UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-11356
Radian Group Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 23-2691170 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 1601 Market Street, Philadelphia, PA | 19103 | |
| (Address of principal executive offices) | (zip code) | |
(215) 564-6600
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or if 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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15 (d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ¨ No ¨
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 93,979,661 shares of Common Stock, $0.001 par value, outstanding on May 3, 2004.
Radian Group Inc. and Subsidiaries
INDEX
| Page Number | ||||||
| Item 1. |
||||||
| 3 | ||||||
| 4 | ||||||
| Condensed Consolidated Statement of Changes in Common Stockholders’ Equity |
5 | |||||
| 6 | ||||||
| Notes to Unaudited Condensed Consolidated Financial Statements |
7 – 18 | |||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
19 – 42 | ||||
| Item 3. |
42 | |||||
| Item 4. |
43 | |||||
| PART II - OTHER INFORMATION | ||||||
| Item 1. |
44 | |||||
| Item 2. |
Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities |
44 | ||||
| Item 6. |
45 | |||||
| SIGNATURES | 46 | |||||
| EXHIBIT INDEX | 47 | |||||
2
PART I – FINANCIAL INFORMATION
Radian Group Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| March 31 2004 |
December 31 2003 |
|||||||
| (In thousands, except share amounts) | ||||||||
| Assets |
||||||||
| Investments |
||||||||
| Fixed maturities held to maturity – at amortized cost (fair value $273,922 and $291,060) |
$ | 258,399 | $ | 273,995 | ||||
| Fixed maturities available for sale – at fair value (amortized cost $4,171,972 and $3,996,275) |
4,371,612 | 4,170,261 | ||||||
| Trading securities – at fair value (cost $42,508 and $50,436) |
52,269 | 53,806 | ||||||
| Equity securities – at fair value (cost $205,349 and $213,281) |
231,097 | 249,634 | ||||||
| Short-term investments |
212,450 | 255,073 | ||||||
| Other invested assets |
4,336 | 4,593 | ||||||
| Total investments |
5,130,163 | 5,007,362 | ||||||
| Cash |
67,903 | 67,169 | ||||||
| Investment in affiliates |
318,398 | 328,478 | ||||||
| Deferred policy acquisition costs |
201,091 | 218,779 | ||||||
| Prepaid federal income taxes |
358,340 | 358,840 | ||||||
| Provisional losses recoverable |
35,641 | 48,557 | ||||||
| Accrued investment income |
55,701 | 53,702 | ||||||
| Accounts and notes receivable |
78,593 | 73,856 | ||||||
| Property and equipment, at cost (less accumulated depreciation of $35,056 and $30,217) |
72,545 | 71,436 | ||||||
| Other assets |
222,718 | 217,588 | ||||||
| Total assets |
$ | 6,541,093 | $ | 6,445,767 | ||||
| Liabilities and Stockholders’ Equity |
||||||||
| Unearned premiums |
$ | 656,309 | $ | 718,649 | ||||
| Reserve for losses and loss adjustment expenses |
786,115 | 790,380 | ||||||
| Long-term debt |
717,461 | 717,404 | ||||||
| Current income taxes |
41,432 | 24,092 | ||||||
| Deferred federal income taxes |
723,885 | 688,262 | ||||||
| Accounts payable and accrued expenses |
272,406 | 281,136 | ||||||
| Total liabilities |
3,197,608 | 3,219,923 | ||||||
| Common stockholders’ equity |
||||||||
| Common stock: par value $.001 per share; 200,000,000 shares authorized; 96,091,407 and 95,851,346 shares issued in 2004 and 2003, respectively |
96 | 96 | ||||||
| Treasury stock: 2,250,353 and 1,840,044 shares in 2004 and 2003, respectively |
(80,674 | ) | (60,503 | ) | ||||
| Additional paid-in capital |
1,267,824 | 1,259,559 | ||||||
| Retained earnings |
2,004,673 | 1,886,548 | ||||||
| Accumulated other comprehensive income |
151,566 | 140,144 | ||||||
| Total stockholders’ equity |
3,343,485 | 3,225,844 | ||||||
| Total liabilities and stockholders’ equity |
$ | 6,541,093 | $ | 6,445,767 | ||||
See notes to unaudited condensed consolidated financial statements.
3
Radian Group Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
| Quarter Ended March 31 |
||||||||
| 2004 |
2003 |
|||||||
| (In thousands, except per-share amounts) | ||||||||
| Revenues: |
||||||||
| Premiums written: |
||||||||
| Direct |
$ | 251,517 | $ | 211,677 | ||||
| Assumed |
(50,273 | ) | 59,689 | |||||
| Ceded |
(19,816 | ) | (19,006 | ) | ||||
| Net premiums written |
181,428 | 252,360 | ||||||
| Decrease (Increase) in unearned premiums |
61,992 | (26,231 | ) | |||||
| Premiums earned |
243,420 | 226,129 | ||||||
| Net investment income |
49,705 | 46,672 | ||||||
| Equity in net income of affiliates |
32,482 | 14,888 | ||||||
| Other income |
8,400 | 14,557 | ||||||
| Total revenues |
334,007 | 302,246 | ||||||
| Expenses: |
||||||||
| Provision for losses |
114,767 | 67,758 | ||||||
| Policy acquisition costs |
22,283 | 31,017 | ||||||
| Other operating expenses |
53,159 | 44,441 | ||||||
| Interest expense |
9,654 | 8,584 | ||||||
| Total expenses |
199,863 | 151,800 | ||||||
| Gains and losses: |
||||||||
| Gains on sales of investments |
26,676 | 4,025 | ||||||
| Change in fair value of derivative instruments |
4,647 | (7,898 | ) | |||||
| Net gains (losses) |
31,323 | (3,873 | ) | |||||
| Pretax income |
165,467 | 146,573 | ||||||
| Provision for income taxes |
45,457 | 41,801 | ||||||
| Net income |
$ | 120,010 | $ | 104,772 | ||||
| Net income available to common stockholders |
$ | 120,010 | $ | 104,772 | ||||
| Basic net income per share |
$ | 1.28 | $ | 1.12 | ||||
| Diluted net income per share |
$ | 1.26 | $ | 1.11 | ||||
| Average number of common shares outstanding – basic |
94,022 | 93,394 | ||||||
| Average number of common and common equivalent shares outstanding - diluted |
95,078 | 94,297 | ||||||
See notes to unaudited condensed consolidated financial statements.
4
Radian Group Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS’ EQUITY
(UNAUDITED)
| Accumulated Other Income (Loss) |
|||||||||||||||||||||||||
| Common Stock |
Treasury Stock |
Additional Paid-in Capital |
Retained Earnings |
Foreign Currency Translation Adjustment |
Unrealized Holding Gains (Losses) |
Total |
|||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||
| Balance, January 1, 2004 |
$ | 96 | $ | (60,503 | ) | $ | 1,259,559 | $ | 1,886,548 | $ | 5,251 | $ | 134,893 | $ | 3,225,844 | ||||||||||
| Comprehensive income: |
|||||||||||||||||||||||||
| Net income |
— | — | — | 120,010 | — | — | 120,010 | ||||||||||||||||||
| Unrealized foreign currency translation adjustment, net of tax of $1,236 |
— | — | — | — | 2,296 | — | 2,296 | ||||||||||||||||||
| Unrealized holding gains arising during period, net of tax of $14,251 |
— | — | — | — | — | 26,465 | |||||||||||||||||||
| Less: Reclassification adjustment for net gains included in net income, net of tax of $9,337 |
— | — | — | — | — | (17,339 | ) | ||||||||||||||||||
| Net unrealized gain on investments, net of tax of $4,914 |
— | — | — | — | — | 9,126 | 9,126 | ||||||||||||||||||
| Comprehensive income |
— | — | 8,265 | — | — | — | 131,432 | ||||||||||||||||||
| Issuance of common stock under incentive plans |
8,265 | ||||||||||||||||||||||||
| Treasury stock purchased, net |
— | (20,171 | ) | — | — | — | — | (20,171 | ) | ||||||||||||||||
| Dividends |
— | — | — | (1,885 | ) | — | — | (1,885 | ) | ||||||||||||||||
| Balance, March 31, 2004 |
$ | 96 | $ | (80,674 | ) | $ | 1,267,824 | $ | 2,004,673 | $ | 7,547 | $ | 144,019 | $ | 3,343,485 | ||||||||||
See notes to unaudited condensed consolidated financial statements.
5