<PAGE>
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, 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 May 7, 1997 there were outstanding 43,339,956 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 - March 31, 1997
and December 31, 1996 3
Consolidated Statements of Income - Three months
ended March 31, 1997 and 1996 4
Consolidated Statement of Changes in Shareholders' Equity
- Three months ended March 31, 1997 5
Consolidated Statements of Cash Flows
- Three months ended March 31, 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>
March 31, 1997 December 31, 1996
-------------- -----------------
(Unaudited) (Audited)
ASSETS
<S> <C> <C>
Investments:
Fixed-maturity securities held as available-for-sale
at fair value (amortized cost $4,027,302 and $4,001,562) $4,099,489 $4,149,700
Short-term investments, at amortized cost
(which approximates fair value) 187,510 176,088
Other investments 14,431 14,851
------------- -------------
4,301,430 4,340,639
Municipal investment agreement portfolio held as available-for-sale
at fair value (amortized cost $3,221,883 and $3,263,211) 3,202,907 3,293,298
------------- -------------
TOTAL INVESTMENTS 7,504,337 7,633,937
Cash and cash equivalents 21,064 7,356
Securities borrowed or purchased under agreements to resell 229,000 217,000
Accrued investment income 102,551 104,725
Deferred acquisition costs 151,271 147,750
Prepaid reinsurance premiums 212,500 216,846
Goodwill (less accumulated amortization of $44,619 and $43,050) 117,971 105,138
Property and equipment, at cost (less accumulated depreciation
of $22,988 and $21,642) 52,844 50,923
Receivable for investments sold 15,086 980
Other assets 90,164 77,360
------------- -------------
TOTAL ASSETS $8,496,788 $8,562,015
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deferred premium revenue $1,794,148 $1,785,875
Loss and loss adjustment expense reserves 62,302 59,314
Municipal investment agreements 2,074,293 2,290,609
Municipal repurchase agreements 1,062,540 968,671
Long-term debt 374,037 374,010
Short-term debt 40,000 29,100
Securities loaned or sold under agreements to repurchase 310,700 217,000
Deferred income taxes 168,196 206,492
Payable for investments purchased 27,496 52,029
Other liabilities 112,329 99,218
------------- -------------
TOTAL LIABILITIES 6,026,041 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--43,334,086 and 43,294,243 43,334 43,294
Additional paid-in capital 806,055 803,078
Retained earnings 1,593,466 1,518,994
Cumulative translation adjustment (5,900) (1,042)
Unrealized appreciation of investments, net of
deferred income tax provision of $18,926 and $62,706 34,741 116,424
Unearned compensation--restricted stock (949) (1,051)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 2,470,747 2,479,697
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $8,496,788 $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
March 31
-----------------------------
1997 1996
------------ -------------
<S> <C> <C>
Revenues
Insurance:
Gross premiums written $ 92,092 $120,599
Ceded premiums (5,979) (14,715)
------------ ------------
Net premiums written 86,113 105,884
Increase in deferred premium revenue (14,736) (45,532)
------------ ------------
Premiums earned (net of ceded premiums of
$10,325 and $9,220) 71,377 60,352
Net investment income 66,539 59,098
Net realized gains 4,374 2,692
Investment management services:
Income 7,190 6,093
Net realized gains 1,609 968
Other 2,778 994
------------ ------------
Total revenues 153,867 130,197
------------ ------------
Expenses
Insurance:
Losses and loss adjustment 3,435 3,178
Policy acquisition costs, net 6,745 5,900
Operating 12,138 10,549
Investment management services 4,037 3,411
Interest 8,557 8,137
Other 3,854 448
------------ ------------
Total expenses 38,766 31,623
------------ ------------
Income before income taxes 115,101 98,574
Provision for income taxes 24,162 20,949
------------ ------------
NET INCOME $ 90,939 $ 77,625
============ ============
NET INCOME PER COMMON SHARE $ 2.08 $ 1.81
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND
COMMON STOCK EQUIVALENTS OUTSTANDING 43,699,898 42,935,589
============ ============
</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, 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 --- --- --- 102
Exercise of stock options 32 32 2,195 --- --- --- ---
Net income --- --- --- 90,939 --- --- ---
Change in foreign currency
translation --- --- --- --- (4,858) --- ---
Change in unrealized
appreciation of investments
net of change in deferred
income taxes of $43,780 --- --- --- --- --- (81,683) ---
Dividends (declared and paid
per common share $0.38) --- --- --- (16,467) --- --- ---
------ ------- -------- ---------- ------- --------- -------
Balance, March 31, 1997 43,334 $43,334 $806,055 $1,593,466 $(5,900) $ 34,741 $ (949)
====== ======= ======== ========== ======= ========= =======
</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
------------------------
1997 1996
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 90,939 $ 77,625
Adjustments to reconcile net income to net cash
provided by operating activities:
Decrease (increase) in accrued investment income 2,174 (665)
Increase in deferred acquisition costs (3,521) (571)
Decrease (increase) in prepaid reinsurance premiums 4,346 (5,496)
Increase in deferred premium revenue 10,390 51,028
Increase in loss and loss adjustment expense reserves 2,988 3,871
Depreciation 1,232 1,065
Amortization of goodwill 1,569 1,264
Amortization of bond discount, net (4,776) (4,547)
Net realized gains on sale of investments (5,983) (3,660)
Deferred income taxes 5,485 4,176
Other, net (8,082) (20,636)
---------- ----------
Total adjustments to net income 5,822 25,829
---------- ----------
Net cash provided by operating activities 96,761 103,454
---------- ----------
Cash flows from investing activities:
Purchase of fixed-maturity securities, net
of payable for investments purchased (393,049) (329,252)
Sale of fixed-maturity securities, net of
receivable for investments sold 304,773 146,729
Redemption of fixed-maturity securities, net of
receivable for investments redeemed 25,921 32,644
Purchase of short-term investments, net (12,229) (21,243)
Sale of other investments, net 205 215
Purchases for municipal investment agreement
portfolio, net of payable for investments purchased (199,780) (466,015)
Sales from municipal investment agreement
portfolio, net of receivable for investments sold 250,403 346,159
Capital expenditures, net of disposals (2,104) (1,369)
Other, net (15,453) ---
---------- ----------
Net cash used by investing activities (41,313) (292,132)
---------- ----------
Cash flows from financing activities:
Net proceeds from issuance of common stock --- 55,270
Net proceeds from issuance of short-term debt 10,900 ---
Dividends paid (16,453) (14,491)
Proceeds from issuance of municipal investment
and repurchase agreements 264,274 472,745
Payments for drawdowns of municipal investment
and repurchase agreements (385,280) (346,390)
Securities sold under agreements to repurchase 81,700 ---
Restricted stock awards 892 ---
Exercise of stock options 2,227 4,030
---------- ----------
Net cash (used) provided by financing activities (41,740) 171,164
---------- ----------
Net increase (decrease) in cash and cash equivalents 13,708 (17,514)
Cash and cash equivalents - beginning of period 7,356 23,258
---------- ----------
Cash and cash equivalents - end of period $ 21,064 $ 5,744
========== ==========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income taxes paid $ 4,726 $ 1,206
Interest paid:
Municipal investment and repurchase agreements $ 28,315 $ 36,168
Long-term debt 9,188 9,188
Short-term debt 518 193
</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 three months ended March 31, 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 three months ended March 31, 1997
were $16.5 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
is calculated based on the weighted average common shares outstanding. In
calculating dilutive 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.
(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 first quarters of 1997 and 1996:
Percent Change
March 31, March 31, --------------
1997 1996 1997 vs. 1996
- ------------------------------------------------------------------------
Net income (in millions) $ 90.9 $ 77.6 17%
Per share data:
Net income $ 2.08 $ 1.81 15%
Operating earnings $ 1.99 $ 1.75 14%
Core earnings $ 1.81 $ 1.60 13%
Book value $57.02 $52.31 9%
Adjusted book value $83.14 $76.03 9%
(8)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
We believe that 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, provides the most indicative measure of our
underlying profit trend. Core earnings per share of $1.81 for the first quarter
of 1997 grew by 13% over the comparable period in 1996. The consistent
double-digit increases in quarterly year-to-year core earnings over the past 19
quarters are due primarily to growth in premiums earned and net investment
income generated by our insurance operations, as well as the increasing
contributions of operating earnings from our investment management services
businesses.
Our 1997 first quarter net income grew 17% over the comparable period in 1996.
On a per share basis, net income increased 15%. The 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
14%.
Our book value at first quarter-end 1997 was $57.02 per share, up from $52.31 at
first quarter-end 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
March 31, March 31, --------------
1997 1996 1997 vs. 1996
- ----------------------------------------------------------------------
Book value $57.02 $52.31 9%
After-tax value of:
Net deferred premium
revenue, net of deferred
acquisition costs 21.45 20.02 7%
Present value of future
installment premiums* 4.67 3.70 26%
- ----------------------------------------------------------------------
Adjusted book value $83.14 $76.03 9%
- ----------------------------------------------------------------------
* The discount rate used to present value future installment premiums was 9%
in 1997 and 1996.
(9)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Our adjusted book value per share was $83.14 at first quarter-end 1997, a 9%
increase from first quarter-end 1996. The increase was due to our strong
operating results and growth from new business written, offset partially by the
impact of higher interest rates on the fair value of our fixed-income investment
portfolios.
FINANCIAL GUARANTEE INSURANCE
For the first quarter of 1997 total gross premiums written (GPW) decreased to
$92.1 million from $120.6 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 first
quarters of 1997 and 1996 are presented in the following table:
Percent Change
March 31, March 31, --------------
In millions 1997 1996 1997 vs. 1996
- ----------------------------------------------------------------------
Premiums written:
GPW $ 92.1 $120.6 (24%)
AGP $105.4 $129.7 (19%)
We estimate the present value of our total future installment premium stream on
outstanding policies to be $311.6 million at first quarter-end 1997, compared
with $244.0 million at first quarter-end 1996.
MUNICIPAL MARKET New issuance in the municipal market was $35.1 billion for the
first quarter of 1997, down 6% from $37.1 billion in the first quarter of 1996.
The insured portion, however, rose to 57% from 51% in the first quarter of 1996
and we continued our market leadership in the new issue insured municipal
market. Domestic new issue municipal market information and MBIA's par and
(10)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
premium writings in both the new issue and secondary domestic municipal finance
markets are shown in the following table:
Percent Change
March 31, March 31, --------------
Domestic Municipal 1997 1996 1997 vs. 1996
- ----------------------------------------------------------------------
Total new issue market:*
Par value (in billions) $35.1 $37.1 (6%)
Insured penetration 57% 51%
MBIA market share 42% 44%
MBIA insured:
Par value: (in billions) $ 8.5 $ 9.1 (7%)
Premiums: (in millions)
GPW $75.5 $87.0 (13%)
AGP $74.0 $84.7 (13%)
- ----------------------------------------------------------------------
* 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 of issues in the asset-backed securities
market (excluding private placements and mortgage-backed securities, for which
market data are unavailable) decreased 4% in the first quarter of 1997. MBIA
insured $5.2 billion of par value compared with $3.7 billion in last year's
first quarter. Last year's first quarter GPW and AGP had the benefit of a $12.1
million premium from a non-recurring structured finance reinsurance transaction.
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
table below:
Percent Change
Domestic March 31, March 31, --------------
Structured Finance 1997 1996 1997 vs. 1996
- ----------------------------------------------------------------------
Total asset-backed
market:*
Par value (in billions) $34.0 $35.5 (4%)
MBIA insured:
Par value: (in billions) $ 5.2 $ 3.7 42%
Premiums: (in millions)
GPW $11.9 $18.9 (37%)
AGP $26.2 $28.3 (7%)
- ----------------------------------------------------------------------
* Market data exclude mortgage-backed securities and private placements.
(11)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 as evidenced by last year's growth. Although actual business
transactions closed were minimal in the first quarter of 1997, there are several
transactions in the pipeline for the second quarter. Our international municipal
and structured finance business volume in the new issue and secondary markets
for the first quarters of 1997 and 1996 is illustrated below:
Percent Change
March 31, March 31, --------------
International 1997 1996 1997 vs. 1996
- ----------------------------------------------------------------------
Par value (in billions) $0.1 $ 0.7 (91%)
Premiums: (in millions)
GPW $0.5 $11.0 (96%)
AGP $0.2 $11.0 (98%)
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.
Premiums ceded to reinsurers from all insurance operations were $6.0 million and
$14.7 million in the first quarters of 1997 and 1996, respectively. Cessions as
a function of GPW declined from 12% in 1996 to 6% in 1997. The variance in the
level of cessions generally reflect 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 that we will recover the reinsured portion
of any losses which may occur.
(12)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 new business writings - primarily our structured finance business
- - we collect installment premiums. Installment premiums are credited to the
deferred premium revenue account when they are 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 which 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 below:
Percent Change
March 31, March 31, --------------
In millions 1997 1996 1997 vs. 1996
- ----------------------------------------------------------------------
Premiums earned:
Scheduled $57.9 $48.9 18%
Refunded 13.5 11.5 17%
- ----------------------------------------------------------------------
Total $71.4 $60.4 18%
The year-to-year increase in premiums earned from scheduled amortization
reflects the additive effect of new business written, including the expanding
installment premium activity from the structured finance and international
sectors.
(13)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
INVESTMENT INCOME Our insurance related investment income increased by 13% to
$66.5 million in the first quarter of 1997 from $59.1 million in 1996. The
increase was 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
$4.4 million in first quarter 1997 and $2.7 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, are 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.
The following table shows the case-specific and unallocated components of our
total loss and LAE reserves at first quarter-end 1997 and 1996:
Percent Change
March 31, March 31, --------------
In millions 1997 1996 1997 vs. 1996
- ----------------------------------------------------------------------
Reserves:
Case-specific $19.0 $15.8 20%
Unallocated 43.3 30.6 42%
- ----------------------------------------------------------------------
Total $62.3 $46.4 34%
Provision $ 3.4 $ 3.2 8%
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.
(14)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 below:
Percent Change
March 31, March 31, --------------
In millions 1997 1996 1997 vs. 1996
- ----------------------------------------------------------------------
Policy acquisition
cost, net $ 6.8 $ 5.9 14%
Operating 12.1 10.5 15%
- ----------------------------------------------------------------------
Total insurance
operating expenses $18.9 $16.4 15%
For first quarter 1997, policy acquisition costs net of deferrals increased 14%
to $6.8 million, in tandem with our year-to-year fluctuations in premiums
earned. The ratio of policy acquisition costs net of deferrals to earned
premiums has remained relatively constant at 9.5% and 9.8% for the first
quarters of 1997 and 1996, respectively. Operating expenses increased 15% over
the prior year's comparable period.
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 $5.6 billion during first quarter 1996
to $7.8 billion during first quarter 1997. These assets include our municipal
investment agreements, pooled public funds and third-party accounts. With the
growth in investments under management, these businesses generated an 18%
increase in pre-tax operating income in the first quarter of 1997 over 1996.
They realized $1.6 million and $1.0 million of net realized capital gains in the
first quarters of 1997 and 1996, respectively. Pretax financial results for the
first quarters of 1997 and 1996 are summarized on the following page:
(15)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Percent Change
March 31, March 31, --------------
In millions 1997 1996 1997 vs. 1996
- ----------------------------------------------------------------------
Revenues $7.2 $6.1 18%
Expenses (4.0) (3.4) 18%
- ----------------------------------------------------------------------
Pretax operating
income $3.2 $2.7 18%
Net realized gains $1.6 $1.0 66%
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 American Money Management Associates, Inc. (AMMA), which provides
investment and treasury management consulting services for municipal and
quasi-public sector clients. Both MBIA-MISC and AMMA are Securities and Exchange
Commission (SEC)-registered investment advisers.
At first quarter-end 1997, MBIA-MISC had $4.3 billion of client assets under
management compared with $2.7 billion at first 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 first quarter-end 1997,
principal and accrued interest outstanding on investment agreements was $3.1
billion compared with $2.8 billion at first quarter-end 1996. At amortized cost,
the assets supporting IMC's investment agreement liabilities were $3.2 billion
and $2.8 billion at March 31, 1997 and 1996, respectively. These assets are
comprised of high-quality securities with an average credit quality rating of
Double-A.
IMC, from time to time, uses derivative financial instruments to manage interest
rate risk. We have established policies limiting the amount, type and
concentration of such instruments. By matter of policy, derivative positions can
only be used to hedge interest rate exposures and not for speculative trading
purposes. At first quarter-end 1997, our exposure to derivative financial
instruments was not significant.
(16)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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
STRATEGIC SERVICES, INC. (SSI) was established in 1996 to provide tax
administration and related services to state and local governments. In May 1996,
SSI 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 first quarter-end 1997,
Capital Asset had a tax lien portfolio of $504 million.
In January 1997, SSI acquired a 95% interest in Municipal Tax Bureau (MTB), a
provider of tax revenue compliance and collection services to public sector
entities.
INTEREST EXPENSE
In the first quarter of 1997, we incurred $8.6 million of interest expense
compared with $8.1 million in the same period last year. The increase in
interest expense was a result of short-term bank borrowings under existing lines
of credit.
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 both first quarter 1997 and first quarter
1996.
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
(17)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
claims-paying ratings. At the end of the first quarter, our total capital was
$2.5 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:
March 31, December 31,
In millions 1997 1996
- -------------------------------------------------------------
Long-term debt (in millions) $374 $374
Long-term debt to total capital 13% 13%
Ratio of earnings to fixed charges 14.5x 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 we access 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.
As of the first quarter of 1997, total claims-paying resources for our insurance
company stood at $5.4 billion, a 14% increase over first quarter 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 quarter 1997, operating cash flow from our
insurance company was $79 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
(18)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
requirement. In our case, dividends in any 12-month period cannot be greater
than 10% of policyholders' surplus. In the first quarter of 1997 our insurance
company paid no dividends and at March 31, 1997 had dividend capacity of $124
million without special regulatory approval.
Our company has significant liquidity supporting its businesses. At the end of
the first quarter, cash equivalents and short-term investments totaled $209
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
first quarter-end 1997, $40 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 first quarter-end 1997, the fair value of our
consolidated investment portfolio remained relatively unchanged at $7.5 billion,
as shown below:
Percent Change
March 31, December 31, --------------
In millions 1997 1996 1997 vs. 1996
- ----------------------------------------------------------------------
Insurance operations:
Amortized cost $4,229 $4,193 1%
Unrealized gain 72 148 (51%)
- ----------------------------------------------------------------------
Fair value $4,301 $4,341 (1%)
- ----------------------------------------------------------------------
Municipal investment
agreements:
Amortized cost $3,222 $3,263 (1%)
Unrealized gain (loss) (19) 30 (163%)
- ----------------------------------------------------------------------
Fair value $3,203 $3,293 (3%)
- ----------------------------------------------------------------------
Total portfolio at fair value $7,504 $7,634 (2%)
The decrease in the fair value of our insurance related investments for the
quarter was the result of the decrease in unrealized gains caused by higher
interest rates at March 31, 1997 which partially offset the increase in the
amortized cost of our invested assets due to positive cash flows. The fair value
(19)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
of investments related to our municipal investment agreement business also
declined slightly to $3.2 billion at March 31, 1997 from $3.3 billion at
December 31, 1996, due primarily to the impact of higher interest rates.
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: May 14, 1997 /s/ JULLIETTE S. TEHRANI
---------------------- -------------------------------
Julliette S. Tehrani
Executive Vice President,
Chief Financial Officer
and Treasurer
Date: May 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)
Three months ended
March 31
--------------------
1997 1996
------- --------
Net income $90,939 $77,625
======= =======
Fully diluted shares:
Average number of common shares outstanding 43,311 42,489
Assumed exercise of dilutive stock options 389 448
------- -------
43,700 42,937
======= =======
Earnings per share assuming full dilution $2.08 $1.81
======= =======
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0000814585
<NAME> MBIA Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 4,099,489
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 7,504,337
<CASH> 21,064
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 151,271
<TOTAL-ASSETS> 8,496,788
<POLICY-LOSSES> 62,302
<UNEARNED-PREMIUMS> 1,794,148
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 414,037
<COMMON> 43,334
0
0
<OTHER-SE> 2,427,413
<TOTAL-LIABILITY-AND-EQUITY> 8,496,788
71,377
<INVESTMENT-INCOME> 66,539
<INVESTMENT-GAINS> 4,374
<OTHER-INCOME> 11,577
<BENEFITS> 3,435
<UNDERWRITING-AMORTIZATION> 6,745
<UNDERWRITING-OTHER> 12,138
<INCOME-PRETAX> 115,101
<INCOME-TAX> 24,162
<INCOME-CONTINUING> 90,939
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 90,939
<EPS-PRIMARY> 2.08
<EPS-DILUTED> 2.08
<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, 1997 AND DECEMBER 31, 1996
AND FOR THE PERIODS ENDED MARCH 31, 1997 AND 1996
<PAGE>
MBIA INSURANCE CORPORATION
AND SUBSIDIARIES
I N D E X
---------
PAGE
----
Consolidated Balance Sheets -
March 31, 1997 (Unaudited) and December 31, 1996 (Audited) 3
Consolidated Statements of Income -
Three months ended March 31, 1997 and 1996 (Unaudited) 4
Consolidated Statement of Changes in Shareholder's Equity -
Three months ended March 31, 1997 (Unaudited) 5
Consolidated Statements of Cash Flows -
Three months ended March 31, 1997 and 1996 (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
--------------- -----------------
(Unaudited) (Audited)
ASSETS
Investments:
<S> <C> <C>
Fixed-maturity securities held as available-for-sale
at fair value (amortized cost $4,027,302 and $4,001,562) $4,099,489 $4,149,700
Short-term investments, at amortized cost
(which approximates fair value) 180,710 169,889
Other investments 14,431 14,851
--------------- ---------------
TOTAL INVESTMENTS 4,294,630 4,334,440
Cash and cash equivalents 6,913 3,288
Securities purchased under agreements to resell 138,520 108,900
Accrued investment income 67,460 65,194
Deferred acquisition costs 151,271 147,750
Prepaid reinsurance premiums 212,500 216,846
Goodwill (less accumulated amortization
of $43,484 and $42,262) 99,496 100,718
Property and equipment, at cost (less accumulated
depreciation of $15,288 and $14,782) 48,007 47,176
Receivable for investments sold 14,012 975
Other assets 77,388 40,871
--------------- ---------------
TOTAL ASSETS $5,110,197 $5,066,158
=============== ===============
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Deferred premium revenue $1,794,148 $1,785,875
Loss and loss adjustment expense reserves 62,302 59,314
Securities sold under agreements to repurchase 138,520 108,900
Deferred income taxes 174,580 195,704
Payable for investments purchased 17,711 48,811
Other liabilities 74,991 63,683
--------------- ---------------
TOTAL LIABILITIES 2,262,252 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 1,045,274 1,041,876
Retained earnings 1,746,642 1,651,315
Cumulative translation adjustment (6,046) (1,188)
Unrealized appreciation of investments,
net of deferred income tax provision
of $25,567 and $52,175 47,075 96,868
--------------- ---------------
TOTAL SHAREHOLDER'S EQUITY 2,847,945 2,803,871
--------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $5,110,197 $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
March 31
------------------------------
1997 1996
------------- -------------
<S> <C> <C>
Revenues:
Gross premiums written $ 92,586 $121,011
Ceded premiums (5,979) (14,715)
------------- -------------
Net premiums written 86,607 106,296
Increase in deferred premium revenue (14,736) (45,532)
------------- -------------
Premiums earned (net of ceded
premiums of $10,325 and $9,220) 71,871 60,764
Net investment income 66,477 59,003
Net realized gains 4,374 2,692
Other 324 969
------------- -------------
Total revenues 143,046 123,428
------------- -------------
Expenses:
Losses and loss adjustment 3,435 3,178
Policy acquisition costs, net 6,745 5,900
Operating 12,159 10,549
------------- -------------
Total expenses 22,339 19,627
------------- -------------
Income before income taxes 120,707 103,801
Provision for income taxes 25,380 22,499
------------- -------------
Net income $ 95,327 $ 81,302
============= =============
</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 three months ended March 31, 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 --- --- --- 95,327 --- ---
Change in foreign
currency translation --- --- --- --- (4,858) ---
Change in unrealized
appreciation of investments
net of change in deferred
income taxes of $26,608 --- --- --- --- --- (49,793)
Tax reduction related to tax
sharing agreement
with MBIA Inc. --- --- 3,398 --- --- ---
========= =========== ============ ============ =========== ============
Balance, March 31, 1997 100,000 $15,000 $1,045,274 $1,746,642 ($6,046) $ 47,075
========= =========== ============ ============ =========== ============
</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>
Three Months Ended
March 31
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 95,327 $ 81,302
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase in accrued investment income (2,266) (215)
Increase in deferred acquisition costs (3,521) (571)
Decrease (increase) in prepaid reinsurance premiums 4,346 (5,496)
Increase in deferred premium revenue 10,390 51,028
Increase in loss and loss adjustment expense reserves 2,988 3,871
Depreciation 888 719
Amortization of goodwill 1,222 1,224
Amortization of bond discount, net (2,588) (1,014)
Net realized gains on sale of investments (4,374) (2,692)
Deferred income taxes 5,485 4,176
Other, net (28,760) 34,288
----------- -----------
Total adjustments to net income (16,190) 85,318
----------- -----------
Net cash provided by operating activities 79,137 166,620
----------- -----------
Cash flows from investing activities:
Purchase of fixed-maturity securities, net
of payable for investments purchased (393,049) (329,252)
Sale of fixed-maturity securities, net of
receivable for investments sold 304,773 146,729
Redemption of fixed-maturity securities,
net of receivable for investments redeemed 25,921 32,644
Purchase of short-term investments, net (11,628) (15,259)
Sale of other investments, net 205 215
Capital expenditures, net of disposals (1,734) (1,333)
----------- -----------
Net cash used in investing activities (75,512) (166,256)
----------- -----------
Net increase in cash and cash equivalents 3,625 364
Cash and cash equivalents - beginning of period 3,288 2,135
----------- -----------
Cash and cash equivalents - end of period $ 6,913 $ 2,499
=========== ===========
Supplemental cash flow disclosures:
Income taxes paid $ 4,346 $ 1,161
</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
three months ended March 31, 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.
2. DIVIDENDS DECLARED
- ----------------------
No dividends were declared by the Company during the three months ended March
31, 1997.
