Radian Group Inc.

Schedule II—Financial Information of Registrant

Balance Sheets

Parent Company Only



	December 31,
(In thousands, except share and per-share amounts)	2014			2013
Assets
Investments
Trading securities—at fair value	$	5,447		$	5,240
Short-term investments—at fair value	631,934			633,178
Cash	1,951			4,304
Restricted cash	124			123
Investment in subsidiaries, at equity in net assets	2,746,915			1,419,360
Debt issuance costs	17,627			15,741
Due from affiliates, net	13,110			12,283
Accounts and notes receivable	305,856			8,105
Property and equipment, at cost (less accumulated depreciation of $50,648 and $49,632)	1,624			1,281
Other assets	16,660			12,880
Assets held for sale	18,027			—
Total assets	$	3,759,275		$	2,112,495
Liabilities and Stockholders’ Equity
Accrued interest payable	$	6,796		$	5,551
Accrued compensation expense	86,258			132,848
Long-term debt	1,209,926			930,072
Federal income taxes—current and deferred	262,583			98,476
Other liabilities	3,935			5,903
Liabilities held for sale	18,027			—
Total liabilities	1,587,525			1,172,850

Equity component of currently redeemable convertible senior notes	74,690			—
Common stockholders’ equity
Common stock: par value $.001 per share; 485,000,000 shares authorized at December 31, 2014 and 2013; 208,601,020 and 190,636,972 shares issued at December 31, 2014 and 2013, respectively; 191,053,530 and 173,099,515 shares outstanding at December 31, 2014 and 2013, respectively	209			191
Treasury stock, at cost: 17,547,490 and 17,537,457 shares at December 31, 2014 and 2013, respectively	(892,961		)	(892,807		)
Additional paid-in capital	2,531,513			2,347,104
Retained earnings (deficit)	406,814			(552,226		)
Accumulated other comprehensive income	51,485			37,383
Total common stockholders’ equity	2,097,060			939,645
Total liabilities and stockholders’ equity	$	3,759,275		$	2,112,495

See Supplemental Notes.

Radian Group Inc.

Schedule II—Financial Information of Registrant

Statements of Operations

Parent Company Only



	Year Ended December 31,
(In thousands)	2014			2013			2012
Revenues:
Net investment income	$	9,515		$	4,300		$	9,093
Net gains (losses) on investments	133			(930		)	8,816
Net (losses) gains on other financial instruments	(2,865		)	(6,026		)	9,180
Other income	7			—			3
Total revenues	6,790			(2,656		)	27,092
Expenses:
Other operating expenses	—			—			2,690
Interest expense	57,366			37,087			17,756
Total expenses	57,366			37,087			20,446
(Loss) income from continuing operations before income taxes	(50,576		)	(39,743		)	6,646
Provision (benefit) for income taxes	143,912			9,234			(40,187		)
Equity in net income (loss) of affiliates	1,172,032			(148,008		)	(498,301		)
Net income (loss) from continuing operations	977,544			(196,985		)	(451,468		)
Loss from discontinued operations, net of taxes	(18,027		)	—			—
Net income (loss)	$	959,517		$	(196,985	)	$	(451,468	)

See Supplemental Notes.

Radian Group Inc.

Schedule II—Financial Information of Registrant

Statements of Cash Flows

Parent Company Only



	Year Ended December 31,
(In thousands)	2014			2013			2012
Cash flows from operating activities:
Net income (loss)	$	959,517		$	(196,985	)	$	(451,468	)
Loss from discontinued operations, net of tax	18,027			—			—
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Net (gains) losses on investments and other financial instruments	(53		)	3,004			(1,821		)
Losses (gains) on the repurchase of long-term debt	2,785			3,952			(16,175		)
Equity in undistributed net (income) loss of subsidiaries and affiliates	(1,172,005		)	150,090			505,267
(Decrease) increase in federal income taxes	(6,626		)	6,583			(7,145		)
Deferred income tax provision	170,757			—			—
Depreciation and other amortization, net	34,213			30,286			18,603
Change in other assets	13,768			23,301			(17,708		)
Change in other liabilities	(47,536		)	85,450			25,336
Net cash (used in) provided by operating activities, continuing operations	(27,153		)	105,681			54,889
Net cash used in operating activities, discontinued operations	(18,027		)	—			—
Net cash (used in) provided by operating activities	(45,180		)	105,681			54,889
Cash flows from investing activities:
Sales/redemptions of trading securities	—			9,000			153,992
Purchases of trading securities	—			—			(3		)
Sales (purchases) of short-term investments, net	1,372			(496,979		)	41,042
Sales of other assets, net	—			21,473			8,709
Purchases of property and equipment, net	(1,351		)	(647		)	(1,124		)
Capital contributions to subsidiaries and affiliates	(139,103		)	(233,391		)	(100,384		)
Issuance of note receivable from affiliate	(300,000		)	—			—
Net cash (used in) provided by investing activities	(439,082		)	(700,544		)	102,232
Cash flows from financing activities:
Dividends paid	(1,865		)	(1,632		)	(1,335		)
Proceeds/payments related to issuance or exchange of debt, net	293,809			377,783			—
Redemption of long-term debt	(57,223		)	(79,372		)	(153,261		)
Issuance of common stock	247,188			299,410			—
Net cash provided by (used in) financing activities	481,909			596,189			(154,596		)
(Decrease) increase in cash	(2,353		)	1,326			2,525
Cash, beginning of year	4,304			2,978			453
Cash, end of year	$	1,951		$	4,304		$	2,978

See Supplemental Notes.

Radian Group Inc.

Schedule II—Financial Information of Registrant

Parent Company Only

Supplemental Notes

Note A

The Radian Group Inc. (the “Parent Company”, “we” or “our”) financial statements represent the stand-alone financial statements of the Parent Company. These financial statements have been prepared on the same basis and using the same accounting policies as described in the consolidated financial statements included herein, except that the Parent Company uses the equity-method of accounting for its majority-owned subsidiaries. Refer to the Parent Company’s consolidated financial statements for additional information.

On December 22, 2014, Radian Guaranty entered into the Radian Asset Assurance Stock Purchase Agreement to sell 100% of the issued and outstanding shares of Radian Asset Assurance, our financial guaranty insurance subsidiary, and as a result we have reclassified the operating results related to the pending disposition as discontinued operations for all periods presented in our consolidated statements of operations and no longer present a financial guaranty segment. See Note 3 of Notes to Consolidated Financial Statements for additional information related to discontinued operations.

Under our current tax-sharing agreement between the Parent Company and its subsidiaries, we are required to refund to each subsidiary any amount that the subsidiary could utilize through existing carryback provisions of the Internal Revenue Code had such subsidiary filed its federal tax return on a separate company basis. Pursuant to this, we have paid Radian Asset Assurance for losses and foreign tax credits it has generated and Radian Asset Assurance has recorded the DTA for the related consolidated carryforward on its balance sheet. However, the Internal Revenue Code consolidation provisions do not allocate consolidated carryovers based on tax-sharing agreements, but based on an allocation to all subsidiaries that generated the carryforward. Upon a stock sale of a subsidiary, any consolidated attributes allocated to a subsidiary under these regulations transfer to the subsidiary and are no longer part of the consolidated carryforward. As such, the Parent Company has classified the DTAs pertaining to Radian Asset Assurance’s foreign tax credit and allocated NOL as assets held for sale and recorded a related loss from discontinued operations.

Note B

Included in short-term investments at December 31, 2014 and 2013 is $45.1 million and $41.6 million, respectively, of restricted funds required to support potential tax payments to Radian Asset Assurance under the terms of our current tax-sharing agreement. We also had $0.1 million at both December 31, 2014 and 2013, of restricted cash held as collateral for our insurance trust agreement for our health insurance policy.

Note C

The Parent Company provides certain services to its subsidiaries. The Parent Company allocates to its subsidiaries corporate expense it incurs in the capacity of supporting those subsidiaries, based on either an allocated percentage of time spent or internally allocated capital. Substantially all operating expenses and interest expense, except for discount amortization on our long-term debt, as well as coupon interest attributable to the Convertible Senior Notes due 2019, have been allocated to the subsidiaries for 2014, 2013 and 2012. Total operating expenses and interest expense allocated to subsidiaries for 2014, 2013 and 2012 were $92.5 million, $140.0 million and $93.2 million, respectively, and are presented net of reimbursements in the Statements of Operations. Amounts charged to the subsidiaries for operating expenses are based on actual cost, without any mark-up, except for the amounts charged to subsidiaries outside the U.S. for which a reasonable mark-up is charged. The Parent Company considers these charges fair and reasonable. The subsidiaries reimburse the Parent Company for these costs in a timely manner, which has the impact of temporarily improving the cash flows of the Parent Company, if accrued expenses are reimbursed prior to actual payment.

Note D

During 2014, the Parent Company made total capital contributions of $139.1 million to its subsidiaries. This amount included contributions of $100 million to Radian Guaranty, $20 million to Radian MI Services Inc., $19 million to Radian Clayton Holdings Inc. and $0.1 million to Radian Mortgage Reinsurance Company. An additional $100 million capital contribution was made by the Parent Company to Radian Guaranty in February 2015. The Parent Company also received tax payments of $8.8 million from its subsidiaries in 2014 under our tax-sharing agreement.

During 2013, the Parent Company received dividends from its subsidiaries of $7.6 million. The Parent Company did not receive any dividends from its subsidiaries in 2014 or 2012.

During 2013, the Parent Company made total capital contributions of $313.9 million to its subsidiaries. This amount included cash contributions totaling $230 million to Radian Guaranty, a contribution of investments and accrued interest of $80.5 million to RDN Investments, Inc., a cash contribution of $2.9 million to Radian MI Services Inc. and a cash contribution of $0.1 million to Radian Mortgage Reinsurance Company. The amount of total capital contributions also includes a cash reimbursement to Radian Guaranty of $0.4 million in interest expense payments made to the Parent Company by RMAI pursuant to the interest expense-sharing arrangement. The Parent Company also received tax payments of $0.5 million from its subsidiaries in 2013 under our tax-sharing agreement.

During 2012, the Parent Company made total capital contributions of $100.4 million to its subsidiaries. This included a cash contribution of $100 million to Radian Guaranty and a $0.1 million cash contribution to Radian Mortgage Reinsurance Company. The amount of total capital contributions also includes the cash reimbursement to Radian Guaranty of $0.3 million in interest expense payments made to the Parent Company by RMAI pursuant to the interest expense sharing arrangement. The Parent Company also received tax payments of $36.8 million from its subsidiaries in 2012 under our tax-sharing agreement.

Note E

In June 2005, the Parent Company issued $250 million of the Senior Notes due 2015. During 2013, the Parent Company exchanged $195.5 million of the Senior Notes due 2015 for a new series of Senior Notes due June 2017 for the purpose of improving its debt maturity profile. These transactions, which are accounted for as extinguishments of debt, resulted in a loss of $4.0 million in 2013, primarily as a result of the requirement to record the Senior Notes due 2017 at fair value. During 2014, in accordance with the optional redemption provisions of the notes, the Parent Company redeemed all of the remaining outstanding principal amount of the Senior Notes due 2015 at a price established in accordance with the indenture governing these senior notes. The Parent Company paid $57.2 million to holders of the notes at redemption and recorded a loss of $2.8 million in 2014.

In May 2014, in anticipation of the Clayton acquisition, the Parent Company issued $300 million principal amount of the Senior Notes due 2019 and received net proceeds of approximately $293.8 million. The notes bear interest at a rate of 5.500% per annum, payable semi-annually on June 1 and December 1 of each year, commencing on December 1, 2014. These notes mature on June 1, 2019. The Parent Company has the option to redeem these notes, in whole or in part, at any time or from time to time prior to maturity at a redemption price equal to the greater of: (i) 100% of the aggregate principal amount of the notes to be redeemed; and (ii) the make-whole amount, which is the present value of the notes discounted at the applicable treasury rate plus 50 basis points, plus, in each case, accrued interest thereon to the redemption date.

In May 2014, the Parent Company sold 17.825 million shares of common stock at a public offering price of $14.50 per share and received aggregate net proceeds of approximately $247.2 million.

In March 2013, the Parent Company issued $400 million principal amount of the Convertible Senior Notes due 2019 and received proceeds of approximately $389.8 million, net of underwriting expenses. The effective interest rate for the liability component of this debt is 6.25%.

In March 2013, the Parent Company sold 39.1 million shares of common stock at a public offering price of $8.00 per share and received net proceeds of approximately $299.4 million.

At December 31, 2014, the maturities of the principal amount of our long-term debt in future years are as follows:



(In thousands)
2017	$	645,501
2019	700,000
	$	1,345,501

Note F

Net investment income increased in 2014 compared to 2013 primarily due to $8.9 million of interest earned on the note receivable from Radian Clayton Holdings Inc. (See Note G for additional information), offset by lower market yields for our investments during 2014. Net investment income decreased in 2013 compared to 2012, primarily due to the continuation of the lower interest rate environment, which resulted in lower market yields for our investments, as well as a reduction in total investment balances.

The net losses on other financial instruments for 2014 primarily reflects losses from the redemption of the Senior Notes due 2015. The net losses on other financial instruments for 2013 primarily reflects losses on the exchange of the Senior Notes due 2017. The net gains on other financial instruments for 2012 primarily reflects gains on the repurchase of the Senior Notes due 2013.

Interest expense reflects the discount amortization on our long-term debt, as well as coupon interest attributable to the Convertible Senior Notes due 2019 and the Senior Notes due 2019, which are not allocated to our subsidiaries. The issuance of the Senior Notes due 2019 and a full year of interest expense and discount amortization attributable to the Convertible Senior Notes due 2019 were the primary reasons for the increase in interest expense in 2014. The debt exchange and the issuance of the Convertible Senior Notes due 2019 were the primary reasons for the increase in interest expense in 2013.

Note G

Accounts and notes receivable includes a $300 million note receivable from Radian Clayton Holdings Inc. This represents the principal amount related to the Senior Notes due 2019, which funded the acquisition of Clayton. Interest on the note is payable semi-annually on June 1 and December 1, beginning December 1, 2014. The interest payment represents coupon interest plus issuance costs (amortized on a straight line basis over the term of the note). The principal is due on June 1, 2019.