Exhibit 99.2
THE PMI GROUP, INC AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
On October 22, 2008, pursuant to a Share Sale Agreement (the “Sale Agreement”) entered into by and among PMI Mortgage Insurance Co. (“MIC”), a wholly-owned subsidiary of The PMI Group, Inc. (the “Company”), QBE Holdings (AAP) Pty Limited and QBE Insurance Group (“QBE”), MIC sold all of the issued and outstanding shares of PMI Mortgage Insurance Australia (Holdings) Pty Limited (“PMI Australia”), to QBE. The following unaudited pro forma consolidated financial statements of The PMI Group, Inc. give effect to this transaction.
The following unaudited pro forma condensed consolidated balance sheet gives effect to the sale of PMI Australia as if it had occurred on June 30, 2008, and the adjustments give effect to events that are directly attributable to the transaction regardless of whether they have a continuing impact or are nonrecurring. The unaudited pro forma consolidated statements of operations for the years ended December 31, 2007, 2006, and 2005 and the six months ended June 30, 2008 give effect to the transaction as if it had occurred on January 1, 2005. The unaudited pro forma condensed consolidated financial statements presented below are based on the assumptions and adjustments described in the accompanying notes. The unaudited pro forma consolidated financial information is not intended to represent what the Company’s financial position was or results of operations would have been if the disposition had occurred on those dates or to project the Company’s financial position as of any future date or results of operations for any future period. The pro forma financial statements include no assumptions regarding the use of proceeds, which are presented as additional cash and cash equivalents on the unaudited pro forma condensed consolidated balance sheet. The unaudited pro forma condensed consolidated balance sheet and statements of operations filed with this report are presented for illustrative purposes only.
The historical financial information of The PMI Group, Inc., set forth below, has been derived from the historical audited and unaudited consolidated financial statements of The PMI Group, Inc. included in the Annual Report on Form 10-K for the year ended December 31, 2007 and the Quarterly Report on Form 10-Q for the quarter ended June 30, 2008.
The unaudited pro forma financial statements, including notes thereto, should be read in conjunction with the historical financial statements of the Company and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Form 10-K for the year ended December 31, 2007 and the unaudited financial statements filed in the Company’s Form 10-Q for the quarters ended March 31, 2008 and June 30, 2008.
THE PMI GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
| | | | | | | | | | |
| | | June 30, 2008 |
| | | As Reported | | Pro Forma
Adjustments | | | Pro Forma |
| | | (In thousands, except per share data) |
Investments | | | | | | | | | | |
Fixed income securities | | $ | 3,846,333 | | $ | (1,360,776 | )(b) | | $ | 2,485,557 |
Equity securities: | | | | | | | | | | |
Common | | | 12,484 | | | (566 | )(b) | | | 11,918 |
Preferred | | | 263,556 | | | — | | | | 263,556 |
Short-term investments | | | 2,277 | | | — | | | | 2,277 |
| | | | | | | | | | |
Total investments | | | 4,124,650 | | | (1,361,342 | ) | | | 2,763,308 |
Cash and cash equivalents | | | 508,319 | | | 601,737 | (a)(b) | | | 1,110,056 |
Investments in unconsolidated subsidiaries | | | 151,226 | | | — | | | | 151,226 |
Accrued investment income | | | 60,178 | | | (21,331 | )(b) | | | 38,847 |
Premiums receivable | | | 61,899 | | | — | | | | 61,899 |
Reinsurance recoverables | | | 314,615 | | | — | | | | 314,615 |
Deferred policy acquisition costs | | | 69,969 | | | (39,898 | )(b) | | | 30,071 |
Other assets | | | 430,301 | | | (40,315 | )(b) | | | 389,986 |
| | | | | | | | | | |
Total assets | | $ | 5,721,157 | | $ | (861,149 | ) | | $ | 4,860,008 |
| | | | | | | | | | |
LIABILITIES | | | | | | | | | | |
Reserve for losses and loss adjustment expenses | | $ | 2,289,374 | | $ | (86,678 | )(b) | | $ | 2,202,696 |
Unearned premiums | | | 631,483 | | | (480,406 | )(b) | | | 151,077 |
Debt (includes $308,101 measured at fair value at June 30, 2008) | | | 604,694 | | | — | | | | 604,694 |
Other liabilities | | | 187,021 | | | 15,814 | (b) | | | 202,835 |
| | | | | | | | | | |
Total liabilities | | | 3,712,572 | | | (551,270 | ) | | | 3,161,302 |
| | | | | | | | | | |
Commitments and contingencies | | | | | | | | | | |
SHAREHOLDERS’ EQUITY | | | | | | | | | | |
Preferred stock—$0.01 par value; 5,000,000 shares authorized; none issued or outstanding | | | — | | | — | | | | — |
Common stock—$0.01 par value; 250,000,000 shares authorized; 119,313,767 shares issued; 81,245,237 shares outstanding | | | 1,193 | | | — | | | | 1,193 |
Additional paid-in capital | | | 899,354 | | | — | | | | 899,354 |
Treasury stock, at cost (38,068,530 shares) | | | (1,352,108) | | | — | | | | (1,352,108) |
Retained earnings | | | 2,168,597 | | | (63,233 | )(b)(c) | | | 2,105,364 |
Accumulated other comprehensive income, net of deferred taxes | | | 291,549 | | | (246,646 | )(b) | | | 44,903 |
| | | | | | | | | | |
Total shareholders’ equity | | | 2,008,585 | | | (309,879 | ) | | | 1,698,706 |
| | | | | | | | | | |
Total liabilities and shareholders’ equity | | $ | 5,721,157 | | $ | (861,149 | ) | | $ | 4,860,008 |
| | | | | | | | | | |
THE PMI GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| | | | | | | | | | | | |
| | | Six Months Ended June 30, 2008 | |
| | | As Reported | | | Pro Forma
Adjustments (d) | | | Pro Forma | |
| | | (In thousands, except per share data) | |
REVENUES | | | | | | | | | | | | |
Premiums earned | | $ | 522,043 | | | $ | (96,074 | ) | | $ | 425,969 | |
Net investment income | | | 119,366 | | | | (44,721 | ) | | | 74,645 | |
Net realized investment losses | | | (56,682 | ) | | | (7,962 | ) | | | (64,644 | ) |
Change in fair value of certain debt instruments | | | 45,665 | | | | — | | | | 45,665 | |
Other income | | | 16,104 | | | | 691 | | | | 16,795 | |
| | | | | | | | | | | | |
Total revenues | | $ | 646,496 | | | $ | (148,066 | ) | | $ | 498,430 | |
| | | | | | | | | | | | |
LOSSES AND EXPENSES | | | | | | | | | | | | |
Losses and loss adjustment expenses | | | 1,184,798 | | | | (42,963 | ) | | | 1,141,835 | |
Amortization of deferred policy acquisition costs | | | 21,927 | | | | (8,753 | ) | | | 13,174 | |
Other underwriting and operating expenses | | | 123,367 | | | | (18,517 | ) | | | 104,850 | |
Interest expense | | | 18,198 | | | | 77 | | | | 18,275 | |
| | | | | | | | | | | | |
Total losses and expenses | | $ | 1,348,290 | | | $ | (70,156 | ) | | $ | 1,278,134 | |
| | | | | | | | | | | | |
Loss before equity in losses from unconsolidated subsidiaries and income taxes | | | (701,794 | ) | | | (77,910 | ) | | | (779,704 | ) |
Equity in losses from unconsolidated subsidiaries | | | (54,933 | ) | | | — | | | | (54,933 | ) |
| | | | | | | | | | | | |
Loss before income taxes | | | (756,727 | ) | | | (77,910 | ) | | | (834,637 | ) |
Income tax benefit | | | (236,477 | ) | | | (23,432 | ) | | | (259,909 | ) |
| | | | | | | | | | | | |
NET LOSS | | $ | (520,250 | ) | | $ | (54,478 | ) | | $ | (574,728 | ) |
| | | | | | | | | | | | |
PER SHARE DATA | | | | | | | | | | | | |
Basic net loss | | $ | (6.41 | ) | | $ | (0.67 | ) | | $ | (7.08 | ) |
Diluted net loss | | $ | (6.41 | ) | | $ | (0.67 | ) | | $ | (7.08 | ) |
Weighted average shares outstanding | | | | | | | | | | | | |
Basic | | | 81,214 | | | | — | | | | 81,214 | |
Diluted | | | 81,214 | | | | — | | | | 81,214 | |
THE PMI GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| | | | | | | | | | | | |
| | | Year Ended December 31, 2007 | |
| | | As Reported | | | Pro Forma
Adjustments(d) | | | Pro Forma | |
| | | (In thousands, except per share data) | |
REVENUES | | | | | | | | | | | | |
Premiums earned | | $ | 995,172 | | | $ | (167,106 | ) | | $ | 828,066 | |
Net investment income | | | 214,002 | | | | (72,501 | ) | | | 141,501 | |
Net realized investment losses | | | (24,784 | ) | | | (189 | ) | | | (24,973 | ) |
Other income (loss) | | | 774 | | | | (950 | ) | | | (176 | ) |
| | | | | | | | | | | | |
Total revenues | | $ | 1,185,164 | | | $ | (240,746 | ) | | $ | 944,418 | |
| | | | | | | | | | | | |
LOSSES AND EXPENSES | | | | | | | | | | | | |
Losses and loss adjustment expenses | | | 1,203,004 | | | | (77,500 | ) | | | 1,125,504 | |
Amortization of deferred policy acquisition costs | | | 104,885 | | | | (15,496 | ) | | | 89,389 | |
Other underwriting and operating expenses | | | 229,793 | | | | (33,130 | ) | | | 196,663 | |
Interest expense | | | 33,398 | | | | (6 | ) | | | 33,392 | |
| | | | | | | | | | | | |
Total losses and expenses | | $ | 1,571,080 | | | $ | (126,132 | ) | | $ | 1,444,948 | |
| | | | | | | | | | | | |
Loss before equity in losses from unconsolidated subsidiaries and income taxes | | | (385,916 | ) | | | (114,614 | ) | | | (500,530 | ) |
Equity in losses from unconsolidated subsidiaries | | | (741,500 | ) | | | — | | | | (741,500 | ) |
| | | | | | | | | | | | |
Loss before income taxes | | | (1,127,416 | ) | | | (114,614 | ) | | | (1,242,030 | ) |
Income tax benefit | | | (212,090 | ) | | | (34,609 | ) | | | (246,699 | ) |
| | | | | | | | | | | | |
NET LOSS | | $ | (915,326 | ) | | $ | (80,005 | ) | | $ | (995,331 | ) |
| | | | | | | | | | | | |
PER SHARE DATA | | | | | | | | | | | | |
Basic net loss | | $ | (10.81 | ) | | $ | (0.95 | ) | | $ | (11.76 | ) |
Diluted net loss | | $ | (10.81 | ) | | $ | (0.95 | ) | | $ | (11.76 | ) |
Weighted average shares outstanding | | | | | | | | | | | | |
Basic | | | 84,645 | | | | — | | | | 84,645 | |
Diluted | | | 84,645 | | | | — | | | | 84,645 | |
THE PMI GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| | | | | | | | | | |
| | | Year Ended December 31, 2006 |
| | | As Reported | | Pro Forma
Adjustments (d) | | | Pro Forma |
| | | (In thousands, except per share data) |
REVENUES | | | | | | | | | | |
Premiums earned | | $ | 860,530 | | $ | (145,393 | ) | | $ | 715,137 |
Net investment income | | | 195,301 | | | (54,741 | ) | | | 140,560 |
Net realized investment gains | | | 2,756 | | | (2,438 | ) | | | 318 |
Other income | | | 20,141 | | | 559 | | | | 20,700 |
| | | | | | | | | | |
Total revenues | | $ | 1,078,728 | | $ | (202,013 | ) | | $ | 876,715 |
| | | | | | | | | | |
LOSSES AND EXPENSES | | | | | | | | | | |
Losses and loss adjustment expenses | | | 302,936 | | | (36,310 | ) | | | 266,626 |
Amortization of deferred policy acquisition costs | | | 68,358 | | | (14,926 | ) | | | 53,432 |
Other underwriting and operating expenses | | | 236,973 | | | (29,819 | ) | | | 207,154 |
Interest expense | | | 38,055 | | | (125 | ) | | | 37,930 |
| | | | | | | | | | |
Total losses and expenses | | $ | 646,322 | | $ | (81,180 | ) | | $ | 565,142 |
| | | | | | | | | | |
Income before equity in earnings from unconsolidated subsidiaries and income taxes | | | 432,406 | | | (120,833 | ) | | | 311,573 |
Equity in earnings from unconsolidated subsidiaries | | | 127,309 | | | — | | | | 127,309 |
| | | | | | | | | | |
Income before income taxes | | | 559,715 | | | (120,833 | ) | | | 438,882 |
Income tax expense | | | 140,064 | | | (36,294 | ) | | | 103,770 |
| | | | | | | | | | |
NET INCOME | | $ | 419,651 | | $ | (84,539 | ) | | $ | 335,112 |
| | | | | | | | | | |
PER SHARE DATA | | | | | | | | | | |
Basic net income | | $ | 4.85 | | $ | (0.98 | ) | | $ | 3.88 |
Diluted net income | | $ | 4.57 | | $ | (0.91 | ) | | $ | 3.66 |
Weighted average shares outstanding | | | | | | | | | | |
Basic | | | 86,478 | | | — | | | | 86,478 |
Diluted | | | 92,866 | | | — | | | | 92,866 |
THE PMI GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| | | | | | | | | | |
| | | Year Ended December 31, 2005 |
| | | As Reported | | Pro Forma
Adjustments (d) | | | Pro Forma |
| | | (In thousands, except per share data) |
REVENUES | | | | | | | | | | |
Premiums earned | | $ | 817,602 | | $ | (123,781 | ) | | $ | 693,821 |
Net investment income | | | 179,463 | | | (46,879 | ) | | | 132,584 |
Net realized investment gains | | | 2,050 | | | (186 | ) | | | 1,864 |
Other income | | | 20,783 | | | 30 | | | | 20,813 |
| | | | | | | | | | |
Total revenues | | $ | 1,019,898 | | $ | (170,816 | ) | | $ | 849,082 |
| | | | | | | | | | |
LOSSES AND EXPENSES | | | | | | | | | | |
Losses and loss adjustment expenses | | | 257,779 | | | (2,496 | ) | | | 255,283 |
Amortization of deferred policy acquisition costs | | | 74,387 | | | (12,848 | ) | | | 61,539 |
Other underwriting and operating expenses | | | 213,649 | | | (30,134 | ) | | | 183,515 |
Interest expense | | | 31,137 | | | (8 | ) | | | 31,129 |
| | | | | | | | | | |
Total losses and expenses | | $ | 576,952 | | $ | (45,486 | ) | | $ | 531,466 |
| | | | | | | | | | |
Income before equity in earnings from unconsolidated subsidiaries and income taxes | | | 442,946 | | | (125,330 | ) | | | 317,616 |
Equity in earnings from unconsolidated subsidiaries | | | 97,885 | | | — | | | | 97,885 |
| | | | | | | | | | |
Income before income taxes | | | 540,831 | | | (125,330 | ) | | | 415,501 |
Income tax expense | | | 131,662 | | | (36,854 | ) | | | 94,808 |
| | | | | | | | | | |
NET INCOME | | $ | 409,169 | | $ | (88,476 | ) | | $ | 320,693 |
| | | | | | | | | | |
PER SHARE DATA | | | | | | | | | | |
Basic net income | | $ | 4.46 | | $ | (0.96 | ) | | $ | 3.50 |
Diluted net income | | $ | 4.10 | | $ | (0.87 | ) | | $ | 3.16 |
Weighted average shares outstanding | | | | | | | | | | |
Basic | | | 91,738 | | | — | | | | 91,738 |
Diluted | | | 101,620 | | | — | | | | 101,620 |
THE PMI GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO PROFORMA ADJUSTMENTS
| (a) | The adjustments to record the net cash received in U.S. dollars upon the sale of PMI Australia, as follows: |
| | | | |
Gross proceeds | | $ | 920,492 | |
Contingent consideration | | | (184,098 | ) |
| | | | |
Cash purchase price | | | 736,394 | |
Adjustments to cash purchase price | | | | |
Interest between execution and sale closing | | | 8,832 | |
Portfolio value adjustment | | | 798 | |
Reinsurance premium | | | (46,486 | ) |
Investment bankers, legal, accounting and other transaction costs, including management incentives | | | (21,530 | ) |
| | | | |
Net cash received | | $ | 678,008 | |
| | | | |
| (b) | To remove the assets, liabilities and equity of PMI Australia included in the consolidated balance sheet if the sale of PMI Australia had occurred as of June 30, 2008. |
| (c) | Adjustment to record the estimated loss on the sale of PMI Australia if it had occurred as of June 30, 2008, as follows: |
| | | | |
Net cash received | | $ | 678,008 | |
Net assets sold | | | 947,267 | |
| | | | |
Loss on sale | | | (269,259 | ) |
Realized gain on foreign currency translation and other accumulated comprehensive income | | | 223,959 | |
Other expenses | | | (2,440 | ) |
| | | | |
Net loss on sale before taxes | | | (47,740 | ) |
Income taxes | | | (15,493 | ) |
| | | | |
Net loss on sale | | $ | (62,233 | ) |
| | | | |
| (d) | To remove revenue and expenses of PMI Australia for the years ended December 31, 2007, 2006 and 2005 and the six months ended June 30, 2008. |
