UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
FOR ANNUAL REPORTS OF EMPLOYEE STOCK REPURCHASE SAVINGS AND SIMILAR PLANS PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One):
| x | ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2006
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 1-11356
| A. | Full title of the plan and the address of the plan, if different from that of the issuer named below: |
RADIAN GROUP INC. SAVINGS INCENTIVE PLAN
| B. | Name of issuer of the securities held pursuant to the plan and the address of its principal executive office: |
RADIAN GROUP INC.
1601 Market Street
Philadelphia, PA 19103
SAVINGS INCENTIVE PLAN
INDEX
| Page | ||
| 1 | ||
| Financial Statements: |
||
| Statements of Net Assets Available for Benefits as of December 31, 2006 and 2005 |
2 | |
| 3 | ||
| 4-12 | ||
| Supplemental Schedules * |
||
| 13 | ||
| 14 | ||
| 15 | ||
| 16 | ||
| Exhibit: |
||
| Consent of Independent Registered Public Accounting Firm |
||
| * | All other schedules required by Section 2520-103-10 of the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974 have been omitted because they are not applicable. |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees and Participants
in the Radian Group Inc.
Savings Incentive Plan
Philadelphia, Pennsylvania:
We have audited the accompanying statements of net assets available for benefits of the Radian Group Inc. Savings Incentive Plan (the “Plan”) as of December 31, 2006 and 2005, and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Plan is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Plan’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2006 and 2005, and the changes in net assets available for benefits for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules of (1) assets held at end of year as of December 31, 2006, and (2) reportable transactions for the year ended December 31, 2006, are presented for the purpose of additional analysis and are not a required part of the basic financial statements, but are supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. These schedules are the responsibility of the Plan’s management. Such schedules have been subjected to the auditing procedures applied in our audit of the basic 2006 financial statements and, in our opinion, are fairly stated in all material respects when considered in relation to the basic financial statements taken as a whole.
/s/ Deloitte & Touche LLP
Philadelphia, PA
June 29, 2007
1
RADIAN GROUP INC. SAVINGS INCENTIVE PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2006 AND 2005
| 2006 | 2005 | |||||
| ASSETS |
||||||
| Investments (at fair value): |
||||||
| Common Stock Fund—Radian Group Inc. |
||||||
| Participant-directed |
$ | 2,405,185 | $ | 2,284,700 | ||
| Nonparticipant-directed (Note Q) |
13,353,557 | 13,407,261 | ||||
| 15,758,742 | 15,691,961 | |||||
| Other participant-directed investments (Note J) |
47,788,744 | 40,169,945 | ||||
| Loans receivable |
841,530 | 701,599 | ||||
| Employer contributions receivable |
3,037,424 | 2,841,828 | ||||
| NET ASSETS AVAILABLE FOR BENEFITS AT FAIR VALUE |
67,426,440 | 59,405,333 | ||||
| Adjustment from fair value to contract value for fully benefit-responsive investment contracts |
52,289 | — | ||||
| NET ASSETS AVAILABLE FOR BENEFITS |
$ | 67,478,729 | $ | 59,405,333 | ||
See notes to financial statements.
2
RADIAN GROUP INC. SAVINGS INCENTIVE PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED DECEMBER 31, 2006 AND 2005
| 2006 | 2005 | |||||
| ADDITIONS TO NET ASSETS ATTRIBUTED TO: |
||||||
| Investment income: |
||||||
| Net appreciation in fair value of investments |
$ | 1,693,976 | $ | 2,775,500 | ||
| Loan interest |
56,060 | 39,454 | ||||
| Interest |
223,271 | 191,017 | ||||
| Dividends |
1,985,254 | 1,164,396 | ||||
| Total investment income |
3,958,561 | 4,170,367 | ||||
| Contributions: |
||||||
| Participants’ |
5,933,033 | 5,515,146 | ||||
| Employer’s |
3,037,424 | 2,841,828 | ||||
| Rollover |
550,541 | 726,811 | ||||
| Total contributions |
9,520,998 | 9,083,785 | ||||
| Total additions |
13,479,559 | 13,254,152 | ||||
| DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO: |
||||||
| Other deductions |
781 | 646 | ||||
| Benefits paid to participants |
5,405,382 | 4,375,184 | ||||
| Total deductions |
5,406,163 | 4,375,830 | ||||
| NET ADDITIONS |
8,073,396 | 8,878,322 | ||||
| NET ASSETS AVAILABLE FOR BENEFITS, BEGINNING OF THE YEAR |
59,405,333 | 50,527,011 | ||||
| NET ASSETS AVAILABLE FOR BENEFITS, END OF YEAR |
$ | 67,478,729 | $ | 59,405,333 | ||
See notes to financial statements.
3
RADIAN GROUP INC. SAVINGS INCENTIVE PLAN
NOTES TO FINANCIAL STATEMENTS
A. Significant Accounting Policies
Basis of Accounting and Use of Estimates
The financial statements and supplemental schedules of the Plan are prepared under the accrual method of accounting. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the changes therein during the reporting period. Actual results may differ from those estimates.
Investment Valuation and Income Recognition
Shares of mutual funds are valued at quoted market prices. Investments in the Radian Common Stock Fund, which includes Radian common stock and money market accounts, are valued at quoted market prices and represent fair value. For common collective trusts, the underlying assets include traditional investment contracts issued by insurance companies and banks, alternative contracts and short-term investments, and are valued by discounting the related cash flows on yields of similar instruments with comparable duration. The common collective trusts with underlying investments in investment contracts are valued at fair market value of the underlying investments and then adjusted by the issuer to contract value. Participant loans are valued at their outstanding balances, which approximate fair value. Dividends are recorded as of the declaration date and interest is recorded when earned. Purchases and sales of securities are recorded as of the trade date.
Adoption of new Accounting Guidance
The financial statements reflect the retroactive adoption of Financial Accounting Standards Board Staff Position, (the “FSP”) AAG INV-1 and SOP 94-4-1, Reporting of Fully Benefit-Responsive Contracts Held by Certain Investment Companies Subject to the AICPA Investment Company Guide and Defined-Contribution Health and Welfare and Pension Plans. As required by the FSP, the statements of net assets available for benefits presents investment contracts at fair value as well as an additional line item showing an adjustment of fully benefit contracts from fair value to contract value. The statement of changes in net assets available for benefits is presented on a contract value basis and was not affected by the adoption of the FSP. The adoption of the FSP did not have a material impact on the amount of net assets available for benefits at December 31, 2005.
B. Plan Description
The following description of the Plan provides only general information. Participants should refer to the Plan documents for a complete description of the Plan. The Plan was last amended effective January 1, 2007 as discussed in Note T below.
The Plan is a defined contribution plan designed to allow eligible employees of Radian Group Inc. (together with its subsidiaries, the “Company”) to save for their retirement. Effective January 1, 2007, each eligible employee may participate in the Plan as of his or her date of hire. Before January 1, 2007, eligible employees could participate in the Plan only upon completion of 90 days of effective service.
Savings under the Plan are achieved through a program of salary deferrals in which a participant’s salary is reduced by the amount elected to be saved by the participant on a pre-tax basis. Each year, participants are entitled to contribute between 1% and 25% of their compensation to the Plan, up to the limit set by the Plan’s administrator (not to exceed the indexed limitations contained in the Internal Revenue Code of 1986 (the “Code”)). These limits were $15,000 and $14,000 for 2006 and 2005, respectively. In addition, effective January 1, 2007, eligible employees hired on or after this date are automatically enrolled in the Plan (subject to their right not to participate or to participate at a different contribution level) at a beginning contribution rate of 3% of compensation. See Note T for more information regarding automatic enrollment.
The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”).
The Company pays all expenses for administering the Plan. Loan origination fees are paid by borrowing participants and are deducted from loan proceeds. An annual loan administration fee is deducted from each borrowing participant’s account. Brokerage commissions and other expenses incurred in connection with participant-directed purchases and sales of securities are included as a reduction of the amount earned on each fund.
C. Administration/Termination of the Plan
Effective January 1, 2007, the executive officer in charge of human resources of the Company began administering the Plan. Before January 1, 2007, the Plan was administered by a Benefits Administration Committee (the “Committee”). The plan administrator has fiduciary responsibility for the general operation of the Plan and is indemnified by the Company.
4
RADIAN GROUP INC. SAVINGS INCENTIVE PLAN
NOTES TO FINANCIAL STATEMENTS - Continued
Although the Company has not expressed any intention to do so, the Company reserves the right to terminate the Plan at any time. In the event the Plan is terminated, all benefits would become fully vested and non-forfeitable and the net assets of the Plan would be allocated as required by the Plan and in accordance with ERISA. See Note T below for information regarding the treatment of the Plan under the Agreement and Plan of Merger between the Company and MGIC Investment Corporation (“MGIC”), dated February 6, 2007.
D. Participant Accounts
Individual accounts are maintained for each Plan participant. Each participant’s account is credited with the participant’s contributions, Company matching and discretionary contributions, and Plan earnings. Individual accounts are likewise charged with withdrawals and an allocation of Plan losses. A participant’s benefit under the Plan is derived solely from the participant’s vested account.
All amounts invested in the Plan are considered participant-directed investments other than the Company’s matching contributions. Matching contributions, which may be made in Radian common stock or cash, are invested in the Radian Common Stock Fund and are considered non-participant directed investments. See Note E below.
E. Matching Contributions
The Company makes a “matching contribution” with respect to the salary reduction contributions of each participant, up to 6% of a participant’s annual eligible compensation. Effective January 1, 2007, matching contributions are made on a quarterly basis in cash or Radian common stock equal to 100% of each participant’s contributions during such period (subject to the 6% limitation discussed above). Before January 1, 2007, matching contributions were made on an annual basis in cash or Radian common stock equal to 25% of each participant’s contributions (subject to the 6% limitation discussed above). In addition, after the close of any year before January 1, 2007, the Company could, in its sole discretion, make a supplemental matching contribution up to 75% of each participant’s contributions (subject to the 6% limitation discussed above). For the years ended December 31, 2006 and 2005, Radian made a supplemental matching contribution of $0.75 in Radian common stock for every eligible dollar a participant contributed to the Plan during such year.
F. Forfeited Accounts
Effective January 1, 2007, each participant became 100% vested in (1) all matching contributions made on or after January 1, 2007 and (2) all matching contributions made before January 1, 2007 if the participant was actively employed by the Company on December 31, 2006. Before January 1, 2007, a participant forfeited his or her right to matching contributions, and any earnings thereon, that were unvested at the time of his or her termination of service. At December 31, 2006 and 2005, forfeited non-vested amounts totaled $351,702 and $407,333, respectively. Employer matching contributions were reduced in each of these years by these same amounts. See Note H below for information regarding the vesting of matching contributions before January 1, 2007.
5
RADIAN GROUP INC. SAVINGS INCENTIVE PLAN
NOTES TO FINANCIAL STATEMENTS - Continued
G. Trustee
Vanguard Fiduciary Trust Company (“Vanguard”) serves as trustee (the “Trustee”) for the Plan. The Vanguard Group (“TVG”) also serves as the record keeper for the Plan.
H. Vesting
Participants are at all times fully vested in amounts they contribute to the Plan, including any earnings on such amounts. Before January 1, 2007, participants became vested in matching contributions, and any earnings thereon, based on years of vesting service. A participant generally earned one year of vesting service for each Plan year in which such participant completed at least 1,000 hours of service. The vesting schedule for matching contributions, including earnings, was as follows:
| Years of Service |
Vested Percentage of the Participant’s Matching Contribution |
||
| Less than 2 |
0 | % | |
| 2 but less than 3 |
20 | % | |
| 3 but less than 4 |
40 | % | |
| 4 but less than 5 |
60 | % | |
| 5 but less than 6 |
80 | % | |
| 6 or more |
100 | % |
Effective January 1, 2003, in connection with Radian’s acquisition of Enhance Financial Services Group Inc. (“EFSG”), the EFSG 401(k) Savings Plan was merged into the Plan. Employees of EFSG who were eligible to participate in the EFSG Plan prior to January 1, 2003 retain the vesting schedule under the EFSG Plan as follows:
| Years of Service |
Vested Percentage of the Participant’s Matching Contribution |
||
| Less than 1 |
0 | % | |
| 1 but less than 2 |
33 | % | |
| 2 but less than 3 |
68 | % | |
| 3 or more |
100 | % |
Newly eligible employees of EFSG follow the Plan vesting schedule.
As discussed in Note F above, effective January 1, 2007, all matching contributions made on or after January 1, 2007, including any earnings thereon, vest immediately. Matching contributions made before January 1, 2007 also became fully vested effective January 1, 2007 for each participant employed by the Company on December 31, 2006. See Note T below for further discussion.
I. Investment Options
Other than with respect to employer matching contributions, which are made by the Company to the Radian Common Stock Fund, each participant is solely responsible for selecting among the investment options available under the Plan. Neither the Trustee nor the Company has any responsibility to select investments or to advise participants in selecting their investments. Investment allocations may be made in increments of 1% pursuant to the Plan. Subject to applicable law, each participant assumes all risks connected with any decrease in the market value of any securities in the funds, and such funds shall be the sole source of benefits to be paid under the Plan. See Note P below.
6
RADIAN GROUP INC. SAVINGS INCENTIVE PLAN
NOTES TO FINANCIAL STATEMENTS - Continued
J. Participant-Directed Investments
Participant-directed investments (other than participant-directed investments in the Radian Common Stock Fund) for the years ended December 31, 2006 and 2005 consisted of the following:
| December 31, 2006 | ||||||||
| Cost | Fair Value | |||||||
| TVG |
Morgan Growth Fund |
$ | 6,420,706 | $ | 8,001,898 | |||
| TVG |
Wellington Fund |
7,045,466 | 7,633,494 | |||||
| TVG |
Retirement Savings Trust |
5,433,912 | 5,433,912 | |||||
| TVG |
Growth and Income Fund |
2,739,591 | 3,370,187 | |||||
| TVG |
Total Bond Market Index Fund |
3,096,820 | 3,056,262 | |||||
| Columbia Acorn Fund |
2,337,405 | 2,684,125 | ||||||
| TVG |
International Explorer Fund |
1,935,944 | 2,358,356 | |||||
| TVG |
Target Retirement 2035 Fund |
1,747,312 | 2,018,188 | |||||
| Oppenheimer Global Fund |
1,518,411 | 1,944,039 | ||||||
| TVG |
Growth Equity Fund |
1,564,899 | 1,905,784 | |||||
| TVG |
Windsor II Fund |
1,304,485 | 1,405,535 | |||||
| TVG |
Mid – Cap Index Fund |
1,015,062 | 1,196,544 | |||||
| TVG |
Target Retirement 2025 Fund |
1,050,686 | 1,166,986 | |||||
| TVG |
500 Index Fund |
801,718 | 913,387 | |||||
| TVG |
Target Retirement 2015 Fund |
571,717 | 622,420 | |||||
| Artisan International Fund |
555,800 | 619,590 | ||||||
| TVG |
Small – Cap Index Inv |
543,528 | 619,403 | |||||
| TVG |
Selected Value Fund |
473,374 | 524,142 | |||||
| TVG |
High – Yield Corporate Fund |
509,297 | 514,507 | |||||
| Royce Fund |
452,636 | 471,616 | ||||||
| TVG |
Target Retirement 2045 Fund |
413,801 | 464,361 | |||||
| TVG |
Inflation Protected Securities Fund |
403,225 | 383,770 | |||||
| TVG |
Strategic Equity Fund |
172,992 | 179,026 | |||||
| TVG |
Mid – Cap Growth Fund |
139,394 | 136,274 | |||||
| TVG |
Target Retirement 2005 Fund |
122,822 | 130,121 | |||||
| TVG |
Target Retirement Income |
33,706 | 34,817 | |||||
| Total |
$ | 42,404,709 | $ | 47,788,744 | ||||
7
RADIAN GROUP INC. SAVINGS INCENTIVE PLAN
NOTES TO FINANCIAL STATEMENTS - Continued
| December 31, 2005 | ||||||||
| Cost | Fair Value | |||||||
| TVG |
Morgan Growth Fund | $ | 6,112,757 | $ | 7,328,094 | |||
| TVG |
Wellington Fund | 6,398,547 | 6,604,863 | |||||
| TVG |
Retirement Savings Trust | 5,033,218 | 5,033,218 | |||||
| TVG |
Total Bond Market Index Fund | 3,034,579 | 3,001,661 | |||||
| TVG |
Growth and Income Fund | 2,643,486 | 2,962,770 | |||||
| Columbia Acorn Fund | 1,905,210 | 2,174,107 | ||||||
| TVG |
Growth Equity Fund | 1,792,313 | 2,118,203 | |||||
| TVG |
International Explorer Fund | 1,776,488 | 1,975,123 | |||||
| Oppenheimer Global Fund | 1,277,482 | 1,604,498 | ||||||
| TVG |
Target Retirement 2035 Fund | 1,035,247 | 1,114,412 | |||||
| TVG |
Target Retirement 2025 Fund | 881,540 | 914,849 | |||||
| TVG |
Windsor II Fund | 762,025 | 771,280 | |||||
| TVG |
Mid – Cap Index Fund | 672,834 | 755,356 | |||||
| TVG |
Inflation Protected Securities Fund | 687,795 | 672,026 | |||||
| TVG |
Target Retirement 2015 Fund | 604,154 | 633,287 | |||||
| TVG |
500 Index Fund | 524,005 | 550,854 | |||||
| TVG |
Small – Cap Index Fund | 380,856 | 404,370 | |||||
| TVG |
Selected Value Fund | 379,622 | 389,454 | |||||
| TVG |
Target Retirement 2045 Fund | 266,083 | 272,807 | |||||
| Royce Fund | 231,598 | 241,909 | ||||||
| Artisan International Fund | 154,684 | 181,565 | ||||||
| TVG |
High –Yield Corporate Fund | 143,615 | 141,638 | |||||
| TVG |
Strategic Equity Fund | 116,086 | 114,601 | |||||
| TVG |
Target Retirement 2005 Fund | 92,990 | 94,484 | |||||
| TVG |
Mid – Cap Growth Fund | 81,623 | 86,833 | |||||
| TVG |
Target Retirement Income | 27,755 | 27,683 | |||||
| Total | $ | 37,016,592 | $ | 40,169,945 | ||||
8
RADIAN GROUP INC. SAVINGS INCENTIVE PLAN
NOTES TO FINANCIAL STATEMENTS - Continued
K. Payment of Benefits and Withdrawals
On termination of service due to death, disability or retirement, a participant or his or her beneficiary, as applicable, may elect to receive the value of the participant’s vested interest in the Plan as either a lump sum benefit or as annual installments over a ten-year period. For termination of service for reasons other than death, disability or retirement, a participant may receive the value of his or her vested interest in the Plan only as a lump-sum distribution. Benefit payments to participants are recorded upon distribution. If the amount in a participant’s account is less than $5,000, a lump-sum distribution is made following termination of the participant’s service.
Participants are permitted to make in-service withdrawals in accordance with Plan provisions. The minimum withdrawal permitted is the lesser of $500 or the full value of the participant’s applicable account.
In order to make a hardship withdrawal, a participant must exhaust the possibility of all other withdrawals under the Plan and all such withdrawals and nontaxable loans available under all other retirement plans maintained by the Company. Earnings credited after 1988 on salary reduction contributions are not available for hardship withdrawals, even if the contributions were made before 1988. Upon receiving a hardship distribution, a participant is generally suspended from making contributions to the Plan (and all other deferred compensation plans maintained by the Company) for six months following the year of the hardship withdrawal.
L. Net Appreciation (Depreciation) in Fair Value
Net appreciation (depreciation) in fair value of investments (including gains and losses on investments bought and sold, as well as held during the year) for the years ended December 31, 2006 and 2005 was as follows:
| 2006 | 2005 | |||||||||
| Artisan International Fund |
$ | 40,041 | $ | 20,689 | ||||||
| Columbia Acorn Fund |
115,504 | 129,604 | ||||||||
| Oppenheimer Global Fund |
163,912 | 147,466 | ||||||||
| Royce Fund |
17,663 | 4,720 | ||||||||
| TVG |
500 Index Fund |
90,642 | 18,269 | |||||||
| TVG |
Growth Equity Fund |
119,100 | 154,560 | |||||||
| TVG |
Growth and Income Fund |
363,136 | 117,314 | |||||||
| TVG |
High –Yield Corporate Fund |
5,523 | (3,232 | ) | ||||||
| TVG |
Inflation Protected Securities Fund |
(19,583 | ) | (15,631 | ) | |||||
| TVG |
International Explorer Fund |
343,518 | 97,142 | |||||||
| TVG |
Mid – Cap Growth Fund |
(5,185 | ) | 2,645 | ||||||
| TVG |
Mid – Cap Index Fund |
107,894 | 51,628 | |||||||
| TVG |
Morgan Growth Fund |
512,893 | 565,823 | |||||||
| TVG |
Selected Value Fund |
45,724 | 2,548 | |||||||
| TVG |
Small – Cap Index Fund |
63,429 | 11,344 | |||||||
| TVG |
Strategic Equity Fund |
9,617 | 331 | |||||||
| TVG |
Target Retirement 2005 Fund |
5,810 | 4,225 | |||||||
| TVG |
Target Retirement 2015 Fund |
54,701 | 14,136 | |||||||
| TVG |
Target Retirement 2025 Fund |
96,555 | 25,833 | |||||||
| TVG |
Target Retirement 2035 Fund |
200,340 | 51,565 | |||||||
| TVG |
Target Retirement 2045 Fund |
44,680 | 6,916 | |||||||
| TVG |
Target Retirement Income |
1,282 | (225 | ) | ||||||
| TVG |
Total Bond Market Index Fund |
(19,491 | ) | (61,750 | ) | |||||
| TVG |
Wellington Fund |
446,796 | 23,158 | |||||||
| TVG |
Windsor II Fund |
101,805 | 31 | |||||||
| TVG |
Retirement Savings Trust |
52,289 | — | |||||||
| Common Stock Fund—Radian Group Inc |
(1,264,619 | ) | 1,406,391 | |||||||
| Net Appreciation in Fair Value |
$ | 1,693,976 | $ | 2,775,500 | ||||||
9
RADIAN GROUP INC. SAVINGS INCENTIVE PLAN
NOTES TO FINANCIAL STATEMENTS - Continued
M. Loans
Participants may borrow from the vested portion of their account balances a minimum of $1,000 up to a maximum equal to the lesser of $50,000 or 50% of their vested account balance. Loans bear interest at the prime rate plus 1% and are repaid via payroll deductions. The maximum loan period is five years, subject to a limited exception for the purchase of a primary residence. A participant may have only one loan outstanding at any one time. Outstanding loans are due and payable upon termination of service.
N. Federal Tax Considerations
The Internal Revenue Service has determined and informed the Company by letter dated September 11, 2002 that the Plan and related trust is designed in accordance with applicable sections of Code. The Company has amended the Plan since this determination; however, the Plan administrator believes that the Plan continues to be designed and operated in compliance with the applicable requirements of the Code. Accordingly, no provision for income taxes has been included in the financial statements.
O. Schedule of Investments Greater than Five Percent of Net Assets (at fair value)
Investments representing five percent or more of the Plan’s net assets for 2006 and 2005 were as follows.
| Number of Shares/Units |
2006 | ||||
| Vanguard Total Bond Market Index Fund |
305,932 | $ | 3,056,262 | ||
| Vanguard Growth and Income Fund |
94,245 | 3,370,187 | |||
| Vanguard Morgan Growth Fund |
421,374 | 8,001,898 | |||
| Vanguard Wellington Fund |
235,384 | 7,633,494 | |||
| Vanguard Retirement Savings Trust |
5,433,912 | 5,433,912 | |||
| Common Stock Fund—Radian Group Inc. |
*701,948 | 15,758,742 | |||
| Number of Shares/Units |
2005 | ||||
| Vanguard Growth and Income Fund |
92,906 | $ | 2,962,770 | ||
| Vanguard Morgan Growth Fund |
413,783 | 7,328,094 | |||
| Vanguard Total Bond Market Index Fund |
298,376 | 3,001,661 | |||
| Vanguard Wellington Fund |
217,623 | 6,604,863 | |||
| Vanguard Retirement Savings Trust |
5,033,218 | 5,033,218 | |||
| Common Stock Fund—Radian Group Inc. |
*643,641 | 15,691,961 | |||
| * | The Radian Common Stock Fund is reported as units. |
P. Risks and Uncertainties
The Plan invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market volatility and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants’ account balances and the amounts reported in the statement of net assets available for benefits.
10
RADIAN GROUP INC. SAVINGS INCENTIVE PLAN
NOTES TO FINANCIAL STATEMENTS - Continued
Q. Nonparticipant-Directed Investments
Net assets and the significant components of changes in net assets relating to nonparticipant-directed investments at and for the years ended 2006 and 2005 were as follows:
| December 31, | ||||||
| 2006 | 2005 | |||||
| Net Assets: |
||||||
| Common Stock Fund—Radian Group Inc.* |
$ | 13,353,557 | $ | 13,407,261 | ||
| Total |
$ | 13,353,557 | $ | 13,407,261 | ||
| Year Ended December 31 | ||||||||
| 2006 | 2005 | |||||||
| Changes in Net Assets: |
||||||||
| Net appreciation |
$ | (1,085,631 | ) | $ | 1,159,065 | |||
| Interest and dividends |
22,060 | 20,183 | ||||||
| Contributions |
2,841,828 | 2,603,166 | ||||||
| Benefits paid to participants |
(907,831 | ) | (805,778 | ) | ||||
| Other deductions |
(409 | ) | (495 | ) | ||||
| Loan activity |
18,345 | 3,809 | ||||||
| Transfers to participant-directed investments |
(942,066 | ) | (1,364,934 | ) | ||||
| $ | (53,704 | ) | $ | 1,615,016 | ||||
| * | Indicates a party-in-interest to the Plan. |
R. Exempt Party-in-Interest Transactions
The Plan permits investments in various investment funds managed by TVG. In addition, at December 31, 2006 and 2005, the Plan held 701,948 and 643,641 units, respectively, of Radian common stock, with a cost basis of $13,434,226 and $11,407,598, respectively. During the years ended December 31, 2006 and 2005, the Plan recorded dividend income on Radian common stock of $25,659 and $23,899, respectively. Transactions in the Company’s common stock qualify as exempt party-in-interest transactions under ERISA.
S. Reconciliation of Financial Statements to Form 5500
| December 31, 2006 | December 31, 2005 | ||||||
| Statement of net assets available for benefits: |
|||||||
| Net assets available for benefits per the financial statements |
$ | 67,478,729 | $ | 59,405,333 | |||
| Adjustment from contract value to fair value for fully benefit-responsive investment contracts |
(52,289 | ) | — | ||||
| Net assets available for benefits per the Form 5500, at fair value |
$ | 67,426,440 | $ | 59,405,333 | |||
| December 31, 2006 | December 31, 2005 | ||||||
| Statements of changes in net assets available for benefits: |
|||||||
| Net appreciation in fair value of investments |
$ | 1,693,976 | $ | 2,775,500 | |||
| Adjustment from fair value to contract value for fully benefit-responsive investment contracts |
(52,289 | ) | — | ||||
| Total Net investment gain (loss) per Form 5500 |
$ | 1,641,687 | $ | 2,775,500 | |||
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T. Subsequent Events
The Company’s board of directors approved changes to the Plan, effective January 1, 2007, among other things, to:
| • | Revise the definition of eligible compensation to include commissions and quarterly Management Based Objective payments; |
| • | Provide for quarterly matching contributions equal to 100% of employee contributions (up to 6% of eligible compensation). Matching contributions may be made in cash or in shares of Radian common stock, at the Company’s election; |
| • | Provide for the immediate vesting of matching contributions (including existing unvested matching contributions attributable to prior periods) and the elimination of all restrictions on a participant’s ability to diversify his/her position in matching contributions; |
| • | Allow for the immediate eligibility of new hire participation and provide for the automatic enrollment of eligible employees at 3% of eligible compensation (to be increased annually by 1% up to 6% of eligible compensation), subject to a participant’s right not to participate or to participate at a different contribution level; |
| • | permit the Company’s board of directors to make discretionary, pro rata (based on eligible compensation) cash allocations to each eligible participant’s account, with vesting upon completion of three years of service with the Company; and |
| • | provide certain active participants in the Radian Group Inc. Pension Plan with yearly cash “transition credits” (initially for up to five years, if employed by the Company during this time) under the Plan equal to a fixed percentage of their eligible compensation, calculated based on a formula that takes into account their age and years of completed vesting service as of January 1, 2007. |
On February 6, 2007, Radian Group Inc. and MGIC entered into an Agreement and Plan of Merger pursuant to which the Company agreed, subject to the terms and conditions of the merger agreement, to merge with and into MGIC, with the combined company to be re-named MGIC Radian Financial Group Inc.
Subject to the terms and conditions of the Agreement and Plan of Merger, which has been approved by the stockholders of both companies, upon the completion of the merger, each share of Radian common stock (including shares held in the Plan under the Radian Common Stock Fund) will be converted into 0.9658 shares of MGIC common stock, with cash to be paid in lieu of fractional shares of MGIC common stock. Completion of the merger remains subject to various conditions, including (1) receipt of regulatory approvals, (2) the absence of any law or order prohibiting the closing, and (3) listing of the MGIC common stock to be issued in the merger on the New York Stock Exchange. Under the Agreement and Plan of Merger, unless both the Company and MGIC otherwise mutually agree, the Plan will remain in effect until the new entity resulting from the merger modifies the Plan or adopts a new plan.
*****
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RADIAN GROUP INC. SAVINGS INCENTIVE PLAN
Form 5500, Schedule H, Part IV Item 4i: Schedule of Assets (Held at End of Year)
December 31, 2006
| Identity of Issuer, |
Description Of Investment |
Number of Shares/Units |
Cost | Current Value | ||||||
| * |
TVG Morgan Growth Fund*** | 421,374 | $ | 6,420,706 | $ | 8,001,898 | ||||
| * |
TVG Wellington Fund*** | 235,384 | 7,045,466 | 7,633,494 | ||||||
| * |
TVG Retirement Savings Trust | 5,433,912 | 5,433,912 | 5,433,912 | ||||||
| * |
TVG Growth and Income Fund*** | 94,245 | 2,739,591 | 3,370,187 | ||||||
| * |
TVG Total Bond Market Index Fund*** | 305,932 | 3,096,820 | 3,056,262 | ||||||
| Columbia Acorn Fund*** | 90,344 | 2,337,405 | 2,684,125 | |||||||
| * |
TVG International Explorer Fund*** | 111,770 | 1,935,944 | 2,358,356 | ||||||
| * |
TVG Target Retirement 2035 Fund*** | 145,507 | 1,747,312 | 2,018,188 | ||||||
| Oppenheimer Global Fund*** | 26,446 | 1,518,411 | 1,944,039 | |||||||
| * |
TVG Growth Equity Fund*** | 172,313 | 1,564,899 | 1,905,784 | ||||||
| * |
TVG Windsor II Fund*** | 40,447 | 1,304,485 | 1,405,535 | ||||||
| * |
TVG Mid – Cap Index Fund*** | 60,493 | 1,015,062 | 1,196,544 | ||||||
| * |
TVG Target Retirement 2025 Fund*** | 89,493 | 1,050,686 | 1,166,986 | ||||||
| * |
TVG 500 Index Fund*** | 6,994 | 801,718 | 913,387 | ||||||
| * |
TVG Target Retirement 2015 Fund*** | 49,953 | 571,717 | 622,420 | ||||||
| Artisan International Fund*** | 21,373 | 555,800 | 619,590 | |||||||
| * |
TVG Small – Cap Index Inv*** | 18,988 | 543,528 | 619,403 | ||||||
| * |
TVG Selected Value Fund*** | 24,853 | 473,374 | 524,142 | ||||||
| * |
TVG High – Yield Corporate Fund*** | 82,718 | 509,297 | 514,507 | ||||||
| Royce Fund*** | 28,022 | 452,636 | 471,616 | |||||||
| * |
TVG Target Retirement 2045 Fund*** | 32,427 | 413,801 | 464,361 | ||||||
| * |
TVG Inflation Protected Securities Fund*** | 32,578 | 403,225 | 383,770 | ||||||
| * |
TVG Strategic Equity Fund*** | 7,573 | 172,992 | 179,026 | ||||||
| * |
TVG Mid – Cap Growth Fund*** | 7,983 | 139,394 | 136,274 | ||||||
| * |
TVG Target Retirement 2005 Fund*** | 11,345 | 122,822 | 130,121 | ||||||
| * |
TVG Target Retirement Income*** | 3,254 | 33,706 | 34,817 | ||||||
| * |
Radian Common Stock Fund | **701,948 | 13,434,226 | 15,758,742 | ||||||
| Loans receivable @5.0% to 10.5% Maturing between 2007 and 2030 | 841,530 | 841,530 | ||||||||
| TOTAL |
$ | 56,680,465 | $ | 64,389,016 | ||||||
| * | Indicates a party-in-interest to the Plan. |
| ** | Represents units based on a third-party independent report. |
| *** | Represents registered investment company investments. |
13
RADIAN GROUP INC. SAVINGS INCENTIVE PLAN
Form 5500, Schedule H, Part IV Item 4j: Schedule of Reportable Transactions
December 31, 2006
Investments Purchased
| Identity Of Party |
Description of Security |
Number of Shares/Units |
Purchase Price | Fair Value of Asset on Transaction Date | ||||||
| Single Transaction |
||||||||||
| Radian* |
Common Stock Fund | 134,066 | $ | 3,260,627 | $ | 3,260,627 | ||||
| * | Indicates a party-in-interest to the Plan. |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Plan Administrator has duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.
| RADIAN GROUP INC. | ||||||
| SAVINGS INCENTIVE PLAN | ||||||
| Date: June 29, 2007 | By: | /s/ Robert E. Croner | ||||
| Robert E. Croner | ||||||
| Plan Administrator | ||||||
15
| Exhibit No. |
Description | |
| 23 |
Consent of Independent Registered Public Accounting Firm |
16