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, 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 1-13664
| A. | Full title of the plan and the address of the plan, if different from that of the issuer named below: |
PMI Alternate 401(k) 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
PMI Alternate 401(k) Plan
Financial Statements
and Supplemental Schedule
(Modified Cash Basis)
As of December 31, 2006 and 2005 and for the year ended December 31, 2006
Report of Independent Registered Public Accounting Firm
The Participants of the PMI Alternate 401(k) 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 Alternate 401(k) Plan (the Plan) as of December 31, 2006 and 2005, and the related statement of changes in net assets available for benefits (modified cash basis) for the year ended December 31, 2006. 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. 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 disclosure 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 schedule 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, 2006 and 2005, and changes therein (modified cash basis) for the year ended December 31, 2006, 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 schedule (modified cash basis) of assets (held at end of year) as of December 31, 2006, is presented for the purpose 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 audits 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 |
|
| Los Angeles, California |
| June 25, 2007 |
2
PMI Alternate 401(k) Plan
Statements of Net Assets Available for Benefits
(Modified Cash Basis)
| | | | | | |
| | | As of December 31, |
| | | 2006 | | 2005 |
Assets | | | | | | |
Dividends receivable | | $ | 263 | | $ | 1,835 |
Investments, at fair value | | | 3,642,305 | | | 3,923,614 |
| | | | | | |
Net assets available for benefits | | $ | 3,642,568 | | $ | 3,925,449 |
| | | | | | |
See accompanying notes.
3
PMI Alternate 401(k) Plan
Statements of Changes in Net Assets Available for Benefits
(Modified Cash Basis)
Year ended December 31, 2006
| | | | |
Additions | | | | |
Appreciation and investment income: | | | | |
Net appreciation in fair value of investments | | $ | 283,915 | |
Interest and dividends | | | 123,436 | |
| | | | |
Total appreciation and investment income | | | 407,351 | |
| |
Contributions: | | | | |
Participants | | | 244,011 | |
Rollovers | | | 25,383 | |
| | | | |
Total contributions | | | 269,394 | |
| | | | |
Total additions | | | 676,745 | |
| |
Deductions | | | | |
Benefits paid directly to participants | | | 959,626 | |
| | | | |
Total deductions | | | 959,626 | |
| | | | |
Net decrease | | | (282,881 | ) |
| |
Net assets available for benefits: | | | | |
Beginning of year | | | 3,925,449 | |
| | | | |
End of year | | $ | 3,642,568 | |
| | | | |
See accompanying notes.
4
PMI Alternate 401(k) Plan
Notes to Financial Statements
(Modified Cash Basis)
1. Description of the Plan
The following description of the PMI Alternate 401(k) Plan (the Plan) provides only general information. Participants should refer to the Summary Plan Description or Plan document for a more complete description of the Plan’s provisions. The most recent restated Adoption Agreement was adopted effective January 1, 2003, and was last amended January 1, 2005.
General
The Plan is a defined contribution plan covering substantially all temporary full-time and part-time employees of The PMI Group, Inc. (the Company), other than those classes of employees specifically excluded by the Plan. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). The Plan trustee is Merrill Lynch Bank & Trust Co., FSB.
Employees at least 18 years of age are eligible to participate in the Plan on the first business day of the next payroll period after their date of hire.
Contributions
Each year, non-highly compensated employees (NHCEs) may contribute, on a pre-tax basis, up to 75% of their annual compensation, as defined in the Plan, subject to annual limitations defined by the Internal Revenue Code (the Code). Highly compensated employees (HCEs) are limited to pretax contributions equal to 17% of eligible compensation, also subject to annual limits of the Code. Additionally, NHCEs may defer up to 75% of their after-tax compensation to the Plan and HCEs may defer up to 17% of their after-tax compensation. Participants may also contribute eligible amounts representing distributions from other qualified defined benefit or defined contribution plans. In addition, participants 50 years of age or older may make pretax “catch up” contributions subject to annual Code limits. The Company does not match employee contributions.
Upon enrollment, participants may direct the investment of their contributions from among investment options made available by the Company. Participants may change their investment elections at any time during the year.
Participant Accounts
Each participant has an individual account which is credited with the participant’s contributions and earnings and losses based upon the participant’s investment elections, including an allocation of any administrative expenses not borne by the Company. Allocations are based on participant earnings or account balances, as defined in the Plan. The benefit to which a participant is entitled is limited to the benefit that can be provided from the participant’s account.
5
PMI Alternate 401(k) Plan
Notes to Financial Statements
(Modified Cash Basis) (continued)
1. Description of the Plan (continued)
Vesting
Participants are immediately vested in the contributions to their Plan accounts plus actual earnings thereon.
Participant Withdrawals
Upon termination of employment, death, disability, or retirement, participants or their beneficiaries may elect to receive a lump-sum benefit equal to their account balance, or in certain circumstances, installments or other forms of benefit. In-service withdrawals may be available upon hardship or upon attainment of age 59 1/2 in accordance with the Plan’s provisions. 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 2006, participant withdrawals were $959,626 compared to $979,590 in 2005. This decrease was primarily due to lower value lump-sum distributions paid to participants terminated from the Plan.
Participant Loans
Participants may borrow from their Plan 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, unless the loan is used for the purchase of the participant’s residence. The loans are secured by the balance in the participant’s account and bear interest at a rate equal to the prime rate published in The Wall Street Journal plus 1%. Principal and interest are paid ratably through payroll deductions. Principal and interest payments are credited to the participant’s account when received.
6
PMI Alternate 401(k) Plan
Notes to Financial Statements
(Modified Cash Basis) (continued)
1. Description of the Plan (continued)
Administrative Expenses
The Company pays substantially all administrative expenses of the Plan, except for any fees incurred by a participant in connection with such participant’s receipt of a loan from his or her individual account, and fees associated with the operation of any funds in which a participant invests.
Plan Termination
Although it has not expressed any intention to do so, the Company has the right under the Plan to terminate the Plan subject to the provisions of ERISA. In the 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 schedule 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 in fair value of investments is recognized in the period incurred on the statement of changes in net assets available for benefits (modified cash basis), 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 the 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 settlement-date basis. Interest income and dividends are accrued in accordance with the modified cash basis of accounting.
7
PMI Alternate 401(k) Plan
Notes to Financial Statements
(Modified Cash Basis) (continued)
2. Summary of Significant Accounting Policies (continued)
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 received a determination letter from the Internal Revenue Service dated January 25, 2005 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.
4. Investments
At December 31, 2006, there were 19 investment fund options available in the Plan, including The PMI Group, Inc. common stock. During 2006 and 2005, 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:
| | | | | | | |
| | | 2006 | | 2005 | |
Registered investment companies | | $ | 177,594 | | $ | 193,593 | |
Common collective trust funds | | | 81,955 | | | 26,488 | |
Common stock | | | 24,366 | | | (6,516 | ) |
| | | | | | | |
Total | | $ | 283,915 | | $ | 213,565 | |
| | | | | | | |
8
PMI Alternate 401(k) Plan
Notes to Financial Statements
(Modified Cash Basis) (continued)
4. Investments (continued)
Investments that represent 5% or more of the fair value of the Plan’s net assets are as follows:
| | | | | | |
| | | 2006 | | 2005 |
Merrill Lynch Retirement Reserves Fund | | $ | 524,044 | | $ | 550,310 |
Merrill Lynch Equity Index Trust Fund | | | 477,548 | | | 465,824 |
Davis New York Venture Fund | | | 420,355 | | | 411,904 |
Merrill Lynch Mid Cap S&P 400 Trust Fund | | | 273,330 | | | * |
PIMCO Total Return Fund | | | 234,076 | | | 324,666 |
Blackrock Fundamental Growth Fund | | | 229,178 | | | * |
Oppenheimer Dev Markets Fund CL A | | | 219,562 | | | 284,353 |
BGI LifePath 2020 Fund | | | 217,565 | | | 249,025 |
Thornburg International Value Fund | | | 215,800 | | | * |
The PMI Group, Inc. Common Stock | | | 193,020 | | | * |
Merrill Lynch Fundamental Growth Fund | | | * | | | 251,720 |
Merrill Lynch Mid Cap Index Trust Fund | | | * | | | 313,164 |
Templeton Foreign Fund (Adv) | | | * | | | 213,794 |
| * | Fair value of investments do not exceed 5% of the Plan’s net assets for the year indicated. |
5. 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 2006, the Plan made purchases of $20,219 and sales of $25,411 of the Company’s common stock.
Additionally, the Plan invests in various investment funds managed by its Plan trustee, Merrill Lynch Bank & Trust Co., FSB.
6. 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.
9
PMI Alternate 401(k) Plan
Notes to Financial Statements
(Modified Cash Basis) (continued)
7. New Accounting Pronouncement
In December 2005, the Financial Accounting Standards Board (FASB) issued FASB Staff Position AAG INV-1 and SOP 94-4-1, Reporting of Fully Benefit-Responsive Investment Contracts Held by Certain Investment Companies Subject to the AICPA Investment Company Guide and Defined-Contribution Health and Welfare and Pension Plans (the FSP). The FSP defines the circumstances in which an investment contract is considered fully benefit responsive and provides certain reporting and disclosure requirements for fully benefit responsive investment contracts in defined contribution and pension plans. The financial statement presentation and disclosure provisions of the FSP are effective for financial statements issued for annual periods ending after December 15, 2006 and are required to be applied retroactively to all prior periods presented for comparative purposes. The Plan has adopted the provisions of the FSP at December 31, 2006. Adoption of the FSP did not have a material impact on the financial statements as the contract values approximate estimated fair values.
10
Supplemental Schedule
11
PMI Alternate 401(k) Plan
EIN: 94-3199675 Plan Number: 004
Schedule H, Line 4(i)—Schedule of Assets (Held at End of Year) (Modified Cash Basis)
December 31, 2006
| | | | | | | |
(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 | | (e) Current
Value |
| | Registered investment companies: | | | | | |
| | BGI Lifepath 2010 Fund | | 2,996.0413 shares | | $ | 40,506 |
| | BGI Lifepath 2020 Fund | | 12,446.5365 shares | | | 217,565 |
| | BGI Lifepath 2030 Fund | | 2,634.6525 shares | | | 44,526 |
| | BGI Lifepath 2040 Fund | | 1,111.2438 shares | | | 23,225 |
| | BGI Lifepath Retirement Portfolio Income Fund | | 330.2359 shares | | | 3,827 |
| | Blackrock Fundamental Growth Fund | | 11,510.6974 shares | | | 229,178 |
| | Blackrock Mid Cap Value Opp Fund | | 6,705.2521 shares | | | 121,767 |
| | Blackrock Small Cap Index Fund | | 5,278.4293 shares | | | 81,710 |
| | Davis New York Venture Fund | | 10,792.1683 shares | | | 420,355 |
| | Oppenheimer Dev Markets Fund CL A | | 5,327.8848 shares | | | 219,562 |
| | PIMCO Total Return Fund | | 22,550.7063 shares | | | 234,076 |
| | Thornburg International Value Fund | | 7,438.8222 shares | | | 215,800 |
| | Van Kampen Aggressive Growth Fund | | 6,361.2681 shares | | | 106,488 |
| | | |
| | Common collective trust funds: | | | | | |
| | BGI MSCI EAFE Equity Index Fund | | 2,274.3466 units | | | 86,618 |
* | | Merrill Lynch Equity Index Trust Fund | | 4,443.9604 units | | | 477,548 |
* | | Merrill Lynch Mid Cap S&P 400 Trust Fund | | 16,615.8122 units | | | 273,330 |
* | | Merrill Lynch Retirement Preservation Trust Fund | | 119,865.86 units | | | 119,866 |
| | | |
| | Money market fund: | | | | | |
* | | Merrill Lynch Retirement Reserves Fund | | 524,043.9400 units | | | 524,044 |
| | | |
| | Common stock: | | | | | |
* | | The PMI Group, Inc. Common Stock | | 4,092.0000 shares | | | 193,020 |
| | | |
| | Participant loans: | | | | | |
* | | Participant loans | | Interest rates of 5.00%-8.75% maturing through 2010 | | | 9,166 |
| | | |
| | Cash | | | | | 128 |
| | | | | | | |
| | Total investments | | | | $ | 3,642,305 |
| | | | | | | |
| * | Indicates a party-in-interest to the Plan. |
Note: Column (d), cost, is not required as all investments are participant-directed.
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.
| | |
| PMI Alternate 401(k) Plan |
| |
| By | | /s/ Charles F. Broom |
| | Charles F. Broom Plan Administrator |
Date: June 26, 2007
13
THE PMI GROUP, INC. ALTERNATE 401(k) PLAN
EXHIBIT INDEX
| | |
Exhibit
Number: | | Description |
23 | | Consent of Ernst & Young LLP, independent registered public accounting firm |
