-----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, IJfnQSz0xnC0pcT+sjmsK5R0cO3za3qawy1OntIzudR/xMaugKfK72EAusLmfjl6 ckkEY6hpDLfzPjFxD8MeXw== 0000814585-98-000004.txt : 19980817 0000814585-98-000004.hdr.sgml : 19980817 ACCESSION NUMBER: 0000814585-98-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 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: SEC FILE NUMBER: 001-09583 FILM NUMBER: 98691058 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 2Q98 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, 1998 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 August 10, 1998 there were outstanding 99,261,453 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, 1998 and December 31, 1997 3 Consolidated Statements of Income - Three months and six months ended June 30, 1998 and 1997 4 Consolidated Statement of Changes in Shareholders' Equity - Six months ended June 30, 1998 5 Consolidated Statements of Cash Flows - Six months ended June 30, 1998 and 1997 6 Notes to Consolidated Financial Statements 7 - 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 - 22 PART II OTHER INFORMATION, AS APPLICABLE Item 6. Exhibits and Reports on Form 8-K 23 SIGNATURES 24 (2) MBIA INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands except per share amounts)
June 30, 1998 December 31, 1997 ---------------- ----------------- ASSETS Investments: Fixed-maturity securities held as available-for-sale at fair value (amortized cost $5,224,932 and $4,936,822) $ 5,498,035 $ 5,211,311 Short-term investments, at amortized cost (which approximates fair value) 256,702 303,898 Other investments 52,093 51,693 ---------------- ---------------- 5,806,830 5,566,902 Municipal investment agreement portfolio held as available-for-sale at fair value (amortized cost $3,475,844 and $3,241,703) 3,603,731 3,341,394 ---------------- ---------------- TOTAL INVESTMENTS 9,410,561 8,908,296 Cash and cash equivalents 44,094 24,716 Securities borrowed or purchased under agreements to resell 613,263 472,963 Accrued investment income 121,972 121,070 Deferred acquisition costs 226,880 216,165 Prepaid reinsurance premiums 297,704 289,508 Goodwill (less accumulated amortization of $53,043 and $49,486) 122,827 120,326 Property and equipment, at cost (less accumulated depreciation of $34,914 and $26,523) 70,520 65,939 Receivable for investments sold 9,077 13,435 Other assets 206,203 145,221 ---------------- ---------------- TOTAL ASSETS $11,123,101 $10,377,639 ================ ================ LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Deferred premium revenue $ 2,172,994 $ 2,090,460 Loss and loss adjustment expense reserves 115,540 103,061 Municipal investment agreements 2,348,330 1,974,165 Municipal repurchase agreements 952,490 1,177,022 Long-term debt 488,937 488,878 Short-term debt 20,000 20,000 Securities loaned or sold under agreements to repurchase 778,363 606,263 Deferred income taxes 318,493 298,498 Deferred fee revenue 48,169 48,126 Payable for investments purchased 111,744 44,007 Other liabilities 199,537 171,989 ---------------- ---------------- TOTAL LIABILITIES 7,554,597 7,022,469 ---------------- ---------------- 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-- 97,984,228 and 97,563,326 97,984 97,563 Additional paid-in capital 1,147,861 1,128,799 Retained earnings 2,079,612 1,901,608 Accumulated other comprehensive income, net of deferred income tax provision of $141,364 and $132,026 252,460 236,095 Unallocated ESOP shares (4,083) (4,083) Unearned compensation--restricted stock (5,010) (4,812) Treasury stock, at cost; shares 8,961 in 1998 (320) --- ---------------- ---------------- TOTAL SHAREHOLDERS' EQUITY 3,568,504 3,355,170 ---------------- ---------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $11,123,101 $10,377,639 ================ ================
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 ----------------------------------- ------------------------------------ 1998 1997 1998 1997 ----------------- ---------------- ----------------- ---------------- Revenues Insurance: Gross premiums written $198,512 $184,043 $319,390 $292,850 Ceded premiums (27,280) (29,106) (41,613) (39,434) ----------------- ---------------- ----------------- ---------------- Net premiums written 171,232 154,937 277,777 253,416 Increase in deferred premium revenue (67,147) (69,485) (74,559) (84,584) ----------------- ---------------- ----------------- ---------------- Premiums earned (net of ceded premiums of $17,750, $15,128, $33,417 and $29,588) 104,085 85,452 203,218 168,832 Net investment income 80,860 72,606 163,128 144,394 Net realized gains 7,802 2,998 13,892 5,657 Advisory fees 7,223 4,213 13,439 8,229 Investment management services: Income 8,261 6,649 15,728 13,839 Net realized gains 646 43 7,092 1,652 Other 9,094 3,376 19,945 6,369 ----------------- ---------------- ----------------- ---------------- Total revenues 217,971 175,337 436,442 348,972 ----------------- ---------------- ----------------- ---------------- Expenses Insurance: Losses and loss adjustment 10,344 6,156 15,585 11,134 Policy acquisition costs, net 9,015 8,181 18,455 17,828 Operating 14,334 18,117 33,461 36,890 Investment management services 4,545 4,006 8,858 8,043 Interest 10,565 9,055 20,985 17,913 Other 12,902 5,264 54,586 9,861 ----------------- ---------------- ----------------- ---------------- Total expenses 61,705 50,779 151,930 101,669 ----------------- ---------------- ----------------- ---------------- Income before income taxes 156,266 124,558 284,512 247,303 Provision for income taxes 40,033 28,049 68,006 53,933 ----------------- ---------------- ----------------- ---------------- NET INCOME $116,233 $ 96,509 $216,506 $193,370 ================= ================ ================= ================ NET INCOME PER COMMON SHARE BASIC $ 1.19 $ 1.02 $ 2.22 $ 2.05 DILUTED $ 1.17 $ 1.01 $ 2.19 $ 2.02 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING BASIC 97,665,197 94,625,245 97,581,869 94,394,078 DILUTED 99,021,888 95,903,882 98,941,650 95,895,986
The accompanying notes are an integral part of the consolidated financial statements. (4) MBIA INC. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 1998 (In thousands except per share amounts)
Common Stock Additional --------------- Paid-in Retained Shares Amount Capital Earnings ------ ------- ---------- ---------- Balance, January 1, 1998 97,563 $97,563 $1,128,799 $1,901,608 Comprehensive income: Net income --- --- --- 216,506 Other comprehensive income: Change in unrealized appreciation of investments net of change in deferred income taxes of $(9,338) --- --- --- --- Change in foreign currency translation --- --- --- --- Other comprehensive income Comprehensive income Treasury shares acquired --- --- 320 --- Exercise of stock options 386 386 16,496 --- Unearned compensation- restricted stock 35 35 2,246 --- Dividends (declared and paid per common share $0.39) --- --- --- (38,502) ------ ------- ---------- ---------- Balance, June 30, 1998 97,984 $97,984 $1,147,861 $2,079,612 ====== ======= ========== ========== Unearned Accumulated Unallocated Compensation- Other Treasury Stock Total ESOP Restricted Comprehensive --------------- Shareholders' Shares Stock Income Shares Amount Equity ----------- ------------- ------------- ------- ------ ------------- Balance, January 1, 1998 $(4,083) $(4,812) $236,095 --- --- $3,355,170 Comprehensive income: Net income --- --- --- --- --- 216,506 Other comprehensive income: Change in unrealized appreciation of investments net of change in deferred income taxes of $(9,338) --- --- 17,420 --- --- 17,420 Change in foreign currency translation --- --- (1,055) --- --- (1,055) ------------- Other comprehensive income 16,365 ------------- Comprehensive income 232,871 ------------- Treasury shares acquired --- --- --- (9) (320) --- Exercise of stock options --- --- --- --- --- 16,882 Unearned compensation- restricted stock --- (198) --- --- --- 2,083 Dividends (declared and paid per common share $0.39) --- --- --- --- --- (38,502) ----------- ------------- ------------- ------- ------ ------------- Balance, June 30, 1998 $(4,083) $(5,010) $252,460 (9) $(320) $3,568,504 =========== ============= ============= ======= ====== =============
The accompanying notes are an integral part of the consolidated financial statements. Disclosure of reclassification amount: Unrealized appreciation of investments arising during the period $31,025 Reclassification of adjustment, net of taxes (13,605) ------- Net unrealized appreciation, net of taxes $17,420 ======= (5) MBIA INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands)
Six months ended June 30 ----------------------------- 1998 1997 ------------- ------------- Cash flows from operating activities: Net income $ 216,506 $ 193,370 Adjustments to reconcile net income to net cash provided by operating activities: Increase in accrued investment income (902) (2,766) Increase in deferred acquisition costs (10,715) (9,747) Increase in prepaid reinsurance premiums (8,196) (9,846) Increase in deferred premium revenue 82,755 94,430 Increase in loss and loss adjustment expense reserves 12,479 11,676 Depreciation 3,797 2,746 Amortization of goodwill 3,557 3,118 Amortization of bond discount, net (10,813) (9,148) Net realized gains on sale of investments (20,984) (7,309) Deferred income taxes 10,691 8,598 Other, net (37,044) (30,353) ------------- ------------- Total adjustments to net income 24,625 51,399 ------------- ------------- Net cash provided by operating activities 241,131 244,769 ------------- ------------- Cash flows from investing activities: Purchase of fixed-maturity securities, net of payable for investments purchased (1,146,307) (1,026,147) Sale of fixed-maturity securities, net of receivable for investments sold 532,468 688,137 Redemption of fixed-maturity securities, net of receivable for investments redeemed 415,571 114,310 Sale of short-term investments, net 27,758 13,024 Sale (purchase) of other investments, net 286 (844) Purchases for municipal investment agreement portfolio, net of payable for investments purchased (1,216,038) (550,696) Sales from municipal investment agreement portfolio, net of receivable for investments sold 1,014,644 595,636 Capital expenditures, net of disposals (8,381) (8,510) Other, net (6,055) (16,458) ------------- ------------- Net cash used by investing activities (386,054) (191,548) ------------- ------------- Cash flows from financing activities: Net proceeds from issuance of short-term debt --- 30,900 Dividends paid (36,851) (33,595) Proceeds from issuance of municipal investment and repurchase agreements 1,186,896 732,821 Payments for drawdowns of municipal investment and repurchase agreements (1,034,426) (816,133) Securities sold under agreements to repurchase 31,800 54,900 Exercise of stock options 16,882 9,794 ------------- ------------- Net cash provided (used) by financing activities 164,301 (21,313) ------------- ------------- Net increase in cash and cash equivalents 19,378 31,908 Cash and cash equivalents - beginning of period 24,716 8,322 ------------- ------------- Cash and cash equivalents - end of period $ 44,094 $ 40,230 ============= ============= Supplemental cash flow disclosures: Income taxes paid $ 62,684 $ 44,514 Interest paid: Municipal investment and repurchase agreements $ 104,171 $ 98,441 Long-term debt 20,012 16,477 Short-term debt 567 1,149
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, 1997 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, 1998 may not be indicative of the results that may be expected for the year ending December 31, 1998. The December 31, 1997 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. Due to the merger with CapMAC Holdings Inc. (CapMAC) all prior period consolidated financial statements presented have been restated to include the combined results of operations, financial position and cash flows of CapMAC as though it had been a part of MBIA. 2. CapMAC Merger On February 17, 1998, MBIA Inc. and CapMAC consummated a merger accounted for as a pooling of interests. Under the terms of the merger, CapMAC shareholders received 0.4675 of a share of MBIA Inc. common stock for each CapMAC share, for a total of 8,102,255 newly issued shares of MBIA Inc. common stock, the value of which was $536 million. The results of operations for the separate companies and the merged amounts presented in the consolidated financial statements follow: Six Months Ended (In thousands) June 30, 1997 ---------------- Revenues: MBIA Inc. $306,872 CapMAC Holdings, Inc. 42,100 --------- Merged $348,972 ========= Net Income: MBIA Inc. $179,959 CapMAC Holdings, Inc. 13,411 --------- Merged $193,370 ========= (7) MBIA INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. Dividends Declared Dividends declared by the company during the six months ended June 30, 1998 30, 1998 were $38.5 million. 4. Comprehensive Income As of January 1, 1998, the company adopted Statement of Financial Accounting Standards (SFAS) 130, "Reporting Comprehensive Income." SFAS 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this Statement had no impact on the company's net income or shareholders' equity. The company's comprehensive income consists of unrealized gains or losses on available-for-sale securities and foreign currency translation adjustments, which are presented net of deferred taxes. Prior to adoption of SFAS 130, these accounts were reported separately in shareholders' equity. 5. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." The statement requires companies to recognize all derivatives as either assets or liabilities, with the instruments measured at fair value. The accounting for changes in fair value, gains or losses, depends on the intended use of the derivative and its resulting designation. The statement is effective for fiscal years beginning after June 15, 1999. The Company will adopt SFAS 133 by January 1, 2000. Adoption of SFAS 133 is not expected to have a material impact on the consolidated financial statements. In June 1997, the FASB issued SFAS 131, "Disclosures about Segments of an Enterprise and Related Information," effective for fiscal years beginning after December 15, 1997. This statement establishes standards for reporting information about operating segments in annual financial statements, and requires selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographical areas and major customers. Under SFAS 131, operating segments are to be determined consistent with the way that management organizes and evaluates financial information internally for making operating decisions and assessing performance. The company's future segment presentation has not yet been determined. (8) MBIA INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. Subsequent Events On July 21, 1998, MBIA Inc. announced that it expects that the company's unallocated loss reserve will be sufficient to meet anticipated losses arising from the bankruptcy filing of Delaware Valley Obligated Group (DVOG). As a result, the company does not expect losses from this insured credit to affect its earnings. MBIA has insured $256 million of net par outstanding of DVOG, an entity comprising five hospitals and a medical university in the Philadelphia area that is part of Allegheny Health, Education and Research Foundation (AHERF) based in Pittsburgh, Pa. AHERF has announced that DVOG will be part of a bankruptcy reorganization filing. As of June 30, 1998, the company's unallocated case reserve was $78 million. On July 28, 1998, the company filed a shelf registration with the U.S. Securities and Exchange Commission of up to $350 million in debt securities, preferred stock and/or common stock. Any proceeds from the proposed offering will be used to provide additional capital and for general corporate purposes. On July 31, 1998, the company announced that it had completed the merger of its investment business with 1838 Investment Advisors (1838). Located in Radnor, Pa., 1838 is a full-service asset management firm with a strong institutional focus. The company manages over $6 billion in equity, fixed-income and balanced portfolios for a client base comprised of high-net-worth individuals, municipalities, endowments, foundations and corporate employee-benefits plans. 1838 acts as investment advisor to 1838 Investment Advisors Funds and 1838 Bond Debenture Trading Fund. 1838 will be part of a newly formed holding company, MBIA Asset Management Corporation, which consolidates MBIA's investment management operations. The transaction is structured as a tax-free exchange and accounted for as a "pooling of interests." MBIA expects the acquisition to be non-dilutive to 1998 earnings per share, excluding merger-related costs, and accretive thereafter. (9) 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 purposes. 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. In February 1998, we merged with CapMAC Holdings Inc., a leading company insuring structured finance transactions. This merger will strengthen MBIA's position as the leading financial guarantor and expand our capabilities in the rapidly growing structured finance market. MBIA also provides investment management products, as well as municipal and consulting services to the public sector. In July 1998, we merged our investment business with 1838 Investment Advisors. MBIA also formed a holding company, MBIA Asset Management to consolidate all of our investment operations. RESULTS OF OPERATIONS - --------------------- SUMMARY The following chart presents highlights of our consolidated financial results for the second quarter and first half of 1998 and 1997. The 1997 results have been restated to reflect the merger, which has been accounted for as a "pooling of interests." In addition, all per share results have been retroactively adjusted to include the effect of a two-for-one stock split effective October 1, 1997: (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 June 30 1998 1998 -------------- -------------- vs. vs. 1998 1997 1998 1997 1997 1997 - ----------------------------------------------------------------------------- Net income (in millions) $116.2 $96.5 $216.5 $193.4 20% 12% Per share data: Net income* $ 1.17 $1.01 $ 2.19 $ 2.02 16% 8% Operating earnings* $ 1.13 $0.99 $ 2.24 $ 1.97 14% 14% Core earnings* $ 1.03 $0.91 $ 2.05 $ 1.81 13% 13% Book value $36.47 $30.75 19% Adjusted book value $51.19 $45.02 14% - ----------------------------------------------------------------------------- *Diluted We believe that core earnings, which exclude the effects of refundings and calls of our insured issues, realized capital gains and losses on our investment portfolio and the nonrecurring merger-related charge, provides the most indicative measure of our underlying profit trend. In 1998, core earnings per share increased by 13% for both the second quarter and first six months over the comparable periods in 1997. The consistent double-digit increases in quarterly year-to-year core earnings over the past 24 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. Our 1998 second quarter net income rose 20% over the comparable period in 1997. On a per share basis, net income increased 16% over last year's second quarter. For the first six months of 1998, net income and net income per share increased 12% and 8%, respectively, over the comparable periods of 1997. Operating earnings per share, which exclude the impact of realized capital gains and losses and the one time merger-related charge, increased to $1.13 and $2.24 for the second quarter and six months, respectively, representing a 14% increase for both periods. In the first quarter we recorded a one-time merger-related charge of $0.19 per share. (11) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Our book value at second quarter-end 1998 was $36.47 per share, up from $30.75 at second quarter-end 1997. 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, plus the unrealized gain or loss on investment contract liabilities. The following table presents the components of our adjusted book value per share: June 30, June 30, Percent Change 1998 1997 1998 vs. 1997 ---------------------------- ------------- --------- ---------------- Book value $36.47 $30.75 19% After-tax value of: Net deferred premium revenue, net of deferred acquisition costs 10.95 10.25 7% Present value of future installment premiums* 3.82 3.42 12% Unrealized (loss) gain on investment contract liabilities (0.05) 0.60 (108%) ---------------------------- ------------- --------- ---------------- Adjusted book value $51.19 $45.02 14% ---------------------------- ------------- --------- ---------------- * The discount rate used to present value future installment premiums was 9%. Our adjusted book value per share was $51.19 at June 30, 1998, a 14% increase from June 30, 1997. The increase was due to our strong operating results, growth from new business, and, with lower interest rates, the increase in the fair value of our fixed-income investment portfolios. FINANCIAL GUARANTEE INSURANCE For the first six months of 1998 total gross premiums written (GPW) increased by 9% to $319.4 million from $292.9 million in 1997. 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 1998 and 1997 is presented in the following table: (12) 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 1998 1998 -------------- -------------- vs. vs. In millions 1998 1997 1998 1997 1997 1997 - ----------------------------------------------------------------------------- Premiums written: GPW $198.5 $184.0 $319.4 $292.9 8% 9% AGP $245.7 $197.8 $384.1 $325.3 24% 18% We estimate the present value of our total future installment premium stream on outstanding policies to be $574.8 million at second quarter-end 1998, compared with $498.6 million at second quarter-end 1997. MUNICIPAL MARKET New issuance in the municipal market was $71.3 billion for the second quarter of 1998, up 41% from $50.5 billion in the second quarter of 1997. The insured portion of this market was 56%, the same as last year's second quarter. With a 39% market share, we continued our market leadership in the new issue insured municipal market. The overall domestic municipal market new issuance statistics and MBIA's par and premium writings in both the new issue and secondary domestic municipal finance markets are shown in the following table: Percent Change -------------------------- 2nd Quarter Year-to-date ----------- ------------ 2nd Quarter Year-to-date 1998 1998 Domestic -------------- -------------- vs. vs. Municipal 1998 1997 1998 1997 1997 1997 - ----------------------------------------------------------------------------- Total new issue market:* Par value (in billions) $ 71.3 $ 50.5 $136.9 $ 85.8 41% 59% Insured penetration 56% 56% 54% 56% MBIA market share 39% 50% 36% 47% MBIA insured: Par value: (in billions) $ 18.5 $ 14.5 $ 28.5 $ 23.0 28% 24% Premiums: (in millions) GPW $136.9 $139.1 $204.4 $214.9 ( 2%) ( 5%) AGP $140.1 $143.8 $208.0 $221.5 ( 3%) ( 6%) - ----------------------------------------------------------------------------- * 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) increased 32% in the second quarter and 18% on a year-to-date basis. (13) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) For the second quarter of 1998, MBIA insured $12.4 billion of par value of asset-backed securities (including mortgage-backed securities) compared with $5.2 billion in the comparable period last year. GPW for the quarter increased by 29% to $30.8 million from $23.9 million for the same period last year while AGP increased 73% to $51.7 million from $29.8 million. On a year-to-date basis, MBIA's domestic structured finance volume rose 62% to $21.2 billion of par value compared with $13.1 billion in the first six months of 1997, and GPW and AGP increased 32% and 15%, respectively. 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: Percent Change -------------------------- 2nd Quarter Year-to-date ----------- ------------ 2nd Quarter Year-to-date 1998 1998 Domestic ------------- -------------- vs. vs. Structured Finance 1998 1997 1998 1997 1997 1997 - ----------------------------------------------------------------------------- Total asset-backed Market:* Par value (in billions) $46.2 $34.9 $82.6 $70.1 32% 18% MBIA insured: Par value: (in billions) $12.4 $ 5.2 $21.2 $13.1 137% 62% Premiums: (in millions) GPW $30.8 $23.9 $61.1 $46.3 29% 32% AGP $51.7 $29.8 $79.7 $69.5 73% 15% - ---------------------------------------------------------------------------- * Market data exclude mortgage-backed securities and private placements. INTERNATIONAL MARKET In late 1995, we formed a joint venture with AMBAC Assurance 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 written increased by 268%. AGP increased by 266% while GPW increased by 81% 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 second quarters and first half of 1998 and 1997 is illustrated in the following table: Percent Change -------------------------- 2nd Quarter Year-to-date ----------- ------------ 2nd Quarter Year-to-date 1998 1998 -------------- -------------- vs. vs. International 1998 1997 1998 1997 1997 1997 - ----------------------------------------------------------------------------- Par value (in billions) $ 4.3 $ 1.5 $ 6.7 $ 1.8 196% 268% Premiums: (in millions) GPW $21.2 $16.0 $40.4 $22.3 33% 81% AGP $41.7 $17.1 $81.3 $22.2 144% 266% (14) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) 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 premiums) 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. Premiums ceded to reinsurers from all insurance operations were $41.6 million and $27.3 million in the first six months and second quarter of 1998, respectively. For the first six months, cessions as a function of GPW were 13% in both 1998 and 1997. 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 (15) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) 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: Percent Change -------------------------- 2nd Quarter Year-to-date ----------- ------------ 2nd Quarter Year-to-date 1998 1998 ------------- ------------- vs. vs. In millions 1998 1997 1998 1997 1997 1997 ----------------------------------------------------------------------------- Premiums earned: Scheduled $ 87.3 $73.2 $170.6 $143.0 19% 19% Refunded 16.8 12.3 32.6 25.8 37% 26% --------------------------------------------------------------------------- Total $104.1 $85.5 $203.2 $168.8 22% 20% 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 13% to $163.1 million in the first six months of 1998 from $144.4 million in 1997. For the quarter, net investment income was $80.9 million, an 11% 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. Insurance related net realized capital gains were $13.9 million in the first six months of 1998 and $5.7 million in 1997. These realized gains were generated as a result of ongoing management of the investment portfolio. ADVISORY FEES As a result of the CapMAC merger, the company collects fee revenues in conjunction with certain structured finance transactions. In the second quarter of 1998, fee revenues recognized rose 71% to $7.2 million from $4.2 million. For the first six months fee revenues recognized rose 63% to $13.4 million in 1998 from $8.2 million in 1997. Certain fees are deferred and earned over the life of the transactions. 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. (16) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) 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. The following table shows the case-specific and unallocated components of our total loss and LAE reserves at the first half of 1998 and 1997: June 30, June 30, Percent Change In millions 1998 1997 1998 vs. 1997 - ----------------------------------------------------------------- Reserves: Case-specific $ 37.5 $20.5 83% Unallocated 78.0 61.5 27% - ----------------------------------------------------------------- Total $115.5 $82.0 41% Provision $ 15.6 $11.1 40% 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. In the third quarter we announced a possible claim with respect to a hospital transaction. At this time we do not anticipate losses to be larger than MBIA's unallocated portion of the loss 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 1998 1998 -------------- ------------ vs. vs. In millions 1998 1997 1998 1997 1997 1997 - ----------------------------------------------------------------------------- Policy acquisition costs, net $ 9.0 $ 8.2 $18.4 $17.8 10% 4% Operating 14.3 18.1 33.5 36.9 (21%) (9%) ---------------------------------------------------------------------------- Total insurance operating expenses $23.3 $26.3 $51.9 $54.7 (11%) (5%) - ----------------------------------------------------------------------------- (17) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) For first six months and second quarter of 1998, policy acquisition costs net of deferrals increased 4% and 10%, respectively. 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 1998 and 1997. Operating expenses decreased by 9% for the first six months and 21% for the second quarter over the prior year's comparable periods, resulting from the synergies of the CapMAC acquisition. OTHER EXPENSES Included in other expenses for the first half is a $29.5 million one-time charge related to the CapMAC merger, which includes investment banking and legal fees and severance expense, recorded in the first quarter. INVESTMENT MANAGEMENT AND MUNICIPAL SERVICES In late 1997, MBIA's investment management and municipal services businesses were brought together under one umbrella: the Investment Management and Financial Services Division. This new organization will enable us to more effectively expand our franchise in the public sector and make the most of cross-marketing opportunities among our various businesses. In the third quarter MBIA formed a holding company, MBIA Asset Management Corporation, to consolidate our investment management operations. The following provides a summary of each of these businesses: MBIA MUNICIPAL INVESTORS SERVICE CORPORATION (MBIA-MISC) provides cash management, investment fund administration and fixed-rate investment placement services directly to local governments and school districts. In late 1996, MBIA-MISC acquired American Money Management Associates, Inc. (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. MBIA INVESTMENT MANAGEMENT CORP. (IMC) provides customized guaranteed investment agreements and flexible repurchase agreements for bond proceeds and other public funds. At second quarter-end 1998, principal and accrued interest outstanding on investment and repurchase agreements was $3.3 billion compared with $3.2 billion at second quarter-end 1997. At amortized cost, the assets supporting IMC's investment agreement liabilities were $3.5 billion and $3.3 billion at June 30, 1998 and 1997, respectively. These assets are comprised of high-quality securities with an average credit quality rating of Double-A. IMC, from time to time, uses derivative financial instruments to manage interest rate risk. We have established policies limiting the amount, type and concentration of such instruments. By matter of policy, derivative positions can only be used to hedge interest rate exposures and not for speculative trading purposes. At second quarter-end 1998, our exposure to derivative financial instruments was not material. (18) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) MBIA CAPITAL MANAGEMENT CORP. (CMC), an SEC-registered investment adviser, 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. MBIA MUNISERVICES COMPANY (MuniServices) (formerly known as Strategic Services, Inc.) was established in 1996 to provide bond administration, revenue enhancement and other services to state and local governments. In 1996, MuniServices acquired an equity interest in Capital Asset Holdings (Capital Asset), a purchaser and servicer of delinquent tax certificates. Capital Asset also provides a series of services to assist taxing authorities in the preparation, analysis, packaging and completion of delinquent tax obligation sales. In January 1997, MuniServices acquired a 95% interest in Municipal Tax Bureau (MTB), a provider of tax revenue compliance and collection services to public entities. In July 1997, MuniServices acquired MuniFinancial, a public finance consulting firm specializing in municipal debt administration. In January 1998, Muni Resources, a revenue audit and information services firm, was also acquired. MBIA & ASSOCIATES CONSULTING, INC. was established in 1997 to provide assistance to state and local governments, colleges and universities, and international public and private sector clients seeking to strengthen their strategic financial planning and management capabilities. INTEREST EXPENSE Interest expense in the first six months and second quarter of 1998, was $21.0 million and $10.6 million, respectively, compared with $17.9 million and $9.1 million in the same periods last year. The increase in interest expense was due to the $100 million addition to MBIA's long-term debt in July 1997. TAXES In general, our tax policy is to optimize our after-tax income by maintaining the appropriate mix of taxable and tax-exempt investments. However, we will see our tax rate fluctuate from time to time as we manage our investment portfolio on a total return basis. Our effective tax rate increased to 24% for the first six months of 1998 from 22% for the comparable period in 1997, as we shifted to holding a higher proportion of taxable securities. (19) 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 $3.6 billion with total long-term borrowings at $489 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, 1998 1997 - ----------------------------------- --------------- ---------------------- Long-term debt (in millions) $489 $489 Long-term debt to total capital 12% 13% Ratio of earnings to fixed charges 14.1x 14.0x In addition, our insurance company has a $825 million irrevocable standby line of credit with a group of major Triple-A rated banks to provide funds for the payment of claims in the event that severe losses should occur. The agreement is for a seven-year term which expires on September 30, 2004 and, subject to approval by the banks, may be renewed annually to extend the term to seven years beyond the renewal date. MBIA also has available stop-loss reinsurance coverage of $75 million in excess of certain incurred losses of $150 million. From time to time MBIA accesses the capital markets to support the growth of our businesses. In July 1997, to provide us with additional capital for growth, we raised $126 million of equity and issued $100 million of 30-year debentures. In July 1998, 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 $350 million of debt securities, common stock and/or preferred stock. As of June 30, 1998, total claims-paying resources for our insurance company stood at $7.2 billion, a 16% increase over 1997. 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 six months of 1998, operating cash flow was $241 million. (20) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) 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 1998 our insurance company paid no dividends and at June 30, 1998 had dividend capacity of $208 million without special regulatory approval. Our company has significant liquidity supporting its businesses. At the end of the second quarter, cash equivalents and short-term investments totaled $301 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 three short-term bank lines totaling $450 million with a group of worldwide banks. At second quarter-end 1998, $20 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 1998, the fair value of our consolidated investment portfolio increased to $9.4 billion, as shown below: June 30, December 31, Percent Change In millions 1998 1997 1998 vs. 1997 - ----------------------- --------------- ----------------- ------------------- Insurance operations: Amortized cost $5,534 $5,292 5% Unrealized gain 273 275 (1%) - ----------------------- --------------- ----------------- ------------------- Fair value $5,807 $5,567 4% - ----------------------- --------------- ----------------- ------------------- Municipal investment agreements: Amortized cost $3,476 $3,242 7% Unrealized gain 128 99 28% - ----------------------- --------------- ----------------- ------------------- Fair value $3,604 $3,341 8% - ----------------------- --------------- ----------------- ------------------- Total portfolio at fair value $9,411 $8,908 6% The increase in the fair value of our insurance related investments for the period was a result of the increase in our invested assets from positive cash flows partially offset by a nominal decrease in unrealized gains. The fair value of investments related to our municipal investment agreement business increased to $3.60 billion at June 30, 1998 from $3.34 billion at December 31, 1997, reflecting the growth of new business volume in the second quarter. (21) 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. YEAR 2000 With the approach of the new millenium, MBIA is actively managing the Year 2000 issue. This issue results from computer programs which use two digits, rather than four digits to define a year. Our company has already reengineered our significant internal business applications. We have instituted a corporate-wide effort to address and resolve the system/application tasks associated with Year 2000 at subsidiary locations and expect them to be Year 2000 compliant. We do not expect that other costs related to Year 2000 compliance activities will have a material effect on net income, financial condition or cash flows. MBIA is also in the process of reviewing our exposure to Year 2000 issues resulting from our vendors and insureds' computer systems. Our company is in the process of contacting vendors and insureds regarding the state of their remediation activities for material Year 2000 issues. Management believes that its activities, if any, necessitated by the response to these inquiries will be substantially completed before the end of 1998. We do not expect that there will be material disruptions to our company's business or material costs associated with any Year 2000 disruption by our issuers. FORWARD-LOOKING STATEMENTS This filing contains forward-looking statements. Important factors such as general market conditions and the competitive environment could cause actual results to differ materially from those projected in these forward-looking statements. The company undertakes no obligation to revise or update any forward-looking statements to reflect changes in events or expectations or otherwise. (22) PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 11. Computation of Earnings Per Share Assuming Dilution 27. Financial Data Schedule 99. Additional Exhibits - MBIA Insurance Corporation and Subsidiaries Consolidated Financial Statements (b) Reports on Form 8-K -- No reports on Form 8-K were filed in this quarter. (23) 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 13, 1998 /s/ JULLIETTE S. TEHRANI ------------------ ------------------------------ Julliette S. Tehrani Executive Vice President, Chief Financial Officer and Treasurer Date: August 13, 1998 /s/ ELIZABETH B. SULLIVAN ------------------ ------------------------------ Elizabeth B. Sullivan Managing Director Controller (Principal Accounting Officer) (24) EX-11 2 2Q 98 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 ------------------- ------------------ 1998 1997 1998 1997 ---------- ------- -------- -------- Net income $116,233 $96,509 $216,506 $193,370 ========== ======= ======== ======== Diluted weighted average shares: Basic weighted average shares outstanding 97,665 94,625 97,582 94,394 Effect of stock options 1,357 1,279 1,360 1,502 ---------- ------- -------- -------- Diluted weighted average shares: 99,022 95,904 98,942 95,896 ========== ======= ======== ======== Basic EPS $ 1.19 $ 1.02 $ 2.22 $ 2.05 ========== ======= ======== ======== Diluted EPS $ 1.17 $ 1.01 $ 2.19 $ 2.02 ========== ======= ======== ========
EX-27 3 FDS -- 2Q 98
7 0000814585 MBIA Inc. 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 5,498,035 0 0 0 0 0 9,410,561 44,094 0 226,880 11,123,101 115,540 2,172,994 0 0 508,937 97,984 0 0 3,470,520 11,123,101 203,218 163,128 13,892 56,204 15,585 18,455 33,461 284,512 68,006 216,506 0 0 0 216,506 2.22 2.19 0 0 0 0 0 0 0
EX-99 4 2Q 98 MBIA CORP GAAP MBIA INSURANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 1998 AND DECEMBER 31, 1997 AND FOR THE PERIODS ENDED JUNE 30, 1998 AND 1997 MBIA INSURANCE CORPORATION AND SUBSIDIARIES I N D E X PAGE Consolidated Balance Sheets - June 30, 1998 (Unaudited) and December 31, 1997 (Audited) 3 Consolidated Statements of Income - Three months and six months ended June 30, 1998 and 1997 (Unaudited) 4 Consolidated Statement of Changes in Shareholder's Equity - Six months ended June 30, 1998 (Unaudited) 5 Consolidated Statements of Cash Flows - Six months ended June 30, 1998 and 1997 (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, 1998 December 31, 1997 ------------- ----------------- (Unaudited) (Audited) ASSETS Investments: Fixed-maturity securities held as available-for-sale at fair value (amortized cost $5,220,498 and $4,600,528) $5,493,390 $4,867,254 Short-term investments, at amortized cost (which approximates fair value) 253,877 242,730 Other investments 17,376 16,802 -------------- ------------ TOTAL INVESTMENTS 5,764,643 5,126,786 Cash and cash equivalents 21,458 3,983 Securities purchased under agreements to resell 209,500 182,820 Accrued investment income 85,427 78,601 Deferred acquisition costs 226,880 154,100 Prepaid reinsurance premiums 297,704 252,893 Goodwill (less accumulated amortization of $49,592 and $47,152) 93,389 95,829 Property and equipment, at cost (less accumulated depreciation of $20,890 and $18,256) 62,232 53,484 Receivable for investments sold 1,394 1,616 Other assets 30,946 37,437 -------------- ------------ TOTAL ASSETS $6,793,573 $5,987,549 ============== ============ LIABILITIES AND SHAREHOLDER'S EQUITY Liabilities: Deferred premium revenue $ 2,172,994 $ 1,984,104 Loss and loss adjustment expense reserves 115,540 78,872 Securities sold under agreements to repurchase 209,500 182,820 Deferred income taxes 278,081 251,134 Deferred fee revenue 37,815 --- Payable for investments purchased 73,431 23,020 Other liabilities 89,236 103,740 -------------- ------------ TOTAL LIABILITIES 2,976,597 2,623,690 -------------- ------------ 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 1,343,465 1,139,949 Retained earnings 2,289,496 2,042,323 Accumulated other comprehensive income, net of deferred income tax provision of $96,512 and $94,416 169,015 166,587 -------------- ------------ TOTAL SHAREHOLDER'S EQUITY 3,816,976 3,363,859 -------------- ------------ TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $6,793,573 $5,987,549 ============== ============
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 ----------------------------- ----------------------------- 1998 1997 1998 1997 ------------- ------------- ------------- ------------- Revenues: Gross premiums written $267,005 $165,158 $368,646 $257,744 Ceded premiums (27,043) (22,834) (34,829) (28,813) ------------- ------------- ------------- ------------- Net premiums written 239,962 142,324 333,817 228,931 Increase in deferred premium revenue (135,349) (68,608) (144,305) (83,344) ------------- ------------- ------------- ------------- Premiums earned (net of ceded premiums of $19,282, $10,940 $27,068 and $21,265) 104,613 73,716 189,512 145,587 Net investment income 80,626 67,441 157,593 133,918 Net realized gains 7,804 2,481 13,892 6,855 Advisory fees 9,803 --- 11,273 --- Other (62) 369 (20) 693 ------------- ------------- ------------- ------------- Total revenues 202,784 144,007 372,250 287,053 ------------- ------------- ------------- ------------- Expenses: Losses and loss adjustment 10,344 4,823 14,563 8,258 Policy acquisition costs, net 9,014 6,830 17,010 13,575 Operating 14,289 11,670 28,545 23,829 ------------- ------------- ------------- ------------- Total expenses 33,647 23,323 60,118 45,662 ------------- ------------- ------------- ------------- Income before income taxes 169,137 120,684 312,132 241,391 Provision for income taxes 33,772 25,235 64,959 50,615 ------------- ------------- ------------- ------------- Net income $135,365 $ 95,449 $247,173 $190,776 ============= ============= ============= =============
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, 1998 (Dollars in thousands except per share amounts)
Accumulated Common Stock Additional Other Total ----------------------- Paid-in Retained Comprehensive Shareholder's Shares Amount Capital Earnings Adjustment Equity --------- ------------ --------------- -------------- ---------------- ----------------- Balance, January 1, 1998 100,000 $15,000 $1,139,949 $2,042,323 $166,587 $ 3,363,859 Comprehensive income: Net income --- --- --- 247,173 --- 247,173 Other comprehensive income: Change in unrealized appreciation of investments net of change in deferred income taxes of $(2,096) --- --- --- --- 3,973 3,973 Change in foreign currency translation --- --- --- --- (1,545) (1,545) ----------------- Other comprehensive income 2,428 ----------------- Comprehensive income 249,601 ----------------- Capital contribution from MBIA Inc. --- --- 190,764 --- --- 190,764 Tax reduction related to tax sharing agreement with MBIA Inc. --- --- 12,752 --- --- 12,752 -------- ------------ --------------- -------------- ---------------- ----------------- Balance, June 30, 1998 100,000 $15,000 $1,343,465 $2,289,496 $169,015 $ 3,816,976 ======== ============ =============== ============== ================ =================
Disclosure of reclassification amount: Unrealized appreciation of investments arising during the period $12,968 Reclassification of adjustment, net of taxes (8,995) ---------- Net unrealized appreciation, net of taxes $ 3,973 ========== 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 ----------------------------------- 1998 1997 --------------- --------------- Cash flows from operating activities: Net income $ 247,173 $ 190,776 Adjustments to reconcile net income to net cash provided by operating activities: Increase in accrued investment income (6,826) (4,890) Increase in deferred acquisition costs (72,780) (4,000) Increase in prepaid reinsurance premiums (44,811) (7,548) Increase in deferred premium revenue 189,116 90,892 Increase in loss and loss adjustment expense reserves 36,668 8,800 Depreciation 2,600 1,821 Amortization of goodwill 2,440 2,445 Amortization of bond discount, net (6,734) (4,289) Net realized gains on sale of investments (13,892) (6,855) Deferred income taxes 12,398 9,053 Other, net 48,049 (67,656) -------------- --------------- Total adjustments to net income 146,228 17,773 -------------- --------------- Net cash provided by operating activities 393,401 208,549 -------------- --------------- Cash flows from investing activities: Purchase of fixed-maturity securities, net of payable for investments purchased (1,467,070) (889,051) Sale of fixed-maturity securities, net of receivable for investments sold 521,860 613,369 Redemption of fixed-maturity securities, net of receivable for investments redeemed 415,194 69,313 (Purchase) sale of short-term investments, net (30,585) 14,992 Sale of other investments, net 68 523 Capital expenditures, net of disposals (6,157) (5,718) -------------- --------------- Net cash used by investing activities (566,690) (196,572) -------------- --------------- Cash flow from financing activities: Capital contribution from MBIA Inc. 190,764 --- -------------- --------------- Net cash provided by financing activities 190,764 --- -------------- --------------- Net increase in cash and cash equivalents 17,475 11,977 Cash and cash equivalents - beginning of period 3,983 3,288 -------------- --------------- Cash and cash equivalents - end of period $ 21,458 $ 15,265 ============== =============== Supplemental cash flow disclosures: Income taxes paid $ 61,474 $ 39,500
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, 1997. 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, 1998 may not be indicative of the results that may be expected for the year ending December 31, 1998. The December 31, 1997 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 six months ended June 30, 1998. 3. COMPREHENSIVE INCOME -------------------- As of January 1, 1998, the company adopted Statement of Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income." SFAS 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this Statement had no impact on the company's net income or shareholder's equity. The company's comprehensive income consists of unrealized gains or losses on available-for-sale securities and foreign currency translation adjustments, which are presented net of deferred taxes. Prior to adoption these accounts were reported separately in shareholder's equity. 4. CAPMAC MERGER ------------- On February 17, 1998 MBIA Inc. and CapMAC Holdings Inc. (CapMAC) consummated a merger. Under the terms of the merger, CapMAC shareholders received 0.4675 of a share of MBIA Inc. common stock for each CapMAC share, for a total of 8,102,255 newly issued shares of MBIA Inc. common stock, the value of which is $536 million. On April 1, 1998, the company assumed the net insured obligations of Capital Markets Assurance Corporation (CapMAC Ins.) in exchange for investments equal to $176.1 million. The cession of the deferred premium revenue (net of prepaid reinsurance premiums) has been reflected as a component of gross premiums written in the second quarter of 1998. Subsequent to the cession MBIA Inc. contributed the common stock of CapMAC Ins. to the company resulting in additional paid-in capital of $190.8 million. -7- -----END PRIVACY-ENHANCED MESSAGE-----