UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
| x | | ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2002
OR
| ¨ | | TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 1-13664
A. Full title of the plan and the address of the plan, if different from that of the issuer named below:
The PMI Group, Inc.
Savings and Profit-Sharing Plan
B. Name of issuer of the securities held pursuant to the Plan and the address of its principal executive office:
The PMI Group, Inc.
3003 Oak Road
Walnut Creek, California 94597
The PMI Group, Inc. Savings and Profit-Sharing Plan
Financial Statements
and Supplemental Schedule (Modified Cash Basis)
With Report of Independent Auditors
As of December 31, 2002 and 2001 and for the year ended December 31, 2002
Contents
Report of Independent Auditors
The Participants of The PMI Group, Inc. Savings and Profit-Sharing Plan
and Board of Directors of The PMI Group, Inc.
We have audited the accompanying statements of net assets available for benefits (modified cash basis) of The PMI Group, Inc. Savings and Profit-Sharing Plan as of December 31, 2002 and 2001, and the related statement of changes in net assets available for benefits (modified cash basis) for the year ended December 31, 2002. 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 auditing standards generally accepted in the 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes 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.
As described in Note 2, the financial statements and supplemental schedule were prepared on a modified cash basis of accounting, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States.
In our opinion, the financial statements referred to above present fairly, in all material respects, information regarding the Plan’s net assets available for benefits (modified cash basis) as of December 31, 2002 and 2001, and changes therein (modified cash basis) for the year ended December 31, 2002, on the basis of accounting described in Note 2.
Our audits were performed for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying supplemental schedule (modified cash basis) of assets (held at end of year) as of December 31, 2002, is presented for purposes of additional analysis and is not a required part of the financial statements but is 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. This supplemental schedule is the responsibility of the Plan’s management. The supplemental schedule (modified cash basis) has been subjected to the auditing procedures applied in our audit of the financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole.
/s/ Ernst & Young LLP
June 20, 2003
Los Angeles, California
The PMI Group, Inc. Savings and Profit-Sharing Plan
Statements of Net Assets Available for Benefits
(Modified Cash Basis)
| | | December 31 |
| | | 2002
| | 2001
|
Assets | | | | | | |
Cash | | $ | 29,304 | | $ | 13,922 |
Investments, at fair value | | | 51,318,747 | | | 53,565,732 |
| | |
|
| |
|
|
Net assets available for benefits | | $ | 51,348,051 | | $ | 53,579,654 |
| | |
|
| |
|
|
See accompanying notes.
2
The PMI Group, Inc. Savings and Profit-Sharing Plan
Statement of Changes in Net Assets Available for
Benefits (Modified Cash Basis)
Year ended December 31, 2002
Additions | | | | |
Investment income (loss): | | | | |
Net depreciation in fair value of investments | | $ | (7,921,565 | ) |
Interest and dividends | | | 422,447 | |
| | |
|
|
|
Total investment loss | | | (7,499,118 | ) |
| |
Contributions: | | | | |
Participants | | | 5,224,923 | |
Employer | | | 3,278,742 | |
Rollovers | | | 176,999 | |
| | |
|
|
|
Total contributions | | | 8,680,664 | |
Transfer from PMI Alternate 401(k) Plan | | | 4,031 | |
| | |
|
|
|
Total additions | | | 1,185,577 | |
| |
Deductions | | | | |
Benefits paid directly to participants | | | 3,412,922 | |
Administrative expenses | | | 4,258 | |
| | |
|
|
|
Total deductions | | | 3,417,180 | |
| | |
|
|
|
Net decrease | | | (2,231,603 | ) |
| |
Net assets available for benefits: | | | | |
Beginning of year | | | 53,579,654 | |
| | |
|
|
|
End of year | | $ | 51,348,051 | |
| | |
|
|
|
See accompanying notes.
3
The PMI Group, Inc. Savings and Profit-Sharing Plan
Notes to Financial Statements (Modified Cash Basis)
December 31, 2002
1. Description of the Plan
The following description of The PMI Group, Inc. Savings and Profit-Sharing Plan (the Plan) is provided for general information only. Participants should refer to the plan document for a more complete description of the Plan’s provisions.
General
The Plan is a defined contribution plan covering all full-time and regular part-time employees of The PMI Group, Inc. (the Company) other than those classes of employees specifically excluded by the plan document. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA).
Contributions
Each year, participants may contribute up to 17% of their pretax annual compensation, as defined by the Plan, subject to annual limitations defined by the Internal Revenue Code (the “Code”). In addition, nonhighly compensated participants may elect to contribute to the Plan on an after-tax basis, provided the total contribution on a pretax and after-tax basis does not exceed 25% of compensation. Highly compensated participants are limited to a total of pretax and after-tax contribution equal to 17% of compensation. Participants may also contribute amounts representing distributions from other qualified defined benefit on defined contribution plans.
The Company makes basic matching contributions equal to 25% of the first 6% of each participant’s pretax compensation contributed to the Plan. An additional supplemental matching contribution may be made annually as determined by the Company in an amount up to 75% of the first 6% of each participant’s pretax compensation contributed to the Plan. Total matching contributions cannot exceed 6% of a participant’s compensation as defined by the Plan. Participants direct the investment of their contributions and the Company’s basic matching contributions. The Company’s supplemental matching contributions are invested in the Company’s common stock but may be transferred to other investment options as directed by the participant after being held in the Company’s common stock for a period of two years.
4
The PMI Group, Inc. Savings and Profit-Sharing Plan
Notes to Financial Statements (Modified Cash Basis) (continued)
1. Description of the Plan (continued)
Participant Accounts
Each participant’s account is credited with the participant’s and Company’s contributions and an allocation of Plan earnings. Allocations are based on participant earnings or account balances, as defined in the Plan. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s account.
Vesting
Participants are immediately fully vested in all contributions to their account and earnings thereon.
Participant Withdrawals
Withdrawals from the Plan are available upon hardship in accordance with Plan provisions. Upon termination of employment, a participant may elect to receive a lump-sum benefit. Upon attaining age 59½, participants may elect to receive either a lump-sum amount equal to their vested account balance or a portion paid in a lump sum with the remainder paid at a later date. At age 70½, if no amount has been previously paid out, a participant may be required to take a partial withdrawal in accordance with Plan provisions.
5
The PMI Group, Inc. Savings and Profit-Sharing Plan
Notes to Financial Statements (Modified Cash Basis) (continued)
1. Description of the Plan (continued)
Participant Loans
Participants may borrow from their fund accounts a minimum of $1,000 up to a maximum equal to the lesser of $50,000 or 50% of their account balance. Loan terms shall not exceed five years. The loans are secured by the balance in the participants’ account balance and bear an interest rate equal to the prime rate published in the Wall Street Journal plus 1%. Principal and interest are paid ratably through payroll deductions.
Administrative Expenses
The Company pays substantially all administrative expenses of the Plan.
Plan Termination
Although it has not expressed any intention to do so, the Company has the right under the Plan to discontinue its contribution at any time and to terminate the Plan subject to the provisions of ERISA. In event of the Plan’s termination, participants will remain fully vested in their accounts.
2. Summary of Accounting Policies
Basis of Accounting
The financial statements and supplemental schedule of the Plan are prepared on the modified cash basis, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States. Under this basis, investment assets are reported at fair value, net realized and unrealized appreciation (depreciation) in fair value of investments is recognized, contributions are recognized when received rather than as earned, and benefits and expenses are recognized when paid rather than as incurred.
6
The PMI Group, Inc. Savings and Profit-Sharing Plan
Notes to Financial Statements (Modified Cash Basis) (continued)
2. Summary of Accounting Policies (continued)
Investments Valuation and Income Recognition
The Plan’s investments are stated at fair value which equals the quoted market price on the last day of the plan year. The shares of registered investment companies are valued at quoted market prices which represent the net asset values of shares held by the Plan at year-end. Common collective trust funds are valued based on quoted redemption values on the last business day of the plan year. Money market funds are valued at historical cost plus accrued interest, which approximates fair value. Participant loans are valued at their outstanding balances, which approximate fair value.
Purchases and sales of securities are recorded on a trade-date basis. Interest and dividends are recorded when received in accordance with the modified cash basis of accounting.
Use of Estimates
The preparation of financial statements in conformity with the modified cash basis of accounting requires management to make estimates that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Reclassification
Certain amounts in the 2001 financial statements have been conformed to the 2002 presentation.
3. Income Tax Status
The Plan has received a determination letter from the Internal Revenue Service dated September 18, 2002, stating that the Plan is qualified under Section 401(a) of the Code and, therefore, the related trust is exempt from taxation. Once qualified, the Plan is required to operate in conformity with the Code to maintain its qualification. The plan administrator believes the Plan is being operated in compliance with the applicable requirements of the Code and, therefore, believes that the Plan is qualified and the related trust is tax exempt.
7
The PMI Group, Inc. Savings and Profit-Sharing Plan
Notes to Financial Statements (Modified Cash Basis) (continued)
4. Investments
During 2002, the Plan’s investments (including investments purchased, sold as well as held during the year) depreciated in fair value as determined by quoted market prices as follows:
| | | Net Realized and
Unrealized Depreciation in Fair Value of
Investments
| |
Registered investment companies | | $ | (1,460,244 | ) |
Common collective trust funds | | | (4,916,792 | ) |
Common stock | | | (1,544,529 | ) |
| | |
|
|
|
Total | | $ | (7,921,565 | ) |
| | |
|
|
|
Investments that represent 5% or more of fair value of Plan’s net assets as follows:
| | | December 31 |
| | | 2002
| | 2001
|
Merrill Lynch Retirement Reserves Fund | | $ | 3,537,664 | | $ | 2,928,211 |
BGI Lifepath 2010 Fund | | | 2,899,961 | | | 3,453,674 |
PIMCO Total Return Fund | | | 3,545,733 | | | * |
| Merrill Lynch Equity Index Trust | | | 9,118,439 | | | * |
Merrill Lynch Mid Cap Index Trust Fund | | | 6,137,112 | | | * |
| | |
BGI S&P 500 Stock Fund | | | * | | | 11,678,669 |
BGI S&P Mid Cap Stock Fund | | | * | | | 7,052,748 |
PMI Group, Inc. common stock | | | 12,945,248 | | | 13,012,916 |
| | * | | Fair value of these investments does not exceed 5% of the Plan’s net assets for year indicated. |
8
The PMI Group, Inc. Savings and Profit-Sharing Plan
Notes to Financial Statements (Modified Cash Basis) (continued)
5. Nonparticipant-Directed Investments
Information about the net assets and the significant components of the changes in net assets related to the nonparticipant-directed investments are as follows:
| | | December 31 |
| | | 2002
| | 2001
|
Net assets: | | | | | | |
Cash | | $ | 29,304 | | $ | 13,922 |
Money market fund | | | 111,890 | | | 125,713 |
Common stock | | | 12,945,248 | | | 13,012,916 |
| | |
|
| |
|
|
Total | | $ | 13,086,442 | | $ | 13,152,551 |
| | |
|
| |
|
|
| | | Year ended
December 31,
2002
| |
Changes in net assets: | | | | |
Net realized and unrealized depreciation in fair value | | $ | (1,544,529 | ) |
Interest and dividends | | | 49,510 | |
Contributions | | | 2,817,699 | |
Benefits paid directly to participants | | | (820,610 | ) |
Administrative expenses | | | (667 | ) |
Net transfer to participant directed accounts | | | (568,921 | ) |
Transfer from the PMI Alternate 401(k) Plan | | | 1,409 | |
| | |
|
|
|
| | | $ | (66,109 | ) |
| | |
|
|
|
6. Transactions with Parties-in-Interest
Transactions in shares of Company’s common stock qualify as party-in-interest transactions under the provisions of ERISA. During 2002, the Plan made purchases of $3,805,363 and sales of $1,593,958 of the Company’s common stock.
9
Supplemental Schedule
The PMI Group, Inc. Savings and Profit-Sharing Plan
EIN: 94-3199675; Plan Number: 001
Schedule H, Line 4i – Schedule of Assets (Held At End of Year)
December 31, 2002
| (a) | | (b) Identity of Issue, Borrower, Lessor, or Similar Party | | (c) Description of Investment Including Maturity Date, Rate of Interest, Collateral, Par or
Maturity Value | | (d) Cost | | (e) Current Value |
|
| | | Registered investment companies: | | | | | | | | |
| | | Templeton Foreign Fund | | 97,304.3292 shares | | | ** | | $ | 808,599 |
| | | PIMCO Total Return Fund | | 332,308.6437 shares | | | ** | | | 3,545,733 |
| | | Van Kampen American Value Fund | | 26,555.2055 shares | | | ** | | | 401,249 |
| | | Van Kampen Aggressive Growth Fund | | 78,487.5016 shares | | | ** | | | 695,399 |
| | | Davis New York Venture Fund | | 40,879.8731 shares | | | ** | | | 856,025 |
* | | Merrill Lynch Mid Cap Index Trust Fund | | 716,115.7501 shares | | | ** | | | 6,137,112 |
* | | Merrill Lynch Fundamental Growth Fund | | 121,244.3344 shares | | | ** | | | 1,565,264 |
| | | ING Emerging Countries Fund | | 17,140.0556 shares | | | ** | | | 215,451 |
* | | Merrill Lynch Small Cap Index Fund | | 684.8472 shares | | | ** | | | 5,671 |
| | | Common collective trust funds: | | | | | | | | |
| | | BGI International Equity Fund | | 70,504.8675 units | | | ** | | | 807,281 |
| | | BGI Lifepath Income Fund | | 104,341.3341 units | | | ** | | | 1,669,461 |
| | | BGI Lifepath 2010 Fund | | 167,337.6131 units | | | ** | | | 2,899,961 |
| | | BGI Lifepath 2020 Fund | | 98,039.2055 units | | | ** | | | 1,717,647 |
| | | BGI Lifepath 2030 Fund | | 81,722.1357 units | | | ** | | | 1,444,847 |
| | | BGI Lifepath 2040 Fund | | 51,560.4904 units | | | ** | | | 930,667 |
* | | Merrill Lynch Equity Index Trust Fund | | 145,545.7164 units | | | ** | | | 9,118,439 |
* | | Merrill Lynch Retirement Preservation Trust Fund | | 665,019.2200 units | | | ** | | | 665,019 |
| | | Money market funds: | | | | | | | | |
* | | Merrill Lynch Retirement Reserves | | 3,537,664.2380 shares | | $ | 3,537,664 | | | 3,537,664 |
| | | CMA Money Fund | | 122,651.0000 shares | | | ** | | | 122,651 |
| | | Common stock: | | | | | | | | |
* | | The PMI Group, Inc. | | 430,922.0000 shares | | | 10,621,828 | | | 12,945,248 |
* | | Participant loans | | Interest rates ranging from 5.75% to 10.50%, maturing through 2007 | | | ** | | | 1,229,359 |
| | | | | | | | | |
|
|
| | | Total investments | | | | | | | $ | 51,318,747 |
| | | | | | | | | |
|
|
* Indicates parties-in-interest to the Plan.
**Cost information has been omitted as these investments are entirely participant-directed.
10
SIGNATURE
The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.
| |
| |
| | | /s/ Charles F. Broom |
| |
|
| | | Charles F. Broom Plan Administrator |
11
THE PMI GROUP, INC. SAVINGS AND PROFIT-SHARING PLAN
EXHIBIT INDEX
Exhibit Number:
| | Description:
|
| |
| 23 | | Consent of Ernst & Young LLP, independent auditors |
| |
| 99 | | Certification Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 |
