SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K/A
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the fiscal year ended December 31, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from ___________ to ___________
Commission file number 0-22342
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TRIAD GUARANTY INC.
(Exact name of registrant as specified in its charter)
DELAWARE 56-1838519
(State or other jurisdiction of (I.R.S. Employer Identification No.
incorporation or organization))
101 SOUTH STRATFORD ROAD, SUITE 500
WINSTON-SALEM, NORTH CAROLINA 27104
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (336) 723-1282
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Securities registered pursuant to Section 12(b) of
the Act:
None
Securities registered pursuant to Section 12(g)of the Act:
Title of each class
Common Stock, par value $.01 per share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of February 17, 1998, computed by reference to the last reported
price at which the stock was sold on such date, was $287,675,048.
The number of shares of the registrant's common stock, par value $.01 per share,
outstanding as of February 17, 1998 was 13,302,721.
Portions of the following documents are Part of this Form 10-K into which
incorporated by reference into this the document isincorporated by
Form 10-K: reference:
Triad Guaranty Inc.
Proxy Statement for 1998 Annual Meeting Part III
of Stockholders
<PAGE>
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORM 8-K.
-----------------------------------
(a) The following documents are filed as a part of this Report:
2. FINANCIAL STATEMENT SCHEDULES
(a) Triad Guaranty Inc. 401(k) Profit Sharing Plan Financial
Statements
The Financial Statement of Triad Guaranty Inc. 401(k)Profit
Sharing Plan, together with the report thereon of Ernst & Young
LLP, consisting of:
Report of Independent Auditors
Statements of Net Assets Available for Benefits (Modified Cash
Basis)
Statements of Changes in Net Asset Available for Benefits
(Modified Cash Basis)
Notes to Financial Statements
Schedule of Assets Held for Investment Purposes
Schedule of Reportable Transactions
3. EXHIBITS
23.2 Consent of Ernst & Young LLP
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this amendment to be signed
on its behalf by the undersigned, thereto duly authorized on the 25th day of
June 1998.
TRIAD GUARANTY INC.
By:/s/Michael R. Oswalt
-----------------------
Michael R. Oswalt
Vice President and Controller
Principal Accounting Officer
<PAGE>
FINANCIAL STATEMENTS AND
SUPPLEMENTAL SCHEDULES
TRIAD GUARANTY INC.
401(K) PROFIT-SHARING PLAN
YEARS ENDED DECEMBER 31, 1997 AND 1996
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE>
Triad Guaranty Inc.
401(k) Profit-Sharing Plan
Financial Statements
and Supplemental Schedules
Years ended December 31, 1997 and 1996
CONTENTS
Report of Independent Auditors.................................................1
Financial Statements
Statements of Net Assets Available for Benefits (Modified Cash Basis)..........2
Statements of Changes in Net Assets Available for Benefits
(Modified Cash Basis)......................................................3
Notes to Financial Statements .................................................4
Supplemental Schedules
Schedule of Assets Held for Investment Purposes (Form 5500 - Line 27a)........12
Schedule of Reportable Transactions (Form 5500 - Line 27d)....................13
Note: Supplemental Schedules, other than those listed above, are omitted
because of the absence of the conditions under which they are required
by Department of Labor's Rules and Regulations for Reporting and
Disclosure under the Employee Retirement Income Security Act of 1974 or
because the required information is included in the financial statements
or notes thereto.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Plan Administrator of the Triad Guaranty Inc.
401(k) Profit-Sharing Plan
We have audited the accompanying statements of net assets available for benefits
(modified cash basis) of the Triad Guaranty Inc. 401(k) Profit-Sharing Plan (the
Plan) as of December 31, 1997 and 1996, and the related statements of changes in
net assets available for benefits (modified cash basis) for the years then
ended. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 2, these financial statements and supplemental schedules
were prepared on a modified cash basis of accounting, which is a comprehensive
basis of accounting other than 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, 1997 and 1996, and the changes
there in (modified cash basis) for the years then ended, on the basis of
accounting described in Note 2.
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 for investment purposes as of December 31, 1997 and
reportable transactions for the year then ended, are presented for purposes of
complying with the Department of Labor's Rules and Regulations for Reporting and
Disclosure under the Employee Retirement Income Security Act of 1974, and are
not a required part of the financial statements. The supplemental schedules
(modified cash basis) 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.
ERNST & YOUNG LLP
May 20, 1998
1
<PAGE>
Triad Guaranty Inc.
401(k) Profit-Sharing Plan
Statements of Net Assets Available for Benefits
(Modified Cash Basis)
December 31
1997 1996
----------------------------------
Assets
Investments:
At fair value - (Notes 2 and 3):
Mutual funds $ 446,087 $ 217,599
Common stock 3,436,993 1,327,273
Loans to participants 8,948 10,414
----------------------------------
Total investments 3,892,028 1,555,286
Cash and cash equivalents 8,939 1,428
----------------------------------
Net assets available for benefits $3,900,967 $1,556,714
==================================
See notes to financial statements.
2
<PAGE>
Triad Guaranty Inc.
401(k) Profit-Sharing Plan
Statements of Changes in Net Assets Available for Benefits
(Modified Cash Basis)
Year ended December 31
1997 1996
------------------------------
Additions to net assets attributed to:
Investment income:
Net realized and unrealized appreciation in
fair value of investments (Note 3) $1,639,820 $ 397,335
Interest and dividends 49,813 15,288
------------------------------
1,689,633 412,623
Contributions:
Participants' 552,512 399,529
Employer's 119,007 125,430
------------------------------
671,519 524,959
------------------------------
Total additions 2,361,152 937,582
Deductions from net assets attributed to:
Benefits paid to participants 16,899 38,828
------------------------------
Net increase 2,344,253 898,754
Net assets available for benefits:
Beginning of year 1,556,714 657,960
------------------------------
End of year $3,900,967 $1,556,714
==============================
See notes to financial statements.
3
<PAGE>
TRIAD GUARANTY INC.
401(K) PROFIT-SHARING PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. DESCRIPTION OF PLAN
The following description of the Triad Guaranty Inc. 401(k) Profit-Sharing Plan
(the Plan), formerly the Triad Guaranty Insurance Corporation 401(k)
Profit-Sharing Plan, provides only general information. Participants should
refer to the Plan agreement for a more complete description of the Plan's
provisions.
GENERAL
The Plan is a salary deferral 401(k) defined contribution plan covering all
employees of Triad Guaranty Inc. (the "Company" or the "Plan Sponsor") who have
at least one year of service. The Plan is subject to the provisions of the
Employee Retirement Income Security Act of 1974 (ERISA). The Plan became
effective November 1, 1993.
FORFEITURES
Forfeitures of matching contributions of $2,545 and $4,887 for 1997 and 1996
will be used to reduce future employer contributions.
CONTRIBUTIONS
Each year, participants may contribute up to 15% of their annual compensation,
as defined in the Plan. However, these elective deferral contributions may not
exceed the dollar limitation contained in Section 402(g). Participants may also
contribute amounts representing distributions from other qualified defined
benefit or defined contribution plans. In accordance with the Plan provisions,
the Company may match the participant's elective deferral contribution. The
discretionary percentage matched is determined by the Plan sponsor. Additional
amounts may be contributed at the option of the Plan sponsor.
4
<PAGE>
TRIAD GUARANTY INC.
401(K) PROFIT-SHARING PLAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF PLAN (CONTINUED)
PARTICIPANT ACCOUNTS
Each participant's account is credited with the participant's contributions
(elective deferral contribution) and allocations of (a) the Company's
contributions and (b) the Plan's earnings. Allocations are based on
participants' compensation and account balances. Forfeited balances of
terminated participants' nonvested accounts are allocated to the active
participants' account balances as described above. The benefit to which a
participant is entitled is the benefit that can be provided from the
participant's account.
VESTING
Participants are immediately vested in their contributions plus actual earnings
thereon. Vesting in the Company contribution portion of their accounts plus
actual earnings thereon is based on years of continuous service. Participants
are 20% vested after 1 year, 40% vested after 2 years, 60% vested after 3 years,
80% vested after 4 years and 100% vested after 5 years of service.
INVESTMENT OPTIONS
Upon enrollment in the Plan, a participant may direct employer and employee
contributions in any of the following investment options:
Oppenheimer Income & Growth Fund - Funds are invested in
growth-oriented common stocks, plus income-producing securities
including common and preferred stocks, convertible bonds, debentures
and notes.
Oppenheimer Limited-Term Government Fund - Funds are invested in
obligations issued or guaranteed by the U.S. government, its agencies,
or its instrumentalities.
Oppenheimer Global Fund - Funds are invested in international stocks.
Fidelity Income & Growth Fund - Funds are invested in dividend-paying
common stock with growth potential.
Fidelity Bond Fund - Funds are invested in high quality corporate
obligations, U.S. government securities, obligations of major U.S.
banks, prime commercial pater or similar investments.
5
<PAGE>
TRIAD GUARANTY INC.
401(K) PROFIT-SHARING PLAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF PLAN (CONTINUED)
Triad Guaranty Inc. Stock Fund - Funds are invested in common stock of
Triad Guaranty Inc. Purchases and sales of Triad Guaranty Inc. stock
are made on the open market by brokers selected by the agent retained
by the Trustee.
Participants may change their investment options quarterly.
PAYMENT OF BENEFITS
On termination of service, a participant may receive a lump-sum payment equal to
the vested value of his or her account. Upon death, disability or retirement, a
participant may receive either a lump-sum payment equal to the vested value of
his or her account, or choose from several annuity options.
2. SUMMARY OF ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The financial statements of the Plan are prepared under the modified cash method
of accounting. Contributions are recorded when received and benefits are
recorded when paid.
INVESTMENT VALUATION
The Plan's investments are stated at fair value. The shares of the registered
investment companies are valued at quoted market prices which represent the net
asset values of shares held by the Plan at year-end.
USE OF ESTIMATES
The preparation of financial statements requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
6
<PAGE>
TRIAD GUARANTY INC.
401(K) PROFIT-SHARING PLAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS
The Plan's investments are held by a bank administered trust fund. Investments
that represent 5 percent or more of the Plan's net assets as of December 31 are
as follows:
1997 1996
-------------------------------
Investments at fair value as determined
by quoted market price:
Oppenheimer Income & Growth Fund $ - $ 111,321
Triad Guaranty Inc. Stock Fund 3,436,993 1,327,273
For the years ended December 31, 1997 and 1996, the Plan's investments
(including investments bought, sold, as well as held during the period)
appreciated in value by $1,639,820 and $397,335, respectively, as follows:
Net realized
and unrealized
appreciation
(depreciation) in Fair Value
Fair Value During at End
Year of Year
----------------------------------
YEAR ENDED DECEMBER 31, 1997
Investments at fair value as determined
by quoted market price:
Oppenheimer Income & Growth Fund $ 19,232 $ 185,258
Oppenheimer Global Fund (1,806) 120,822
Fidelity Income & Growth Fund 13,538 110,797
Fidelity Bond Fund 352 29,210
Triad Guaranty Inc. Stock Fund 1,608,504 3,436,993
----------------------------------
$1,639,820 $3,883,080
==================================
7
<PAGE>
TRIAD GUARANTY INC.
401(K) PROFIT-SHARING PLAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
Net realized
and unrealized
appreciation
(depreciation) in Fair Value
Fair Value During at End
Year of Year
----------------------------------
Year ended December 31, 1996
Investments at fair value as determined
by quoted market price:
Oppenheimer Income & Growth Fund $ 6,842 $ 111,321
Oppenheimer Limited-Term Government Fund (887) 197
Oppenheimer Global Fund 4,386 61,094
Oppenheimer Short Term Investments - 6,713
Fidelity Income & Growth Fund 1,334 25,810
Fidelity Bond Fund 8 5,734
Fidelity Short-Term Investments - 6,730
Triad Guaranty Inc. Stock Fund 385,652 1,327,273
----------------------------------
$397,335 $1,544,872
==================================
8
<PAGE>
Triad Guaranty Inc.
401(k) Profit-Sharing Plan
Notes to Financial Statements (continued)
13
TRIAD GUARANTY INC.
401(K) TO PROFIT-SHARING PLAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. CHANGES IN NET ASSETS BY FUND
The following table illustrates the Plan's activity between participant directed
funds for the years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
Oppenheimer
Oppenheimer Limited Fidelity
Income & Term Oppenheimer Income & Fidelity Loans Triad
Growth Government Global Growth Bond to Guaranty Inc.
Fund Fund Fund Fund Fund Participants Stock Fund Total
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net assets available for
benefits at December 31, 1995 $ 90,165 $ 31,961 $ 45,355 $ - $ - $ - $ 490,479 $ 657,960
Net realized and unrealized
appreciation (depreciation)
in fair value of investments 6,842 (887) 4,386 1,334 8 - 385,652 397,335
Interest and dividends 8,564 1,517 2,861 864 197 1,000 285 15,288
Contributions:
Employer 15,274 3,122 5,643 2,357 472 - 98,562 125,430
Participants 36,448 7,725 14,654 10,442 3,074 - 327,186 399,529
Benefit payments (10,686) (2,303) (4,263) (2,209) (1,875) - (17,492) (38,828)
Net transfers between funds (30,811) (40,938) (5,294) 19,289 4,350 9,414 43,990 -
----------------------------------------------------------------------------------------------------
Net assets available for
benefits at December 31, 1996 115,796 197 63,342 32,077 6,226 10,414 1,328,662 1,556,714
Net realized and unrealized
appreciation (depreciation)
in fair value of investments 19,232 - (1,806) 13,538 352 - 1,608,504 1,639,820
Interest and dividends 15,071 - 25,675 5,377 1,428 916 1,346 49,813
Contributions:
Participants 48,407 - 37,121 49,969 20,395 - 396,620 552,512
Employer 5,602 (715) 2,980 10,883 809 - 99,448 119,007
Benefit payments (2,968) (363) - (394) - 607 (13,781) (16,899)
Net transfers between funds (15,882) 881 2,386 (653) - (2,989) 16,257 -
----------------------------------------------------------------------------------------------------
Net assets available for
benefits at December 31, 1997 $185,258 $ - $ 129,698 $110,797 $29,210 $ 8,948 $3,437,056 $3,900,967
====================================================================================================
</TABLE>
9
<PAGE>
TRIAD GUARANTY INC.
401(K) TO PROFIT-SHARING PLAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the right
under the Plan to discontinue its contributions at any time and to terminate the
Plan subject to the provisions of ERISA. In the event of Plan termination,
participants will become 100 percent vested in their accounts.
6. EXEMPT PARTY-IN-INTEREST TRANSACTIONS
All Plan investments are managed by the Trustee, and, therefore, these
transactions qualify as party-in-interest. All fees for the investment manager
services were paid by the Plan sponsor.
Certain administrative functions are performed by officers or employees of the
Company. No such officer or employee receives compensation from the Plan. All
administrative expenses are paid directly by the Plan sponsor.
7. INCOME TAX STATUS
The Plan sponsor believes that the Plan meets the requirements of a qualified
plan under applicable provisions of the Internal Revenue Code. Therefore, the
related trust is not subject to tax under present income tax laws. The Plan is
required to operate in conformity with the IRC to maintain its qualification.
The Plan administrator is not aware of any course of action or series of events
that have occurred that might adversely affect the Plan's qualified status.
8. YEAR 2000 ISSUE (UNAUDITED)
The Plan sponsor has developed a plan to modify its internal information
technology to be ready for the year 2000 and has begun converting critical data
processing systems. The project also includes determining whether third party
service providers have reasonable plans in place to become year 2000 compliant.
The Plan Sponsor currently expects the project to be substantially complete by
early 1999. The Plan Sponsor does not expect this project to have a significant
effect on plan operations.
9. SUBSEQUENT EVENT
Effective January 1, 1998, the Plan was amended to reduce the eligibility
waiting period from twelve months to six months.
10
<PAGE>
SUPPLEMENTAL SCHEDULES
11
<PAGE>
TRIAD GUARANTY INC.
401(K) TO PROFIT-SHARING PLAN
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES (FORM 5500 - LINE 27A)
YEAR ENDED DECEMBER 31, 1997
Identity of Issue, Borrower, Description of Current
Lessor or Similar Party Investment Cost Value
- -------------------------------- -------------------- ------------- ------------
Common Stock:
Triad Guaranty Inc. 118,517 shares $ 1,484,863 $ 3,436,993
Mutual Funds:
Fidelity Bond Fund 2,872 shares 28,849 29,210
Fidelity Growth and
Income Fund 2,908 shares 96,784 110,797
Oppenheimer Income &
Growth Fund 5,548 shares 165,163 185,258
Oppenheimer Global Fund 2,947 shares 121,014 120,822
Wachovia Prime Cash
Management Fund 8,939 shares 8,939 8,939
------------- ------------
420,749 455,026
Participant loans 8,948 8,948
------------- ------------
$ 1,914,560 $ 3,900,967
============= ============
12
<PAGE>
Triad Guaranty Inc.
401(k) to Profit-Sharing Plan
Schedule of Reportable Transactions (Form 5500 - Line 27d)
Year ended December 31, 1997
<TABLE>
<CAPTION>
Current
Value on
Purchase Selling Cost Transaction Gain
Identity of Party Involved Description of Assets Price Price Value Date (Loss)
- ----------------------------------- ------------------------ ------------ ------------- --------------------------- ---------
Category (iii)--Series of Transactions in excess of 5 percent of plan assets
<S> <C> <C> <C> <C> <C> <C>
Biltmore Prime Cash Management Authorized Demand Notes $ 388,857 $ - $ 388,857 $ 388,857 $
395,834 395,834 395,834 -
Fidelity Growth and Income Fund 84,145 84,145 84,145 -
12,695 11,837 12,695 858
Oppenheimer Income & Growth Fund 80,482 80,482 80,482 -
25,779 22,138 25,779 3,641
Triad Guaranty Inc. Common Stock 589,684 589,684 589,684 -
34,358 24,979 34,358 9,379
Wachovia Prime Cash Management Authorized Demand Notes 348,121 348,121 348,121 -
340,711 340,711 340,711 -
</TABLE>
There were no category (i), (ii) or (iv) transactions during 1997.
13
CONSENT OF ERNST & YOUNG LLP
We consent to incorporation by reference in the Registration Statement (Form S-8
No.33-96550) pertaining to the Triad Guaranty Inc. 401(k) Profit Sharing Plan
(formerly the Triad Guaranty Insurance Corporation 401(k) Profit Sharing Plan)
of our report dated May 20, 1998 with respect to the financial statements and
schedules of Triad Guaranty Inc. 401(k) Profit Sharing Plan included in form
10-K/A for the year ended December 31, 1997.
/s/ ERNST & YOUNG LLP
- ---------------------
Raleigh, North Carolina
June 25, 1998
