SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1996
OR
( ) TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from __________ to __________
Commission File No. 1-9583 I.R.S. Employer Identification No. 06-1185706
MBIA INC.
A Connecticut Corporation
113 King Street, Armonk, N. Y. 10504
(914) 273-4545
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ NO _____
As of April 30, 1996 there were outstanding 42,864,351 shares of Common
Stock, par value $1 per share, of the registrant.
Page 1 of 16
<PAGE>
INDEX
PAGE
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
MBIA Inc. and Subsidiaries
Consolidated Balance Sheets - March 31, 1996
and December 31, 1995 3
Consolidated Statements of Income - Three months
ended March 31, 1996 and 1995 4
Consolidated Statement of Changes in Shareholders' Equity
- Three months ended March 31, 1996 5
Consolidated Statements of Cash Flows
- Three months ended March 31, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 14
PART II OTHER INFORMATION, AS APPLICABLE
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
(2)
<PAGE>
MBIA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
------------------------ --------------------
(Unaudited) (Audited)
ASSETS
<S> <C> <C>
Investments:
Fixed-maturity securities held as available-for-sale
at fair value (amortized cost $3,664,571 and $3,428,986) $3,784,836 $3,652,621
Short-term investments, at amortized cost
(which approximates fair value) 141,412 198,035
Other investments 13,374 14,064
--------------- -------------
3,939,622 3,864,720
Municipal investment agreement portfolio held as available-for-sale
at fair value (amortized cost $2,775,883 and $2,645,828) 2,803,595 2,742,626
--------------- -------------
TOTAL INVESTMENTS 6,743,217 6,607,346
Cash and cash equivalents 5,744 23,258
Accrued investment income 87,681 87,016
Deferred acquisition costs 140,919 140,348
Prepaid reinsurance premiums 206,383 200,887
Goodwill (less accumulated amortization of $39,250 and $41,298) 105,305 106,569
Property and equipment, at cost (less accumulated depreciation
of $18,655 and $17,625) 46,328 46,030
Receivable for investments sold 8,870 6,100
Other assets 60,990 49,896
--------------- -------------
TOTAL ASSETS $7,405,437 $7,267,450
=============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deferred premium revenue $1,666,945 $1,616,315
Loss and loss adjustment expense reserves 46,376 42,505
Municipal investment agreements 1,993,474 2,026,709
Municipal repurchase agreements 770,473 615,776
Long-term debt 373,927 373,900
Short-term debt --- 18,000
Deferred income taxes 190,474 246,736
Payable for investments purchased 23,410 10,695
Other liabilities 98,384 82,548
--------------- -------------
TOTAL LIABILITIES 5,163,463 5,033,184
--------------- -------------
Shareholders' Equity:
Preferred stock, par value $1 per share; authorized shares--10,000,000;
issued and outstanding--none --- ---
Common stock, par value $1 per share; authorized shares--200,000,000;
issued shares--42,855,931 and 42,077,387 42,856 42,077
Additional paid-in capital 781,345 725,153
Retained earnings 1,322,135 1,261,051
Cumulative translation adjustment 475 2,849
Unrealized appreciation of investments, net of
deferred income tax provision of $51,814 and $112,252 95,553 207,648
Unearned compensation--restricted stock (390) (426)
Treasury stock, at cost; shares--73,676 in 1995 --- (4,086)
--------------- -------------
TOTAL SHAREHOLDERS' EQUITY 2,241,974 2,234,266
--------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $7,405,437 $7,267,450
=============== =============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
(3)
<PAGE>
MBIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Three months ended
March 31
------------------------------------------
1996 1995
---------------- ----------------
<S> <C> <C>
Revenues
Insurance:
Gross premiums written $ 120,599 $ 70,834
Ceded premiums (14,715) (7,080)
---------------- ----------------
Net premiums written 105,884 63,754
Increase in deferred premium revenue (45,532) (12,680)
---------------- ----------------
Premiums earned (net of ceded premiums of
$9,220 and $7,839) 60,352 51,074
Net investment income 59,098 52,837
Net realized gains 2,692 1,724
Investment management services:
Income 6,093 4,202
Net realized gains 968 33
Other 994 910
---------------- ----------------
Total revenues 130,197 110,780
---------------- ----------------
Expenses
Insurance:
Losses and loss adjustment 3,178 2,033
Policy acquisition costs, net 5,900 5,140
Operating 10,549 9,747
Investment management services 3,411 2,871
Interest 8,137 7,050
Other 448 417
---------------- ----------------
Total expenses 31,623 27,258
---------------- ----------------
Income before income taxes 98,574 83,522
Provision for income taxes 20,949 17,516
---------------- ----------------
Net income $ 77,625 $ 66,006
================ ================
Net income per common share $ 1.81 $ 1.57
================ ================
Weighted average number of common shares and
common stock equivalents outstanding 42,935,589 42,061,641
================ ================
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
(4)
<PAGE>
MBIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
For the three months ended March 31, 1996
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Unearned
Common Stock Additional Cumulative Unrealized Compensation- Treasury Stock
---------------- Paid-in Retained Translation Appreciation Restricted ----------------
Shares Amount Capital Earnings Adjustment of Investments Stock Shares Amount
------- ------- ---------- ---------- ----------- -------------- ------------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
January 1, 1996 42,077 $42,077 $725,153 $1,261,051 $2,849 $207,648 $ (426) 74 $4,086
Net proceeds
from issuance
of shares 770 770 54,500 --- --- --- --- --- ---
Unearned
compensation-
restricted stock --- --- --- --- --- --- 36 --- ---
Exercise of stock
options 9 9 1,692 (1,757) --- --- --- (74) (4,086)
Net income --- --- --- 77,625 --- --- --- --- ---
Change in foreign
currency
translation --- --- --- --- (2,374) --- --- --- ---
Change in
unrealized
appreciation of
investments net
of change in
deferred income
taxes of $60,438 --- --- --- --- --- (112,095) --- --- ---
Dividends
(declared and
paid per common
share $.345) --- --- --- (14,784) --- --- --- --- ---
------ ------- -------- ---------- ----------- -------------- ------------- ------- --------
Balance,
March 31, 1996 42,856 $42,856 $781,345 $1,322,135 $ 475 $ 95,553 $ (390) --- $ ---
====== ======= ======== ========== =========== ============== ============= ======= =========
</TABLE>
The accompanying notes are an
integral part of the consolidated financial statements.
(5)
<PAGE>
MBIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three months ended
March 31
---------------------------------
1996 1995
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income .................................................... $ 77,625 $ 66,006
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in accrued investment income ....................... (665) (2,734)
Increase in deferred acquisition costs ...................... (571) (1,634)
(Increase) decrease in prepaid reinsurance premiums ......... (5,496) 758
Increase in deferred premium revenue ........................ 51,028 11,922
Increase in loss and loss adjustment expense reserves ....... 3,871 1,885
Depreciation ................................................ 1,065 907
Amortization of goodwill .................................... 1,264 1,249
Amortization of bond discount, net .......................... (4,547) (358)
Net realized gains on sale of investments ................... (3,660) (1,757)
Deferred income taxes ....................................... 4,176 3,782
Other, net .................................................. (20,636) 21,935
--------- ---------
Total adjustments to net income ............................. 25,829 35,955
--------- ---------
Net cash provided by operating activities ................... 103,454 101,961
--------- ---------
Cash flows from investing activities:
Purchase of fixed-maturity securities, net
of payable for investments purchased ........................ (329,252) (182,603)
Sale of fixed-maturity securities, net of
receivable for investments sold ............................. 146,729 92,891
Redemption of fixed-maturity securities, net of
receivable for investments redeemed ......................... 32,644 16,717
Purchase of short-term investments, net ....................... (21,243) (9,908)
Sale (purchase) of other investments, net ..................... 215 (863)
Purchases for municipal investment agreement
portfolio, net of payable for investments purchased ......... (466,015) (864,740)
Sales from municipal investment agreement
portfolio, net of receivable for investments sold ........... 346,159 284,957
Capital expenditures, net of disposals ........................ (1,369) (1,106)
--------- ---------
Net cash used by investing activities ....................... (292,132) (664,655)
--------- ---------
Cash flows from financing activities:
Net proceeds from issuance of common stock .................... 55,270 --
Dividends paid ................................................ (14,491) (12,901)
Proceeds from issuance of municipal investment
agreements and municipal repurchase agreements .............. 472,745 779,995
Payments for drawdowns of municipal investment
agreements and municipal repurchase agreements .............. (346,390) (203,833)
Exercise of stock options ..................................... 4,030 1,199
--------- ---------
Net cash provided by financing activities ................... 171,164 564,460
--------- ---------
Net (decrease) increase in cash and cash equivalents ............... (17,514) 1,766
Cash and cash equivalents - beginning of period .................... 23,258 7,940
--------- ---------
Cash and cash equivalents - end of period .......................... $ 5,744 $ 9,706
========= =========
Supplemental cash flow disclosures:
Income taxes paid ............................................. $ 1,206 $ 146
Interest paid:
Municipal investment agreements and
municipal repurchase agreements ........................... $ 36,168 $ 25,010
Long-term debt .............................................. 9,188 9,188
Short-term debt ............................................. 193 281
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
(6)
<PAGE>
MBIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and, accordingly, do not
include all of the information and disclosures required by generally accepted
accounting principles. These statements should be read in conjunction with the
consolidated financial statements and notes thereto included in Form 10-K for
the year ended December 31, 1995 for MBIA Inc. and Subsidiaries (the "Company").
The accompanying unaudited consolidated financial statements have not been
audited by independent accountants in accordance with generally accepted
auditing standards but in the opinion of management such financial statements
include all adjustments, consisting only of normal recurring adjustments,
necessary to summarize fairly the Company's financial position and results of
operations. The results of operations for the three months ended March 31, 1996
may not be indicative of the results that may be expected for the year ending
December 31, 1996. The December 31, 1995 condensed balance sheet data was
derived from audited financial statements, but does not include all disclosures
required by generally accepted accounting principles.
2. Dividends Declared
Dividends declared by the Company during the three months ended March 31, 1996
were $14.8 million.
(7)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
1996 AND 1995 - FIRST QUARTER RESULTS
- -------------------------------------
MBIA Inc.'s (the "Company" or "MBIA") 1996 first quarter net income increased by
18% to $77.6 million or $1.81 per share compared with $66.0 million or $1.57 per
share in the first quarter of 1995.
Comparing the first quarter of 1996 with 1995, core earnings per share
increased by 12% to $1.60. Core earnings, which exclude the net income effects
from refundings and calls of insured issues, realized gains and losses,
accounting changes and other non-recurring items, are a more indicative measure
of MBIA's underlying profit trend. The increase in core earnings was primarily
due to the continued combined growth in core premiums earned and net investment
income.
Book value at March 31, 1996 was $52.31 per share, down slightly from
$53.19 per share at year-end 1995. This decrease reflected the decline in market
value of the Company's fixed-income portfolio resulting from this quarter's
steep increase in interest rates, partially offset by the Company's strong
operating results. Financial guarantee insurance companies refer to adjusted
book value as a more appropriate measure of their company's intrinsic value.
Adjusted book value is calculated by adding to book value the after-tax effects
of (1) net deferred premiums less deferred acquisition costs and (2) the present
value of future installment premiums on outstanding insurance policies. MBIA's
adjusted book value per share declined slightly to $76.03 at March 31, 1996
compared with $76.56 at year-end 1995. As with book value, this reflects the
impact of the first quarter's increase in interest rates on the market value of
the fixed-income portfolio, partially offset by operating results and new
business written.
Insurance Operations
- --------------------
MBIA's primary business is to guarantee principal and interest payments on
municipal bonds sold in the new issue and secondary markets. The Company also
provides financial guarantees for structured finance transactions,
investor-owned utility debt and obligations of high-quality financial
institutions. In addition, MBIA provides financial guarantees for similar
securities in the international markets. The Company is the leading provider of
financial guarantees in both domestic and international markets.
Gross premiums written ("GPW") as reported on the Company's income
statements reflect cash premium receipts during the period, which represents
(8)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
upfront premiums received for business originated in the period and installment
premiums received for installment-based insurance policies issued in current and
prior periods. GPW does not include the present value of future premiums
receivable for installment-based insurance policies issued in the period.
Although most of MBIA's premiums are collected upfront at policy issuance, MBIA
is writing an increasing proportion of installment premium business. MBIA
estimates the aggregate present value of its future stream of installment
premiums to be $244.0 million at March 31, 1996. To more accurately portray
year-to-year changes in new business production, the Company also discloses
adjusted gross premiums ("AGP"), which represent upfront premiums and the
estimated present value of current period and future installment premiums for
installment-based insurance policies issued in the period.
MBIA's total GPW for first quarter 1996 increased 70% to $120.6 million
from $70.8 million in the first quarter of 1995. Total AGP increased 74% to
$129.7 million from $74.6 million over the same period.
The overall long-term new issue municipal bond volume was $36.8 billion for
the first quarter of 1996, up 40% from $26.3 billion in the first quarter of
last year. The insured portion of the market rose sharply to 52% from 32% in the
first quarter of 1996. MBIA continued to lead the industry in market share,
capturing 44% of the insured market in the first quarter of 1996 up from 38% in
1995's first quarter. MBIA also insured a record 23% of all new issue municipal
par value. Market data are reported on a sale date basis while MBIA's financial
results are computed from closing date information. Typically, there can be a
one- to four-week delay between the sale date and closing date of an insured
issue.
For the first quarter of 1996, total par value insured by MBIA for new
issue and secondary market municipal insurance increased to $9.4 billion from
$5.4 billion in the same period last year. Over the same periods, GPW for new
issue and secondary market municipal insurance increased 47% to $90.5 million
from $61.5 million. Municipal AGP increased by 46% to $88.5 million from $60.7
million in the first quarter of 1995.
MBIA reported substantial gains in its domestic new issue and secondary
market structured finance business insuring a record $3.7 billion of par value
in the first quarter of 1996, a 75% gain over last year's first quarter. GPW at
$19.2 million reflected a 247% increase over first quarter 1995. Structured
finance AGP totaled $28.3 million, up 179% over 1995's first quarter. Structured
finance GPW and AGP included $12.1 million of assumed premiums related to an
aggregate excess of loss agreement covering $190 million par of first mortgage
loans.
(9)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
MBIA's international operations insured $0.7 billion of new issue and
secondary market par value. GPW for international business increased by 204% to
$10.1 million from $3.3 million in the first quarter of 1995. International AGP
increased by 202% to $10.0 million from $3.3 million in first quarter 1995.
Ceded premiums to reinsurers from all insurance operations were $14.7
million in the first quarter of 1996, compared with $7.1 million in first
quarter 1995, representing 12% and 10% of GPW in the first quarters of 1996 and
1995, respectively. The rate of premium cessions in first quarter 1996 was
higher than first quarter 1995 cession rate due to an unusually large cession on
one special revenue transaction.
Premiums received upfront are earned pro rata over the period of risk. Such
premiums are allocated to each bond maturity based on par amount and are earned
on a straight-line basis over the term of each maturity. Accordingly, the
portion of net premiums earned on each policy in any given year represents a
relatively small percentage of the total net upfront premium received. The
balance represents deferred premium revenue to be earned over the remaining life
of the insured bond issue.
Installment premiums are credited to the deferred premium revenue account
in the period in which such premiums are received, and they are recognized as
revenue over each installment period -- generally one year or less. The revenue
that the Company recognizes from the amortization of deferred premiums for each
period, net of the amortization of prepaid reinsurance premiums, is its premiums
earned for that period.
Premiums earned increased 18% to $60.4 million in first quarter 1996 from
$51.1 million in first quarter 1995. Earned premiums from scheduled amortization
increased by 13% to $48.8 million over last year's first quarter.
When an MBIA-insured bond issue is refunded or retired early, the
outstanding liability associated with the refunded or called portion is
extinguished and the related deferred premium revenue is earned immediately,
except for any portion which may be applied as a credit towards insuring the
refunding bond issue. Earned premiums generated by refunded and called bonds in
first quarter 1996 increased to $11.5 million from $8.0 million in first quarter
1995. The amount of bond refundings and calls is influenced by a variety of
factors such as prevailing interest rates relative to the coupon rates of the
bond issue, the issuer's desire to modify bond covenants and applicable
regulations under the Internal Revenue Code.
(10)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
The fair value of the Company's investment portfolio related to its
insurance operations was $3.9 billion as of March 31, 1996. This portfolio
generated net investment income of $59.1 million in first quarter 1996, a 12%
increase over the $52.8 million generated in the first quarter of 1995. The
increase was primarily the result of the growth of investments from continued
positive operating cash flows and a modest lengthening of the portfolio's
duration. Average invested assets for first quarter 1996 were $3.72 billion at
amortized cost compared with $3.30 billion for the first quarter of 1995. Net
realized capital gains in first quarter 1996 were $2.7 million, compared with
$1.7 million in the prior year's first quarter.
The average credit quality rating of the fixed-income investments at March
31, 1996 was Double-A. Tax-exempt securities represented 73% of the portfolio at
March 31, 1996 compared with 72% at December 31, 1995.
The provision for losses and loss adjustment expenses during the first
quarter of 1996 was $3.2 million compared with $2.0 million in 1995's first
quarter, representing additions to the loss reserve consistent with the
Company's loss reserving methodology. At March 31, 1996, $15.8 million of the
$46.4 million loss and loss adjustment expense reserve was allocated on a case
basis compared with $14.5 million of the $42.5 million reserve at year-end 1995.
During the first quarter of 1996 there were no new case reserves nor any
material adjustments to those reserves currently outstanding. At March 31, 1996
the Company's unallocated general reserve was $30.6 million compared with $28.0
million at year-end 1995.
In first quarter 1996, policy acquisition costs net of deferrals were $5.9
million. The 15% increase for the period over 1995's first quarter was
consistent with the 18% overall increase in earned premiums. Policy acquisition
costs are amortized over the period in which the related premiums are earned.
Other insurance operating expenses increased by 8% to $10.5 million in first
quarter 1996 from $9.7 million in the prior year's first quarter.
In the first quarter of 1996, the Company incurred $8.1 million of interest
expense compared with $7.1 million in the first quarter of 1995. The increase in
first quarter 1996 primarily resulted from the additional interest expense
related to the $75 million public debt offering in December 1995.
The Company's effective tax rate increased marginally in the first quarter
of 1996 to 21.3% compared with 21.0% in 1995.
(11)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
INVESTMENT MANAGEMENT SERVICES
- ------------------------------
Over the last six years, MBIA has developed investment management services which
capitalize on the Company's capabilities, reputation and marketplace
relationships.
MBIA Municipal Investors Service Corporation ("MBIA/MISC"), a wholly owned
subsidiary of the Company, provides cash management services for local
governments and school districts. As of March 31, 1996, MBIA/MISC had
approximately 1,300 clients and over $2.6 billion of client assets under
management compared with over $2.5 billion at year-end 1995. In addition,
MBIA/MISC provides fund administration services to over 230 clients with
invested assets of $112.7 million. MBIA/MISC offers its services in nine states
and the Commonwealth of Puerto Rico and plans to expand into additional states.
Since 1993, MBIA Investment Management Corp. ("IMC"), another wholly owned
subsidiary of the Company, has provided investment agreements, guaranteed as to
principal and interest, for bond proceeds of states, municipalities and
municipal authorities. At March 31, 1996, aggregate principal and accrued
interest outstanding on investment agreements was $2.8 billion compared with
$2.6 billion at year-end 1995. The assets supporting IMC's investment agreement
liabilities are high-quality securities with an average credit quality rating of
Double-A and are recorded as a component of the Company's total investments.
In conducting its business, IMC may, from time to time, use derivative
financial instruments for hedging purposes as part of its overall management of
interest rate risk exposure. The use of such instruments must comply with the
Company's policies restricting their use to prescribed limits, non-speculative
purposes, and exposure to a market or index that represents a class of
investments approved as a direct investment under the Company's existing
investment guidelines. At March 31, 1996, the Company's exposure to derivative
financial instruments (interest rate contracts) was not significant.
In 1994, MBIA Securities Corp. ("SECO"), a wholly owned subsidiary, was
established to provide investment management services for MBIA's investment
agreements, municipal cash management and public pension funds. In first quarter
1996, portfolio management for the majority of MBIA's insurance related
investment portfolio was transferred to SECO; completing the transition which
began in 1995.
(12)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
For the first quarter of 1996, the Company's investment management services
business contributed $6.1 million in operating revenues, a 45% increase over the
same period last year. Operating expenses increased by 19% to $3.4 million. Net
realized capital gains for the first quarter of 1996 were $1.0 million compared
to the first quarter of 1995 when there were no realized gains or losses for the
investment management services business.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At March 31, 1996, the fair value of the Company's consolidated investment
portfolio was $6.7 billion, an increase of 2% from $6.6 billion at year-end
1995.
The fair value of investments related to MBIA's insurance and municipal
investment agreement businesses remained relatively unchanged at $3.9 billion
and $2.8 billion, respectively, at March 31, 1996. The decline in the market
value of the Company's fixed-income portfolio caused by the recent increase in
interest rates was offset by strong operating cash flow and the $55 million of
net proceeds from MBIA's public offering of common stock.
The Company's fixed-income investment portfolio has been classified as
available-for-sale in accordance with SFAS 115. The difference between fair
value and amortized cost is primarily related to changes in interest rates, and
if the portfolio is held to maturity, the Company expects to realize an amount
substantially equal to amortized cost.
MBIA Corp.'s liquidity position remained strong, as net cash flow provided
by its operations aggregated $167 million in first quarter 1996, a 55% increase
from $108 million in first quarter 1995. The Company's liquidity is in part
dependent upon MBIA Corp.'s ability to pay dividends to the Company. MBIA
Corp.'s net income, consisting of premium earnings and investment income less
losses and expenses, is a source of continuing additions to earned surplus and
dividend-paying capability. Under New York state insurance law, without prior
approval of the superintendent of the state insurance department, MBIA Corp. may
pay a dividend only from earned surplus subject to the maintenance of a minimum
capital requirement. The dividends in any 12-month period may not exceed the
lesser of 10% of its policyholders' surplus as shown on its last filed
(13)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
statutory-basis financial statements or adjusted net investment income, as
defined, for such 12-month period. In the first quarter of 1996, MBIA Corp. paid
no dividends and at March 31, 1996 had approximately $71 million available for
payment of future dividends to the Company without requiring prior approval.
MBIA Corp. has an irrevocable standby line of credit with a group of major
banks in the amount of $650 million which provides funds for the payment of
claims in the event that severe losses should occur. The line of credit expires
on September 30, 2002 but may be renewed annually by the bank group for a period
to extend the term to seven years beyond the renewal date. For general corporate
purposes or to further facilitate the immediate payment of claims, should they
occur, the Company and MBIA Corp. maintain short-term liquidity facilities
totaling $275 million with a group of major banks. At March 31, 1996, there were
no amounts outstanding under these facilities.
MBIA Corp. also maintains a high degree of liquidity within its investment
portfolio in the form of readily marketable high-quality fixed-income securities
and short-term investments. In management's opinion, the capital resources of
MBIA Corp. represented by the liquidity of its investment portfolio, its annual
cash flows from operations and bank lines of credit are more than adequate to
meet the Company's expected cash requirements.
In February 1996, the Company completed a public offering of 3.9 million
shares of the Company's common stock, of which 0.8 million shares were new
shares offered by the Company. The Company realized $55 million in new capital
from the offering.
(14)
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
11. Computation of Earnings Per Share Assuming Full Dilution
27. Financial Data Schedule
99. Additional Exhibits - MBIA Insurance Corporation and
Subsidiaries Consolidated Financial Statements
(b) Reports on Form 8-K - The Company filed a report on Form 8-K on January
24, 1996 related to the Company's December 31, 1995 earnings press release.
(15)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MBIA INC.
----------------------------
Registrant
Date: May 10, 1996 /s/ JULLIETTE S. TEHRANI
- ------------------------------ -----------------------------
Julliette S. Tehrani
Senior Vice President,
Chief Financial Officer
Date: May 10, 1996 /s/ ELIZABETH B. SULLIVAN
- ------------------------------ ---------------------------
Elizabeth B. Sullivan
Vice President,
Controller
(Principal Accounting Officer)
(16)
EXHIBIT 11
MBIA INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE ASSUMING FULL DILUTION
(In thousands except per share amounts)
Three Months Ended
March 31
------------------
1996 1995
------- -------
Net income ........................................... $77,625 $66,006
======= =======
Fully diluted shares:
Average number of common shares outstanding ...... 42,489 41,629
Assumed exercise of dilutive stock options ....... 448 489
------- -------
42,937 42,118
======= =======
Earnings per share assuming full dilution ............ $ 1.81 $ 1.57
======= =======
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<DEBT-HELD-FOR-SALE> 3,784,836
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 6,743,217
<CASH> 5,744
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 140,919
<TOTAL-ASSETS> 7,405,437
<POLICY-LOSSES> 46,376
<UNEARNED-PREMIUMS> 1,666,945
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 373,927
<COMMON> 42,856
0
0
<OTHER-SE> 2,199,118
<TOTAL-LIABILITY-AND-EQUITY> 7,405,437
60,352
<INVESTMENT-INCOME> 59,098
<INVESTMENT-GAINS> 2,692
<OTHER-INCOME> 8,055
<BENEFITS> 3,178
<UNDERWRITING-AMORTIZATION> 5,900
<UNDERWRITING-OTHER> 10,549
<INCOME-PRETAX> 98,574
<INCOME-TAX> 20,949
<INCOME-CONTINUING> 77,625
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 77,625
<EPS-PRIMARY> 1.81
<EPS-DILUTED> 1.81
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
MBIA INSURANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1996 AND DECEMBER 31, 1995
AND FOR THE PERIODS ENDED MARCH 31, 1996 AND 1995
<PAGE>
MBIA INSURANCE CORPORATION
AND SUBSIDIARIES
I N D E X
PAGE
Consolidated Balance Sheets -
March 31, 1996 (Unaudited) and December 31, 1995 (Audited) ............. 3
Consolidated Statements of Income -
Three months ended March 31, 1996 and 1995 (Unaudited) ................. 4
Consolidated Statement of Changes in Shareholder's Equity -
Three months ended March 31, 1996 (Unaudited) .......................... 5
Consolidated Statements of Cash Flows -
Three months ended March 31, 1996 and 1995 (Unaudited) ................. 6
Notes to Consolidated Financial Statements (Unaudited) ..................... 7
-2-
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except per share amounts)
March 31, 1996 December 31, 1995
--------------- ------------------
(Unaudited) (Audited)
ASSETS
Investments:
Fixed-maturity securities
held as available-for-sale
at fair value
(amortized cost $3,664,571
and $3,428,986) .................. $3,784,836 $3,652,621
Short-term investments, at
amortized cost
(which approximates fair value) .. 135,428 198,035
Other investments .................. 13,374 14,064
---------- ----------
TOTAL INVESTMENTS .............. 3,933,638 3,864,720
Cash and cash equivalents .............. 2,499 2,135
Accrued investment income .............. 60,462 60,247
Deferred acquisition costs ............. 140,919 140,348
Prepaid reinsurance premiums ........... 206,383 200,887
Goodwill (less accumulated amortization
of $38,590 and $37,366) ............ 104,390 105,614
Property and equipment, at cost
(less accumulated
depreciation of $12,822 and $12,137) 41,771 41,169
Receivable for investments sold ........ 6,501 5,729
Other assets ........................... 51,534 42,145
---------- ----------
TOTAL ASSETS ................... $4,548,097 $4,462,994
========== ==========
Liabilities and Shareholder's Equity
Liabilities:
Deferred premium revenue ........... $1,666,945 $1,616,315
Loss and loss adjustment
expense reserves .................. 46,376 42,505
Deferred income taxes .............. 180,843 212,925
Payable for investments purchased .. 15,715 10,695
Other liabilities .................. 96,600 54,682
---------- ----------
TOTAL LIABILITIES .............. 2,006,479 1,937,122
---------- ----------
Shareholder's Equity:
Common stock, par value $150
per share; authorized,
issued and outstanding -
100,000 shares .................... 15,000 15,000
Additional paid-in capital ......... 1,025,591 1,021,584
Retained earnings .................. 1,423,157 1,341,855
Cumulative translation
adjustment ........................ 330 2,704
Unrealized appreciation
of investments,
net of deferred income tax
provision of $42,114 and $78,372 .. 77,540 144,729
---------- ----------
TOTAL SHAREHOLDER'S EQUITY ..... 2,541,618 2,525,872
---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDER'S EQUITY ......... $4,548,097 $4,462,994
========== ==========
The accompanying notes are an integral part of the
consolidated financial statements.
-3-
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands)
Three Months Ended
March 31
------------------------
1996 1995
--------- ---------
Revenues:
Gross premiums written ...................... $ 121,011 $ 71,112
Ceded premiums .............................. (14,715) (7,080)
--------- ---------
Net premiums written .................... 106,296 64,032
Increase in deferred premium revenue ........ (45,532) (12,680)
--------- ---------
Premiums earned (net of ceded
premiums of $9,220 and $7,839) ...... 60,764 51,352
Net investment income ....................... 59,003 53,065
Net realized gains .......................... 2,692 1,724
Other income ................................ 969 908
--------- ---------
Total revenues .......................... 123,428 107,049
--------- ---------
Expenses:
Losses and loss adjustment expenses ......... 3,178 2,033
Policy acquisition costs, net ............... 5,900 5,140
Underwriting and operating expenses ......... 10,549 9,752
--------- ---------
Total expenses .......................... 19,627 16,925
--------- ---------
Income before income taxes ....................... 103,801 90,124
Provision for income taxes ....................... 22,499 19,476
--------- ---------
Net income ....................................... $ 81,302 $ 70,648
========= =========
The accompanying notes are an integral part of the consolidated
financial statements.
-4-
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY (Unaudited)
For the three months ended March 31, 1996
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Common Stock Additional Cumulative Unrealized
------------------------- Paid-In Retained Translation Appreciation
Shares Amount Capital Earnings Adjustment of Investments
---------- ---------- ---------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 ............... 100,000 $ 15,000 $1,021,584 $1,341,855 $ 2,704 $ 144,729
Exercise of stock options .............. -- -- 1,179 -- -- --
Net income ............................. -- -- -- 81,302 -- --
Change in foreign
currency transactions ................ -- -- -- -- (2,374) --
Change in unrealized
appreciation of
investment net of change
in deferred income taxes
of $36,258 ........................... -- -- -- -- -- (67,189)
Tax reduction related to
tax sharing agreement
with MBIA Inc. ....................... -- -- 2,828 -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance, March 31, 1996 ................ 100,000 $ 15,000 $1,025,591 $1,423,157 $ 330 $ 77,540
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
-5-
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Three Months Ended
March 31
-----------------------
1996 1995
--------- ---------
Cash flows from operating activities:
Net income ....................................... $ 81,302 $ 70,648
Adjustments to reconcile net
income to net cash provided
by operating activities:
(Increase) decrease in accrued
investment income ............................ (215) 960
Increase in deferred acquisition costs ......... (571) (1,634)
(Increase) decrease in prepaid
reinsurance premiums .......................... (5,496) 758
Increase in deferred premium revenue ........... 51,028 11,922
Increase in loss and loss adjustment
expense reserves .............................. 3,871 1,885
Depreciation ................................... 719 630
Amortization of goodwill ....................... 1,224 1,232
Amortization of bond discount, net ............. (1,014) (358)
Net realized gains on sale of investments ...... (2,692) (1,724)
Deferred income taxes .......................... 4,176 3,782
Other, net ..................................... 34,288 19,601
--------- ---------
Total adjustments to net income ................ 85,318 37,054
--------- ---------
Net cash provided by operating activities ...... 166,620 107,702
--------- ---------
Cash flows from investing activities:
Purchase of fixed-maturity securities, net
of payable for investments purchased ........... (329,252) (182,603)
Sale of fixed-maturity securities, net of
receivable for investments sold ................ 146,729 92,890
Redemption of fixed-maturity securities,
net of receivable for investments redeemed ..... 32,644 16,717
Purchase of short-term investments, net .......... (15,259) (9,908)
Sale (purchase) of other investments, net ........ 215 (863)
Capital expenditures, net of disposals ........... (1,333) (817)
--------- ---------
Net cash used in investing activities .......... (166,256) (84,584)
--------- ---------
Cash flows from financing activities:
Dividends paid ................................... -- (22,500)
--------- ---------
Net cash used by financing activities .......... -- (22,500)
--------- ---------
Net increase in cash and cash equivalents .......... 364 618
Cash and cash equivalents - beginning of period .... 2,135 1,332
--------- ---------
Cash and cash equivalents - end of period .......... $ 2,499 $ 1,950
========= =========
Supplemental cash flow disclosures:
Income taxes paid ................................ $ 1,161 $ 1
The accompanying notes are an integral part of the consolidated
financial statements.
-6-
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
- ------------------------
The accompanying consolidated financial statements are unaudited and
include the accounts of MBIA Insurance Corporation and its Subsidiaries (the
"Company"). The statements do not include all of the information and disclosures
required by generally accepted accounting principles. These statements should be
read in conjunction with the Company's consolidated financial statements and
notes thereto for the year ended December 31, 1995. The accompanying
consolidated financial statements have not been audited by independent
accountants in accordance with generally accepted auditing standards but in the
opinion of management such financial statements include all adjustments,
consisting only of normal recurring adjustments, necessary to summarize fairly
the Company's financial position and results of operations. The results of
operations for the three months ended March 31, 1996 may not be indicative of
the results that may be expected for the year ending December 31, 1996. The
December 31, 1995 condensed balance sheet data was derived from audited
financial statements, but does not include all disclosures required by generally
accepted accounting principles.
2. Dividends Declared
- ---------------------
No dividends were declared by the Company during the three months ended
March 31, 1996.
-7-
