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, 2005
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-13664
| 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 Schedules
(Modified Cash Basis)
As of December 31, 2005 and 2004 and for the year ended December 31, 2005
Contents
i
Report of Independent Registered Public Accounting Firm
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 (the Plan) as of December 31, 2005 and 2004, and the related statement of changes in net assets available for benefits (modified cash basis) for the year ended December 31, 2005. 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 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. We were not engaged to perform an audit of the Plan’s 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, and 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 schedules were prepared on a modified cash basis of accounting, which is a comprehensive basis of accounting other than U.S. generally accepted accounting principles.
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, 2005 and 2004, and the changes therein (modified cash basis) for the year ended December 31, 2005, on the basis of accounting as described in Note 2.
1
Our audits were performed for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying supplemental schedules (modified cash basis) of assets (held at end of year) as of December 31, 2005, and reportable transaction for the year then ended, are presented for the purpose of additional analysis and are not a required part of the 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 supplemental schedules are the responsibility of the Plan’s management. The supplemental schedules have been subjected to the auditing procedures applied in our audits of the financial statements and, in our opinion, are fairly stated in all material respects in relation to the financial statements taken as a whole.
|
|
/s/ Ernst & Young LLP |
June 9, 2006 |
2
The PMI Group, Inc. Savings and Profit-Sharing Plan
Statements of Net Assets Available for Benefits
(Modified Cash Basis)
| | | | | | |
| | | As of December 31, |
| | | 2005 | | 2004 |
Assets | | | | | | |
Dividends receivable | | $ | 20,162 | | $ | 18,713 |
Investments, at fair value | | | 76,961,376 | | | 70,099,510 |
| | | | | | |
Net assets available for benefits | | $ | 76,981,538 | | $ | 70,118,223 |
| | | | | | |
See accompanying notes.
3
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, 2005
| | | |
Additions | | | |
Appreciation and investment income: | | | |
Net appreciation in fair value of investments | | $ | 3,608,480 |
Interest and dividends | | | 1,503,469 |
| | | |
Total appreciation and investment income | | | 5,111,949 |
| | | |
Contributions: | | | |
Participants | | | 5,560,898 |
Employer | | | 3,174,917 |
Rollovers | | | 412,431 |
| | | |
Total contributions | | | 9,148,246 |
| | | |
Total additions | | | 14,260,195 |
Deductions | | | |
Benefits paid directly to participants | | | 7,393,930 |
Administrative expenses | | | 2,950 |
| | | |
Total deductions | | | 7,396,880 |
| | | |
Net increase | | | 6,863,315 |
Net assets available for benefits: | | | |
Beginning of year | | | 70,118,223 |
| | | |
End of year | | $ | 76,981,538 |
| | | |
See accompanying notes.
4
The PMI Group, Inc. Savings and Profit-Sharing Plan
Notes to Financial Statements
(Modified Cash Basis)
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 regular full-time and 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). The Plan trustee is Merrill Lynch Trust Company.
Employees are eligible on the first day of the next payroll period after their date of employment.
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, non-highly 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 or defined contribution plans.
Effective October 1, 2005, a Plan amendment increased the maximum deferral percentage from 17% up to a maximum of 75% of a participant’s pretax annual compensation.
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.
5
The PMI Group, Inc. Savings and Profit-Sharing Plan
Notes to Financial Statements
(Modified Cash Basis) (continued)
1. Description of the Plan (continued)
Contributions (continued)
In February 2006, the Company funded 2005 employer matching contributions to the trust in the amount of $3,329,664, which was approved by the Board.
Participant Accounts
Each participant’s account is credited with the participant’s and Company’s contributions and an allocation of Plan appreciation and investment income (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, death, disability or retirement, participants or their beneficiaries may elect to receive a lump-sum benefit. Upon attaining age 59 1/2, 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 70 1/2, if no amount has been previously paid out, a participant may be required to take a partial withdrawal in accordance with Plan provisions.
In 2005, participant withdrawals were $7,393,930 compared to $7,805,764 in 2004. This decrease was primarily due to a decrease in lump-sum distributions related to terminations resulting from field office restructurings in 2004.
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 and bear an interest rate equal
6
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 (continued)
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 Significant Accounting Policies
Basis of Accounting
The financial statements and supplemental schedules of the Plan are prepared on the modified cash basis, which is a comprehensive basis of accounting other than U.S. generally accepted accounting principles. Under this basis, investment assets are reported at fair value, investment income, including net realized and unrealized appreciation (depreciation) in fair value of investments is recognized in the period incurred, contributions are recognized when received rather than as earned, and benefits and expenses are recognized when paid rather than as incurred.
Investments Valuation and Income Recognition
The Plan’s investments are stated at fair value. 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.
7
The PMI Group, Inc. Savings and Profit-Sharing Plan
Notes to Financial Statements
(Modified Cash Basis) (continued)
2. Summary of Significant Accounting Policies (continued)
Investments Valuation and Income Recognition (continued)
Purchases and sales of securities are recorded on a settlement-date basis. Interest and dividends are accrued 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.
3. Income Tax Status
The Plan has received a determination letter from the Internal Revenue Service dated March 22, 2004, stating that the Plan is qualified under Section 401(a) of the Code and, therefore, the related trust is exempt from taxation. The Plan was amended subsequent to receiving the determination letter. 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.
4. Investments
At December 31, 2005, there were 20 investment fund options available in the Plan, including The PMI Group, Inc. common stock. During 2005 and 2004, the Plan’s investments (including investments purchased, sold as well as held during the year) appreciated (depreciated) in fair value as determined by quoted market prices as follows:
| | | | | | | |
| | | 2005 | | | 2004 |
Registered investment companies | | $ | 2,963,216 | | | $ | 2,998,083 |
Common collective trust funds | | | 815,559 | | | | 1,744,115 |
Common stock | | | (170,295 | ) | | | 2,105,641 |
| | | | | | | |
Total | | $ | 3,608,480 | | | $ | 6,847,839 |
| | | | | | | |
8
The PMI Group, Inc. Savings and Profit-Sharing Plan
Notes to Financial Statements
(Modified Cash Basis) (continued)
4. Investments (continued)
Investments that represent 5% or more of fair value of Plan’s net assets are as follows:
| | | | | | |
| | | December 31 |
| | | 2005 | | 2004 |
Merrill Lynch Equity Index Trust Fund | | $ | 13,261,330 | | $ | 13,037,479 |
Merrill Lynch Mid Cap Index Trust Fund | | | 9,803,462 | | | 8,590,385 |
Oppenheimer Dev Mkts Fund CL A | | | 5,056,125 | | | * |
The PMI Group, Inc. Common Stock | | | 14,915,463 | | | 15,731,066 |
| * | Fair value of investment does not exceed 5% of the Plan’s net assets for the year indicated. |
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 | |
| | | 2005 | | | 2004 | |
Net assets: | | | | | | | | |
Dividends receivable | | $ | 20,162 | | | $ | 18,713 | |
Money market fund | | | 151,997 | | | | 156,733 | |
Common stock | | | 14,915,463 | | | | 15,731,066 | |
| | | | | | | | |
Total | | $ | 15,087,622 | | | $ | 15,906,512 | |
| | | | | | | | |
| |
| | | Years ended December 31 | |
| | | 2005 | | | 2004 | |
Changes in net assets: | | | | | | | | |
Net (depreciation) appreciation in fair value of investments | | $ | (170,295 | ) | | $ | 2,105,641 | |
Interest and dividends | | | 86,541 | | | | 77,717 | |
Contributions | | | 2,751,914 | | | | 2,273,093 | |
Transfer from PMI Alternate 401(k) Plan | | | — | | | | 553 | |
Benefits paid directly to participants | | | (2,088,820 | ) | | | (1,825,621 | ) |
Asset transfer related to sale of subsidiary | | | — | | | | (1,907,327 | ) |
Administrative expenses | | | (294 | ) | | | (269 | ) |
Net transfer to participant-directed accounts | | | (1,397,936 | ) | | | (1,490,325 | ) |
| | | | | | | | |
Total change in net assets | | $ | (818,890 | ) | | $ | (766,538 | ) |
| | | | | | | | |
9
The PMI Group, Inc. Savings and Profit-Sharing Plan
Notes to Financial Statements
(Modified Cash Basis) (continued)
6. Transactions with Parties-in-Interest
Transactions in shares of the Company’s common stock qualify as party-in-interest transactions under the provisions of ERISA. During 2005, the Plan made purchases of $3,192,145 and sales of $3,575,636 of the Company’s common stock.
Additionally, the Plan invests in various investment funds managed by its Plan trustee, Merrill Lynch Trust Company.
7. Risks and Uncertainties
The Plan invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market 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 statements of net assets available for benefits.
10
Supplemental Schedules
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) (Modified Cash Basis)
December 31, 2005
| | | | | | | | | | |
(a) | | (b) Identity of Issuer, 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 | | 195,373.7082 shares | | $ | ** | | $ | 2,471,477 |
| | PIMCO Total Return Fund | | 314,896.9623 shares | | | ** | | | 3,306,418 |
| | Van Kampen Aggressive Growth Fund | | 103,325.0306 shares | | | ** | | | 1,626,336 |
| | Davis New York Venture Fund | | 104,396.9570 shares | | | ** | | | 3,556,804 |
* | | Merrill Lynch Fundamental Growth Fund | | 136,639.8798 shares | | | ** | | | 2,616,654 |
* | | Merrill Lynch Small Cap Index Fund | | 67,650.5417 shares | | | ** | | | 971,462 |
* | | Merrill Lynch Mid Cap Value Opp Port Fund | | 89,503.2414 shares | | | ** | | | 1,670,131 |
| | BGI Lifepath 2010 Fund | | 227,660.9398 shares | | | ** | | | 2,943,656 |
| | BGI Lifepath 2020 Fund | | 152,002.6093 shares | | | ** | | | 2,409,241 |
| | BGI Lifepath 2030 Fund | | 136,934.5012 shares | | | ** | | | 2,107,422 |
| | BGI Lifepath 2040 Fund | | 84,938.7178 shares | | | ** | | | 1,544,186 |
| | BGI Lifepath Retirement Portfolio Income Fund | | 114,252.4126 shares | | | ** | | | 1,281,912 |
| | Oppenheimer Dev Markets Fund | | 139,172.1679 shares | | | ** | | | 5,056,125 |
| | Common collective trust funds: | | | | | | | | |
| | BGI MSCI EAFE Equity Index Fund | | 71,862.2646 units | | | ** | | | 1,806,719 |
* | | Merrill Lynch Mid Cap Index Trust Fund | | 653,564.1293 units | | | ** | | | 9,803,462 |
* | | Merrill Lynch Equity Index Trust Fund | | 142,518.3254 units | | | ** | | | 13,261,330 |
* | | Merrill Lynch Retirement Preservation Trust Fund | | 1,920,939.8600 units | | | ** | | | 1,920,940 |
| | Money market funds: | | | | | | | | |
* | | Merrill Lynch Retirement Reserves Fund | | 2,400,406.1500 units | | $ | 2,400,406 | | | 2,400,406 |
| | CMA Money Fund | | 304,062.7300 units | | | ** | | | 304,063 |
| | Common stock: | | | | | | | | |
* | | The PMI Group, Inc. Common Stock | | 365,599 shares | | $ | 10,894,482 | | | 14,915,463 |
| | Participant loans: | | | | | | | | |
* | | Participant loans | | Interest rates ranging from
5% to 9%, maturing
through 2010 | | | ** | | | 987,169 |
| | | | | | | | | | |
| | Total investments | | | | | | | $ | 76,961,376 |
| | | | | | | | | | |
| * | Indicates parties-in-interest to the Plan. |
| ** | Cost information has been omitted as these investments are entirely participant-directed. |
11
The PMI Group, Inc. Savings and Profit-Sharing Plan
EIN: 94-3199675; Plan Number: 001
Schedule H, Line 4j – Schedule of Reportable Transaction (Modified Cash Basis)
December 31, 2005
| | | | | | | | | | | | | | | | | |
Identity of Issuer | | Description of Assets | | Purchase
Price | | Selling Price | | Cost of Asset | | Current Value
of Asset on
Transaction
Date | | Net Gain
or (Loss) |
Category (iii) - Series of Transactions in excess of 5% of Plan Assets | | | | | | | | | |
*Merrill Lynch | | PMI Stock Fund: | | | | | | | | | | | | | | | |
| | Sales | | $ | — | | $ | 8,453,420 | | $ | 7,511,328 | | $ | 8,453,420 | | $ | 942,092 |
| | Purchases | | $ | 8,060,670 | | $ | — | | $ | 8,060,670 | | $ | 8,060,670 | | $ | — |
There were no category (i), (ii), or (iv) reportable transactions during the year ended December 31, 2005.
12
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.
| | |
| The PMI Group, Inc. Savings and Profit-Sharing Plan |
| |
| By | | /s/ Charles F. Broom |
| | Charles F. Broom |
| | Plan Administrator |
Date: June 28, 2006
THE PMI GROUP, INC. SAVINGS AND PROFIT-SHARING PLAN
EXHIBIT INDEX
| | |
| Exhibit Number: | | Description |
| |
| 23 | | Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm |
