NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. LONG-TERM DEBT 7. INCOME TAXES Deferred income taxes at the end of each period are determined by applying enacted statutory tax rates applicable to the years in which the taxes are expected to be paid or recovered. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. The effect on deferred taxes of a change in the tax rate is recognized in earnings in the period that includes the enactment date. The components of the Company’s consolidated provision for income taxes are as follows (in thousands): In May 2001, the Company issued, in a private placement,  $250 million of 7.75% debentures due June 1, 2011. Interest on the debentures is payable semi-annually on June 1 and December 1. The Company has the option to redeem some  or all of the debentures any time with not less than 30 days notice. In November 2001, the Company offered to exchange all of the old debentures for new debentures with terms of the new debentures substantially identical to the terms of the old debentures, except that the new debentures are registered and have no transfer restrictions, rights to additional interest or registration rights, except in limited circumstances. Substantially all of the initial debt converted to new public debt. The Company also has outstanding $75 million of 6.75% debentures, due 2003. Interest on the debentures is payable semi-annually in March and September. The composition of long-term debt at December 31, 2001 was as follows: The Company’s preferred stock is entitled to cumulative annual dividends of $4.125 per share, payable quarterly in arrears.  The preferred stock is redeemable at the option of the Company at $54.125 per share on or after August 15, 2002, and declining to $50.00 per share on or after August 15, 2005 (plus, in each case, accumulated and unpaid dividends), or is subject to mandatory redemption at a redemption price of $50.00 per share plus accumulated and unpaid dividends based upon specified annual sinking fund requirements from 2002 to 2011. The Company is a holding company whose principal source of income is dividends from its subsidiaries. The ability of Radian Guaranty to pay dividends on its common stock is restricted by certain provisions of the insurance laws of the Commonwealth In connection with the Financial Guaranty acquisition, the Company acquired net operating loss carryforwards of $12.0 million. At December 31, 2001, the net operating loss carryforward of $12.0 million remains unused, and will expire in the year 2019. Prepaid federal income taxes includes Tax and Loss Bonds of $326.5 million and $270.3 million as of December 31, 2001 and 2000, respectively. The significant components of the Company’s net deferred tax assets and liabilities are summarized as follows (in thousands): The reconciliation of taxes computed at the statutory tax rate of 35% for 2001, 2000 and 1999 to the provision for income taxes is as follows (in thousands): >30 7.75% debentures due 2011 $249,076 6.75% debentures due 2003 75,000 $324,076 2001 2000 1999 Provision for income  taxes computed at the statutory tax rate $176,936 $123,365 $76,813 Change in tax provision resulting from:  Tax-exempt municipal  bond interest and  dividends received deduction (net of proration) (32,315) (20,482) (15,535) Capitalized  merger costs — 123 8,124  Other, net 491 526 1,926  Provision for income taxes $145,112 $103,532 $71,328  Year Ended December 31 2001 2000 1999 Current income taxes $ 22,992 $ 40,594 $13,245 Deferred income taxes 122,120 62,938 58,083 $145,112 $103,532 $71,328  December 31  2001 2000 Deferred tax assets:  AMT credit carryforward $ 35,118 $ 21,227 Loss reserves 30,643 8,896 Accrued expenses 12,076 1,225 Unearned premiums — 4,746 Other 19,444 1,538 97,281 37,632  Deferred tax liabilities:  Deduction related to purchase  of tax and loss bonds (390,315) (289,511) Deferred policy acquisition costs (52,866) (24,520) Partnership investments (35,001) — Assignment sale income (9,795) — Unearned premiums (8,148) — Net unrealized gain on  investments (FAS 115) (5,937 )  (13,641) Depreciation (1,842) (1,254) Other (25,475) — (529,379) (328,926) Net deferred tax liability $(432,098) $(291,294)  8. STOCKHOLDERS’ EQUITY AND DIVIDEND RESTRICTIONS 6. REDEEMABLE PREFERRED STOCK