL INVESTMENTS 10,897,995 10,693,590 Cash and cash equivalents 56,453 93,559 Securities borrowed or purchased under agreements to resell 200,611 261,171 Accrued investment income 126,753 135,344 Deferred acquisition costs 255,816 251,922 Prepaid reinsurance premiums 407,797 403,210 Reinsurance recoverable on unpaid losses 31,439 30,819 Goodwill (less accumulated amortization of $62,446 and $68,388) 108,348 110,023 Property and equipment, at cost (less accumulated depreciation of $53,743 and $50,469) 129,738 128,733 Receivable for investments sold 118,388 24,922 Other assets 103,920 130,606 ------------ ------------ TOTAL ASSETS $ 12,437,258 $ 12,263,899 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Deferred premium revenue $ 2,315,148 $ 2,310,758 Loss and loss adjustment expense reserves 475,062 467,279 Municipal investment agreements 3,463,819 3,483,911 Municipal repurchase agreements 983,257 1,028,921 Long-term debt 589,291 689,204 Short-term debt 168,694 68,751 Securities loaned or sold under agreements to repurchase 314,511 288,750 Deferred income taxes 76,268 32,805 Deferred fee revenue 36,676 36,536 Payable for investments purchased 92,808 102,666 Other liabilities 255,074 241,217 ------------ ------------ TOTAL LIABILITIES 8,770,608 8,750,798 ------------ ------------ 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--200,000,000; issued shares -- 100,155,635 and 100,072,846 100,156 100,073 Additional paid-in capital 1,193,775 1,191,108 Retained earnings 2,598,536 2,486,478 Accumulated other comprehensive loss, net of deferred income tax benefit of $(73,505) and $(112,920) (155,569) (224,511) Unallocated ESOP shares (3,872) (4,363) Unearned compensation--restricted stock (9,770) (9,986) Treasury stock -- 1,311,022 shares in 2000 and 520,722 shares in 1999 (56,606) (25,698) ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 3,666,650 3,513,101 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 12,437,258 $ 12,263,899 ============ ============
The accompanying notes are an integral part of the consolidated financial statements. (3) MBIA INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (Dollars in thousands except per share amounts)
THREE MONTHS ENDED MARCH 31 ------------------------------ 2000 1999 -------------- ------------- INSURANCE Revenues: Gross premiums written $148,837 $154,910 Ceded premiums (42,966) (59,996) -------------- ------------- Net premiums written 105,871 94,914 (Increase) decrease in deferred premium revenue (1,167) 17,197 -------------- ------------- Premiums earned (net of ceded premiums of $38,379 and $30,449) 104,704 112,111 Net investment income 95,370 87,765 Advisory fees 7,975 4,965 -------------- ------------- Total insurance revenues 208,049 204,841 Expenses: Losses and loss adjustment 8,587 161,930 Policy acquisition costs, net 8,586 9,193 Operating 19,394 18,098 -------------- ------------- Total insurance expenses 36,567 189,221 -------------- ------------- Insurance income 171,482 15,620 -------------- ------------- INVESTMENT MANAGEMENT SERVICES Revenues 26,878 19,342 Expenses 13,596 9,967 -------------- ------------- Investment management services income 13,282 9,375 -------------- ------------- MUNICIPAL SERVICES Revenues 7,622 3,679 Expenses 8,051 10,966 -------------- ------------- Municipal services loss (429) (7,287) -------------- ------------- CORPORATE Net realized gains 11,885 9,664 Interest expense 13,496 13,496 Other expenses 3,647 1,922 -------------- ------------- Corporate loss (5,258) (5,754) -------------- ------------- Income before income taxes 179,077 11,954 Provision for income taxes 46,757 2,534 -------------- ------------- NET INCOME $132,320 $ 9,420 ============== ============= NET INCOME PER COMMON SHARE: BASIC $ 1.34 $ 0.09 DILUTED $ 1.33 $ 0.09 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: BASIC 99,100,433 99,547,368 DILUTED 99,676,043 100,465,119
The accompanying notes are an integral part of the consolidated financial statements. (4) MBIA INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited) FOR THE THREE MONTHS ENDED MARCH 31, 2000 (In thousands except per share amounts)
Accumulated Common Stock Additional Other ---------------------- Paid-in Retained Comprehensive Shares Amount Capital Earnings Loss ---------- --------- ------------- ----------- ------------- Balance, January 1, 2000 100,073 $100,073 $1,191,108 $2,486,478 $(224,511) Comprehensive income: Net income --- --- --- 132,320 --- Other comprehensive income: Change in unrealized depreciation of investments net of change in deferred income taxes of $(39,415) --- --- --- --- 72,839 Change in foreign currency translation --- --- --- --- (3,897) Other comprehensive income Comprehensive income Treasury shares acquired --- --- --- --- --- Exercise of stock options 73 73 2,259 --- --- Unallocated ESOP shares --- --- (29) --- --- Unearned compensation- restricted stock 10 10 437 --- --- Dividends (declared and paid per common share $0.205) --- --- --- (20,262) --- ---------- --------- ------------- ----------- ------------- Balance, March 31, 2000 100,156 $100,156 $1,193,775 $2,598,536 $(155,569) ========== ========= ============= =========== ============= Unearned Unallocated Compensation- Treasury Stock Total ESOP Restricted -------------------- Shareholders' Shares Stock Shares Amount Equity -------------- -------------- --------- --------- ------------- Balance, January 1, 2000 $(4,363) $(9,986) (521) $(25,698) $3,513,101 Comprehensive income: Net income --- --- --- --- 132,320 Other comprehensive income: Change in unrealized depreciation of investments net of change in deferred income taxes of $(39,415) --- --- --- --- 72,839 Change in foreign currency translation --- --- --- --- (3,897) ------------ Other comprehensive income 68,942 ------------ Comprehensive income 201,262 ------------ Treasury shares acquired --- --- (790) (30,908) (30,908) Exercise of stock options --- --- --- --- 2,332 Unallocated ESOP shares 491 --- --- --- 462 Unearned compensation- restricted stock --- 216 --- --- 663 Dividends (declared and paid per common share $0.205) --- --- --- --- (20,262) -------------- -------------- --------- --------- ------------- Balance, March 31, 2000 $(3,872) $(9,770) (1,311) $(56,606) $3,666,650 ============== ============== ========= ========= =============
The accompanying notes are an integral part of the consolidated financial statements. 2000 ---------- Disclosure of reclassification amount: Unrealized appreciation of investments arising during the period, net of taxes $76,237 Reclassification of adjustment, net of taxes (3,398) ---------- Net unrealized appreciation, net of taxes $72,839 ========== (5) MBIA INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands)
Three months ended March 31 ------------------------- 2000 1999 ------------ ---------- Cash flows from operating activities: Net income $132,320 $ 9,420 Adjustments to reconcile net income to net cash provided by operating activities: Decrease in accrued investment income 8,591 8,550 Increase in deferred acquisition costs (3,894) (498) Increase in prepaid reinsurance premiums (4,587) (29,547) Increase in deferred premium revenue 5,754 12,353 Increase in loss and loss adjustment expense reserves, net 7,163 158,717 Depreciation 3,274 2,417 Amortization of goodwill 1,675 1,754 Amortization of bond discount, net (6,911) (4,915) Net realized gains on sale of investments (11,885) (9,664) Deferred income tax provision (benefit) 4,085 (47,165) Other, net 39,365 (22,634) ----------- ----------- Total adjustments to net income 42,630 69,368 ----------- ----------- Net cash provided by operating activities 174,950 78,788 ----------- ----------- Cash flows from investing activities: Purchase of fixed-maturity securities, net of payable for investments purchased (1,581,886) (1,966,627) Sale of fixed-maturity securities, net of receivable for investments sold 1,344,599 1,724,242 Redemption of fixed-maturity securities, net of receivable for investments redeemed 76,984 100,133 Sale of short-term investments, net 5,820 100,988 (Purchase) sale of other investments, net (1,712) 8,395 Purchases for municipal investment agreement portfolio, net of payable for investments purchased (545,242) (495,169) Sales from municipal investment agreement portfolio, net of receivable for investments sold 516,382 399,684 Capital expenditures, net of disposals (4,413) (6,589) Other, net 8,376 (2,517) ----------- ----------- Net cash used by investing activities (181,092) (137,460) ----------- ----------- Cash flows from financing activities: Dividends paid (20,406) (19,897) Purchase of treasury stock (30,908) --- Proceeds from issuance of municipal investment and repurchase agreements 523,515 507,152 Payments for drawdowns of municipal investment and repurchase agreements (591,818) (385,507) Securities loaned or sold under agreements to repurchase, net 86,321 (35,071) Exercise of stock options 2,332 5,765 ----------- ----------- Net cash (used) provided by financing activities (30,964) 72,442 ----------- ----------- Net (decrease) increase in cash and cash equivalents (37,106) 13,770 Cash and cash equivalents - beginning of period 93,559 20,757 ----------- ----------- Cash and cash equivalents - end of period $ 56,453 $34,527 =========== =========== Supplemental cash flow disclosures: Income taxes paid $ 1,168 $ 2,518 Interest paid: Municipal investment and repurchase agreements $ 61,637 $45,841 Long-term debt 13,631 13,554
The accompanying notes are an integral part of the consolidated financial statements. (6) 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 Form 10-K for the year ended December 31, 1999 for MBIA Inc. and Subsidiaries (the company). The accompanying 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 three months ended March 31, 2000 may not be indicative of the results that may be expected for the year ending December 31, 2000. The December 31, 1999 balance sheet was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. The consolidated financial statements include the accounts of the company and its wholly owned subsidiaries. All significant intercompany balances have been eliminated. Business segment results are presented gross of intersegment transactions, which are not material to each segment. 2. Dividends Declared Dividends declared by the company during the three months ended March 31, 2000 were $20.3 million. 3. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) 133, "Accounting for Derivative Instruments and Hedging Activities." The statement requires companies to recognize all derivatives as either assets or liabilities, with the instruments measured at fair value. The accounting for changes in fair value, gains or losses, depends on the intended use of the derivative and its resulting designation. SFAS 133 is effective for the company for the year commencing January 1, 2001. The company is currently evaluating the impact of the adoption of SFAS 133 on the consolidated financial statements. (7) MBIA INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. Unallocated Loss Reserve Methodology Update The company completed an update of its unallocated loss reserving methodology in the first quarter of 1999. The update included an analysis of loss-reserve factors based on the latest available industry data. The company included the analysis of historical default and recovery experience for the relevant sectors of the fixed-income market. Also factored in was the changing mix of the company's book of business. The study resulted in an increase in the company's quarterly loss provision and a one-time charge in the first quarter of 1999 of $153 million to incorporate the new factors on the existing insured portfolio. (8) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW - -------- MBIA (the company) posted strong financial and operating results for the quarter as we continued to focus on our triple-A ratings, no-loss underwriting standards, and building of shareholder value. Our disciplined approach to pricing and risk selection enabled the company to add another quarter of high quality future earnings to our balance sheet. Our asset management business posted very strong results for the quarter as operating income rose 42%. The company is well positioned to capitalize on strong long-term growth prospects in our insurance and investment business units, particularly in our international financial guarantee sector. FORWARD-LOOKING AND CAUTIONARY STATEMENTS - ----------------------------------------- Statements included in this discussion which are not historical or current facts are "forward-looking statements" made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1998. The words "believe," "anticipate," "project," "plan," "expect," "intend," "will likely result," or "will continue," and similar expressions identify forward-looking statements. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of their respective dates. The following are some of the factors that could affect our financial performance or could cause actual results to differ materially from estimates contained in or underlying our company's forward-looking statements: * fluctuations in the economic, credit or interest rate environment in the United States and abroad; * level of activity within the national and international credit markets; * competitive conditions and pricing levels; * legislative and regulatory developments; * technological developments; * changes in tax laws; * the effects of mergers, acquisitions and divestitures; and * uncertainties that have not been identified at this time. Our company undertakes no obligation to publicly correct or update any forward-looking statement if we later become aware that such results are not likely to be achieved. (9) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS - --------------------- SUMMARY The following chart presents highlights of our consolidated financial results for the first quarters of 2000 and 1999. Percent Change March 31, March 31, -------------- 2000 1999 2000 vs.1999 ----------------------------------------------------------------------- Net income (in millions): As reported $132 $9 1,305% Excluding one-time charges $132 $124 7% Per share data:* Net income: As reported $1.33 $0.09 1,378% Excluding one-time charges $1.33 $1.23 8% Operating earnings $1.25 $1.17 7% Core earnings $1.23 $1.04 18% Book value $37.14 $37.11 --- Adjusted book value $54.31 $52.57 3% ----------------------------------------------------------------------- *All earnings per share calculations are diluted. Core earnings, which exclude the effects of refundings and calls on our insured issues, realized capital gains and losses on our investment portfolio and nonrecurring charges, provide the most indicative measure of our underlying profit. For the first quarter of 2000, core earnings per share reflected strong top line results at 18% over first quarter 1999. Our first quarter 2000 net income and earnings per share, excluding one-time charges, grew 7% and 8%, respectively. Including the one-time charges, net income increased by 1,305% for 2000 over 1999. Operating earnings per share, which exclude the impact of realized gains and losses and one-time charges, increased by 7% over first quarter 1999. A more appropriate measure of a financial guarantee company's intrinsic value is its adjusted book value. It is defined as book value plus the after-tax effects of net deferred premium revenue, net of deferred acquisition costs, the present value of unrecorded future installment premiums, and the unrealized gains or losses on investment contract liabilities. (10) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The following table presents the components of our adjusted book value per share: Percent Change March 31, March 31, --------------- 2000 1999 2000 vs. 1999 - -------------------------------------------------------------------------- Book value $37.14 $37.11 --- After-tax value of: Net deferred premium revenue, net of deferred 10.87 10.77 1% acquisition costs Present value of future installment premiums* 5.06 4.31 17% Unrealized gain on investment contract liabilities 1.24 0.38 226% - -------------------------------------------------------------------------- Adjusted book value $54.31 $52.57 3% - -------------------------------------------------------------------------- *The discount rate used to present value future installment premiums was 9%. Our book value at March 31, 2000 was $37.14 per share, up from $37.11 at March 31, 1999. Our adjusted book value per share was $54.31 at March 31, 2000, a 3% increase from first quarter-end 1999. FINANCIAL GUARANTEE INSURANCE The company's production in terms of adjusted gross premiums (AGP), gross premiums written (GPW) and par written for the first quarters of 2000 and 1999 is presented in the following table: Percent Change March 31, March 31, --------------- 2000 1999 2000 vs. 1999 - ------------------------------------------------------------------------------ Premiums written (in millions): AGP $155 $182 (15)% GPW $149 $155 (4)% Par written (in billions) $ 15 $ 24 (38)% In the first quarter of 2000, bond issuance was down for the quarter significantly from 1999 levels, causing renewed pricing pressures. However, we were able to maintain our pricing discipline and continued to write business levels of A and above for the period. As a result, AGP was down by 15% compared to the first quarter of 1999, while par insured was down by 38%. This indicates that we received more premium for every dollar of risk insured. AGP includes our upfront premiums as well as the estimated present value of current and future premiums from installment-based insurance policies issued during the period. GPW, as reported in our financial statements, primarily reflects cash receipts and does not include the value of future premium receipts expected from installment policies originated in the period. GPW was $149 million, down 4% from the first quarter of 1999. (11) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) We estimate the present value of our total future installment premium stream on outstanding policies to be $769 million at March 2000, compared with $660 million at March 1999, a growth rate of 16%. MUNICIPAL MARKET Domestic new issue municipal market information and MBIA's par and premium writings in both the new issue and secondary domestic municipal markets are shown in the following table: Percent Change March 31, March 31, -------------- Domestic Municipal 2000 1999 2000 vs. 1999 ---------------------------------------------------------------------------- Total new issue market:* Par value (in billions) $34 $53 (36)% Insured penetration 50% 57% MBIA market share 22% 22% MBIA insured: Par written (in billions) $ 5 $ 9 (45)% Premiums (in millions): AGP $72 $91 (21)% GPW $73 $87 (16)% ---------------------------------------------------------------------------- * Market data are reported on a sale date basis while MBIA's insured data are based on closing date information. Typically, there can be a one- to four-week delay between the sale date and closing date of an insured issue. New issuance was weak in the municipal market, decreasing by 36% to $34 billion for the first quarter of 2000, compared with $53 billion in the first quarter of 1999. The insured penetration also decreased to 50% in 2000 from 57% in 1999. Somewhat offsetting the weak new issue market was a strong secondary market, as activity in this market is frequently counter-cyclical to activity in the new issue market, and returns tend to be higher. By taking advantage of our strong secondary operations and some unique opportunities, we were able to improve our overall returns and maintain strong credit quality in the business we wrote. MBIA's domestic municipal AGP decreased by 21% over 1999's first quarter while par written declined by 45%. The decrease in AGP when compared with the greater decline in par written is the result of a value-added pricing discipline which ensures that we realize not just adequate, but attractive returns on each deal we insure. Looking ahead to the second quarter in the municipal market, we are expecting stronger issuance, a better mix of business, and firm pricing. (12) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) STRUCTURED FINANCE MARKET Details regarding the asset-backed market and MBIA's par and premium writings in both the domestic new issue and secondary structured finance markets are shown in the table below: Percent Change Domestic March 31, March 31, -------------- Structured Finance 2000 1999 2000 vs. 1999 ------------------------------------------------------------------------ Total asset-backed market:* Par value (in billions) $52 $49 7% MBIA insured: Par written (in billions) $ 5 $ 11 (52)% Premiums (in millions): AGP $37 $40 (6)% GPW $42 $37 13% ------------------------------------------------------------------------ *Market data exclude mortgage-backed securities and private placements. As with first quarter municipal issuance, overall public and private structured finance issuance was down. Our par written was down sharply at 52% from first quarter 1999, resulting from low volume in the home equity business and a difficult comparison to the first quarter of 1999 in the consumer asset sector. The good news was that AGP was down only 6% for the quarter, far less than the insured par value. This relationship between par insured and AGP reflects strong pricing discipline and a shift in the mix of our portfolio toward higher priced business. Credit quality shifted somewhat during the quarter, with 37% of the business written rated A or better, and 63% in the triple B category. This compares with the first quarter of 1999 with 57% written rated A or better and 43% in the triple B category. Pricing remained strong and expected returns were comparable to the same period last year. Looking ahead to the second quarter, volume has been picking up and our business prospects look strong. INTERNATIONAL MARKET. The international results were up compared with the first quarter of 1999. Global asset-backed deals dominated the mix of business written during the quarter, followed by volume from Latin America, Australia, and the Netherlands. Our municipal and structured finance international business volume in the new issue and secondary markets for the first quarters of 2000 and 1999 are illustrated as follows: Percent Change March 31, March 31, -------------- International 2000 1999 2000 vs. 1999 ----------------------------------------------------------------------- Par written (in billions) $3.5 $2.7 31% Premiums (in millions): AGP $ 45 $ 43 5% GPW $ 30 $ 22 34% (13) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Par written and AGP were up 31% and 5%, respectively, for 2000 compared with the first quarter of 1999. This year 82% of our international business written in the quarter was rated A or above, substantially stronger than the 59% rated A or better we insured in the first quarter of 1999. This higher quality insured volume, as well as the mix of business written, accounts for the weakening AGP to par insured ratio. The opportunities in our international sector are significant and we are well positioned to capitalize on these opportunities in the future. On March 21, 2000 the company and Ambac Financial Group, Inc. (Ambac) announced the restructuring of the international joint marketing and reinsurance arrangements that have been in place since 1995 with the formation of the MBIA-AMBAC International joint venture. The company and Ambac will continue having reciprocal reinsurance and surveillance arrangements for international business in 2000. The companies will market and originate international financial guarantee insurance independently. The restructuring did not affect business conducted in Japan where the market for financial guarantees is just beginning to develop. The companies will continue to market and originate transactions jointly under the original arrangement in Japan. REINSURANCE Premiums ceded to reinsurers from all insurance operations were $43 million and $60 million in the first quarter of 2000 and 1999, respectively. Cessions as a percentage of GPW decreased to 29% in 2000 from 39% in 1999. The decrease in our cession rate from first quarter 1999 was largely driven by the 1999 strategic use of reinsurance to shape the portfolio. We have continued the initiative begun in the fourth quarter of 1998 as we focused on reducing larger single risks across the portfolio. Most of our reinsurers are rated Double-A or higher by S&P, or Single-A or higher by A. M. Best Co. Although we remain liable for all reinsured risks, we are confident that we will recover the reinsured portion of any losses, should they occur. PREMIUMS EARNED The composition of MBIA's premiums earned in terms of its scheduled and refunded components is illustrated below: Percent Change March 31, March 31, -------------- In millions 2000 1999 2000 vs. 1999 --------------------------------------------------------- Premiums earned: Scheduled $102 $89 14% Refunded 3 23 (86)% --------------------------------------------------------- Total $105 $112 (7)% (14) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Premiums are recognized over the life of the bonds we insure. The extended premium recognition coupled with compounding investment income from investing our premiums and capital form a solid foundation for consistent revenue growth. In 2000 premiums earned from scheduled amortization increased by 14% over the first quarter of 1999, indicating that the benefits of the increased pricing strategy established in early 1999 are beginning to emerge. Refunded premiums earned declined significantly this year compared with the first quarter of 1999, reflecting the higher interest rate environment. When an MBIA-insured bond issue is refunded or retired early, the related deferred premium revenue is earned immediately. The amount of bond refundings and calls is influenced by a variety of factors such as prevailing interest rates, the coupon rates of the bond issue, the issuer's desire or ability to modify bond covenants and applicable regulations under the Internal Revenue Code. INVESTMENT INCOME Our insurance-related investment income (exclusive of capital gains) increased 9% to $95 million in the first quarter of 2000, up from $88 million in the first quarter of 1999. This increase was primarily due to a shift in the investment portfolio from tax-exempt to taxable investments, and the growth of cash flow available for investment. Our cash flows were generated from operations and the compounding of previously earned and reinvested investment income. ADVISORY FEES The company collects fee revenues in conjunction with certain structured finance transactions. Fees are generally deferred and earned over the life of the related transactions. In the first quarter of 2000, advisory fee revenues increased 61% to $8 million from $5 million. This increase was primarily due to the "non-deferrable" type of fees recognized during the quarter. LOSSES AND LOSS ADJUSTMENT EXPENSES (LAE) We maintain a loss reserve based on our estimate of unidentified losses from our insured obligations. The total reserve is calculated by applying a risk factor based on a study of bond defaults to net debt service written. To the extent that we identify specific insured issues as currently or likely to be in default, the present value of our expected payments, net of expected reinsurance and collateral recoveries, is allocated within the total loss reserve as case-specific reserves. We periodically evaluate our estimates for losses and LAE and any resulting adjustments are reflected in current earnings. We believe that our reserving methodology and the resulting reserves are adequate to cover the ultimate net cost of claims. However, the reserves are based on estimates, and there can be no assurance that any ultimate liability will not exceed such estimates. In 1999, we completed an update of our loss reserving methodology. The update included an analysis of loss-reserve factors based on the latest available industry data. We included the analysis of historical default and recovery experience for the (15) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) relevant sectors of the fixed-income market. Also factored in was the changing mix of our book of business. The study resulted in an increase in our company's loss reserving factors and a one-time charge of $153 million in the first quarter of 1999, to incorporate the new factors on the existing insured portfolio. The following table shows the case-specific, reinsurance recoverable and unallocated components of our total loss and LAE reserves at the end of the first quarter of 2000 and 1999, as well as our loss provision for the first quarter of 2000 and 1999: Percent Change March 31, March 31, --------------- In millions 2000 1999 2000 vs.1999 - -------------------------------------------------------------------------------- Case-specific: Gross $242 $224 8% Reinsurance recoverable on unpaid losses 31 31 3% - -------------------------------------------------------------------------------- Total case reserves 211 193 9% Unallocated 233 236 (1)% - -------------------------------------------------------------------------------- Net loss and LAE reserves $444 $429 3% Provision $ 9 $162 (95)% OPERATING EXPENSES Expenses related to the production of our insurance business (policy acquisition costs) are deferred and recognized over the period in which the related premiums are earned. Our company's policy acquisition costs, general operating expenses and total insurance operating expenses, as well as related expense ratios, are shown below: Percent Change March 31, March 31, -------------- In millions 2000 1999 2000 vs. 1999 --------------------------------------------------------------------- Policy acquisition costs, net $ 9 $ 9 --- Operating 19 18 7% --------------------------------------------------------------------- Total insurance operating expenses $28 $27 3% Expense ratio: GAAP 26.7% 24.3% Statutory 20.9% 20.9% For the first quarter of 2000, policy acquisition costs net of deferrals remained consistent with the first quarter of 1999. The ratio of policy acquisition costs net of deferrals to earned premiums has also remained steady at 8.2% for both 1999 and 2000. (16) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Operating expenses increased 7% over the first quarter of 1999. Total insurance operating expenses increased 3%, reflecting the company's increased emphasis on expense management. Financial guarantee insurance companies use the statutory expense ratio (expenses before deferrals divided by net premiums written) as a measure of expense management. Our company's first quarter 2000 statutory expense ratio has remained consistent with the first quarter of 1999 at 20.9%. The GAAP expense ratio has increased over the first quarter of 1999 to 26.7% from 24.3%, reflecting the decline in the refunding earned premiums year over year. INSURANCE INCOME MBIA's insurance income of $171 million for the first quarter of 2000 increased significantly over the first quarter of 1999 due to the one-time increase to our loss provision in 1999. Excluding the one-time provision increase, insurance income grew by 2%. INVESTMENT MANAGEMENT SERVICES In 1998 after our merger with 1838 Investment Advisors, Inc. (1838), the company formed a holding company, MBIA Asset Management Corporation, to consolidate the resources and capabilities of our four investment management services. The table below summarizes our consolidated investment management results for the first quarters of 2000 and 1999: March 31, March 31, Percent Change In millions 2000 1999 2000 vs. 1999 ------------------------------------------------------------------------------ Revenues $27 $19 39% Expenses 14 10 36% ------------------------------------------------------------------------------ Income $13 $ 9 42% The success of the merger with 1838 is reflected in the investment management services operating results, with consolidated revenues up 39% over the first quarter of 1999, while expenses were up slightly less at 36%. As a result, operating income increased by 42% for the first quarter of 2000 over the same period in 1999. We ended the quarter with over $33 billion in assets under management, up 10% from the end of 1999. MBIA Asset Management Corporation is comprised of 1838, MBIA Municipal Investors Service Corp. (MBIA-MISC), MBIA Investment Management Corp. (IMC) and MBIA Capital Management Corp. (CMC). The following provides a summary of each of these businesses: 1838 is a full-service asset management firm with a strong institutional focus. It manages over $13 billion in equity, fixed-income and balanced portfolios for a client base comprised of municipalities, endowments, foundations, corporate employee benefit plans and high-net-worth individuals. (17) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) MBIA-MISC provides cash management, investment fund administration and fixed-rate investment placement services directly to local governments and school districts. Its subsidiary, American Money Management Associates, Inc. (AMMA), provides investment and treasury management consulting services for municipal and quasi-public-sector clients. Both MBIA-MISC and AMMA are Securities and Exchange Commission (SEC)-registered investment advisers and at March 31, 2000 had $7 billion in assets under management, up 10% over March 31, 1999. IMC provides state and local governments with tailored investment agreements for bond proceeds and other public funds, such as construction, loan origination, capitalized interest and debt service reserve funds. At March 31, 2000, principal and accrued interest outstanding on investment and repurchasing agreements was $4.4 billion, compared with $3.6 billion at March 31, 1999. At amortized cost, the assets supporting IMC's investment agreements were $4.5 billion and $3.6 billion at March 31, 2000 and 1999. These assets are comprised of high-quality securities with an average credit quality rating of Double-A. IMC from time-to-time uses derivative financial instruments to manage interest rate risk. We have established policies limiting the amount, type and concentration of such instruments. By matter of policy, derivative positions can only be used to hedge interest rate exposures and not for speculative trading purposes. At first quarter-end 2000, our exposure to derivative financial instruments was not material. CMC is an SEC-registered investment adviser and National Association of Securities Dealers member firm. CMC specializes in fixed-income management for institutional funds and provides investment management services for IMC's investment agreements, MBIA-MISC's municipal cash management programs and MBIA's insurance related portfolios. At March 31, 2000, CMC's assets under management were $1.8 billion compared to $1.1 billion at March 31, 1999. MUNICIPAL SERVICES MBIA MuniServices Company (MBIA MuniServices)(formerly known as Strategic Services, Inc.) was established in 1996 as part of the company's strategy to broaden its product offerings to its core clients, leveraging its relationships and presence as a leading provider of products and services to the public sector. During 1999, the company completed a reorganization of the operations of two of its subsidiaries, Municipal Tax Bureau (MTB) and Municipal Resource Consultants (MRC). With the reorganization complete, this business, operating as MBIA MuniServices, is now focused on delivering revenue enhancement services and products to public-sector clients nationwide, consisting of discovery, audit, collections/recovery, enforcement and information (data) services. The Municipal Services segment also includes Capital Asset Holdings, Inc. (Capital Asset), a servicer of delinquent tax certificates. In the first quarter of 2000 the municipal services operations lost $0.4 million compared with a loss of $7 million during the same period of 1999. (18) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CORPORATE NET REALIZED GAINS Net realized gains were $12 million in the first quarter of 2000, which was comparable with $10 million in the first quarter of 1999. INTEREST EXPENSE In the first quarter of 2000, we incurred $13 million of interest expense, the same as in the first quarter of 1999. OTHER EXPENSES In the first quarter of 2000 other expenses were comprised primarily of non-insurance goodwill amortization and general corporate overhead. TAXES Our tax policy is to optimize our after-tax income by maintaining the appropriate mix of taxable and tax-exempt investments. However, we will see our tax rate fluctuate from time-to-time as we manage our investment portfolio on a total return basis. Our effective tax rate has increased over last year's first quarter primarily due to a shift from tax-exempt investments into taxable investments. CAPITAL RESOURCES - ----------------- We carefully manage our capital resources to optimize our cost of capital while maintaining appropriate claims-paying resources to sustain our Triple-A claims-paying ratings. At March 31, 2000, our total shareholders' equity was $3.7 billion, with total long-term borrowings at $589 million. We use debt financing to lower our overall cost of capital, thereby increasing our return on shareholders' equity. We maintain debt at levels we consider to be prudent based on our cash flow and total capital. The following table shows our long-term debt and the ratio we use to measure it: March 31, December 31, 2000 1999 --------------------------------------------------------------------------- Long-term debt (in millions) $589 $689 Long-term debt to total capital 14% 16% In July 1999, the Board of Directors authorized the repurchase of 7.5 million shares of common stock of the company. The company began the repurchase program in the fourth quarter of 1999. As of March 31, 2000 the company has repurchased a total of 1,290,300 shares at an average price of $43.10. In addition, our insurance company has a $900 million irrevocable standby line of credit facility with a group of major Triple-A Rated 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, which expires on October 31, 2006, and, subject to approval by the banks, may be renewed annually to extend the term to seven years beyond (19) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) the renewal date. Our insurance company also maintains stop-loss reinsurance coverage of $175 million in excess of incurred losses of $700 million. At quarter end, total claims-paying resources for our insurance company stood at $8.7 billion, an 8% increase over first quarter-end 1999. LIQUIDITY Cash flow needs at the parent company level are primarily for dividends to our shareholders and interest payments on our debt. These requirements have historically been met by upstreaming dividend payments from the insurance company, which generates substantial cash flow from premium writings and investment income. In the first quarter of 2000, operating cash flow totaled $175 million. Under New York state insurance law, without prior approval of the superintendent of the state insurance department, financial guarantee insurance companies can pay dividends from earned surplus subject to retaining a minimum capital requirement. In our case, dividends in any 12-month period cannot be greater than 10% of policyholders' surplus. During the first three months of 2000 our insurance company paid dividends of $47 million and at March 31, 2000 had dividend capacity in excess of $14 million without special regulatory approval. The company has significant liquidity supporting its businesses. At the end of the first quarter of 2000, cash equivalents and short-term investments totaled $317 million. Should significant cash flow reductions occur in any of our businesses, for any combination of reasons, we have additional alternatives for meeting ongoing cash requirements. They include selling or pledging our fixed-income investments from our investment portfolio, tapping existing liquidity facilities and new borrowings. The company has substantial external borrowing capacity. We maintain two short-term bank lines totaling $650 million with a group of worldwide banks. At March 31, 2000, there were no balances outstanding under these lines. (20) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The investment portfolio provides a high degree of liquidity since it is comprised of readily marketable high-quality fixed-income securities and short-term investments. At March 31, 2000, the fair value of our consolidated investment portfolio was $10.9 billion, as shown below: Percent Change March 31, December 31, -------------- In millions 2000 1999 2000 vs.1999 ------------------------------------------------------------------------- Insurance operations: Amortized cost $ 6,559 $ 6,427 2% Unrealized loss (142) (223) (36%) ------------------------------------------------------------------------- Fair value $ 6,417 $ 6,204 3% ------------------------------------------------------------------------- Municipal investment Agreements: Amortized cost $ 4,542 $ 4,584 (1%) Unrealized loss (61) (94) (35%) ------------------------------------------------------------------------- Fair value $ 4,481 $ 4,490 --- ------------------------------------------------------------------------- Total portfolio at fair value $10,898 $10,694 2% The growth of our insurance-related investments in 2000 was the result of positive cash flows. The fair value of investments related to our municipal investment agreement business has remained constant at $4.5 billion. The investment portfolios are considered to be available-for-sale, and the differences between their fair value and amortized cost, net of applicable taxes, are reflected as an adjustment to shareholders' equity. Differences between fair value and amortized cost arise primarily as a result of changes in interest rates occurring after a fixed-income security is purchased, although other factors influence fair value, including credit-related actions, supply and demand forces and other market factors. The weighted-average credit quality of our fixed-income portfolios has been maintained at Double-A since our inception. Since we generally intend to hold most of our investments to maturity as part of our risk management strategy, we expect to realize a value substantially equal to amortized cost. (21) PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 11. Computation of Earnings Per Share Assuming Dilution 27. Financial Data Schedule 99. Additional Exhibits - MBIA Insurance Corporation and Subsidiaries Consolidated Financial Statements (b) Reports on Form 8-K: No Reports on Form 8-K were filed in this quarter. (22) 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: May 15, 2000 /s/ Neil G. Budnick ------------------- ------------------------------ Neil G. Budnick Chief Financial Officer Date: May 15, 2000 /s/ Douglas C. Hamilton ------------------- ------------------------------ Douglas C. Hamilton Controller (Principal Accounting Officer) (23) EX-11 2 1Q00 - EXHIBIT 11 EXHIBIT 11 MBIA INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE ASSUMING DILUTION (In thousands except per share amounts) THREE MONTHS ENDED MARCH 31 ------------------------------ 2000 1999 ------------ ------------ Net income $132,320 $9,420 ============ ============ Diluted weighted average shares: Basic weighted average shares outstanding 99,100 99,547 Effect of stock options 454 776 Unallocated ESOP shares 122 142 ------------ ------------ Diluted weighted average shares: 99,676 100,465 ============ ============ Basic EPS $ 1.34 $ 0.09 ============ ============ Diluted EPS $ 1.33 $ 0.09 ============ ============ EX-27 3 1Q00 FDS - ARTICLE 7
7 (Replace this text with the legend) 0000814585 MBIA Inc. 1,000 U.S.DOLLARS 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 1 6,008,500 0 0 0 0 0 10,897,995 56,453 31,439 255,816 12,437,258 475,062 2,315,148 0 0 757,985 0 0 100,156 2,566,494 12,437,258 104,704 95,370 11,885 42,475 8,587 8,586 19,394 179,077 46,757 132,320 0 0 0 132,320 1.34 1.33 0 0 0 0 0 0 0
EX-99 4 1Q 2000 MBIA CORP. GAAP MBIA INSURANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2000 AND DECEMBER 31, 1999 AND FOR THE PERIODS ENDED MARCH 31, 2000 AND 1999 MBIA INSURANCE CORPORATION AND SUBSIDIARIES I N D E X --------- PAGE ---- Consolidated Balance Sheets - March 31, 2000 and December 31, 1999 (Unaudited) 3 Consolidated Statements of Income - Three months ended March 31, 2000 and 1999 (Unaudited) 4 Consolidated Statement of Changes in Shareholder's Equity - Three months ended March 31, 2000 (Unaudited) 5 Consolidated Statements of Cash Flows - Three months ended March 31, 2000 and 1999 (Unaudited) 6 Notes to Consolidated Financial Statements (Unaudited) 7 -2- MBIA INSURANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands except per share amounts)
March 31, 2000 December 31, 1999 --------------- ----------------- ASSETS Investments: Fixed-maturity securities held as available-for-sale at fair value (amortized cost $6,148,824 and $6,006,506) $6,006,638 $5,783,979 Short-term investments, at amortized cost (which approximates fair value) 259,656 273,816 Other investments 15,420 8,425 --------------- ----------------- TOTAL INVESTMENTS 6,281,714 6,066,220 Cash and cash equivalents 9,260 33,702 Securities purchased under agreements to resell 195,000 205,000 Accrued investment income 91,851 93,512 Deferred acquisition costs 255,816 251,922 Prepaid reinsurance premiums 407,797 403,210 Reinsurance recoverable on unpaid losses 31,439 30,819 Goodwill (less accumulated amortization of $58,125 and $56,906) 84,855 86,075 Property and equipment, at cost (less accumulated depreciation of $33,393 and $31,104) 112,329 111,549 Receivable for investments sold 80,427 2,882 Other assets 124,718 161,082 --------------- ----------------- TOTAL ASSETS $7,675,206 $7,445,973 =============== ================= LIABILITIES AND SHAREHOLDER'S EQUITY Liabilities: Deferred premium revenue $2,315,148 $2,310,758 Loss and loss adjustment expense reserves 475,062 467,279 Securities sold under agreements to repurchase 195,000 205,000 Deferred income taxes 112,594 79,895 Deferred fee revenue 29,409 28,478 Payable for investments purchased 70,829 18,948 Other liabilities 117,039 107,988 --------------- ----------------- TOTAL LIABILITIES 3,315,081 3,218,346 --------------- ----------------- Shareholder's Equity: Common stock, par value $150 per share; authorized, issued and outstanding - 100,000 shares 15,000 15,000 Additional paid-in capital 1,519,199 1,514,014 Retained earnings 2,936,797 2,858,210 Accumulated other comprehensive loss, net of deferred income tax benefit of $(49,417) and $(77,942) (110,871) (159,597) --------------- ----------------- TOTAL SHAREHOLDER'S EQUITY 4,360,125 4,227,627 --------------- ----------------- TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $7,675,206 $7,445,973 =============== =================
The accompanying notes are an integral part of the consolidated financial statements. -3- MBIA INSURANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in thousands) Three months ended March 31 --------------------------- 2000 1999 ----------- ------------ Revenues: Gross premiums written $148,837 $154,910 Ceded premiums (42,966) (59,996) ----------- ------------ Net premiums written 105,871 94,914 (Increase) decrease in deferred premium revenue (1,167) 17,197 ----------- ------------ Premiums earned (net of ceded premiums of $38,379 and $30,449) 104,704 112,111 Net investment income 94,588 88,007 Net realized gains 6,575 7,759 Advisory fees 6,531 4,965 ----------- ------------ Total revenues 212,398 212,842 ----------- ------------ Expenses: Losses and loss adjustment 8,587 161,930 Policy acquisition costs, net 8,586 9,193 Operating 18,762 18,098 ----------- ------------ Total expenses 35,935 189,221 ----------- ------------ Income before income taxes 176,463 23,621 Provision for income taxes 50,876 1,212 ----------- ------------ Net income $125,587 $22,409 =========== ============ The accompanying notes are an integral part of the consolidated financial statements. -4- MBIA INSURANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY (Unaudited) For the three months ended March 31, 2000 (Dollars in thousands except per share amounts)
Accumulated Common Stock Additional Other Total --------------------- Paid-in Retained Comprehensive Shareholder's Shares Amount Capital Earnings Loss Equity ---------- ---------- ------------ ------------ ------------------ --------------- Balance, January 1, 2000 100,000 $15,000 $1,514,014 $2,858,210 $(159,597) $ 4,227,627 Comprehensive income: Net income --- --- --- 125,587 --- 125,587 Other comprehensive income: Change in unrealized depreciation of investments net of change in deferred income taxes of $(28,525) --- --- --- --- 52,616 52,616 Change in foreign currency translation --- --- --- --- (3,890) (3,890) --------------- Other comprehensive income 48,726 --------------- Comprehensive income 174,313 --------------- Dividends declared (per common share $470.00) --- --- --- (47,000) --- (47,000) Tax reduction related to tax sharing agreement with MBIA Inc. --- --- 5,185 --- --- 5,185 ---------- ---------- ------------ ------------ ------------------ --------------- Balance, March 31, 2000 100,000 $15,000 $1,519,199 $2,936,797 $(110,871) $ 4,360,125 ========== ========== ============ ============ ================== ===============
Disclosure of reclassification amount: Unrealized appreciation of investments arising during the period, net of taxes $56,741 Reclassification of adjustment, net of taxes (4,125) --------- Net unrealized appreciation, net of taxes $52,616 ========= The accompanying notes are an integral part of the consolidated financial statements. - 5 - MBIA INSURANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands)
Three months ended March 31 ---------------------------- 2000 1999 ------------ ------------ Cash flows from operating activities: Net income $ 125,587 $ 22,409 Adjustments to reconcile net income to net cash provided by operating activities: Decrease in accrued investment income 1,661 3,455 Increase in deferred acquisition costs (3,894) (498) Increase in prepaid reinsurance premiums (4,587) (29,547) Increase in deferred premium revenue 5,754 12,350 Increase in loss and loss adjustment expense reserves, net 7,163 158,717 Depreciation 2,289 1,565 Amortization of goodwill 1,220 1,219 Amortization of bond discount, net (4,410) (3,661) Net realized gains on sale of investments (6,575) (7,759) Deferred income tax provision (benefit) 4,213 (47,058) Other, net 46,265 (69,467) ------------ ------------ Total adjustments to net income 49,099 19,316 ------------ ------------ Net cash provided by operating activities 174,686 41,725 ------------ ------------ Cash flows from investing activities: Purchase of fixed-maturity securities, net of payable for investments purchased (733,652) (555,620) Sale of fixed-maturity securities, net of receivable for investments sold 506,928 321,916 Redemption of fixed-maturity securities, net of receivable for investments redeemed 76,984 100,133 Sale of short-term investments, net 6,903 100,989 (Purchase) sale of other investments, net (6,201) 643 Capital expenditures, net of disposals (3,090) (6,196) ------------ ------------ Net cash used by investing activities (152,128) (38,135) ------------ ------------ Cash flows from financing activities: Dividends paid (47,000) --- ------------ ------------ Net cash used by financing activities (47,000) --- ------------ ------------ Net (decrease) increase in cash and cash equivalents (24,442) 3,590 Cash and cash equivalents - beginning of period 33,702 6,546 ------------ ------------ Cash and cash equivalents - end of period $ 9,260 $ 10,136 ============ ============ Supplemental cash flow disclosures: Income taxes paid $ 455 $ 1,523
The accompanying notes are an integral part of the consolidated financial statements. - 6 - MBIA INSURANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation - ------------------------ The accompanying consolidated financial statements are unaudited and include the accounts of MBIA Insurance Corporation and its Subsidiaries (the "company"). The statements do not include all of the information and disclosures required by generally accepted accounting principles. These statements should be read in conjunction with the company's consolidated financial statements and notes thereto for the year ended December 31, 1999. The accompanying 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 three months ended March 31, 2000 may not be indicative of the results that may be expected for the year ending December 31, 2000. The December 31, 1999 balance sheet was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. 2. Dividends Declared - ----------------------- Dividends declared and paid by the company during the three months ended March 31, 2000 were $47.0 million. 3. Unallocated Loss Reserve Methodology Update - ---------------------------------------------- The company completed an update of its unallocated loss reserving methodology in the first quarter of 1999. The update included an analysis of loss-reserve factors based on the latest available industry data. The company included the analysis of historical default and recovery experience for the relevant sectors of the fixed-income market. Also factored in was the changing mix of the company's book of business. The study resulted in an increase in the company's quarterly loss provision and a one-time charge in the first quarter of 1999 of $153 million to incorporate the new factors on the existing insured portfolio. -7- -----END PRIVACY-ENHANCED MESSAGE-----