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Radian Group Inc. Reports Operating Results (10-Q/A)

November 13, 2009 | About:

Radian Group Inc. (NYSE:RDN) filed Amended Quarterly Report for the period ended 2009-09-30.

Radian Group Inc. is the parent company of Radian Guaranty Inc. The company provides private mortgage insurance and risk management services to mortgage lenders nationwide; these services increase homeownership opportunities by helping people to buy homes with down payments of less than 20 percent. Private mortgage insurance protects lenders from default-related losses on residential first mortgages and facilitates the sale of low-down-payment mortgage loans in the secondary market. (PRESS RELEASE) Radian Group Inc. has a market cap of $443.6 million; its shares were traded at around $5.37 with and P/S ratio of 0.3. The dividend yield of Radian Group Inc. stocks is 0.2%.

Highlight of Business Operations:

In March 2009, FGIC, Ambac, and MBIA served us with demands to arbitrate certain issues relating to the same three pool policies that are the subject of our declaratory judgment complaint. In July 2009, the court declined to dismiss our declaratory judgment action, but stayed the action to permit the arbitrations to proceed first. In August 2009, we settled our dispute with Ambac and Deutsche Bank with respect to one of the disputed pool policies, which policy represents approximately $27 million of the approximately $77 million in total claim liability. This settlement resolved the declaratory judgment action as it pertains to Ambac and the arbitration commenced by Ambac was dismissed with prejudice. Arbitration hearings with FGIC and MBIA are expected to be held in the second and third quarters of 2010.

We are currently under examination by IRS for the 2000 through 2007 tax years. The IRS opposes the recognition of certain tax losses and deductions that were generated through our investment in a portfolio of residual interests in Real Estate Mortgage Investment Conduits (REMICs) and has proposed adjustments denying the associated tax benefits of these items. We are contesting all such proposed adjustments relating to the IRSs opposition of the tax benefits in question and are working with tax counsel in our defense efforts. We have received the revenue agent report relating to the 2000 through 2004 tax years which proposes an increase to our tax liability of approximately $121 million and, in response to that report, have appealed such proposed adjustments to the IRS Office of Appeals and have made a qualified deposit with the U.S. Treasury under IRC Section 6603 of approximately $85.0 million to avoid the accrual of the above-market-rate interest associated with our estimate of the potentially unsettled adjustment. Although we disagree with and are contesting the adjustments proposed by the IRS, and believe that our income and loss from these investments was properly reported on our federal income tax returns in accordance with applicable tax laws and regulations in effect during the periods involved, there can be no assurance that we will prevail in opposing additional tax liability with respect to this investment. The overall appeals process may take some time, and a final resolution may not be reached until a date many months or years into the future. Additionally, although we believe, after discussions with outside counsel about the issues raised in the examination and the procedures for resolution of the disputed adjustments, that an adequate provision for income taxes has been made for potential liabilities that may result, if the outcome of this matter results in liability that differs materially from our expectations, it could have a material impact on our effective tax rate, results of operations and cash flows.

Read the The complete ReportRDN is in the portfolios of Bill Miller of Legg Mason Value Trust.

About the author:

Charlie Tian, Ph.D. - Founder of GuruFocus. You can now order his book Invest Like a Guru on Amazon.

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