-----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, M+X6u+sjpUFD44GcNhaRuFbKM597EVmutOvec7LQV+SyBsksOJlcZl3U59y4jhz9 NzAcUjLAQxqNVDSOhG9MOA== 0000814585-96-000003.txt : 19960515 0000814585-96-000003.hdr.sgml : 19960515 ACCESSION NUMBER: 0000814585-96-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 SROS: NYSE 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: 1934 Act SEC FILE NUMBER: 001-09583 FILM NUMBER: 96563772 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 1ST QTR 10Q 96 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, 1996 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 April 30, 1996 there were outstanding 42,864,351 shares of Common Stock, par value $1 per share, of the registrant. Page 1 of 16 INDEX PAGE ---- PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) MBIA Inc. and Subsidiaries Consolidated Balance Sheets - March 31, 1996 and December 31, 1995 3 Consolidated Statements of Income - Three months ended March 31, 1996 and 1995 4 Consolidated Statement of Changes in Shareholders' Equity - Three months ended March 31, 1996 5 Consolidated Statements of Cash Flows - Three months ended March 31, 1996 and 1995 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 - 14 PART II OTHER INFORMATION, AS APPLICABLE Item 6. Exhibits and Reports on Form 8-K 15 SIGNATURES 16 (2) MBIA INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands except per share amounts)
March 31, 1996 December 31, 1995 ------------------------ -------------------- (Unaudited) (Audited) ASSETS Investments: Fixed-maturity securities held as available-for-sale at fair value (amortized cost $3,664,571 and $3,428,986) $3,784,836 $3,652,621 Short-term investments, at amortized cost (which approximates fair value) 141,412 198,035 Other investments 13,374 14,064 --------------- ------------- 3,939,622 3,864,720 Municipal investment agreement portfolio held as available-for-sale at fair value (amortized cost $2,775,883 and $2,645,828) 2,803,595 2,742,626 --------------- ------------- TOTAL INVESTMENTS 6,743,217 6,607,346 Cash and cash equivalents 5,744 23,258 Accrued investment income 87,681 87,016 Deferred acquisition costs 140,919 140,348 Prepaid reinsurance premiums 206,383 200,887 Goodwill (less accumulated amortization of $39,250 and $41,298) 105,305 106,569 Property and equipment, at cost (less accumulated depreciation of $18,655 and $17,625) 46,328 46,030 Receivable for investments sold 8,870 6,100 Other assets 60,990 49,896 --------------- ------------- TOTAL ASSETS $7,405,437 $7,267,450 =============== ============= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Deferred premium revenue $1,666,945 $1,616,315 Loss and loss adjustment expense reserves 46,376 42,505 Municipal investment agreements 1,993,474 2,026,709 Municipal repurchase agreements 770,473 615,776 Long-term debt 373,927 373,900 Short-term debt --- 18,000 Deferred income taxes 190,474 246,736 Payable for investments purchased 23,410 10,695 Other liabilities 98,384 82,548 --------------- ------------- TOTAL LIABILITIES 5,163,463 5,033,184 --------------- ------------- 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--42,855,931 and 42,077,387 42,856 42,077 Additional paid-in capital 781,345 725,153 Retained earnings 1,322,135 1,261,051 Cumulative translation adjustment 475 2,849 Unrealized appreciation of investments, net of deferred income tax provision of $51,814 and $112,252 95,553 207,648 Unearned compensation--restricted stock (390) (426) Treasury stock, at cost; shares--73,676 in 1995 --- (4,086) --------------- ------------- TOTAL SHAREHOLDERS' EQUITY 2,241,974 2,234,266 --------------- ------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $7,405,437 $7,267,450 =============== =============
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 ------------------------------------------ 1996 1995 ---------------- ---------------- Revenues Insurance: Gross premiums written $ 120,599 $ 70,834 Ceded premiums (14,715) (7,080) ---------------- ---------------- Net premiums written 105,884 63,754 Increase in deferred premium revenue (45,532) (12,680) ---------------- ---------------- Premiums earned (net of ceded premiums of $9,220 and $7,839) 60,352 51,074 Net investment income 59,098 52,837 Net realized gains 2,692 1,724 Investment management services: Income 6,093 4,202 Net realized gains 968 33 Other 994 910 ---------------- ---------------- Total revenues 130,197 110,780 ---------------- ---------------- Expenses Insurance: Losses and loss adjustment 3,178 2,033 Policy acquisition costs, net 5,900 5,140 Operating 10,549 9,747 Investment management services 3,411 2,871 Interest 8,137 7,050 Other 448 417 ---------------- ---------------- Total expenses 31,623 27,258 ---------------- ---------------- Income before income taxes 98,574 83,522 Provision for income taxes 20,949 17,516 ---------------- ---------------- Net income $ 77,625 $ 66,006 ================ ================ Net income per common share $ 1.81 $ 1.57 ================ ================ Weighted average number of common shares and common stock equivalents outstanding 42,935,589 42,061,641 ================ ================
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, 1996 (In thousands except per share amounts)
Unearned Common Stock Additional Cumulative Unrealized Compensation- Treasury Stock ---------------- Paid-in Retained Translation Appreciation Restricted ---------------- Shares Amount Capital Earnings Adjustment of Investments Stock Shares Amount ------- ------- ---------- ---------- ----------- -------------- ------------- ------ ------- Balance, January 1, 1996 42,077 $42,077 $725,153 $1,261,051 $2,849 $207,648 $ (426) 74 $4,086 Net proceeds from issuance of shares 770 770 54,500 --- --- --- --- --- --- Unearned compensation- restricted stock --- --- --- --- --- --- 36 --- --- Exercise of stock options 9 9 1,692 (1,757) --- --- --- (74) (4,086) Net income --- --- --- 77,625 --- --- --- --- --- Change in foreign currency translation --- --- --- --- (2,374) --- --- --- --- Change in unrealized appreciation of investments net of change in deferred income taxes of $60,438 --- --- --- --- --- (112,095) --- --- --- Dividends (declared and paid per common share $.345) --- --- --- (14,784) --- --- --- --- --- ------ ------- -------- ---------- ----------- -------------- ------------- ------- -------- Balance, March 31, 1996 42,856 $42,856 $781,345 $1,322,135 $ 475 $ 95,553 $ (390) --- $ --- ====== ======= ======== ========== =========== ============== ============= ======= =========
The accompanying notes are an integral part of the consolidated financial statements. (5) MBIA INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
Three months ended March 31 --------------------------------- 1996 1995 ------------- ------------ Cash flows from operating activities: Net income .................................................... $ 77,625 $ 66,006 Adjustments to reconcile net income to net cash provided by operating activities: Increase in accrued investment income ....................... (665) (2,734) Increase in deferred acquisition costs ...................... (571) (1,634) (Increase) decrease in prepaid reinsurance premiums ......... (5,496) 758 Increase in deferred premium revenue ........................ 51,028 11,922 Increase in loss and loss adjustment expense reserves ....... 3,871 1,885 Depreciation ................................................ 1,065 907 Amortization of goodwill .................................... 1,264 1,249 Amortization of bond discount, net .......................... (4,547) (358) Net realized gains on sale of investments ................... (3,660) (1,757) Deferred income taxes ....................................... 4,176 3,782 Other, net .................................................. (20,636) 21,935 --------- --------- Total adjustments to net income ............................. 25,829 35,955 --------- --------- Net cash provided by operating activities ................... 103,454 101,961 --------- --------- Cash flows from investing activities: Purchase of fixed-maturity securities, net of payable for investments purchased ........................ (329,252) (182,603) Sale of fixed-maturity securities, net of receivable for investments sold ............................. 146,729 92,891 Redemption of fixed-maturity securities, net of receivable for investments redeemed ......................... 32,644 16,717 Purchase of short-term investments, net ....................... (21,243) (9,908) Sale (purchase) of other investments, net ..................... 215 (863) Purchases for municipal investment agreement portfolio, net of payable for investments purchased ......... (466,015) (864,740) Sales from municipal investment agreement portfolio, net of receivable for investments sold ........... 346,159 284,957 Capital expenditures, net of disposals ........................ (1,369) (1,106) --------- --------- Net cash used by investing activities ....................... (292,132) (664,655) --------- --------- Cash flows from financing activities: Net proceeds from issuance of common stock .................... 55,270 -- Dividends paid ................................................ (14,491) (12,901) Proceeds from issuance of municipal investment agreements and municipal repurchase agreements .............. 472,745 779,995 Payments for drawdowns of municipal investment agreements and municipal repurchase agreements .............. (346,390) (203,833) Exercise of stock options ..................................... 4,030 1,199 --------- --------- Net cash provided by financing activities ................... 171,164 564,460 --------- --------- Net (decrease) increase in cash and cash equivalents ............... (17,514) 1,766 Cash and cash equivalents - beginning of period .................... 23,258 7,940 --------- --------- Cash and cash equivalents - end of period .......................... $ 5,744 $ 9,706 ========= ========= Supplemental cash flow disclosures: Income taxes paid ............................................. $ 1,206 $ 146 Interest paid: Municipal investment agreements and municipal repurchase agreements ........................... $ 36,168 $ 25,010 Long-term debt .............................................. 9,188 9,188 Short-term debt ............................................. 193 281
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, 1995 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 three months ended March 31, 1996 may not be indicative of the results that may be expected for the year ending December 31, 1996. The December 31, 1995 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 three months ended March 31, 1996 were $14.8 million. (7) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - --------------------- 1996 AND 1995 - FIRST QUARTER RESULTS - ------------------------------------- MBIA Inc.'s (the "Company" or "MBIA") 1996 first quarter net income increased by 18% to $77.6 million or $1.81 per share compared with $66.0 million or $1.57 per share in the first quarter of 1995. Comparing the first quarter of 1996 with 1995, core earnings per share increased by 12% to $1.60. Core earnings, which exclude the net income effects from refundings and calls of insured issues, realized gains and losses, accounting changes and other non-recurring items, are a more indicative measure of MBIA's underlying profit trend. The increase in core earnings was primarily due to the continued combined growth in core premiums earned and net investment income. Book value at March 31, 1996 was $52.31 per share, down slightly from $53.19 per share at year-end 1995. This decrease reflected the decline in market value of the Company's fixed-income portfolio resulting from this quarter's steep increase in interest rates, partially offset by the Company's strong operating results. Financial guarantee insurance companies refer to adjusted book value as a more appropriate measure of their company's intrinsic value. Adjusted book value is calculated by adding to book value the after-tax effects of (1) net deferred premiums less deferred acquisition costs and (2) the present value of future installment premiums on outstanding insurance policies. MBIA's adjusted book value per share declined slightly to $76.03 at March 31, 1996 compared with $76.56 at year-end 1995. As with book value, this reflects the impact of the first quarter's increase in interest rates on the market value of the fixed-income portfolio, partially offset by operating results and new business written. Insurance Operations - -------------------- MBIA's primary business is to guarantee principal and interest payments on municipal bonds sold in the new issue and secondary markets. The Company also provides financial guarantees for structured finance transactions, investor-owned utility debt and obligations of high-quality financial institutions. In addition, MBIA provides financial guarantees for similar securities in the international markets. The Company is the leading provider of financial guarantees in both domestic and international markets. Gross premiums written ("GPW") as reported on the Company's income statements reflect cash premium receipts during the period, which represents (8) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) upfront premiums received for business originated in the period and installment premiums received for installment-based insurance policies issued in current and prior periods. GPW does not include the present value of future premiums receivable for installment-based insurance policies issued in the period. Although most of MBIA's premiums are collected upfront at policy issuance, MBIA is writing an increasing proportion of installment premium business. MBIA estimates the aggregate present value of its future stream of installment premiums to be $244.0 million at March 31, 1996. To more accurately portray year-to-year changes in new business production, the Company also discloses adjusted gross premiums ("AGP"), which represent upfront premiums and the estimated present value of current period and future installment premiums for installment-based insurance policies issued in the period. MBIA's total GPW for first quarter 1996 increased 70% to $120.6 million from $70.8 million in the first quarter of 1995. Total AGP increased 74% to $129.7 million from $74.6 million over the same period. The overall long-term new issue municipal bond volume was $36.8 billion for the first quarter of 1996, up 40% from $26.3 billion in the first quarter of last year. The insured portion of the market rose sharply to 52% from 32% in the first quarter of 1996. MBIA continued to lead the industry in market share, capturing 44% of the insured market in the first quarter of 1996 up from 38% in 1995's first quarter. MBIA also insured a record 23% of all new issue municipal par value. Market data are reported on a sale date basis while MBIA's financial results are computed from closing date information. Typically, there can be a one- to four-week delay between the sale date and closing date of an insured issue. For the first quarter of 1996, total par value insured by MBIA for new issue and secondary market municipal insurance increased to $9.4 billion from $5.4 billion in the same period last year. Over the same periods, GPW for new issue and secondary market municipal insurance increased 47% to $90.5 million from $61.5 million. Municipal AGP increased by 46% to $88.5 million from $60.7 million in the first quarter of 1995. MBIA reported substantial gains in its domestic new issue and secondary market structured finance business insuring a record $3.7 billion of par value in the first quarter of 1996, a 75% gain over last year's first quarter. GPW at $19.2 million reflected a 247% increase over first quarter 1995. Structured finance AGP totaled $28.3 million, up 179% over 1995's first quarter. Structured finance GPW and AGP included $12.1 million of assumed premiums related to an aggregate excess of loss agreement covering $190 million par of first mortgage loans. (9) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) MBIA's international operations insured $0.7 billion of new issue and secondary market par value. GPW for international business increased by 204% to $10.1 million from $3.3 million in the first quarter of 1995. International AGP increased by 202% to $10.0 million from $3.3 million in first quarter 1995. Ceded premiums to reinsurers from all insurance operations were $14.7 million in the first quarter of 1996, compared with $7.1 million in first quarter 1995, representing 12% and 10% of GPW in the first quarters of 1996 and 1995, respectively. The rate of premium cessions in first quarter 1996 was higher than first quarter 1995 cession rate due to an unusually large cession on one special revenue transaction. Premiums received upfront are earned pro rata over the period of risk. Such 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 upfront premium received. The balance represents deferred premium revenue to be earned over the remaining life of the insured bond issue. Installment premiums are credited to the deferred premium revenue account in the period in which such premiums are received, and they are recognized as revenue over each installment period -- generally one year or less. The revenue that the Company recognizes from the amortization of deferred premiums for each period, net of the amortization of prepaid reinsurance premiums, is its premiums earned for that period. Premiums earned increased 18% to $60.4 million in first quarter 1996 from $51.1 million in first quarter 1995. Earned premiums from scheduled amortization increased by 13% to $48.8 million over last year's first quarter. 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 related deferred premium revenue is earned immediately, except for any portion which may be applied as a credit towards insuring the refunding bond issue. Earned premiums generated by refunded and called bonds in first quarter 1996 increased to $11.5 million from $8.0 million in first quarter 1995. The amount of bond refundings and calls is influenced by a variety of factors such as prevailing interest rates relative to the coupon rates of the bond issue, the issuer's desire to modify bond covenants and applicable regulations under the Internal Revenue Code. (10) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The fair value of the Company's investment portfolio related to its insurance operations was $3.9 billion as of March 31, 1996. This portfolio generated net investment income of $59.1 million in first quarter 1996, a 12% increase over the $52.8 million generated in the first quarter of 1995. The increase was primarily the result of the growth of investments from continued positive operating cash flows and a modest lengthening of the portfolio's duration. Average invested assets for first quarter 1996 were $3.72 billion at amortized cost compared with $3.30 billion for the first quarter of 1995. Net realized capital gains in first quarter 1996 were $2.7 million, compared with $1.7 million in the prior year's first quarter. The average credit quality rating of the fixed-income investments at March 31, 1996 was Double-A. Tax-exempt securities represented 73% of the portfolio at March 31, 1996 compared with 72% at December 31, 1995. The provision for losses and loss adjustment expenses during the first quarter of 1996 was $3.2 million compared with $2.0 million in 1995's first quarter, representing additions to the loss reserve consistent with the Company's loss reserving methodology. At March 31, 1996, $15.8 million of the $46.4 million loss and loss adjustment expense reserve was allocated on a case basis compared with $14.5 million of the $42.5 million reserve at year-end 1995. During the first quarter of 1996 there were no new case reserves nor any material adjustments to those reserves currently outstanding. At March 31, 1996 the Company's unallocated general reserve was $30.6 million compared with $28.0 million at year-end 1995. In first quarter 1996, policy acquisition costs net of deferrals were $5.9 million. The 15% increase for the period over 1995's first quarter was consistent with the 18% overall increase in earned premiums. Policy acquisition costs are amortized over the period in which the related premiums are earned. Other insurance operating expenses increased by 8% to $10.5 million in first quarter 1996 from $9.7 million in the prior year's first quarter. In the first quarter of 1996, the Company incurred $8.1 million of interest expense compared with $7.1 million in the first quarter of 1995. The increase in first quarter 1996 primarily resulted from the additional interest expense related to the $75 million public debt offering in December 1995. The Company's effective tax rate increased marginally in the first quarter of 1996 to 21.3% compared with 21.0% in 1995. (11) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) INVESTMENT MANAGEMENT SERVICES - ------------------------------ Over the last six years, MBIA has developed investment management services which capitalize on the Company's capabilities, reputation and marketplace relationships. MBIA Municipal Investors Service Corporation ("MBIA/MISC"), a wholly owned subsidiary of the Company, provides cash management services for local governments and school districts. As of March 31, 1996, MBIA/MISC had approximately 1,300 clients and over $2.6 billion of client assets under management compared with over $2.5 billion at year-end 1995. In addition, MBIA/MISC provides fund administration services to over 230 clients with invested assets of $112.7 million. MBIA/MISC offers its services in nine states and the Commonwealth of Puerto Rico and plans to expand into additional states. Since 1993, MBIA Investment Management Corp. ("IMC"), another wholly owned subsidiary of the Company, has provided investment agreements, guaranteed as to principal and interest, for bond proceeds of states, municipalities and municipal authorities. At March 31, 1996, aggregate principal and accrued interest outstanding on investment agreements was $2.8 billion compared with $2.6 billion at year-end 1995. The assets supporting IMC's investment agreement liabilities are high-quality securities with an average credit quality rating of Double-A and are recorded as a component of the Company's total investments. In conducting its business, IMC may, from time to time, use derivative financial instruments for hedging purposes as part of its overall management of interest rate risk exposure. The use of such instruments must comply with the Company's policies restricting their use to prescribed limits, non-speculative purposes, and exposure to a market or index that represents a class of investments approved as a direct investment under the Company's existing investment guidelines. At March 31, 1996, the Company's exposure to derivative financial instruments (interest rate contracts) was not significant. In 1994, MBIA Securities Corp. ("SECO"), a wholly owned subsidiary, was established to provide investment management services for MBIA's investment agreements, municipal cash management and public pension funds. In first quarter 1996, portfolio management for the majority of MBIA's insurance related investment portfolio was transferred to SECO; completing the transition which began in 1995. (12) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) For the first quarter of 1996, the Company's investment management services business contributed $6.1 million in operating revenues, a 45% increase over the same period last year. Operating expenses increased by 19% to $3.4 million. Net realized capital gains for the first quarter of 1996 were $1.0 million compared to the first quarter of 1995 when there were no realized gains or losses for the investment management services business. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- At March 31, 1996, the fair value of the Company's consolidated investment portfolio was $6.7 billion, an increase of 2% from $6.6 billion at year-end 1995. The fair value of investments related to MBIA's insurance and municipal investment agreement businesses remained relatively unchanged at $3.9 billion and $2.8 billion, respectively, at March 31, 1996. The decline in the market value of the Company's fixed-income portfolio caused by the recent increase in interest rates was offset by strong operating cash flow and the $55 million of net proceeds from MBIA's public offering of common stock. The Company's fixed-income investment portfolio has been classified as available-for-sale in accordance with SFAS 115. The difference between fair value and amortized cost is primarily related to changes in interest rates, and if the portfolio is held to maturity, the Company expects to realize an amount substantially equal to amortized cost. MBIA Corp.'s liquidity position remained strong, as net cash flow provided by its operations aggregated $167 million in first quarter 1996, a 55% increase from $108 million in first quarter 1995. The Company's liquidity is in part dependent upon MBIA Corp.'s ability to pay dividends to the Company. MBIA Corp.'s net income, consisting of premium earnings and investment income less losses and expenses, is a source of continuing additions to earned surplus and dividend-paying capability. Under New York state insurance law, without prior approval of the superintendent of the state insurance department, MBIA Corp. may pay a dividend only from earned surplus subject to the maintenance of a minimum capital requirement. The dividends in any 12-month period may not exceed the lesser of 10% of its policyholders' surplus as shown on its last filed (13) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) statutory-basis financial statements or adjusted net investment income, as defined, for such 12-month period. In the first quarter of 1996, MBIA Corp. paid no dividends and at March 31, 1996 had approximately $71 million available for payment of future dividends to the Company without requiring prior approval. MBIA Corp. has an irrevocable standby line of credit with a group of major banks in the amount of $650 million which provides funds for the payment of claims in the event that severe losses should occur. The line of credit expires on September 30, 2002 but may be renewed annually by the bank group for a period to extend the term to seven years beyond the renewal date. For general corporate purposes or to further facilitate the immediate payment of claims, should they occur, the Company and MBIA Corp. maintain short-term liquidity facilities totaling $275 million with a group of major banks. At March 31, 1996, there were no amounts outstanding under these facilities. 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 annual cash flows from operations and bank lines of credit are more than adequate to meet the Company's expected cash requirements. In February 1996, the Company completed a public offering of 3.9 million shares of the Company's common stock, of which 0.8 million shares were new shares offered by the Company. The Company realized $55 million in new capital from the offering. (14) PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits 11. Computation of Earnings Per Share Assuming Full Dilution 27. Financial Data Schedule 99. Additional Exhibits - MBIA Insurance Corporation and Subsidiaries Consolidated Financial Statements (b) Reports on Form 8-K - The Company filed a report on Form 8-K on January 24, 1996 related to the Company's December 31, 1995 earnings press release. (15) 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 10, 1996 /s/ JULLIETTE S. TEHRANI - ------------------------------ ----------------------------- Julliette S. Tehrani Senior Vice President, Chief Financial Officer Date: May 10, 1996 /s/ ELIZABETH B. SULLIVAN - ------------------------------ --------------------------- Elizabeth B. Sullivan Vice President, Controller (Principal Accounting Officer) (16) EX-11 2 1ST QTR 96 EXHIBIT 11 EXHIBIT 11 MBIA INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE ASSUMING FULL DILUTION (In thousands except per share amounts) Three Months Ended March 31 ------------------ 1996 1995 ------- ------- Net income ........................................... $77,625 $66,006 ======= ======= Fully diluted shares: Average number of common shares outstanding ...... 42,489 41,629 Assumed exercise of dilutive stock options ....... 448 489 ------- ------- 42,937 42,118 ======= ======= Earnings per share assuming full dilution ............ $ 1.81 $ 1.57 ======= ======= EX-27 3 1ST QTR 96 EX.27 (FDS)
7 1000 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 3,784,836 0 0 0 0 0 6,743,217 5,744 0 140,919 7,405,437 46,376 1,666,945 0 0 373,927 42,856 0 0 2,199,118 7,405,437 60,352 59,098 2,692 8,055 3,178 5,900 10,549 98,574 20,949 77,625 0 0 0 77,625 1.81 1.81 0 0 0 0 0 0 0
EX-99 4 1ST QTR 96 CORP GAAP MBIA INSURANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 1996 AND DECEMBER 31, 1995 AND FOR THE PERIODS ENDED MARCH 31, 1996 AND 1995 MBIA INSURANCE CORPORATION AND SUBSIDIARIES I N D E X PAGE Consolidated Balance Sheets - March 31, 1996 (Unaudited) and December 31, 1995 (Audited) ............. 3 Consolidated Statements of Income - Three months ended March 31, 1996 and 1995 (Unaudited) ................. 4 Consolidated Statement of Changes in Shareholder's Equity - Three months ended March 31, 1996 (Unaudited) .......................... 5 Consolidated Statements of Cash Flows - Three months ended March 31, 1996 and 1995 (Unaudited) ................. 6 Notes to Consolidated Financial Statements (Unaudited) ..................... 7 -2- MBIA INSURANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands except per share amounts) March 31, 1996 December 31, 1995 --------------- ------------------ (Unaudited) (Audited) ASSETS Investments: Fixed-maturity securities held as available-for-sale at fair value (amortized cost $3,664,571 and $3,428,986) .................. $3,784,836 $3,652,621 Short-term investments, at amortized cost (which approximates fair value) .. 135,428 198,035 Other investments .................. 13,374 14,064 ---------- ---------- TOTAL INVESTMENTS .............. 3,933,638 3,864,720 Cash and cash equivalents .............. 2,499 2,135 Accrued investment income .............. 60,462 60,247 Deferred acquisition costs ............. 140,919 140,348 Prepaid reinsurance premiums ........... 206,383 200,887 Goodwill (less accumulated amortization of $38,590 and $37,366) ............ 104,390 105,614 Property and equipment, at cost (less accumulated depreciation of $12,822 and $12,137) 41,771 41,169 Receivable for investments sold ........ 6,501 5,729 Other assets ........................... 51,534 42,145 ---------- ---------- TOTAL ASSETS ................... $4,548,097 $4,462,994 ========== ========== Liabilities and Shareholder's Equity Liabilities: Deferred premium revenue ........... $1,666,945 $1,616,315 Loss and loss adjustment expense reserves .................. 46,376 42,505 Deferred income taxes .............. 180,843 212,925 Payable for investments purchased .. 15,715 10,695 Other liabilities .................. 96,600 54,682 ---------- ---------- TOTAL LIABILITIES .............. 2,006,479 1,937,122 ---------- ---------- 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 ......... 1,025,591 1,021,584 Retained earnings .................. 1,423,157 1,341,855 Cumulative translation adjustment ........................ 330 2,704 Unrealized appreciation of investments, net of deferred income tax provision of $42,114 and $78,372 .. 77,540 144,729 ---------- ---------- TOTAL SHAREHOLDER'S EQUITY ..... 2,541,618 2,525,872 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY ......... $4,548,097 $4,462,994 ========== ========== 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 ------------------------ 1996 1995 --------- --------- Revenues: Gross premiums written ...................... $ 121,011 $ 71,112 Ceded premiums .............................. (14,715) (7,080) --------- --------- Net premiums written .................... 106,296 64,032 Increase in deferred premium revenue ........ (45,532) (12,680) --------- --------- Premiums earned (net of ceded premiums of $9,220 and $7,839) ...... 60,764 51,352 Net investment income ....................... 59,003 53,065 Net realized gains .......................... 2,692 1,724 Other income ................................ 969 908 --------- --------- Total revenues .......................... 123,428 107,049 --------- --------- Expenses: Losses and loss adjustment expenses ......... 3,178 2,033 Policy acquisition costs, net ............... 5,900 5,140 Underwriting and operating expenses ......... 10,549 9,752 --------- --------- Total expenses .......................... 19,627 16,925 --------- --------- Income before income taxes ....................... 103,801 90,124 Provision for income taxes ....................... 22,499 19,476 --------- --------- Net income ....................................... $ 81,302 $ 70,648 ========= ========= 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, 1996 (Dollars in thousands except per share amounts)
Common Stock Additional Cumulative Unrealized ------------------------- Paid-In Retained Translation Appreciation Shares Amount Capital Earnings Adjustment of Investments ---------- ---------- ---------- ---------- ----------- -------------- Balance, January 1, 1996 ............... 100,000 $ 15,000 $1,021,584 $1,341,855 $ 2,704 $ 144,729 Exercise of stock options .............. -- -- 1,179 -- -- -- Net income ............................. -- -- -- 81,302 -- -- Change in foreign currency transactions ................ -- -- -- -- (2,374) -- Change in unrealized appreciation of investment net of change in deferred income taxes of $36,258 ........................... -- -- -- -- -- (67,189) Tax reduction related to tax sharing agreement with MBIA Inc. ....................... -- -- 2,828 -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- Balance, March 31, 1996 ................ 100,000 $ 15,000 $1,025,591 $1,423,157 $ 330 $ 77,540 ========== ========== ========== ========== ========== ==========
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 ----------------------- 1996 1995 --------- --------- Cash flows from operating activities: Net income ....................................... $ 81,302 $ 70,648 Adjustments to reconcile net income to net cash provided by operating activities: (Increase) decrease in accrued investment income ............................ (215) 960 Increase in deferred acquisition costs ......... (571) (1,634) (Increase) decrease in prepaid reinsurance premiums .......................... (5,496) 758 Increase in deferred premium revenue ........... 51,028 11,922 Increase in loss and loss adjustment expense reserves .............................. 3,871 1,885 Depreciation ................................... 719 630 Amortization of goodwill ....................... 1,224 1,232 Amortization of bond discount, net ............. (1,014) (358) Net realized gains on sale of investments ...... (2,692) (1,724) Deferred income taxes .......................... 4,176 3,782 Other, net ..................................... 34,288 19,601 --------- --------- Total adjustments to net income ................ 85,318 37,054 --------- --------- Net cash provided by operating activities ...... 166,620 107,702 --------- --------- Cash flows from investing activities: Purchase of fixed-maturity securities, net of payable for investments purchased ........... (329,252) (182,603) Sale of fixed-maturity securities, net of receivable for investments sold ................ 146,729 92,890 Redemption of fixed-maturity securities, net of receivable for investments redeemed ..... 32,644 16,717 Purchase of short-term investments, net .......... (15,259) (9,908) Sale (purchase) of other investments, net ........ 215 (863) Capital expenditures, net of disposals ........... (1,333) (817) --------- --------- Net cash used in investing activities .......... (166,256) (84,584) --------- --------- Cash flows from financing activities: Dividends paid ................................... -- (22,500) --------- --------- Net cash used by financing activities .......... -- (22,500) --------- --------- Net increase in cash and cash equivalents .......... 364 618 Cash and cash equivalents - beginning of period .... 2,135 1,332 --------- --------- Cash and cash equivalents - end of period .......... $ 2,499 $ 1,950 ========= ========= Supplemental cash flow disclosures: Income taxes paid ................................ $ 1,161 $ 1 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, 1995. 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, 1996 may not be indicative of the results that may be expected for the year ending December 31, 1996. The December 31, 1995 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 - --------------------- No dividends were declared by the Company during the three months ended March 31, 1996. -7- -----END PRIVACY-ENHANCED MESSAGE-----