SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1997
OR
( ) TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from __________ to __________
Commission File No. 1-9583 I.R.S. Employer Identification No. 06-1185706
MBIA INC.
A Connecticut Corporation
113 King Street, Armonk, N. Y. 10504
(914) 273-4545
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ NO _____
As of July 31, 1997 there were outstanding 44,627,131 shares of Common Stock,
par value $1 per share, of the registrant.
<PAGE>
INDEX
PAGE
PART I FINANCIAL INFORMATION ----
Item 1. Financial Statements (Unaudited)
MBIA Inc. and Subsidiaries
Consolidated Balance Sheets - June 30, 1997
and December 31, 1996 3
Consolidated Statements of Income - Three months
and six months ended June 30, 1997 and 1996 4
Consolidated Statement of Changes in Shareholders' Equity
- Six months ended June 30, 1997 5
Consolidated Statements of Cash Flows
- Six months ended June 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-20
PART II OTHER INFORMATION, AS APPLICABLE
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
(2)
<PAGE>
MBIA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
----------------- ------------------
(Unaudited) (Audited)
ASSETS
Investments:
<S> <C> <C>
Fixed-maturity securities held as available-for-sale
at fair value (amortized cost $4,195,557 and $4,001,562) $4,342,607 $4,149,700
Short-term investments, at amortized cost
(which approximates fair value) 175,948 176,088
Other investments 15,374 14,851
------------- -------------
4,533,929 4,340,639
Municipal investment agreement portfolio held as available-for-sale
at fair value (amortized cost $3,259,330 and $3,263,211) 3,280,435 3,293,298
------------- -------------
TOTAL INVESTMENTS 7,814,364 7,633,937
Cash and cash equivalents 34,003 7,356
Securities borrowed or purchased under agreements to resell 286,401 217,000
Accrued investment income 107,465 104,725
Deferred acquisition costs 151,750 147,750
Prepaid reinsurance premiums 224,394 216,846
Goodwill (less accumulated amortization of $46,168 and $43,050) 116,422 105,138
Property and equipment, at cost (less accumulated depreciation
of $23,741 and $21,642) 56,900 50,923
Receivable for investments sold 3,762 980
Other assets 110,861 77,360
------------- -------------
TOTAL ASSETS $8,906,322 $8,562,015
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deferred premium revenue $1,873,916 $1,785,875
Loss and loss adjustment expense reserves 68,114 59,314
Municipal investment agreements 2,139,901 2,290,609
Municipal repurchase agreements 1,036,178 968,671
Long-term debt 374,065 374,010
Short-term debt 60,000 29,100
Securities loaned or sold under agreements to repurchase 341,301 217,000
Deferred income taxes 212,221 206,492
Payable for investments purchased 79,369 52,029
Other liabilities 99,166 99,218
------------- -------------
TOTAL LIABILITIES 6,284,231 6,082,318
------------- -------------
Shareholders' Equity:
Preferred stock, par value $1 per share; authorized shares--10,000,000;
issued and outstanding--none --- ---
Common stock, par value $1 per share; authorized shares--200,000,000;
issued shares-- 43,409,919 and 43,294,243 43,410 43,294
Additional paid-in capital 810,770 803,078
Retained earnings 1,665,991 1,518,994
Cumulative translation adjustment (7,545) (1,042)
Unrealized appreciation of investments, net of
deferred income tax provision of $59,535 and $62,706 110,312 116,424
Unearned compensation--restricted stock (847) (1,051)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 2,622,091 2,479,697
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $8,906,322 $8,562,015
============= =============
</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 Six months ended
June 30 June 30
------------------------------ -------------------------------
1997 1996 1997 1996
-------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Revenues
Insurance:
Gross premiums written $164,662 $134,001 $256,754 $254,600
Ceded premiums (22,834) (11,914) (28,813) (26,629)
-------------- -------------- --------------- --------------
Net premiums written 141,828 122,087 227,941 227,971
Increase in deferred premium revenue (68,608) (60,021) (83,344) (105,553)
-------------- -------------- --------------- --------------
Premiums earned (net of ceded
premiums of $10,940, $9,682,
$21,265 and $18,902) 73,220 62,066 144,597 122,418
Net investment income 67,445 61,473 133,984 120,571
Net realized gains 2,481 3,895 6,855 6,587
Investment management services:
Income 6,649 6,631 13,839 12,724
Net realized gains (losses) 43 (34) 1,652 934
Other 3,167 994 5,945 1,988
-------------- -------------- --------------- --------------
Total revenues 153,005 135,025 306,872 265,222
-------------- -------------- --------------- --------------
Expenses
Insurance:
Losses and loss adjustment 4,823 4,288 8,258 7,466
Policy acquisition costs, net 6,830 5,990 13,575 11,890
Operating 11,651 11,525 23,789 22,074
Investment management services 4,006 3,549 8,043 6,960
Interest 8,754 8,241 17,311 16,378
Other 4,677 602 8,531 1,050
-------------- -------------- --------------- --------------
Total expenses 40,741 34,195 79,507 65,818
-------------- -------------- --------------- --------------
Income before income taxes 112,264 100,830 227,365 199,404
Provision for income taxes 23,244 21,093 47,406 42,042
-------------- -------------- --------------- --------------
NET INCOME $ 89,020 $ 79,737 $179,959 $157,362
============== ============== =============== ==============
NET INCOME PER COMMON SHARE $ 2.03 $ 1.84 $ 4.12 $ 3.65
============== ============== =============== ==============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES AND COMMON
STOCK EQUIVALENTS OUTSTANDING 43,755,926 43,304,435 43,727,880 43,121,218
============== ============== =============== ==============
</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 six months ended June 30, 1997
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Unearned
Common Stock Additional Cumulative Unrealized Compensation-
---------------- Paid-in Retained Translation Appreciation Restricted
Shares Amount Capital Earnings Adjustment of Investments Stock
-------- -------- ---------- ---------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 43,294 $43,294 $803,078 $1,518,994 $(1,042) $116,424 $(1,051)
Unearned compensation-
restricted stock 8 8 782 --- --- --- 204
Exercise of stock options 108 108 6,910 --- --- --- ---
Net income --- --- --- 179,959 --- --- ---
Change in foreign currency
translation --- --- --- --- (6,503) --- ---
Change in unrealized
appreciation of investments
net of change in deferred
income taxes of $3,171 --- --- --- --- --- (6,112) ---
Dividends (declared and paid
per common share $0.76) --- --- --- (32,962) --- --- ---
-------- -------- --------- ---------- -------- --------- ---------
Balance, June 30, 1997 43,410 $43,410 $810,770 $1,665,991 $(7,545) $110,312 $ (847)
======== ======== ========= ========== ======== ========= =========
</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>
Six months ended
June 30
------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 179,959 $ 157,362
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in accrued investment income (2,740) (11,660)
Increase in deferred acquisition costs (4,000) (3,188)
Increase in prepaid reinsurance premiums (7,548) (7,727)
Increase in deferred premium revenue 90,892 113,280
Increase in loss and loss adjustment expense reserves 8,800 7,932
Depreciation 2,487 2,135
Amortization of goodwill 3,118 2,524
Amortization of bond discount, net (9,148) (9,471)
Net realized gains on sale of investments (8,507) (7,521)
Deferred income taxes 9,054 6,886
Other, net (41,922) (26,962)
------------ ------------
Total adjustments to net income 40,486 66,228
------------ ------------
Net cash provided by operating activities 220,445 223,590
------------ ------------
Cash flows from investing activities:
Purchase of fixed-maturity securities, net
of payable for investments purchased (889,051) (698,356)
Sale of fixed-maturity securities, net of
receivable for investments sold 613,369 334,469
Redemption of fixed-maturity securities, net of
receivable for investments redeemed 69,313 75,960
Sale (purchase) of short-term investments, net 13,391 (15,264)
Sale of other investments, net 523 401
Purchases for municipal investment agreement
portfolio, net of payable for investments purchased (550,696) (970,773)
Sales from municipal investment agreement
portfolio, net of receivable for investments sold 595,636 580,883
Capital expenditures, net of disposals (6,412) (3,180)
Other, net (16,458) ---
------------ ------------
Net cash used by investing activities (170,385) (695,860)
------------ ------------
Cash flows from financing activities:
Net proceeds from issuance of common stock --- 55,233
Net proceeds from issuance of short-term debt 30,900 20,600
Dividends paid (32,919) (29,276)
Proceeds from issuance of municipal investment
and repurchase agreements 732,821 1,053,077
Payments for drawdowns of municipal investment
and repurchase agreements (816,133) (649,811)
Securities sold under agreements to repurchase 54,900 ---
Exercise of stock options 7,018 10,841
------------ ------------
Net cash (used) provided by financing activities (23,413) 460,664
------------ ------------
Net increase (decrease) in cash and cash equivalents 26,647 (11,606)
Cash and cash equivalents - beginning of period 7,356 23,258
------------ ------------
Cash and cash equivalents - end of period $ 34,003 $ 11,652
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income taxes paid $ 40,075 $ 33,116
Interest paid:
Municipal investment and repurchase agreements $ 51,455 $ 56,785
Long-term debt 15,913 15,810
Short-term debt 1,149 323
</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, 1996 for MBIA Inc. and Subsidiaries (the company).
The accompanying consolidated financial statements have not been audited by
independent accountants in accordance with generally accepted auditing standards
but in the opinion of management such financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary to
summarize fairly the company's financial position and results of operations. The
results of operations for the six months ended June 30, 1997 may not be
indicative of the results that may be expected for the year ending December 31,
1997. The December 31, 1996 condensed balance sheet data was derived from
audited financial statements, but does not include all disclosures required by
generally accepted accounting principles. The consolidated financial statements
include the accounts of the company and its wholly owned subsidiaries. All
significant intercompany balances have been eliminated. Certain amounts have
been reclassified in prior years' financial statements to conform to the current
presentation.
2. Dividends Declared
Dividends declared by the company during the six months ended June 30, 1997 were
$33.0 million.
3. Recent Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 128 (SFAS 128), "Earnings per Share," effective
for periods ending after December 15, 1997. SFAS 128 requires the calculation
and presentation on the face of the income statement of "basic" earnings per
share and, if applicable, "diluted" earnings per share. Basic earnings per share
are calculated based on the weighted average common shares outstanding. In
calculating diluted earnings per share, the number of shares is increased to
include all potentially dilutive common shares, including stock options. The
adoption of SFAS 128 is not expected to have a material effect on reported
earnings per share.
4. Subsequent Event
In July 1997, the company completed the sale of 1.15 million shares of common
stock at $114 per share and sold $100 million of 30-year debentures. The $225
million of net proceeds will be used to support the company's future growth.
(7)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
- ------------
MBIA Inc. (our company or MBIA) is the world's premier financial guarantee
company and a leading provider of investment management products and services.
Through MBIA Insurance Corp. and its subsidiaries (our insurance company), we
provide financial guarantees to municipalities and other bond issuers. Our
primary business is insuring municipal bonds issued by governmental units to
finance essential public services. We also guarantee structured asset-backed and
mortgage-backed transactions, selected corporate bonds, including investor-owned
utility debt, and obligations of high-quality financial institutions. We provide
these products in both the new issue and secondary markets -- internationally as
well as domestically.
MBIA also provides investment management products and services to the public
sector. These include cash management, municipal investment agreements,
discretionary asset management and administrative services. In addition, we have
expanded the range of municipal services that we offer to state and local
governments.
RESULTS OF OPERATIONS
- ---------------------
SUMMARY
The following chart presents highlights of our consolidated financial results
for the second quarter and first half of 1997 and 1996:
<TABLE>
<CAPTION>
Percent Change
-------------------------
2nd Quarter Year-to-date
----------- ------------
2nd Quarter June 30 1997 1997
--------------- --------------- vs. vs.
1997 1996 1997 1996 1996 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income (in millions) $89.0 $79.7 $180.0 $157.4 12% 14%
Per share data:
Net income $2.03 $1.84 $ 4.12 $ 3.65 10% 13%
Operating earnings $2.00 $1.79 $ 3.99 $ 3.54 12% 13%
Core earnings $1.83 $1.62 $ 3.64 $ 3.22 13% 13%
Book value $60.40 $52.77 14%
Adjusted book value $87.69 $77.48 13%
</TABLE>
(8)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
We believe core earnings, which exclude the effects of refundings and calls of
our insured issues, realized capital gains and losses, accounting changes and
other non-recurring items, provide the most indicative measure of our underlying
profit trend. In 1997, core earnings per share increased by 13% for both the
second quarter and first six months over the comparable periods in 1996. The
consistent double-digit increases in quarterly year-to-year core earnings over
the past 20 quarters are due primarily to growth in premiums earned and net
investment income generated by our insurance operations, as well as the
contributions of operating earnings from our investment management services
businesses.
Any difference between the growth rate of core earnings and net income is
related to the net income effects of refunded issues and realized capital gains
and losses.
Operating earnings per share, which excludes the impact of realized capital
gains and losses, increased by 13% for the first six months and 12% for the
second quarter, over the comparable periods last year.
Our book value at the end of the first six months of 1997 was $60.40 per share,
up from $52.77 for the first half of 1996. As with core earnings, we believe
that a more appropriate measure of a financial guarantee company's intrinsic
value is its adjusted book value. It is defined as book value plus the after-tax
effects of our net deferred premium revenue (net of deferred acquisition costs)
plus the present value of unrecorded future installment premiums. The following
table presents the components of our adjusted book value per share:
Percent Change
June 30, June 30, --------------
1997 1996 1997 vs. 1996
- ---------------------------------------------------------------------
Book value $60.40 $52.77 14%
After-tax value of:
Net deferred premium
revenue, net of deferred
acquisition costs 22.43 20.81 8%
Present value of future
installment premiums* 4.86 3.90 25%
- ---------------------------------------------------------------------
Adjusted book value $87.69 $77.48 13%
- ---------------------------------------------------------------------
* The discount rate used to present value future installment premiums was 9% in
1997 and 1996.
Our adjusted book value per share was $87.69 at June 30, 1997, a 13% increase
from June 30, 1996. The increase was due to our strong operating results, growth
from new business written, and, with lower interest rates, the increase in the
fair value of our fixed-income investment portfolios.
(9)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL GUARANTEE INSURANCE
For the first six months of 1997 total gross premiums written (GPW) increased by
1% to $256.8 million from $254.6 million in 1996. GPW, as reported on our
financial statements, reflects cash receipts only and does not include the value
of future premium receipts expected for installment-based insurance policies
originated in the period. To provide additional information regarding
year-to-year changes in new business premium production, we discuss our adjusted
gross premiums (AGP), which include our upfront premiums as well as the
estimated present value of current and future premiums from installment-based
insurance policies issued in the period. MBIA's premium production in terms of
GPW and AGP for the second quarters and first half of 1997 and 1996 is presented
in the following table:
<TABLE>
<CAPTION>
Percent Change
-------------------------
2nd Quarter Year-to-date
----------- ------------
2nd Quarter Year-to-date 1997 1997
---------------- ---------------- vs. vs.
In millions 1997 1996 1997 1996 1996 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Premiums written:
GPW $164.7 $134.0 $256.8 $254.6 23% 1%
AGP $185.7 $155.0 $291.1 $284.7 20% 2%
</TABLE>
We estimate the present value of our total future installment premium stream on
outstanding policies to be $324.6 million at second quarter-end 1997, compared
with $258.0 million at second quarter-end 1996.
MUNICIPAL MARKET New issuance in the municipal market was $49.3 billion for the
second quarter of 1997, up 13% from $43.6 billion in the second quarter of 1996.
The insured portion of this market rose to 57% from 54% in the second quarter of
1996. With a 50% market share, we continued our market leadership in the new
issue insured municipal market. In the second quarter of this year we set a new
record in our history in terms of gross premiums written.
Municipal market domestic new issuance information and MBIA's par and premium
writings in both the new issue and secondary domestic municipal finance markets
are shown in the following table:
(10)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
Percent Change
-------------------------
2nd Quarter Year-to-date
----------- ------------
2nd Quarter Year-to-date 1997 1997
---------------- ---------------- vs. vs.
Domestic Municipal 1997 1996 1997 1996 1996 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total new issue market:*
Par value (in billions) $ 49.3 $ 43.6 $ 84.4 $ 80.7 13% 5%
Insured penetration 57% 54% 57% 53%
MBIA market share 50% 39% 47% 41%
MBIA insured:
Par value: (in billions) $ 14.4 $ 11.3 $ 23.0 $ 20.4 28% 13%
Premiums: (in millions)
GPW $138.1 $119.0 $213.6 $205.6 16% 4%
AGP $143.5 $117.1 $217.5 $201.8 22% 8%
- -------------------------------------------------------------------------------------------
</TABLE>
* Market data are reported on a sale date basis while MBIA's insured data are
based on closing date information. Typically, there can be a one- to
four-week delay between the sale date and closing date of an insured issue.
STRUCTURED FINANCE MARKET The par value issuance in the asset-backed securities
market (excluding private placements and mortgage-backed securities, for which
market data are unavailable) decreased 9% in the first six months and 14% in the
second quarter of 1997. The decrease is attributed to lower issuance of credit
card-backed securities; a market, however, in which MBIA is not a player.
For the first six months, MBIA insured $8.7 billion of par value of asset-backed
securities (including mortgage-backed securities) compared with $8.4 billion in
the comparable period last year. Gross premiums written for the quarter
increased by 55% to $13.1 million from $8.5 million for the same period last
year. On a year-to-date basis, gross premiums written were down 10%, primarily
due to the benefit of a $12.1 million premium from a non-recurring structured
finance reinsurance transaction in the first quarter of last year. For the
second quarter, MBIA saw a decline in its AGP and par amount written, as
senior/sub structures have made inroads into the insured penetration in the home
equity loan sector. Details regarding the asset-backed market and MBIA's par and
premium writings in both the domestic new issue and secondary structured finance
markets (which includes mortgaged-backed as well as asset-backed securities) are
shown in the following table:
(11)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
Percent Change
-------------------------
2nd Quarter Year-to-date
----------- ------------
2nd Quarter Year-to-date 1997 1997
Domestic ---------------- ---------------- vs. vs.
Structured Finance 1997 1996 1997 1996 1996 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total asset-backed
market:*
Par value (in billions) $34.8 $40.6 $69.3 $76.0 (14%) (9%)
MBIA insured:
Par value: (in billions) $ 3.5 $ 4.7 $ 8.7 $ 8.4 (26%) 4%
Premiums: (in millions)
GPW $13.1 $ 8.5 $25.0 $27.8 55% (10%)
AGP $20.0 $24.2 $46.2 $52.5 (17%) (12%)
- -------------------------------------------------------------------------------------------
</TABLE>
* Market data exclude mortgage-backed securities and private placements.
INTERNATIONAL MARKET In late 1995, we formed a joint venture with AMBAC
Indemnity Corporation (another leading Triple-A rated financial guarantee
insurer) to market financial guarantee insurance internationally. This
initiative has contributed to a substantial expansion of our international
business. For the first six months, par value increased by 20%. AGP increased by
9% while GPW decreased by 29% reflecting a growing proportion of installment
based policies written in the international market. Our international municipal
and structured finance business volume in the new issue and secondary markets
for the first six months and second quarters of 1997 and 1996 is illustrated in
the following table:
<TABLE>
<CAPTION>
Percent Change
-------------------------
2nd Quarter Year-to-date
----------- ------------
2nd Quarter Year-to-date 1997 1997
---------------- ---------------- vs. vs.
International 1997 1996 1997 1996 1996 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Par value (in billions) $ 1.3 $ 0.4 $ 1.3 $ 1.1 237% 20%
Premiums: (in millions)
GPW $ 9.4 $ 2.8 $ 9.9 $13.8 227% (29%)
AGP $17.6 $ 5.4 $17.8 $16.4 224% 9%
</TABLE>
CEDED PREMIUMS Reinsurance allows an insurance company to transfer portions of
its insured business to a reinsurance company. In exchange for insuring a
portion of our risk, the reinsurance company receives a part of our premium
(ceded premium) for which we, in turn, receive a ceding commission. We use
reinsurance to increase our capacity to write new business when we are subject
to certain single risk limitations and to manage the overall risk profile of our
insurance portfolio.
(12)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Premiums ceded to reinsurers from all insurance operations were $28.8 million
and $22.8 million in the first six months and second quarter of 1997,
respectively. For the first six months, cessions as a function of GPW were 11%
in 1997 and 10% in 1996. Any variance in the level of cessions generally
reflects the higher or lower utilization of treaty or facultative reinsurance
required to comply with regulatory constraints or our own single risk limits.
Most of our reinsurers are rated Double-A or higher by Standard & Poor's
Corporation or Single-A or higher by A. M. Best Co. Although we remain liable
for all reinsured risks, we believe we will recover the reinsured portion of any
losses that may occur.
REVENUES Our insurance revenues are primarily comprised of premiums earned and
investment income. Premiums are recognized over the life of the bonds we insure.
The slow premium recognition coupled with compounding investment income from
investing our premiums and capital form a solid foundation for consistent
revenue growth.
PREMIUMS EARNED For approximately 80% of our insurance writings, we receive
premiums upfront and earn them pro rata over the period of risk of the bond
issue. Accordingly, the portion of net premiums earned on each policy in any
given year represents a relatively small percentage of the total net upfront
premium received. The balance represents deferred premium revenue to be earned
over the remaining life of the insured bond issue.
For 20% of our business writings - primarily our structured finance business --
we collect installment premiums. Installment premiums are credited to the
deferred premium revenue account when received, and are recognized as revenue
over each installment period - generally one year or less.
When an MBIA-insured bond issue is refunded or retired early the related
deferred premium revenue is earned immediately, except for any portion that may
be applied as a credit towards insuring the refunding bond issue. The amount of
bond refundings and calls is influenced by a variety of factors such as
prevailing interest rates, the coupon rates of the bond issue, the issuer's
desire or ability to modify bond covenants and applicable regulations under the
Internal Revenue Code. The composition of MBIA's premiums earned in terms of its
scheduled and refunded components is illustrated in the following table:
(13)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
Percent Change
-------------------------
2nd Quarter Year-to-date
----------- ------------
2nd Quarter Year-to-date 1997 1997
---------------- ---------------- vs. vs.
In millions 1997 1996 1997 1996 1996 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Premiums earned:
Scheduled $60.9 $50.1 $118.8 $ 98.9 22% 20%
Refunded 12.3 12.0 25.8 23.5 2% 10%
- -------------------------------------------------------------------------------------------
Total $73.2 $62.1 $144.6 $122.4 18% 18%
</TABLE>
The year-to-year increase in premiums earned from scheduled amortization
reflects the additive effect of new business written, including the expanding
installment premium activity from the structured finance and international
sectors.
INVESTMENT INCOME Our insurance related investment income (exclusive of realized
capital gains) increased by 11% to $134.0 million in the first six months of
1997 from $120.6 million in 1996. For the quarter, net investment income was
$67.4 million, a 10% increase over the same period last year. The increases were
primarily due to the growth of cash flow available for investment. Our cash
flows were generated from operations, the compounding of previously earned and
reinvested investment income and the addition of funds from financing activities
in February, 1996. Insurance related net realized capital gains were $6.9
million in the first six months of 1997 and $6.6 million in 1996. These realized
gains were generated as a result of ongoing management of the investment
portfolio.
LOSSES AND LOSS ADJUSTMENT EXPENSES (LAE) We maintain a general loss reserve
based on our estimate of unidentified losses from our insured obligations. To
the extent that we identify specific insured issues as currently or likely to be
in default, the present value of our expected payments, net of expected
reinsurance and collateral recoveries, is allocated within the total loss
reserve as case-specific reserves.
We periodically evaluate our estimates for losses and LAE and any resulting
adjustments are reflected in current earnings. We believe that our reserving
methodology and the resulting reserves are adequate to cover the ultimate net
cost of claims. However, the reserves are necessarily based on estimates, and
there can be no assurance that any ultimate liability will not exceed such
estimates.
(14)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The following table shows the case-specific and unallocated components of our
total loss and LAE reserves at the first half of 1997 and 1996:
Percent Change
June 30, June 30, --------------
In millions 1997 1996 1997 vs. 1996
- ----------------------------------------------------------
Reserves:
Case-specific $20.2 $15.7 29%
Unallocated 47.9 34.7 38%
- ----------------------------------------------------------
Total $68.1 $50.4 35%
Provision $ 8.3 $ 7.5 11%
Our provision for losses and LAE increased in tandem with new business writings
in accordance with our loss reserving methodology. The changes in the
case-specific reserve had no impact on our net income since they were offset by
corresponding changes in the unallocated portion of the total reserve.
OPERATING EXPENSES Those expenses related to the production of our insurance
business (policy acquisition costs) are deferred and recognized over the period
in which the related premiums are earned. Our company's policy acquisition
costs, general operating expenses and total operating expenses are shown in the
following table:
<TABLE>
<CAPTION>
Percent Change
-------------------------
2nd Quarter Year-to-date
----------- ------------
2nd Quarter Year-to-date 1997 1997
---------------- ---------------- vs. vs.
In millions 1997 1996 1997 1996 1996 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Policy acquisition
costs, net $ 6.8 $ 6.0 $13.6 $11.9 14% 14%
Operating 11.7 11.5 23.8 22.1 1% 8%
- -------------------------------------------------------------------------------------------
Total insurance
operating expenses $18.5 $17.5 $37.4 $34.0 6% 10%
</TABLE>
For first six months and second quarter of 1997, policy acquisition costs net of
deferrals increased 14%. The ratio of policy acquisition costs net of deferrals
to earned premiums has remained relatively constant in the 9% range for the
first six months and second quarters of 1997 and 1996. Operating expenses
increased by 8% for the first six months and 1% for the second quarter over the
prior year's comparable periods.
INVESTMENT MANAGEMENT SERVICES
Our investment management businesses have expanded the services we provide to
the public sector and added new revenue sources. Average assets under management
for these businesses have increased from $6.0 billion during second quarter 1996
to $7.7 billion during second quarter 1997.
(15)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
These assets include our municipal investment agreements, pooled public funds
and third-party accounts. The 28% increase in average assets in the second
quarter of 1997 is primarily attributable to our acquisition of American Money
Management Associates, Inc. (AMMA) in late 1996. The 14% decline in pretax
operating results compared with the same period last year is due to revenues
remaining flat resulting from a shift among an increasingly diverse mix of asset
types. Pretax financial results for the second quarters and first half of 1997
and 1996 are summarized on the following table:
<TABLE>
<CAPTION>
Percent Change
-------------------------
2nd Quarter Year-to-date
----------- ------------
2nd Quarter Year-to-date 1997 1997
---------------- ---------------- vs. vs.
In millions 1997 1996 1997 1996 1996 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $6.6 $6.6 $13.8 $12.7 --- 9%
Expenses $4.0 $3.5 $ 8.0 $ 6.9 13% 16%
- -------------------------------------------------------------------------------------------
Pretax operating
income $2.6 $3.1 $ 5.8 $ 5.8 (14%) ---
Net realized gains $--- $--- $ 1.7 $ 0.9 --- 77%
</TABLE>
The following provides a summary of each of our primary investment management
businesses:
MBIA MUNICIPAL INVESTORS SERVICE CORPORATION (MBIA-MISC) provides cash
management services and fixed-rate investment placement services directly to
local governments and school districts. In addition, MBIA-MISC performs
investment fund administration services for clients, which provide an additional
source of revenue to our company at little added cost. In late 1996, MBIA-MISC
acquired AMMA, which provides investment and treasury management consulting
services for municipal and quasi-public sector clients. Both MBIA-MISC and AMMA
are Securities and Exchange Commission (SEC) -- registered investment advisers.
At second quarter-end 1997, MBIA-MISC had $3.8 billion of client assets under
management compared with $2.8 billion at second quarter-end 1996, reflecting
primarily the addition of assets under management from the acquisition of AMMA
in late 1996.
MBIA INVESTMENT MANAGEMENT CORP. (IMC) provides guaranteed investment agreements
for bond proceeds of states and municipalities. At second quarter-end 1997,
principal and accrued interest outstanding on investment agreements was $3.2
billion compared with $3.0 billion at second quarter-end 1996. At amortized
cost, the assets supporting IMC's investment agreement liabilities were $3.3
billion and $3.1 billion at June 30, 1997 and 1996, respectively. These assets
are comprised of high-quality securities with an average credit quality rating
of Double-A.
(16)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
IMC, from time to time, uses derivative financial instruments to manage interest
rate risk. We have established policies limiting the amount, type and
concentration of such instruments. By matter of policy, derivative positions can
only be used to hedge interest rate exposures and not for speculative trading
purposes. At second quarter-end 1997, our exposure to derivative financial
instruments was not significant.
MBIA CAPITAL MANAGEMENT CORP. (CMC) provides investment management services for
IMC's investment agreements, MBIA-MISC's municipal cash management programs and
MBIA's insurance related portfolios, as well as third-party accounts. CMC
assumed full management for MBIA's insurance related fixed-income investment
portfolio in 1996, which was previously managed externally.
MUNICIPAL SERVICES
MBIA MUNICIPAL SERVICES COMPANY (formerly know as Strategic Services, Inc.) was
established in 1996 to provide tax administration and related services to state
and local governments. In May 1996, MBIA Municipal Services Company acquired an
equity interest in Capital Asset Holdings (Capital Asset), a purchaser and
servicer of delinquent tax certificates. It also provides a series of services
to assist taxing authorities in the preparation, analysis, packaging and
completion of delinquent tax obligation sales. At second quarter-end 1997,
Capital Asset had a tax lien portfolio of $626 million.
In January 1997, MBIA Municipal Services Company acquired a 95% interest in
Municipal Tax Bureau (MTB), a provider of tax revenue compliance and collection
services to public sector entities.
INTEREST EXPENSE
Interest expense in the first six months and second quarter of 1997, was $17.3
million and $8.8 million, respectively compared with $16.4 million and $8.2
million in the same periods last year. The increase in interest expense was a
result of short-term bank borrowings in 1997 under existing lines of credit in
conjunction with short-term liquidity needs.
TAXES
Our tax policy is to optimize our after-tax income by maintaining the
appropriate mix of taxable and tax-exempt investments. Our effective tax rate
has remained unchanged, at 21% for the first six months of 1997 and 1996.
(17)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CAPITAL RESOURCES
- -----------------
We carefully manage our capital resources to optimize our cost of capital, while
maintaining appropriate claims-paying resources to sustain our Triple-A
claims-paying ratings. At the end of the second quarter, our total capital was
$2.6 billion with total long-term borrowings at $374 million. We use debt
financing to lower our overall cost of capital, thereby increasing our return on
shareholders' equity. We maintain debt at levels we consider to be prudent based
on our cash flow and total capital. The following table shows our long-term debt
and ratios we use to measure it:
June 30, December 31,
1997 1996
- -----------------------------------------------------------
Long-term debt (in millions) $374 $374
Long-term debt to total capital 12% 13%
Ratio of earnings to fixed charges 14.1x 13.2x
In addition, our insurance company has a $725 million irrevocable standby line
of credit with a group of major worldwide banks to provide funds for the payment
of claims in the event that severe losses should occur. The agreement is for a
seven-year term which expires on September 30, 2003 and, subject to approval by
the banks, may be renewed annually to extend the term to seven years beyond the
renewal date.
From time to time MBIA accesses the capital markets to support the growth of our
businesses. In October 1996, to provide us with flexibility to access the
capital markets when market and business conditions are favorable, we filed a
registration statement with the SEC to allow us to offer and sell a combination
of up to $250 million of debt securities, common stock and/or preferred stock.
In July 1997, MBIA completed the sale of 1.15 million shares of common stock at
$114 per share and sold $100 million of 30-year debentures. The $225 million of
net proceeds will be used to support the company's future growth.
As of June 30, 1997, total claims-paying resources for our insurance company
stood at $5.6 billion, a 14% increase over June 30, 1996.
LIQUIDITY
- ---------
Cash flow needs at the parent company level are primarily for dividends to our
shareholders and interest payments on our debt. These requirements have
historically been met by upstreaming dividend payments from our insurance
company which generates substantial cash flow from premium writings and
investment income. In the first half of 1997, operating cash flow from our
insurance company was $209 million.
Under New York state insurance law, without prior approval of the superintendent
of the state insurance department, financial guarantee insurance companies can
pay dividends from earned surplus subject to retaining a minimum capital
requirement. In our case, dividends in any 12-month period cannot be greater
than 10% of policyholders' surplus. In the first six months of 1997 our
insurance company paid no dividends and at June 30, 1997 had dividend capacity
of $127 million without special regulatory approval.
(18)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Our company has significant liquidity supporting its businesses. At the end of
the second quarter, cash equivalents and short-term investments totaled $210
million. Should significant cash flow reductions occur in any of our businesses,
for any combination of reasons, we have additional alternatives for meeting
ongoing cash requirements. They include, among other things, selling or pledging
our fixed-income investments from our investment portfolio, tapping existing
liquidity facilities and new borrowings.
Our company has substantial external borrowing capacity. We maintain two
short-term bank lines totaling $300 million with a group of worldwide banks. At
second quarter-end 1997, $60 million was outstanding under these facilities to
fund interim cash requirements.
Our investment portfolio provides a high degree of liquidity since it is
comprised of readily marketable high-quality fixed-income securities and
short-term investments. At the end of the second quarter 1997, the fair value of
our consolidated investment portfolio increased to $7.8 billion, as shown below:
Percent Change
June 30, December 31, --------------
In millions 1997 1996 1997 vs. 1996
- --------------------------------------------------------------------------
Insurance operations:
Amortized cost $4,387 $4,193 5%
Unrealized gain 147 148 (1%)
- ---------------------------------------------------------------------------
Fair value $4,534 $4,341 4%
- ---------------------------------------------------------------------------
Municipal investment
agreements:
Amortized cost $3,259 $3,263 ---
Unrealized gain 21 30 (30%)
- ---------------------------------------------------------------------------
Fair value $3,280 $3,293 ---
- ---------------------------------------------------------------------------
Total portfolio at fair value $7,814 $7,634 2%
The increase in the fair value of our insurance related investments for the
period was a result of the increase in the amortized cost of our invested assets
due to positive cash flows partially offset by a nominal decrease in unrealized
gains. The fair value of investments related to our municipal investment
agreement business declined slightly to $3.28 billion at June 30, 1997 from
$3.29 billion at December 31, 1996, due primarily to the impact of higher
interest rates.
(19)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Our investment portfolios are considered to be available-for-sale and the
differences between their fair value and amortized cost, net of applicable
taxes, are reflected as an adjustment to shareholders' equity. Differences
between fair value and amortized cost arise primarily as a result of changes in
interest rates occurring after a fixed-income security is purchased, although
other factors influence fair value, including credit-related actions, supply and
demand forces and other market factors. The weighted-average credit quality of
our fixed-income portfolios has been maintained at Double-A since our inception
in 1986, and since we generally intend to hold most of our investments to
maturity as part of our risk-management strategy, we expect to realize a value
substantially equal to amortized cost.
(20)
<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 - No reports on Form 8-K were filed in this
quarter.
(21)
<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: August 14, 1997 /s/ JULLIETTE S. TEHRANI
------------------------ -----------------------------
Julliette S. Tehrani
Executive Vice President,
Chief Financial Officer
and Treasurer
Date: August 14, 1997 /s/ ELIZABETH B. SULLIVAN
----------------------- ----------------------------
Elizabeth B. Sullivan
Vice President,
Controller
(Principal Accounting Officer)
(22)
EXHIBIT 11
MBIA INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE ASSUMING FULL DILUTION
(In thousands except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
--------------------------- ---------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income $ 89,020 $ 79,737 $179,959 $157,362
============ ============ ============ ============
Fully diluted shares:
Average number of common
shares outstanding 43,361 42,901 43,336 42,695
Assumed exercise of dilutive
stock options 433 439 442 456
------------ ------------ ------------ ------------
43,794 43,340 43,778 43,151
============ ============ ============ ============
Earnings per share assuming
full dilution $2.03 $1.84 $4.11 $3.65
============ ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0000814585
<NAME> MBIA Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> 4,342,607
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 7,814,364
<CASH> 34,003
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 151,750
<TOTAL-ASSETS> 8,906,322
<POLICY-LOSSES> 68,114
<UNEARNED-PREMIUMS> 1,873,916
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 434,065
<COMMON> 43,410
0
0
<OTHER-SE> 2,578,681
<TOTAL-LIABILITY-AND-EQUITY> 8,906,322
144,597
<INVESTMENT-INCOME> 133,984
<INVESTMENT-GAINS> 6,855
<OTHER-INCOME> 21,436
<BENEFITS> 8,258
<UNDERWRITING-AMORTIZATION> 13,575
<UNDERWRITING-OTHER> 23,789
<INCOME-PRETAX> 227,365
<INCOME-TAX> 47,406
<INCOME-CONTINUING> 179,959
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 179,959
<EPS-PRIMARY> 4.12
<EPS-DILUTED> 4.11
<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 JUNE 30, 1997 AND DECEMBER 31, 1996
AND FOR THE PERIODS ENDED JUNE 30, 1997 AND 1996
<PAGE>
MBIA INSURANCE CORPORATION
AND SUBSIDIARIES
I N D E X
---------
PAGE
----
Consolidated Balance Sheets -
June 30, 1997 (Unaudited) and December 31, 1996 (Audited) 3
Consolidated Statements of Income -
Three months and six months ended June 30, 1997
and 1996 (Unaudited) 4
Consolidated Statement of Changes in Shareholder's Equity -
Six months ended June 30, 1997 (Unaudited) 5
Consolidated Statements of Cash Flows -
Six months ended June 30, 1997 and 1996(Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7
-2-
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
(Unaudited) (Audited)
ASSETS
<S> <C> <C>
Investments:
Fixed-maturity securities held as available-for-sale
at fair value (amortized cost $4,195,557 and $4,001,562) $4,342,607 $4,149,700
Short-term investments, at amortized cost
(which approximates fair value) 168,148 169,889
Other investments 15,374 14,851
------------ ------------
TOTAL INVESTMENTS 4,526,129 4,334,440
Cash and cash equivalents 15,265 3,288
Securities purchased under agreements to resell 159,520 108,900
Accrued investment income 70,084 65,194
Deferred acquisition costs 151,750 147,750
Prepaid reinsurance premiums 224,394 216,846
Goodwill (less accumulated amortization
of $44,707 and $42,262) 98,273 100,718
Property and equipment, at cost (less accumulated
depreciation of $16,177 and $14,782) 51,052 47,176
Receivable for investments sold 2,012 975
Other assets 109,036 40,871
------------ ------------
TOTAL ASSETS $5,407,515 $5,066,158
============ ============
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Deferred premium revenue $1,873,916 $1,785,875
Loss and loss adjustment expense reserves 68,114 59,314
Securities sold under agreements to repurchase 159,520 108,900
Deferred income taxes 204,577 195,704
Payable for investments purchased 39,858 48,811
Other liabilities 65,500 63,683
------------ ------------
TOTAL LIABILITIES 2,411,485 2,262,287
------------ ------------
Shareholder's Equity:
Common stock, par value $150 per share; authorized,
issued and outstanding - 100,000 shares 15,000 15,000
Additional paid-in capital 1,050,034 1,041,876
Retained earnings 1,842,091 1,651,315
Cumulative translation adjustment (7,689) (1,188)
Unrealized appreciation of investments,
net of deferred income tax provision
of $52,149 and $52,175 96,594 96,868
------------ ------------
TOTAL SHAREHOLDER'S EQUITY 2,996,030 2,803,871
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $5,407,515 $5,066,158
============ ============
</TABLE>
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)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Gross premiums written $165,158 $134,443 $257,744 $255,454
Ceded premiums (22,834) (11,914) (28,813) (26,629)
------------ ------------ ------------ ------------
Net premiums written 142,324 122,529 228,931 228,825
Increase in deferred premium revenue (68,608) (60,021) (83,344) (105,553)
------------ ------------ ------------ ------------
Premiums earned (net of ceded
premiums of $10,940, $9,682
$21,265 and $18,902) 73,716 62,508 145,587 123,272
Net investment income 67,441 61,401 133,918 120,404
Net realized gains 2,481 3,895 6,855 6,587
Other 369 354 693 1,323
------------ ------------ ------------ ------------
Total revenues 144,007 128,158 287,053 251,586
------------ ------------ ------------ ------------
Expenses:
Losses and loss adjustment 4,823 4,288 8,258 7,466
Policy acquisition costs, net 6,830 5,990 13,575 11,890
Operating 11,670 11,525 23,829 22,074
------------ ------------ ------------ ------------
Total expenses 23,323 21,803 45,662 41,430
------------ ------------ ------------ ------------
Income before income taxes 120,684 106,355 241,391 210,156
Provision for income taxes 25,235 22,786 50,615 45,285
------------ ------------ ------------ ------------
Net income $ 95,449 $ 83,569 $190,776 $164,871
============ ============ ============ ============
</TABLE>
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 six months ended June 30, 1997
(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, 1997 100,000 $15,000 $1,041,876 $1,651,315 ($1,188) $96,868
Net income --- --- --- 190,776 --- ---
Change in foreign
currency translation --- --- --- --- (6,501) ---
Change in unrealized
appreciation of investments
net of change in deferred
income taxes of $26 --- --- --- --- --- (274)
Tax reduction related to tax
sharing agreement
with MBIA Inc. --- --- 8,158 --- --- ---
----------- ----------- ------------ ------------ ------------ --------------
Balance, June 30, 1997 100,000 $15,000 $1,050,034 $1,842,091 ($7,689) $96,594
=========== =========== ============ ============ ============ ==============
</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)
<TABLE>
<CAPTION>
Six months ended
June 30
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $190,776 $164,871
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase in accrued investment income (4,890) (4,247)
Increase in deferred acquisition costs (4,000) (3,188)
Increase in prepaid reinsurance premiums (7,548) (7,727)
Increase in deferred premium revenue 90,892 113,280
Increase in loss and loss adjustment expense reserves 8,800 7,932
Depreciation 1,821 1,442
Amortization of goodwill 2,445 2,448
Amortization of bond discount, net (4,289) (2,870)
Net realized gains on sale of investments (6,855) (6,587)
Deferred income taxes 9,053 6,886
Other, net (67,656) 27,690
------------ ------------
Total adjustments to net income 17,773 135,059
------------ ------------
Net cash provided by operating activities 208,549 299,930
------------ ------------
Cash flows from investing activities:
Purchase of fixed-maturity securities, net
of payable for investments purchased (889,051) (698,356)
Sale of fixed-maturity securities, net of
receivable for investments sold 613,369 334,470
Redemption of fixed-maturity securities,
net of receivable for investments redeemed 69,313 75,960
Sale (purchase) of short-term investments, net 14,992 (6,763)
Sale of other investments, net 523 402
Capital expenditures, net of disposals (5,718) (3,129)
------------ ------------
Net cash used by investing activities (196,572) (297,416)
------------ ------------
Net increase in cash and cash equivalents 11,977 2,514
Cash and cash equivalents - beginning of period 3,288 2,135
------------ ------------
Cash and cash equivalents - end of period $ 15,265 $ 4,649
============ ============
Supplemental cash flow disclosures:
Income taxes paid $ 39,500 $ 32,978
</TABLE>
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, 1996. The accompanying consolidated
financial statements have not been audited by independent accountants in
accordance with generally accepted auditing standards but in the opinion of
management such financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary to summarize fairly the Company's
financial position and results of operations. The results of operations for the
six months ended June 30, 1997 may not be indicative of the results that may be
expected for the year ending December 31, 1997. The December 31, 1996 condensed
balance sheet data was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles.
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany balances have been
eliminated. Certain amounts have been reclassified in prior years' financial
statements to conform to the current presentation.
2. Dividends Declared
- ----------------------
No dividends were declared by the Company during the six months ended June 30,
1997.
(7)
