-----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, OuTyniNv+J1R5Gf0rsRPvnsvQnfYrh9dBeFlydqCSTDL+XWpF08jTKV4+G+y5LME zdWonyhP4DVRlntLBVTVeg== 0000814585-97-000007.txt : 19970815 0000814585-97-000007.hdr.sgml : 19970815 ACCESSION NUMBER: 0000814585-97-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 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: 97663389 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 2 QTR 97 10Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended June 30, 1997 OR ( ) TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from __________ to __________ Commission File No. 1-9583 I.R.S. Employer Identification No. 06-1185706 MBIA INC. A Connecticut Corporation 113 King Street, Armonk, N. Y. 10504 (914) 273-4545 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ NO _____ As of July 31, 1997 there were outstanding 44,627,131 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 - June 30, 1997 and December 31, 1996 3 Consolidated Statements of Income - Three months and six months ended June 30, 1997 and 1996 4 Consolidated Statement of Changes in Shareholders' Equity - Six months ended June 30, 1997 5 Consolidated Statements of Cash Flows - Six months ended June 30, 1997 and 1996 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-20 PART II OTHER INFORMATION, AS APPLICABLE Item 6. Exhibits and Reports on Form 8-K 21 SIGNATURES 22 (2) MBIA INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands except per share amounts)
June 30, 1997 December 31, 1996 ----------------- ------------------ (Unaudited) (Audited) ASSETS Investments: Fixed-maturity securities held as available-for-sale at fair value (amortized cost $4,195,557 and $4,001,562) $4,342,607 $4,149,700 Short-term investments, at amortized cost (which approximates fair value) 175,948 176,088 Other investments 15,374 14,851 ------------- ------------- 4,533,929 4,340,639 Municipal investment agreement portfolio held as available-for-sale at fair value (amortized cost $3,259,330 and $3,263,211) 3,280,435 3,293,298 ------------- ------------- TOTAL INVESTMENTS 7,814,364 7,633,937 Cash and cash equivalents 34,003 7,356 Securities borrowed or purchased under agreements to resell 286,401 217,000 Accrued investment income 107,465 104,725 Deferred acquisition costs 151,750 147,750 Prepaid reinsurance premiums 224,394 216,846 Goodwill (less accumulated amortization of $46,168 and $43,050) 116,422 105,138 Property and equipment, at cost (less accumulated depreciation of $23,741 and $21,642) 56,900 50,923 Receivable for investments sold 3,762 980 Other assets 110,861 77,360 ------------- ------------- TOTAL ASSETS $8,906,322 $8,562,015 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Deferred premium revenue $1,873,916 $1,785,875 Loss and loss adjustment expense reserves 68,114 59,314 Municipal investment agreements 2,139,901 2,290,609 Municipal repurchase agreements 1,036,178 968,671 Long-term debt 374,065 374,010 Short-term debt 60,000 29,100 Securities loaned or sold under agreements to repurchase 341,301 217,000 Deferred income taxes 212,221 206,492 Payable for investments purchased 79,369 52,029 Other liabilities 99,166 99,218 ------------- ------------- TOTAL LIABILITIES 6,284,231 6,082,318 ------------- ------------- 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-- 43,409,919 and 43,294,243 43,410 43,294 Additional paid-in capital 810,770 803,078 Retained earnings 1,665,991 1,518,994 Cumulative translation adjustment (7,545) (1,042) Unrealized appreciation of investments, net of deferred income tax provision of $59,535 and $62,706 110,312 116,424 Unearned compensation--restricted stock (847) (1,051) ------------- ------------- TOTAL SHAREHOLDERS' EQUITY 2,622,091 2,479,697 ------------- ------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $8,906,322 $8,562,015 ============= =============
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 Six months ended June 30 June 30 ------------------------------ ------------------------------- 1997 1996 1997 1996 -------------- -------------- --------------- -------------- Revenues Insurance: Gross premiums written $164,662 $134,001 $256,754 $254,600 Ceded premiums (22,834) (11,914) (28,813) (26,629) -------------- -------------- --------------- -------------- Net premiums written 141,828 122,087 227,941 227,971 Increase in deferred premium revenue (68,608) (60,021) (83,344) (105,553) -------------- -------------- --------------- -------------- Premiums earned (net of ceded premiums of $10,940, $9,682, $21,265 and $18,902) 73,220 62,066 144,597 122,418 Net investment income 67,445 61,473 133,984 120,571 Net realized gains 2,481 3,895 6,855 6,587 Investment management services: Income 6,649 6,631 13,839 12,724 Net realized gains (losses) 43 (34) 1,652 934 Other 3,167 994 5,945 1,988 -------------- -------------- --------------- -------------- Total revenues 153,005 135,025 306,872 265,222 -------------- -------------- --------------- -------------- Expenses Insurance: Losses and loss adjustment 4,823 4,288 8,258 7,466 Policy acquisition costs, net 6,830 5,990 13,575 11,890 Operating 11,651 11,525 23,789 22,074 Investment management services 4,006 3,549 8,043 6,960 Interest 8,754 8,241 17,311 16,378 Other 4,677 602 8,531 1,050 -------------- -------------- --------------- -------------- Total expenses 40,741 34,195 79,507 65,818 -------------- -------------- --------------- -------------- Income before income taxes 112,264 100,830 227,365 199,404 Provision for income taxes 23,244 21,093 47,406 42,042 -------------- -------------- --------------- -------------- NET INCOME $ 89,020 $ 79,737 $179,959 $157,362 ============== ============== =============== ============== NET INCOME PER COMMON SHARE $ 2.03 $ 1.84 $ 4.12 $ 3.65 ============== ============== =============== ============== WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND COMMON STOCK EQUIVALENTS OUTSTANDING 43,755,926 43,304,435 43,727,880 43,121,218 ============== ============== =============== ==============
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 six months ended June 30, 1997 (In thousands except per share amounts)
Unearned Common Stock Additional Cumulative Unrealized Compensation- ---------------- Paid-in Retained Translation Appreciation Restricted Shares Amount Capital Earnings Adjustment of Investments Stock -------- -------- ---------- ---------- ----------- -------------- ------------ Balance, January 1, 1997 43,294 $43,294 $803,078 $1,518,994 $(1,042) $116,424 $(1,051) Unearned compensation- restricted stock 8 8 782 --- --- --- 204 Exercise of stock options 108 108 6,910 --- --- --- --- Net income --- --- --- 179,959 --- --- --- Change in foreign currency translation --- --- --- --- (6,503) --- --- Change in unrealized appreciation of investments net of change in deferred income taxes of $3,171 --- --- --- --- --- (6,112) --- Dividends (declared and paid per common share $0.76) --- --- --- (32,962) --- --- --- -------- -------- --------- ---------- -------- --------- --------- Balance, June 30, 1997 43,410 $43,410 $810,770 $1,665,991 $(7,545) $110,312 $ (847) ======== ======== ========= ========== ======== ========= =========
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)
Six months ended June 30 ------------------------------ 1997 1996 ------------ ------------ Cash flows from operating activities: Net income $ 179,959 $ 157,362 Adjustments to reconcile net income to net cash provided by operating activities: Increase in accrued investment income (2,740) (11,660) Increase in deferred acquisition costs (4,000) (3,188) Increase in prepaid reinsurance premiums (7,548) (7,727) Increase in deferred premium revenue 90,892 113,280 Increase in loss and loss adjustment expense reserves 8,800 7,932 Depreciation 2,487 2,135 Amortization of goodwill 3,118 2,524 Amortization of bond discount, net (9,148) (9,471) Net realized gains on sale of investments (8,507) (7,521) Deferred income taxes 9,054 6,886 Other, net (41,922) (26,962) ------------ ------------ Total adjustments to net income 40,486 66,228 ------------ ------------ Net cash provided by operating activities 220,445 223,590 ------------ ------------ Cash flows from investing activities: Purchase of fixed-maturity securities, net of payable for investments purchased (889,051) (698,356) Sale of fixed-maturity securities, net of receivable for investments sold 613,369 334,469 Redemption of fixed-maturity securities, net of receivable for investments redeemed 69,313 75,960 Sale (purchase) of short-term investments, net 13,391 (15,264) Sale of other investments, net 523 401 Purchases for municipal investment agreement portfolio, net of payable for investments purchased (550,696) (970,773) Sales from municipal investment agreement portfolio, net of receivable for investments sold 595,636 580,883 Capital expenditures, net of disposals (6,412) (3,180) Other, net (16,458) --- ------------ ------------ Net cash used by investing activities (170,385) (695,860) ------------ ------------ Cash flows from financing activities: Net proceeds from issuance of common stock --- 55,233 Net proceeds from issuance of short-term debt 30,900 20,600 Dividends paid (32,919) (29,276) Proceeds from issuance of municipal investment and repurchase agreements 732,821 1,053,077 Payments for drawdowns of municipal investment and repurchase agreements (816,133) (649,811) Securities sold under agreements to repurchase 54,900 --- Exercise of stock options 7,018 10,841 ------------ ------------ Net cash (used) provided by financing activities (23,413) 460,664 ------------ ------------ Net increase (decrease) in cash and cash equivalents 26,647 (11,606) Cash and cash equivalents - beginning of period 7,356 23,258 ------------ ------------ Cash and cash equivalents - end of period $ 34,003 $ 11,652 ============ ============ SUPPLEMENTAL CASH FLOW DISCLOSURES: Income taxes paid $ 40,075 $ 33,116 Interest paid: Municipal investment and repurchase agreements $ 51,455 $ 56,785 Long-term debt 15,913 15,810 Short-term debt 1,149 323
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, 1996 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 six months ended June 30, 1997 may not be indicative of the results that may be expected for the year ending December 31, 1997. The December 31, 1996 condensed balance sheet data 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. Certain amounts have been reclassified in prior years' financial statements to conform to the current presentation. 2. Dividends Declared Dividends declared by the company during the six months ended June 30, 1997 were $33.0 million. 3. Recent Accounting Pronouncement In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards 128 (SFAS 128), "Earnings per Share," effective for periods ending after December 15, 1997. SFAS 128 requires the calculation and presentation on the face of the income statement of "basic" earnings per share and, if applicable, "diluted" earnings per share. Basic earnings per share are calculated based on the weighted average common shares outstanding. In calculating diluted earnings per share, the number of shares is increased to include all potentially dilutive common shares, including stock options. The adoption of SFAS 128 is not expected to have a material effect on reported earnings per share. 4. Subsequent Event In July 1997, the company completed the sale of 1.15 million shares of common stock at $114 per share and sold $100 million of 30-year debentures. The $225 million of net proceeds will be used to support the company's future growth. (7) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION - ------------ MBIA Inc. (our company or MBIA) is the world's premier financial guarantee company and a leading provider of investment management products and services. Through MBIA Insurance Corp. and its subsidiaries (our insurance company), we provide financial guarantees to municipalities and other bond issuers. Our primary business is insuring municipal bonds issued by governmental units to finance essential public services. We also guarantee structured asset-backed and mortgage-backed transactions, selected corporate bonds, including investor-owned utility debt, and obligations of high-quality financial institutions. We provide these products in both the new issue and secondary markets -- internationally as well as domestically. MBIA also provides investment management products and services to the public sector. These include cash management, municipal investment agreements, discretionary asset management and administrative services. In addition, we have expanded the range of municipal services that we offer to state and local governments. RESULTS OF OPERATIONS - --------------------- SUMMARY The following chart presents highlights of our consolidated financial results for the second quarter and first half of 1997 and 1996:
Percent Change ------------------------- 2nd Quarter Year-to-date ----------- ------------ 2nd Quarter June 30 1997 1997 --------------- --------------- vs. vs. 1997 1996 1997 1996 1996 1996 - ------------------------------------------------------------------------------------------ Net income (in millions) $89.0 $79.7 $180.0 $157.4 12% 14% Per share data: Net income $2.03 $1.84 $ 4.12 $ 3.65 10% 13% Operating earnings $2.00 $1.79 $ 3.99 $ 3.54 12% 13% Core earnings $1.83 $1.62 $ 3.64 $ 3.22 13% 13% Book value $60.40 $52.77 14% Adjusted book value $87.69 $77.48 13%
(8) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) We believe core earnings, which exclude the effects of refundings and calls of our insured issues, realized capital gains and losses, accounting changes and other non-recurring items, provide the most indicative measure of our underlying profit trend. In 1997, core earnings per share increased by 13% for both the second quarter and first six months over the comparable periods in 1996. The consistent double-digit increases in quarterly year-to-year core earnings over the past 20 quarters are due primarily to growth in premiums earned and net investment income generated by our insurance operations, as well as the contributions of operating earnings from our investment management services businesses. Any difference between the growth rate of core earnings and net income is related to the net income effects of refunded issues and realized capital gains and losses. Operating earnings per share, which excludes the impact of realized capital gains and losses, increased by 13% for the first six months and 12% for the second quarter, over the comparable periods last year. Our book value at the end of the first six months of 1997 was $60.40 per share, up from $52.77 for the first half of 1996. As with core earnings, we believe that 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 our net deferred premium revenue (net of deferred acquisition costs) plus the present value of unrecorded future installment premiums. The following table presents the components of our adjusted book value per share: Percent Change June 30, June 30, -------------- 1997 1996 1997 vs. 1996 - --------------------------------------------------------------------- Book value $60.40 $52.77 14% After-tax value of: Net deferred premium revenue, net of deferred acquisition costs 22.43 20.81 8% Present value of future installment premiums* 4.86 3.90 25% - --------------------------------------------------------------------- Adjusted book value $87.69 $77.48 13% - --------------------------------------------------------------------- * The discount rate used to present value future installment premiums was 9% in 1997 and 1996. Our adjusted book value per share was $87.69 at June 30, 1997, a 13% increase from June 30, 1996. The increase was due to our strong operating results, growth from new business written, and, with lower interest rates, the increase in the fair value of our fixed-income investment portfolios. (9) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) FINANCIAL GUARANTEE INSURANCE For the first six months of 1997 total gross premiums written (GPW) increased by 1% to $256.8 million from $254.6 million in 1996. GPW, as reported on our financial statements, reflects cash receipts only and does not include the value of future premium receipts expected for installment-based insurance policies originated in the period. To provide additional information regarding year-to-year changes in new business premium production, we discuss our adjusted gross premiums (AGP), which include our upfront premiums as well as the estimated present value of current and future premiums from installment-based insurance policies issued in the period. MBIA's premium production in terms of GPW and AGP for the second quarters and first half of 1997 and 1996 is presented in the following table:
Percent Change ------------------------- 2nd Quarter Year-to-date ----------- ------------ 2nd Quarter Year-to-date 1997 1997 ---------------- ---------------- vs. vs. In millions 1997 1996 1997 1996 1996 1996 - ------------------------------------------------------------------------------------------- Premiums written: GPW $164.7 $134.0 $256.8 $254.6 23% 1% AGP $185.7 $155.0 $291.1 $284.7 20% 2%
We estimate the present value of our total future installment premium stream on outstanding policies to be $324.6 million at second quarter-end 1997, compared with $258.0 million at second quarter-end 1996. MUNICIPAL MARKET New issuance in the municipal market was $49.3 billion for the second quarter of 1997, up 13% from $43.6 billion in the second quarter of 1996. The insured portion of this market rose to 57% from 54% in the second quarter of 1996. With a 50% market share, we continued our market leadership in the new issue insured municipal market. In the second quarter of this year we set a new record in our history in terms of gross premiums written. Municipal market domestic new issuance information and MBIA's par and premium writings in both the new issue and secondary domestic municipal finance markets are shown in the following table: (10) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Percent Change ------------------------- 2nd Quarter Year-to-date ----------- ------------ 2nd Quarter Year-to-date 1997 1997 ---------------- ---------------- vs. vs. Domestic Municipal 1997 1996 1997 1996 1996 1996 - ------------------------------------------------------------------------------------------- Total new issue market:* Par value (in billions) $ 49.3 $ 43.6 $ 84.4 $ 80.7 13% 5% Insured penetration 57% 54% 57% 53% MBIA market share 50% 39% 47% 41% MBIA insured: Par value: (in billions) $ 14.4 $ 11.3 $ 23.0 $ 20.4 28% 13% Premiums: (in millions) GPW $138.1 $119.0 $213.6 $205.6 16% 4% AGP $143.5 $117.1 $217.5 $201.8 22% 8% - -------------------------------------------------------------------------------------------
* 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. STRUCTURED FINANCE MARKET The par value issuance in the asset-backed securities market (excluding private placements and mortgage-backed securities, for which market data are unavailable) decreased 9% in the first six months and 14% in the second quarter of 1997. The decrease is attributed to lower issuance of credit card-backed securities; a market, however, in which MBIA is not a player. For the first six months, MBIA insured $8.7 billion of par value of asset-backed securities (including mortgage-backed securities) compared with $8.4 billion in the comparable period last year. Gross premiums written for the quarter increased by 55% to $13.1 million from $8.5 million for the same period last year. On a year-to-date basis, gross premiums written were down 10%, primarily due to the benefit of a $12.1 million premium from a non-recurring structured finance reinsurance transaction in the first quarter of last year. For the second quarter, MBIA saw a decline in its AGP and par amount written, as senior/sub structures have made inroads into the insured penetration in the home equity loan sector. Details regarding the asset-backed market and MBIA's par and premium writings in both the domestic new issue and secondary structured finance markets (which includes mortgaged-backed as well as asset-backed securities) are shown in the following table: (11) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Percent Change ------------------------- 2nd Quarter Year-to-date ----------- ------------ 2nd Quarter Year-to-date 1997 1997 Domestic ---------------- ---------------- vs. vs. Structured Finance 1997 1996 1997 1996 1996 1996 - ------------------------------------------------------------------------------------------- Total asset-backed market:* Par value (in billions) $34.8 $40.6 $69.3 $76.0 (14%) (9%) MBIA insured: Par value: (in billions) $ 3.5 $ 4.7 $ 8.7 $ 8.4 (26%) 4% Premiums: (in millions) GPW $13.1 $ 8.5 $25.0 $27.8 55% (10%) AGP $20.0 $24.2 $46.2 $52.5 (17%) (12%) - -------------------------------------------------------------------------------------------
* Market data exclude mortgage-backed securities and private placements. INTERNATIONAL MARKET In late 1995, we formed a joint venture with AMBAC Indemnity Corporation (another leading Triple-A rated financial guarantee insurer) to market financial guarantee insurance internationally. This initiative has contributed to a substantial expansion of our international business. For the first six months, par value increased by 20%. AGP increased by 9% while GPW decreased by 29% reflecting a growing proportion of installment based policies written in the international market. Our international municipal and structured finance business volume in the new issue and secondary markets for the first six months and second quarters of 1997 and 1996 is illustrated in the following table:
Percent Change ------------------------- 2nd Quarter Year-to-date ----------- ------------ 2nd Quarter Year-to-date 1997 1997 ---------------- ---------------- vs. vs. International 1997 1996 1997 1996 1996 1996 - ------------------------------------------------------------------------------------------- Par value (in billions) $ 1.3 $ 0.4 $ 1.3 $ 1.1 237% 20% Premiums: (in millions) GPW $ 9.4 $ 2.8 $ 9.9 $13.8 227% (29%) AGP $17.6 $ 5.4 $17.8 $16.4 224% 9%
CEDED PREMIUMS Reinsurance allows an insurance company to transfer portions of its insured business to a reinsurance company. In exchange for insuring a portion of our risk, the reinsurance company receives a part of our premium (ceded premium) for which we, in turn, receive a ceding commission. We use reinsurance to increase our capacity to write new business when we are subject to certain single risk limitations and to manage the overall risk profile of our insurance portfolio. (12) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Premiums ceded to reinsurers from all insurance operations were $28.8 million and $22.8 million in the first six months and second quarter of 1997, respectively. For the first six months, cessions as a function of GPW were 11% in 1997 and 10% in 1996. Any variance in the level of cessions generally reflects the higher or lower utilization of treaty or facultative reinsurance required to comply with regulatory constraints or our own single risk limits. Most of our reinsurers are rated Double-A or higher by Standard & Poor's Corporation or Single-A or higher by A. M. Best Co. Although we remain liable for all reinsured risks, we believe we will recover the reinsured portion of any losses that may occur. REVENUES Our insurance revenues are primarily comprised of premiums earned and investment income. Premiums are recognized over the life of the bonds we insure. The slow premium recognition coupled with compounding investment income from investing our premiums and capital form a solid foundation for consistent revenue growth. PREMIUMS EARNED For approximately 80% of our insurance writings, we receive premiums upfront and earn them pro rata over the period of risk of the bond issue. 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. For 20% of our business writings - primarily our structured finance business -- we collect installment premiums. Installment premiums are credited to the deferred premium revenue account when received, and are recognized as revenue over each installment period - generally one year or less. When an MBIA-insured bond issue is refunded or retired early the related deferred premium revenue is earned immediately, except for any portion that may be applied as a credit towards insuring the refunding bond issue. 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. The composition of MBIA's premiums earned in terms of its scheduled and refunded components is illustrated in the following table: (13) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Percent Change ------------------------- 2nd Quarter Year-to-date ----------- ------------ 2nd Quarter Year-to-date 1997 1997 ---------------- ---------------- vs. vs. In millions 1997 1996 1997 1996 1996 1996 - ------------------------------------------------------------------------------------------- Premiums earned: Scheduled $60.9 $50.1 $118.8 $ 98.9 22% 20% Refunded 12.3 12.0 25.8 23.5 2% 10% - ------------------------------------------------------------------------------------------- Total $73.2 $62.1 $144.6 $122.4 18% 18%
The year-to-year increase in premiums earned from scheduled amortization reflects the additive effect of new business written, including the expanding installment premium activity from the structured finance and international sectors. INVESTMENT INCOME Our insurance related investment income (exclusive of realized capital gains) increased by 11% to $134.0 million in the first six months of 1997 from $120.6 million in 1996. For the quarter, net investment income was $67.4 million, a 10% increase over the same period last year. The increases were primarily due to the growth of cash flow available for investment. Our cash flows were generated from operations, the compounding of previously earned and reinvested investment income and the addition of funds from financing activities in February, 1996. Insurance related net realized capital gains were $6.9 million in the first six months of 1997 and $6.6 million in 1996. These realized gains were generated as a result of ongoing management of the investment portfolio. LOSSES AND LOSS ADJUSTMENT EXPENSES (LAE) We maintain a general loss reserve based on our estimate of unidentified losses from our insured obligations. 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 necessarily based on estimates, and there can be no assurance that any ultimate liability will not exceed such estimates. (14) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The following table shows the case-specific and unallocated components of our total loss and LAE reserves at the first half of 1997 and 1996: Percent Change June 30, June 30, -------------- In millions 1997 1996 1997 vs. 1996 - ---------------------------------------------------------- Reserves: Case-specific $20.2 $15.7 29% Unallocated 47.9 34.7 38% - ---------------------------------------------------------- Total $68.1 $50.4 35% Provision $ 8.3 $ 7.5 11% Our provision for losses and LAE increased in tandem with new business writings in accordance with our loss reserving methodology. The changes in the case-specific reserve had no impact on our net income since they were offset by corresponding changes in the unallocated portion of the total reserve. OPERATING EXPENSES Those 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 operating expenses are shown in the following table:
Percent Change ------------------------- 2nd Quarter Year-to-date ----------- ------------ 2nd Quarter Year-to-date 1997 1997 ---------------- ---------------- vs. vs. In millions 1997 1996 1997 1996 1996 1996 - ------------------------------------------------------------------------------------------- Policy acquisition costs, net $ 6.8 $ 6.0 $13.6 $11.9 14% 14% Operating 11.7 11.5 23.8 22.1 1% 8% - ------------------------------------------------------------------------------------------- Total insurance operating expenses $18.5 $17.5 $37.4 $34.0 6% 10%
For first six months and second quarter of 1997, policy acquisition costs net of deferrals increased 14%. The ratio of policy acquisition costs net of deferrals to earned premiums has remained relatively constant in the 9% range for the first six months and second quarters of 1997 and 1996. Operating expenses increased by 8% for the first six months and 1% for the second quarter over the prior year's comparable periods. INVESTMENT MANAGEMENT SERVICES Our investment management businesses have expanded the services we provide to the public sector and added new revenue sources. Average assets under management for these businesses have increased from $6.0 billion during second quarter 1996 to $7.7 billion during second quarter 1997. (15) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) These assets include our municipal investment agreements, pooled public funds and third-party accounts. The 28% increase in average assets in the second quarter of 1997 is primarily attributable to our acquisition of American Money Management Associates, Inc. (AMMA) in late 1996. The 14% decline in pretax operating results compared with the same period last year is due to revenues remaining flat resulting from a shift among an increasingly diverse mix of asset types. Pretax financial results for the second quarters and first half of 1997 and 1996 are summarized on the following table:
Percent Change ------------------------- 2nd Quarter Year-to-date ----------- ------------ 2nd Quarter Year-to-date 1997 1997 ---------------- ---------------- vs. vs. In millions 1997 1996 1997 1996 1996 1996 - ------------------------------------------------------------------------------------------- Revenues $6.6 $6.6 $13.8 $12.7 --- 9% Expenses $4.0 $3.5 $ 8.0 $ 6.9 13% 16% - ------------------------------------------------------------------------------------------- Pretax operating income $2.6 $3.1 $ 5.8 $ 5.8 (14%) --- Net realized gains $--- $--- $ 1.7 $ 0.9 --- 77%
The following provides a summary of each of our primary investment management businesses: MBIA MUNICIPAL INVESTORS SERVICE CORPORATION (MBIA-MISC) provides cash management services and fixed-rate investment placement services directly to local governments and school districts. In addition, MBIA-MISC performs investment fund administration services for clients, which provide an additional source of revenue to our company at little added cost. In late 1996, MBIA-MISC acquired AMMA, which 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. At second quarter-end 1997, MBIA-MISC had $3.8 billion of client assets under management compared with $2.8 billion at second quarter-end 1996, reflecting primarily the addition of assets under management from the acquisition of AMMA in late 1996. MBIA INVESTMENT MANAGEMENT CORP. (IMC) provides guaranteed investment agreements for bond proceeds of states and municipalities. At second quarter-end 1997, principal and accrued interest outstanding on investment agreements was $3.2 billion compared with $3.0 billion at second quarter-end 1996. At amortized cost, the assets supporting IMC's investment agreement liabilities were $3.3 billion and $3.1 billion at June 30, 1997 and 1996, respectively. These assets are comprised of high-quality securities with an average credit quality rating of Double-A. (16) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) 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 second quarter-end 1997, our exposure to derivative financial instruments was not significant. MBIA CAPITAL MANAGEMENT CORP. (CMC) provides investment management services for IMC's investment agreements, MBIA-MISC's municipal cash management programs and MBIA's insurance related portfolios, as well as third-party accounts. CMC assumed full management for MBIA's insurance related fixed-income investment portfolio in 1996, which was previously managed externally. MUNICIPAL SERVICES MBIA MUNICIPAL SERVICES COMPANY (formerly know as Strategic Services, Inc.) was established in 1996 to provide tax administration and related services to state and local governments. In May 1996, MBIA Municipal Services Company acquired an equity interest in Capital Asset Holdings (Capital Asset), a purchaser and servicer of delinquent tax certificates. It also provides a series of services to assist taxing authorities in the preparation, analysis, packaging and completion of delinquent tax obligation sales. At second quarter-end 1997, Capital Asset had a tax lien portfolio of $626 million. In January 1997, MBIA Municipal Services Company acquired a 95% interest in Municipal Tax Bureau (MTB), a provider of tax revenue compliance and collection services to public sector entities. INTEREST EXPENSE Interest expense in the first six months and second quarter of 1997, was $17.3 million and $8.8 million, respectively compared with $16.4 million and $8.2 million in the same periods last year. The increase in interest expense was a result of short-term bank borrowings in 1997 under existing lines of credit in conjunction with short-term liquidity needs. TAXES Our tax policy is to optimize our after-tax income by maintaining the appropriate mix of taxable and tax-exempt investments. Our effective tax rate has remained unchanged, at 21% for the first six months of 1997 and 1996. (17) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) 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 the end of the second quarter, our total capital was $2.6 billion with total long-term borrowings at $374 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 ratios we use to measure it: June 30, December 31, 1997 1996 - ----------------------------------------------------------- Long-term debt (in millions) $374 $374 Long-term debt to total capital 12% 13% Ratio of earnings to fixed charges 14.1x 13.2x In addition, our insurance company has a $725 million irrevocable standby line of credit with a group of major worldwide 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 September 30, 2003 and, subject to approval by the banks, may be renewed annually to extend the term to seven years beyond the renewal date. From time to time MBIA accesses the capital markets to support the growth of our businesses. In October 1996, to provide us with flexibility to access the capital markets when market and business conditions are favorable, we filed a registration statement with the SEC to allow us to offer and sell a combination of up to $250 million of debt securities, common stock and/or preferred stock. In July 1997, MBIA completed the sale of 1.15 million shares of common stock at $114 per share and sold $100 million of 30-year debentures. The $225 million of net proceeds will be used to support the company's future growth. As of June 30, 1997, total claims-paying resources for our insurance company stood at $5.6 billion, a 14% increase over June 30, 1996. 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 our insurance company which generates substantial cash flow from premium writings and investment income. In the first half of 1997, operating cash flow from our insurance company was $209 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. In the first six months of 1997 our insurance company paid no dividends and at June 30, 1997 had dividend capacity of $127 million without special regulatory approval. (18) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Our company has significant liquidity supporting its businesses. At the end of the second quarter, cash equivalents and short-term investments totaled $210 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, among other things, selling or pledging our fixed-income investments from our investment portfolio, tapping existing liquidity facilities and new borrowings. Our company has substantial external borrowing capacity. We maintain two short-term bank lines totaling $300 million with a group of worldwide banks. At second quarter-end 1997, $60 million was outstanding under these facilities to fund interim cash requirements. Our 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 the end of the second quarter 1997, the fair value of our consolidated investment portfolio increased to $7.8 billion, as shown below: Percent Change June 30, December 31, -------------- In millions 1997 1996 1997 vs. 1996 - -------------------------------------------------------------------------- Insurance operations: Amortized cost $4,387 $4,193 5% Unrealized gain 147 148 (1%) - --------------------------------------------------------------------------- Fair value $4,534 $4,341 4% - --------------------------------------------------------------------------- Municipal investment agreements: Amortized cost $3,259 $3,263 --- Unrealized gain 21 30 (30%) - --------------------------------------------------------------------------- Fair value $3,280 $3,293 --- - --------------------------------------------------------------------------- Total portfolio at fair value $7,814 $7,634 2% The increase in the fair value of our insurance related investments for the period was a result of the increase in the amortized cost of our invested assets due to positive cash flows partially offset by a nominal decrease in unrealized gains. The fair value of investments related to our municipal investment agreement business declined slightly to $3.28 billion at June 30, 1997 from $3.29 billion at December 31, 1996, due primarily to the impact of higher interest rates. (19) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Our 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 in 1986, and 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. (20) 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 - No reports on Form 8-K were filed in this quarter. (21) SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MBIA INC. ----------------------------- Registrant Date: August 14, 1997 /s/ JULLIETTE S. TEHRANI ------------------------ ----------------------------- Julliette S. Tehrani Executive Vice President, Chief Financial Officer and Treasurer Date: August 14, 1997 /s/ ELIZABETH B. SULLIVAN ----------------------- ---------------------------- Elizabeth B. Sullivan Vice President, Controller (Principal Accounting Officer) (22) EX-11 2 2ND QTR. 97 EX 11 EXHIBIT 11 MBIA INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE ASSUMING FULL DILUTION (In thousands except per share amounts)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 --------------------------- --------------------------- 1997 1996 1997 1996 ------------ ------------ ------------ ------------ Net income $ 89,020 $ 79,737 $179,959 $157,362 ============ ============ ============ ============ Fully diluted shares: Average number of common shares outstanding 43,361 42,901 43,336 42,695 Assumed exercise of dilutive stock options 433 439 442 456 ------------ ------------ ------------ ------------ 43,794 43,340 43,778 43,151 ============ ============ ============ ============ Earnings per share assuming full dilution $2.03 $1.84 $4.11 $3.65 ============ ============ ============ ============
EX-27 3 FDS -- 2QTR 97 10Q
7 0000814585 MBIA Inc. 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 4,342,607 0 0 0 0 0 7,814,364 34,003 0 151,750 8,906,322 68,114 1,873,916 0 0 434,065 43,410 0 0 2,578,681 8,906,322 144,597 133,984 6,855 21,436 8,258 13,575 23,789 227,365 47,406 179,959 0 0 0 179,959 4.12 4.11 0 0 0 0 0 0 0
EX-99 4 2Q97 CORP. GAAP MBIA INSURANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 1997 AND DECEMBER 31, 1996 AND FOR THE PERIODS ENDED JUNE 30, 1997 AND 1996 MBIA INSURANCE CORPORATION AND SUBSIDIARIES I N D E X --------- PAGE ---- Consolidated Balance Sheets - June 30, 1997 (Unaudited) and December 31, 1996 (Audited) 3 Consolidated Statements of Income - Three months and six months ended June 30, 1997 and 1996 (Unaudited) 4 Consolidated Statement of Changes in Shareholder's Equity - Six months ended June 30, 1997 (Unaudited) 5 Consolidated Statements of Cash Flows - Six months ended June 30, 1997 and 1996(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)
June 30, 1997 December 31, 1996 ------------- ----------------- (Unaudited) (Audited) ASSETS Investments: Fixed-maturity securities held as available-for-sale at fair value (amortized cost $4,195,557 and $4,001,562) $4,342,607 $4,149,700 Short-term investments, at amortized cost (which approximates fair value) 168,148 169,889 Other investments 15,374 14,851 ------------ ------------ TOTAL INVESTMENTS 4,526,129 4,334,440 Cash and cash equivalents 15,265 3,288 Securities purchased under agreements to resell 159,520 108,900 Accrued investment income 70,084 65,194 Deferred acquisition costs 151,750 147,750 Prepaid reinsurance premiums 224,394 216,846 Goodwill (less accumulated amortization of $44,707 and $42,262) 98,273 100,718 Property and equipment, at cost (less accumulated depreciation of $16,177 and $14,782) 51,052 47,176 Receivable for investments sold 2,012 975 Other assets 109,036 40,871 ------------ ------------ TOTAL ASSETS $5,407,515 $5,066,158 ============ ============ LIABILITIES AND SHAREHOLDER'S EQUITY Liabilities: Deferred premium revenue $1,873,916 $1,785,875 Loss and loss adjustment expense reserves 68,114 59,314 Securities sold under agreements to repurchase 159,520 108,900 Deferred income taxes 204,577 195,704 Payable for investments purchased 39,858 48,811 Other liabilities 65,500 63,683 ------------ ------------ TOTAL LIABILITIES 2,411,485 2,262,287 ------------ ------------ 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 1,050,034 1,041,876 Retained earnings 1,842,091 1,651,315 Cumulative translation adjustment (7,689) (1,188) Unrealized appreciation of investments, net of deferred income tax provision of $52,149 and $52,175 96,594 96,868 ------------ ------------ TOTAL SHAREHOLDER'S EQUITY 2,996,030 2,803,871 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $5,407,515 $5,066,158 ============ ============
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 Six months ended June 30 June 30 ---------------------------- ---------------------------- 1997 1996 1997 1996 ------------ ------------ ------------ ------------ Revenues: Gross premiums written $165,158 $134,443 $257,744 $255,454 Ceded premiums (22,834) (11,914) (28,813) (26,629) ------------ ------------ ------------ ------------ Net premiums written 142,324 122,529 228,931 228,825 Increase in deferred premium revenue (68,608) (60,021) (83,344) (105,553) ------------ ------------ ------------ ------------ Premiums earned (net of ceded premiums of $10,940, $9,682 $21,265 and $18,902) 73,716 62,508 145,587 123,272 Net investment income 67,441 61,401 133,918 120,404 Net realized gains 2,481 3,895 6,855 6,587 Other 369 354 693 1,323 ------------ ------------ ------------ ------------ Total revenues 144,007 128,158 287,053 251,586 ------------ ------------ ------------ ------------ Expenses: Losses and loss adjustment 4,823 4,288 8,258 7,466 Policy acquisition costs, net 6,830 5,990 13,575 11,890 Operating 11,670 11,525 23,829 22,074 ------------ ------------ ------------ ------------ Total expenses 23,323 21,803 45,662 41,430 ------------ ------------ ------------ ------------ Income before income taxes 120,684 106,355 241,391 210,156 Provision for income taxes 25,235 22,786 50,615 45,285 ------------ ------------ ------------ ------------ Net income $ 95,449 $ 83,569 $190,776 $164,871 ============ ============ ============ ============
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 six months ended June 30, 1997 (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, 1997 100,000 $15,000 $1,041,876 $1,651,315 ($1,188) $96,868 Net income --- --- --- 190,776 --- --- Change in foreign currency translation --- --- --- --- (6,501) --- Change in unrealized appreciation of investments net of change in deferred income taxes of $26 --- --- --- --- --- (274) Tax reduction related to tax sharing agreement with MBIA Inc. --- --- 8,158 --- --- --- ----------- ----------- ------------ ------------ ------------ -------------- Balance, June 30, 1997 100,000 $15,000 $1,050,034 $1,842,091 ($7,689) $96,594 =========== =========== ============ ============ ============ ==============
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)
Six months ended June 30 ---------------------------- 1997 1996 ------------ ------------ Cash flows from operating activities: Net income $190,776 $164,871 Adjustments to reconcile net income to net cash provided by operating activities: Increase in accrued investment income (4,890) (4,247) Increase in deferred acquisition costs (4,000) (3,188) Increase in prepaid reinsurance premiums (7,548) (7,727) Increase in deferred premium revenue 90,892 113,280 Increase in loss and loss adjustment expense reserves 8,800 7,932 Depreciation 1,821 1,442 Amortization of goodwill 2,445 2,448 Amortization of bond discount, net (4,289) (2,870) Net realized gains on sale of investments (6,855) (6,587) Deferred income taxes 9,053 6,886 Other, net (67,656) 27,690 ------------ ------------ Total adjustments to net income 17,773 135,059 ------------ ------------ Net cash provided by operating activities 208,549 299,930 ------------ ------------ Cash flows from investing activities: Purchase of fixed-maturity securities, net of payable for investments purchased (889,051) (698,356) Sale of fixed-maturity securities, net of receivable for investments sold 613,369 334,470 Redemption of fixed-maturity securities, net of receivable for investments redeemed 69,313 75,960 Sale (purchase) of short-term investments, net 14,992 (6,763) Sale of other investments, net 523 402 Capital expenditures, net of disposals (5,718) (3,129) ------------ ------------ Net cash used by investing activities (196,572) (297,416) ------------ ------------ Net increase in cash and cash equivalents 11,977 2,514 Cash and cash equivalents - beginning of period 3,288 2,135 ------------ ------------ Cash and cash equivalents - end of period $ 15,265 $ 4,649 ============ ============ Supplemental cash flow disclosures: Income taxes paid $ 39,500 $ 32,978
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, 1996. 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 six months ended June 30, 1997 may not be indicative of the results that may be expected for the year ending December 31, 1997. The December 31, 1996 condensed balance sheet data 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. Certain amounts have been reclassified in prior years' financial statements to conform to the current presentation. 2. Dividends Declared - ---------------------- No dividends were declared by the Company during the six months ended June 30, 1997. (7) -----END PRIVACY-ENHANCED MESSAGE-----