-----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, WduSArYbnHZX1pR5IEujLjq1VCSdznWW+hN9MqoWa9sQ+WOhdnPXaCoE7zVRJXU2 YnEWxtF/EbCeEf/AeU8T7w== 0001157523-06-004216.txt : 20060427 0001157523-06-004216.hdr.sgml : 20060427 20060427111624 ACCESSION NUMBER: 0001157523-06-004216 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20060427 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20060427 DATE AS OF CHANGE: 20060427 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: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09583 FILM NUMBER: 06783701 BUSINESS ADDRESS: STREET 1: 113 KING ST CITY: ARMONK STATE: NY ZIP: 10504 BUSINESS PHONE: 914-273-4545 MAIL ADDRESS: STREET 1: 113 KING ST CITY: ARMONK STATE: NY ZIP: 10504 8-K 1 a5134630.txt MBIA INC. 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): April 27, 2006 MBIA INC. (Exact name of registrant as specified in its charter) Connecticut 1-9583 06-1185706 (State or other jurisdiction of (Commission File Number) (IRS Employer incorporation) Identification No.) 113 King Street, Armonk, New York 10504 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 914-273-4545 Not Applicable (Former name or former address, if changed since last report) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: |_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) Item 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION. The following information, including the Exhibit to this Form 8-K, is being furnished pursuant to Item 2.02 - Results of Operations and Financial Condition of Form 8-K. On April 27, 2006, MBIA Inc. issued a press release announcing its results of operations for the quarter ended March 31, 2006. A copy of the press release is attached as Exhibit 99.1 to this Form 8-K and is incorporated by reference to this Item 2.02 as if fully set forth herein. Item 9.01. FINANCIAL STATEMENTS AND EXHIBITS. 99.1 Press Release issued by MBIA Inc. dated April 27, 2006. This information is not deemed to be "filed" for the purposes of Section 18 of the Securities Exchange Act of 1934 and is not incorporated by reference into any Securities Act registration statements. 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 hereunto duly authorized. MBIA INC. By: /s/ Ram D. Wertheim ------------------------------- Ram D. Wertheim General Counsel Date: April 27, 2006 EXHIBIT INDEX TO CURRENT REPORT ON FORM 8-K Dated April 27, 2006 Exhibit 99.1 Press Release issued by MBIA Inc. dated April 27, 2006. EX-99.1 2 a5134630ex99_1.txt EXHIBIT 99.1 Exhibit 99.1 MBIA Inc. Reports 4 Percent Decrease in First Quarter 2006 Earnings Per Share; Operating Income Per Share up 3 Percent ARMONK, N.Y.--(BUSINESS WIRE)--April 27, 2006--MBIA Inc. (NYSE: MBI), the holding company for MBIA Insurance Corporation, reported today that first quarter 2006 diluted earnings per share decreased 4 percent to $1.46, compared to $1.52 in the first quarter of 2005. Net income for the first quarter was $199.0 million, down 6 percent compared to $212.8 million in the first quarter of 2005. The decrease was due primarily to the effect of net gains on derivative instruments and foreign exchange of $0.01 per share or $1.8 million in the first quarter of 2006 compared to $0.10 per share or $21.5 million in the first quarter of 2005. Diluted earnings per share information - -------------------------------------- Three Months Ended March 31 -------- 2006 2005 ----- ----- Net income $1.46 $1.52 Net realized gains 0.00 0.01 Net gains on derivative instruments and foreign exchange 0.01 0.10 ----- ----- Operating income (1) $1.45 $1.41 (1) Presented on the same basis as analysts' estimates For the first quarter of 2006, operating income per share, which excludes the effects of net realized gains and net gains on derivative instruments and foreign exchange, increased 3 percent to $1.45 from $1.41 in the first quarter of 2005. Excluding refundings, first quarter 2006 operating income per share also rose 3 percent to $1.29 from $1.25 in the same period of 2005. Gary Dunton, MBIA Chief Executive Officer, said, "Despite a challenging operating environment, including tight credit spreads and intense competition, our financial results were in line with our expectations. These market conditions, coupled with our commitment to disciplined pricing and underwriting, resulted in decreased new business production in the quarter. Nevertheless, we are pleased with the progress we've made in managing our expenses. Looking ahead, while we expect markets to remain challenging, we will continue to focus on managing MBIA conservatively and profitably as we work to create long-term value for our shareholders." Insurance Operations Adjusted direct premium (ADP), a non-GAAP measure, which includes both upfront premiums written and the present value of estimated future installment premiums for new business writings and excludes premiums assumed or ceded, decreased 63 percent to $116.0 million in the first quarter of 2006 from $317.6 million in the first quarter of 2005. The decline was due to tight credit spreads, reduced issuance, business mix changes and increased competition from the uninsured market and other monolines. Adjusted Direct Premium (ADP) ($ in millions) Three Months Ended March 31 -------- 2006 2005 % Change ---- ---- -------- Global Public Finance United States $ 48.0 $141.8 (66%) Non-United States 0.0 7.5 (100%) ------ --------------- Total 48.0 149.3 (68%) Global Structured Finance United States 15.8 138.2 (89%) Non-United States 52.2 30.1 73% ------ --------------- Total 68.0 168.3 (60%) Total $116.0 $317.6 (63%) Global public finance ADP decreased 68 percent in the first quarter of 2006 compared to the first quarter of 2005. U.S. public finance production was down 66 percent and reflected the 29 percent decrease in overall market issuance compared to last year's first quarter as well as a significant decline in insured penetration. There were no international public finance transactions closed in the first quarter. Early in April, however, MBIA closed two very sizable international public finance transactions with a combined ADP of approximately $100 million, demonstrating the uneven nature of the business flow in international markets. Credit quality for domestic public finance transactions remained very high, with 92 percent of insured business written in the first quarter of 2006 having underlying ratings of Single-A or higher. Global structured finance ADP decreased 60 percent in the first quarter of 2006 as tight credit spreads in the U.S. market, which was dominated by mortgage-backed securities, led to few opportunities in MBIA's traditional flow or public ABS business. However, structured finance ADP in the international markets grew by 73 percent compared to first quarter production in 2005 driven by CDO and intellectual property transactions. In global structured finance, 79 percent of insured business written in the first quarter of 2006 had underlying ratings of Single-A or higher. Scheduled earned premiums in the first quarter of 2006 declined 3 percent to $167.7 million from $173.8 million in the first quarter of 2005 due in part to some early policy terminations in the structured finance book of business as well as the effect of refunding activity in prior periods, which accelerated the earning of premiums into earlier periods. Earned premiums from refundings were a robust $38.2 million for the quarter, up 3 percent from $37.1 million in the first quarter of 2005. Pre-tax net investment income in the first quarter of 2006, excluding net realized gains, was $140.0 million, a 13 percent increase from $123.5 million in the same period of 2005. The increase is primarily due to the growth in invested assets and interest income related to consolidated Variable Interest Entities (VIEs). While investment income for VIEs continues to be shown in net investment income, VIE interest expenses have been reclassified to a new line on the Company's income statement for the current and prior years. Excluding the change in presentation of VIE interest expense, pre-tax net investment income would have increased by 7 percent, and after-tax net investment income would have increased by 8 percent. The growth was primarily due to the increase in the asset base of invested assets. MBIA's fees and reimbursements (formerly reported as Advisory Fees) in the first quarter of 2006 were up 27 percent to $8.2 million from $6.4 million during the first quarter of 2005, reflecting increased expense reimbursements. Insurance expenses, consisting of the amortization of deferred acquisition costs and operating expenses, were up 16 percent in the first quarter of 2006 to $53.0 million from $45.8 million in the first quarter of 2005. The increase in operating expenses primarily relates to a third quarter 2005 change in the percentage of expenses recorded and deferred as policy acquisition costs. Gross insurance company expenses, which are prior to any expense deferrals, were down 1 percent year-over-year. MBIA's pre-tax operating income from insurance operations, which excludes the effects of net realized gains and net unrealized gains and losses on derivative instruments and foreign exchange, was flat at $268.0 million in the first quarter of 2006 compared to $268.6 million in the same period of 2005. Risk Management and Loss Reserves The Company incurred $20.1 million in loss and loss adjustment expenses in the first quarter of 2006, a 3 percent decrease compared to $20.9 million in last year's first quarter. Total case loss incurred activity for the first quarter totaled $10.7 million, primarily related to tax liens and the accretion of the reserve previously established for the Company's Allegheny Health, Education and Research Foundation (AHERF) exposure. Investment Management Services The market value of quarterly average fixed-income assets under management, excluding conduits, was $47.5 billion in the first quarter of 2006, up 14 percent from $41.6 billion in the first quarter of last year. Pre-tax operating income from MBIA's investment management businesses, which excludes the effects of net realized gains and net unrealized gains and losses on derivative instruments and foreign exchange, increased 6 percent in the first quarter of 2006 to $23.9 million from $22.4 million in the first quarter of 2005 driven by strong demand for the Company's asset/liability products. Corporate The corporate segment includes net investment income, interest expense and corporate expenses. Net corporate segment expenses, excluding the effects of net realized gains and losses, increased 6 percent for the first quarter of 2006 to $18.9 million from $17.8 million in the same period last year. The increase was primarily due to lower net investment income as a result of lower invested assets during the first quarter of 2006. Gains and Losses In the first quarter of 2006, MBIA recorded net realized losses of $0.9 million for all business operations, compared to net realized gains of $1.7 million in the first quarter of 2005. Net realized losses for the first quarter of 2006 included a $13.9 million write-down of a receivable balance that the Company obtained under salvage and subrogation rights. The Company recorded pre-tax mark-to-market net unrealized gains on derivative instruments and foreign exchange of $1.8 million for all business operations in the first quarter of 2006, compared to pre-tax mark-to-market net unrealized gains of $21.5 million in the first quarter of 2005. Book Value and Adjusted Book Value MBIA's book value per share at the end of the first quarter of 2006 was $49.00, down slightly from $49.17 at December 31, 2005. Book value declined because of the effect of a decrease in the unrealized appreciation of investments offset by the effect of net income from operations. Adjusted book value (ABV) per share, a non-GAAP measure, at March 31, 2006 rose 1 percent to $71.21 from $70.62 at December 31, 2005. ABV includes the after-tax effects of deferred premium revenue less prepaid reinsurance premiums and deferred acquisition costs, the present value of installment premiums, the present value of the net spread of asset/liability products and a provision for loss and loss adjustment expenses. Conference Call MBIA will host a conference call for investors today at 11 a.m. EDT. The conference call will consist of brief comments by Mr. Nicholas Ferreri, MBIA Chief Financial Officer, followed by a question and answer session with Mr. Ferreri. The dial-in number for the call is (888) 677-3079 in the U.S. and (517) 645-6469 from outside the U.S. The call will also be broadcast live on MBIA's Web site at http://investor.mbia.com (then select "Conference Call"). Those who are unable to participate in the conference call may listen to a replay by dialing (866) 356-4366 in the United States and (203) 369-0107 from outside the United States. The replay will be available on MBIA's Web site approximately two hours after the end of the conference call. MBIA Inc., through its subsidiaries, is a leading financial guarantor and provider of specialized financial services. MBIA's innovative and cost-effective products and services meet the credit enhancement, financial and investment needs of its public and private sector clients, domestically and internationally. MBIA Inc.'s principal operating subsidiary, MBIA Insurance Corporation, has a financial strength rating of Triple-A from Moody's Investors Service, Standard & Poor's Ratings Services, Fitch Ratings, and Rating and Investment Information, Inc. Please visit MBIA's Web site at http://www.mbia.com. This news release contains forward-looking statements. Important factors such as general market conditions and the competitive environment could cause actual results to differ materially from those projected in these forward-looking statements. The Company undertakes no obligation to revise or update any forward-looking statements to reflect changes in events or expectations. Explanation of Non-GAAP Financial Measures The following are explanations of why MBIA believes that the non-GAAP financial measures typically used in the Company's press releases, which serve to supplement GAAP information, are meaningful to investors. Operating Income: The Company believes operating income is a useful measurement of performance because it measures income from operations, unaffected by investment portfolio realized gains and losses, gains and losses on derivative instruments and foreign exchange and other non-operating items. Operating income is also provided to assist research analysts and investors who use this information in their analysis of the Company. Adjusted Direct Premiums: The Company believes adjusted direct premiums are a meaningful measure of the total value of the insurance business written during a reporting period since they represent the present value of all premiums collected and expected to be collected on policies closed during the period. As such, it gives investors an opportunity to measure the value of new business activities in a given period and compare it to new business activities in other periods. Other measures, such as premiums written and premiums earned, include the value of premiums resulting from business closed in prior periods and do not provide the same information to investors. Adjusted Book Value (ABV): The Company believes the presentation of adjusted book value, which includes items that are expected to be realized in future periods, provides additional information that gives a comprehensive measure of the value of the Company. Since the Company expects these items to affect future results and, in general, they do not require any additional future performance obligation on the Company's part, ABV provides an indication of the Company's value in the absence of any new business activity. ABV is not a substitute for GAAP book value but does provide investors with additional information when viewed in conjunction with GAAP book value. MBIA INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS --------------------------- (dollars in thousands) March 31, December 31, 2006 2005 ----------- ------------ Assets - ------ Investments: Fixed-maturity securities held as available- for-sale, at fair value (amortized cost $24,264,883 and $23,189,684) $24,470,935 $23,747,204 Investments held-to-maturity, at amortized cost (fair value $5,237,107 and $5,734,335) 5,271,708 5,765,182 Investment agreement portfolio pledged as collateral, at fair value (amortized cost $1,104,941 and $712,054) 1,088,281 729,072 Short-term investments, at amortized cost (which approximates fair value) 2,184,720 1,678,281 Other investments 267,009 234,927 ----------- ------------ Total investments 33,282,653 32,154,666 Cash and cash equivalents 222,936 233,046 Accrued investment income 418,643 396,048 Deferred acquisition costs 429,842 427,111 Prepaid reinsurance premiums 394,608 407,614 Reinsurance recoverable on unpaid losses 59,324 58,965 Goodwill 79,406 79,406 Property and equipment (net of accumulated depreciation) 107,438 109,275 Receivable for investments sold 82,611 74,787 Derivative assets 429,575 326,867 Other assets 209,157 293,609 ----------- ------------ Total assets $35,716,193 $34,561,394 =========== ============ Liabilities and Shareholders' Equity - ------------------------------------ Liabilities: Deferred premium revenue $ 3,116,502 $ 3,185,200 Loss and loss adjustment expense reserves 730,352 721,502 Investment agreements 11,149,718 10,806,277 Commercial paper 872,526 859,997 Medium-term notes 7,508,714 7,542,416 Variable interest entity floating rate notes 1,248,194 1,280,160 Securities sold under agreements to repurchase 1,031,325 646,343 Short-term debt 58,745 58,745 Long-term debt 1,211,356 1,210,405 Current income taxes 9,968 --- Deferred income taxes, net 475,646 569,536 Deferred fee revenue 18,399 20,379 Payable for investments purchased 754,573 83,369 Derivative liabilities 420,725 384,611 Other liabilities 507,987 600,810 ----------- ------------ Total liabilities 29,114,730 27,969,750 Shareholders' Equity: Common stock 157,453 156,602 Additional paid-in capital 1,530,811 1,479,447 Retained earnings 5,904,405 5,747,171 Accumulated other comprehensive income 243,548 399,381 Unearned compensation - restricted stock (76,647) (43,857) Treasury stock (1,158,107) (1,147,100) ----------- ------------ Total shareholders' equity 6,601,463 6,591,644 Total liabilities and shareholders' equity $35,716,193 $34,561,394 =========== ============ MBIA INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME --------------------------------- (dollars in thousands except per share amounts) Year Ended Three Months Ended March 31 December 31 --------------------------- ------------ 2006 2005 2005 ------------- ------------- ------------- Insurance operations Revenues: Gross premiums written $ 172,872 $ 282,619 $ 984,908 Ceded premiums (23,905) (32,126) (127,107) ------------- ------------- ------------- Net premiums written 148,967 250,493 857,801 Scheduled premiums earned 167,715 173,760 702,284 Refunding premiums earned 38,184 37,085 140,458 ------------- ------------- ------------- Premiums earned 205,899 210,845 842,742 Net investment income 140,012 123,450 517,164 Fees and reimbursements 8,174 6,425 28,235 Net realized gains (losses) (7,012) 211 (8,075) Net gains (losses) on derivative instruments and foreign exchange 4,757 (6,072) (4,436) ------------- ------------- ------------- Total insurance revenues 351,830 334,859 1,375,630 Expenses: Losses and loss adjustment 20,126 20,851 84,274 Amortization of deferred acquisition costs 16,266 16,657 66,577 Operating 36,727 29,166 142,576 Interest expense 12,918 5,400 26,109 ------------- ------------- ------------- Total insurance expenses 86,037 72,074 319,536 Insurance income 265,793 262,785 1,056,094 ------------- ------------- ------------- Investment management services Revenues 258,206 186,235 866,154 Net realized gains (losses) 5,528 3,194 1,384 Net gains (losses) on derivative instruments and foreign exchange (2,950) 27,421 42,558 ------------- ------------- ------------- Total investment management services revenues 260,784 216,850 910,096 Interest expense 216,747 149,418 705,340 Expenses 17,590 14,377 74,194 ------------- ------------- ------------- Total investment management services expenses 234,337 163,795 779,534 ------------- ------------- ------------- Investment management services income 26,447 53,055 130,562 ------------- ------------- ------------- Municipal services Revenues 5,611 5,536 24,388 Net realized gains (losses) -- (85) (187) Net gains (losses) on derivative instruments and foreign exchange 29 130 230 ------------- ------------- ------------- Total municipal services revenues 5,640 5,581 24,431 Expenses 5,125 5,405 22,316 ------------- ------------- ------------- Municipal services income 515 176 2,115 ------------- ------------- ------------- Corporate Net investment income 3,564 7,927 16,646 Net realized gains (losses) 626 (1,608) (989) Interest expense 20,131 22,021 90,999 Corporate expenses 2,302 3,681 97,481 ------------- ------------- ------------- Corporate loss (18,243) (19,383) (172,823) ------------- ------------- ------------- Income from continuing operations before income taxes 274,512 296,633 1,015,948 Provision for income taxes 75,518 83,826 303,869 ------------- ------------- ------------- Income from continuing operations 198,994 212,807 712,079 Income (loss) from discontinued operations, net of tax -- -- (1,093) ------------- ------------- ------------- Net income $ 198,994 $ 212,807 $ 710,986 ============= ============= ============= Net income per common share: Basic $ 1.50 $ 1.55 $ 5.30 Diluted $ 1.46 $ 1.52 $ 5.18 Weighted-average common shares outstanding: Basic 132,717,298 137,258,739 134,098,392 Diluted 136,547,417 140,442,217 137,220,731 MBIA INC. AND SUBSIDIARIES Reconciliation of Adjusted Direct Premiums to Gross Premiums Written - -------------------------------------------------------------------- (dollars in millions) Three Months Ended March 31 ------------------ 2006 2005 ------- -------- Adjusted direct premiums (1) $ 116.0 $ 317.6 Adjusted premiums assumed 0.0 0.0 -------- -------- Adjusted gross premiums 116.0 317.6 Present value of estimated future installment premiums (2) (67.7) (175.8) -------- -------- Gross upfront premiums written 48.3 141.8 Gross installment premiums received 124.6 140.8 -------- -------- Gross premiums written $ 172.9 $ 282.6 ======== ======== (1) A non-GAAP measure. (2) At March 31, 2006 and March 31, 2005 the discount rate was 5.02% and 4.84%, respectively. Components of Net Income per Share - ---------------------------------- Three Months Ended March 31 ------------------ 2006 2005 ------- -------- Net income $ 1.46 $ 1.52 Net realized gains 0.00 0.01 Net gains on derivative instruments and foreign exchange 0.01 0.10 ------- -------- Operating income (1) $ 1.45 $ 1.41 ======= ======== (1) A non-GAAP measure. MBIA INC. AND SUBSIDIARIES Components of Adjusted Book Value per Share - ------------------------------------------- March 31, 2006 December 31, 2005 --------------- ----------------- Book value $ 49.00 $ 49.17 After-tax value of: Deferred premium revenue 15.04 15.45 Prepaid reinsurance premiums (1.90) (1.98) Deferred acquisition costs (2.07) (2.07) ------ ------ Net deferred premium revenue 11.07 11.40 Present value of installment premiums (1) 10.14 10.53 Asset/liability products adjustment 3.81 2.40 Loss provision (2) (2.81) (2.88) --------- --------- Adjusted book value (3) $ 71.21 $ 70.62 ========= ========= (1) At March 31, 2006 and December 31, 2005 the discount rate was 5.02% and 5.00%, respectively. (2) The loss provision is calculated by applying 12% to the following items on an after-tax basis: (a) deferred premium revenue; (b) prepaid reinsurance premiums; and, (c) the present value of installment premiums. (3) A non-GAAP measure. CONSOLIDATED INSURANCE OPERATIONS Selected Financial Data Computed on a Statutory Basis - ----------------------------------------------------- (dollars in millions) March 31, 2006 December 31, 2005 -------------- ----------------- Capital and surplus $ 3,788.2 $ 3,800.4 Contingency reserve 2,721.4 2,769.0 ---------- ---------- Capital base 6,509.6 6,569.4 Unearned premium reserve 3,460.4 3,508.1 Present value of installment premiums (1) 2,101.6 2,171.1 ---------- ---------- Premium resources 5,562.0 5,679.2 Loss and loss adjustment expense reserves 333.7 317.8 Soft capital credit facilities 850.0 850.0 ---------- ---------- Total claims-paying resources $13,255.3 $13,416.4 ========== ========== Net debt service outstanding $877,067.0 $889,018.9 Capital ratio (2) 135:1 135:1 Claims-paying ratio (3) 78:1 78:1 (1) At March 31, 2006 and December 31, 2005 the discount rate was 5.02% and 5.00%, respectively. (2) Net debt service outstanding divided by the capital base. (3) Net debt service outstanding divided by the sum of the capital base, unearned premium reserve (after-tax), present value of installment premiums (after-tax), loss and loss adjustment expense reserves and soft capital credit facilities. CONTACT: for MBIA Inc. Michael C. Ballinger, 914-765-3893 -----END PRIVACY-ENHANCED MESSAGE-----