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Exhibit 99.4
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma condensed financial information should be
read in conjunction with the historical consolidated financial statements,
including the notes thereto, of Radian and Enhance Financial Services. The
unaudited pro forma information is presented for illustration purposes only, in
accordance with the assumptions set forth below, and is not necessarily
indicative of the operating results or financial position that would have
occurred if the merger had been completed. Nor is it necessarily indicative of
future operating results or the financial position of the combined enterprise.
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NEW RADIAN GROUP INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
QUARTER ENDED SEPTEMBER 30, 2000
HISTORICAL
ENHANCE
HISTORICAL FINANCIAL PRO FORMA PRO FORMA
RADIAN SERVICES ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
(DOLLARS IN THOUSANDS)
ASSETS
Investments......................... $1,665,145 $1,070,479 $2,735,624
Cash................................ 3,983 1,562 5,545
Investment in affiliates............ 0 139,938 139,938
Deferred policy acquisition costs... 67,103 126,270 (69,721)(1) 123,652
Prepaid and deferred federal income
taxes............................ 265,250 92,343 3,884(1) 361,477
Other assets........................ 115,293 123,040 238,333
---------- ---------- --------- ----------
TOTAL ASSETS................ $2,116,774 $1,553,632 $ (65,837) $3,604,569
========== ========== ========= ==========
LIABILITIES, DEFERRED CREDIT AND
STOCKHOLDERS' EQUITY
Liabilities
Unearned premiums................... $ 67,169 $ 355,342 $ 422,511
Reserve for losses.................. 374,474 66,087 440,561
Short-term debt..................... 0 174,382 174,382
Long-term debt...................... 0 75,000 75,000
Deferred federal income taxes....... 277,578 0 24,906(1) 302,484
Other liabilities................... 88,290 59,756 31,550(1)(2) 179,596
---------- ---------- --------- ----------
TOTAL LIABILITIES........... 807,511 730,567 56,456 1,594,534
---------- ---------- --------- ----------
Deferred Credit
Deferred credit..................... 0 122,250 0 122,250
---------- ---------- --------- ----------
Preferred Stockholder's Equity
Redeemable preferred stock.......... 40,000 0 40,000
---------- ---------- --------- ----------
Common Stockholder's Equity
Common stock........................ 38 4,016 (4,008)(1) 46
Additional paid-in capital.......... 541,600 254,763 323,751(1)(2) 1,120,114
Retained earnings................... 727,379 480,688 (480,688)(1) 727,379
Net unrealized gains (losses) on
investments, net of tax.......... 2,405 (6,066) 6,066(1) 2,405
Treasury stock...................... (2,159) (32,586) 32,586(1) (2,159)
---------- ---------- --------- ----------
TOTAL COMMON STOCKHOLDERS'
EQUITY.................... 1,269,263 700,815 (122,293) 1,847,785
---------- ---------- --------- ----------
TOTAL LIABILITIES, DEFERRED
CREDIT AND STOCKHOLDERS'
EQUITY.................... $2,116,774 $1,553,632 $ (65,837) $3,604,569
========== ========== ========= ==========
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NEW RADIAN GROUP INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2000
HISTORICAL
ENHANCE
HISTORICAL FINANCIAL PRO FORMA PRO FORMA
RADIAN SERVICES ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
REVENUES
Premiums earned........................ $387,072 $81,349 $468,421
Net investment income.................. 60,310 47,277 107,587
Equity in net income of affiliates..... 0 21,128 21,128
Other net income....................... 8,052 10,511 18,563
-------- ------- ------- --------
Total revenues................. 455,434 160,265 0 615,699
-------- ------- ------- --------
EXPENSES
Provision for losses................... 115,038 22,699 137,737
Policy acquisition costs............... 38,822 31,127 (9,396)(3) 60,553
Other operating expenses............... 40,314 95,173 (24,196)(5) 111,291
Interest expense....................... 0 12,302 12,302
Merger expenses........................ 0 0 0
-------- ------- ------- --------
Total expenses................. 194,174 161,301 (33,592) 321,883
-------- ------- ------- --------
Pretax income (loss)................... 261,260 (1,036) 33,592 293,816
Provision for income taxes (benefit)... 76,733 (10,880) 22,257(3)(4)(5) 88,110
-------- ------- ------- --------
Net income..................... 184,527 9,844 11,335 205,706
======== ======= ======= ========
Net income per common share -- basic... 4.84 0.26 4.42
======== ======= ========
Net income per common
share -- diluted.................... 4.78 0.25 4.36
======== ======= ========
Average number of common shares
outstanding -- basic................ 37,586 38,163 (29,767)(1) 45,982
======== ======= ======= ========
Average number of common and common
equivalent shares
outstanding -- diluted.............. 38,065 38,659 (30,154)(1) 46,570
======== ======= ======= ========
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NEW RADIAN GROUP INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1999
HISTORICAL
ENHANCE
HISTORICAL FINANCIAL PRO FORMA PRO FORMA
RADIAN SERVICES ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
REVENUES
Premiums earned.......................... $472,635 $103,851 $576,486
Net investment income.................... 67,259 58,053 125,312
Equity in net income of affiliates....... 0 19,708 19,708
Other net income......................... 12,917 36,077 48,994
-------- -------- ------- --------
Total revenues................... 552,811 217,689 0 770,500
-------- -------- ------- --------
EXPENSES
Provision for losses..................... 174,143 26,156 200,299
Policy acquisition costs................. 58,777 39,959 (18,493)(3) 80,243
Other operating expenses................. 62,659 71,141 (946)(5) 132,854
Interest expense......................... 0 10,989 10,989
Merger expenses.......................... 37,766 0 37,766
-------- -------- ------- --------
Total expenses................... 333,345 148,245 (19,439) 462,151
-------- -------- ------- --------
Pretax income............................ 219,466 69,444 19,439 308,349
Provision for income taxes............... 71,328 820 21,210(3)(4)(5) 93,358
-------- -------- ------- --------
Net income....................... 148,138 68,624 (1,771) 214,991
======== ======== ======= ========
Net income per common share -- basic....... 3.92 1.81 4.67
======== ======== ========
Net income per common share -- diluted..... 3.83 1.76 4.56
======== ======== ========
Average number of common shares
outstanding -- basic..................... 36,975 38,000 (29,640)(1) 45,335
======== ======== ======= ========
Average number of common and common
equivalent shares
outstanding -- diluted................... 37,856 39,024 (30,439)(1) 46,441
======== ======== ======= ========
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NEW RADIAN GROUP INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The unaudited pro forma condensed combined balance sheet has been prepared
assuming the acquisition took place as of September 30, 2000 and allocates the
total estimated purchase price to the fair value of assets and liabilities of
the acquired company based on preliminary valuations.
The unaudited pro forma condensed combined statements of income combine
Radian's and Enhance Financial Services' historical statements of income and
give effect to the acquisition as if it occurred on January 1, 1999, the
beginning of the earliest period presented.
The total estimated purchase price of Enhance Financial Services has been
allocated on a preliminary basis to assets and liabilities based on management's
estimates of their fair values with the excess of net assets acquired over costs
allocated to the present value of future insurance profits. These allocations
are subject to change pending a final determination and analysis of the total
purchase price and the fair values of the assets acquired and liabilities
assumed. The impact of these changes could be material.
(1) Adjustment to reflect the issuance of Radian common stock and related direct
acquisition expenses as the total purchase price for the net assets of
Enhance Financial Services, based on the assumed conversion of each of the
Enhance Financial Services common shares into 0.22 of a Radian common share,
the elimination of Enhance Financial Services stockholders' equity and the
write-down of Enhance Financial Services' deferred policy acquisition asset,
offset by the recognition of the present value of future insurance profits.
The present value of future insurance profits of Enhance Financial Services
is a preliminary estimate based on current facts and circumstances.
IN THOUSANDS
------------
Current income tax benefit............................. $ 3,884
Enhance Financial Services common stock................ 4,016
Enhance Financial Services additional paid in
capital.............................................. 254,763
Enhance Financial Services retained earnings........... 480,688
Enhance Financial Services deferred policy
acquisition asset................................. $ 69,721
Deferred income tax liability........................ 24,906
Enhance Financial Services net unrealized loss on
investments, net of tax benefit................... 6,066
Enhance Financial Services treasury stock............ 32,586
Radian common stock.................................. 8
Radian additional paid in capital.................... 578,668
Accrued acquisition costs............................ 31,396
-------- --------
Totals................................................. $743,351 $743,351
======== ========
The following chart indicates the components of the estimated purchase
price of the acquisition inherent in the adjusting entry:
IN THOUSANDS
------------
Radian common stock......................................... $553,197
Issuance of Radian options.................................. 25,479
Estimated direct acquisition costs, net of tax.............. 27,512
--------
Total estimated purchase price.................... $606,188
========
The estimated purchase price will be issued in exchange for the net assets
of Enhance Financial Services on the closing date of the merger.
The purchase price of Enhance Financial Services reflects the issuance of
8,405,591 shares of Radian common stock at $65.813 per share which is the
average closing price of Radian common stock for the
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three trading days preceding and the three days following the announcement
of the acquisition. Under the terms of the merger agreement, Radian has
also issued 1,332,120 Radian options to replace Enhance Financial Services
options, 938,126 of which are already vested. The value of the assumed
Radian option grant is based on a Black-Scholes valuation model assuming an
average life of 2.3 years, a risk-free interest rate of 6.75%, volatility
of 39.3% and a dividend yield of 0.18%.
The following table provides the preliminary allocation of the purchase
price inherent in the adjusting entry:
IN THOUSANDS
------------
Net assets of Enhance Financial Services:
Cash and investments...................................... $1,072,041
Investment in affiliates.................................. 139,938
Deferred policy acquisition asset......................... 56,549
Other assets, net......................................... 130,721
Unearned premiums......................................... (355,342)
Reserve for losses........................................ (66,087)
External debt financing................................... (249,382)
Deferred credit........................................... (122,250)
----------
Total purchase price........................................ $ 606,188
==========
(2) Adjustment to accrue the cost of registering Radian shares to be issued for
Enhance Financial Services of $154,000.
IN THOUSANDS
------------
Additional paid in capital.................................. $154
Accrued liabilities....................................... $154
(3) Adjustment to reflect the change in amortization expense and the related
income tax expense associated with the write-down of Enhance Financial
Services' deferred policy acquisition asset, offset by an increase in
amortization expense and the related income tax benefit associated with the
estimated present value of future insurance profits recognized at January 1,
1999.
For the year ended December 31, 1999:
Decrease in deferred policy acquisition amortization...... $(18,493)
Increase in federal income tax expense.................... 6,473
For the nine months ended September 30, 2000:
Decrease in deferred policy acquisition amortization...... $ (9,396)
Increase in federal income tax expense.................... 3,288
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(4) Adjustment to reflect the reversal of an income tax benefit relating to
income tax reductions produced by an investment in a portfolio of
approximately 500 residential mortgage backed securities consisting of
residual interests in real estate mortgage investment conduits ("REMIC")
owned by Enhance Financial Services. These deductions were treated by
Enhance Financial Services as permanent tax differences due to a partnership
exit strategy that will not be executed by Radian. Therefore, the tax
deductions from the REMIC residuals will be treated as a timing difference
which eliminates the income tax benefit for GAAP purposes.
For or at the year ended December 31, 1999:
Increase in deferred federal income taxes payable......... $14,406
Increase in federal income tax expense.................... 14,406
For or at the nine months ended September 30, 2000:
Increase in deferred federal income taxes payable......... $10,500
Increase in federal income tax expense.................... 10,500
(5) Reflects the adjustments and related income tax expense required to
eliminate the amortization of goodwill that was created as a result of prior
acquisitions of Enhance Financial Services.
For the year ended December 31, 1999:
Decrease in goodwill amortization......................... $ (946)
Increase in federal income tax expense.................... 331
For the nine months ended September 30, 2000:
Decrease in goodwill amortization......................... $(24,196)
Increase in federal income tax expense.................... 8,469