• Filing Date: 2018-03-07
  • Form Type: 10-K
  • Description: Annual report
v3.8.0.1
Income Taxes
12 Months Ended
Dec. 31, 2017
Income Tax Disclosure [Abstract]  
Income Taxes

Note 17 — Income Taxes

A summary of income tax expense is as follows:

 

     Years Ended December 31,  
     2017      2016      2015  

Current:

        

Federal

   $ (3,933    $ 14,918      $ 34,768  

State

     34        2,666        5,856  

Foreign

     81        96        68  
  

 

 

    

 

 

    

 

 

 

Total current taxes

     (3,818      17,680        40,692  
  

 

 

    

 

 

    

 

 

 

Deferred:

        

Federal

     (4,144      182        (275

State

     (757      (9      (46

Foreign

     (12      (18      (40
  

 

 

    

 

 

    

 

 

 

Total deferred taxes

     (4,913      155        (361
  

 

 

    

 

 

    

 

 

 

Income tax (benefit) expense

   $ (8,731    $ 17,835      $ 40,331  
  

 

 

    

 

 

    

 

 

 

The reasons for the differences between the statutory Federal income tax rate and the effective tax rate are summarized as follows:

 

     Years Ended December 31,  
     2017      2016     2015  
     Amount     %      Amount     %     Amount     %  

Income taxes at statutory rate

   $ (5,468     35.0      $ 16,395       35.0     $ 37,167       35.0  

Increase (decrease) in income taxes resulting from:

             

State income taxes, net of federal tax benefits

     (657     4.2        1,710       3.6       3,783       3.6  

Effects of tax rate changes

     (1,400     9.0        —         —         —         —    

Share-based compensation

     (705     4.5        —         —         —         —    

Other

     (501     3.2        (270     (0.5     (619     (0.6
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Income tax (benefit) expense

   $ (8,731     55.9      $ 17,835       38.1     $ 40,331       38.0  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

The Company has no uncertain tax positions or unrecognized tax benefits that, if recognized, would impact the effective income tax rate. The tax returns filed for the years ending December 31, 2016, 2015, and 2014 remain subject to examination by the Company’s major taxing jurisdictions. The Company elected to classify, if any, interest, and penalties arising from uncertain tax positions as income tax expense as permitted by current accounting standards. There have been no material amounts of interest or penalties for the years ended December 31, 2017, 2016 and 2015.

In July 2017, the Company received notice from the Internal Revenue Service stating the Company’s 2015 federal income tax return would be examined. The examination is currently in the process of gathering information.

On December 22, 2017, the Tax Cuts and Jobs Act (the “2017 Tax Act”) was passed and signed into law. Key components of the 2017 Tax Act are: a permanent reduction to the federal corporate income tax rate from a bracket system with a top tax rate of 35% to a flat rate of 21% beginning on January 1, 2018; implementation of a territorial tax system; an amendment to Internal Revenue Code Section 965 that requires U.S. shareholders (10% or greater) of controlled foreign corporations and other specified foreign corporations to include in income, for the last taxable year of such foreign corporation beginning before January 1, 2018, such U.S. shareholder’s pro rata share of a deemed repatriation amount; and changes to carryback and carryforward rules for net operating losses arising after December 31, 2017. Under U.S. GAAP, the tax effects of changes in tax laws or rates need to be recognized in the period in which the law is enacted. On the same day of the passing and enactment of the 2017 Tax Act, the Securities Exchange Commission staff issued Staff Accounting Bulletin No. 118 to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Act. The Company used estimates with regard to several gross temporary book and tax differences, including depreciable assets, deductions for loss reserves and income from limited partnership interests in measuring provisional tax effects. The ultimate outcome may materially differ from these provisional amounts due to, among other things, changes in interpretations and assumptions, and additional regulatory guidance. The Company expects to finalize the accounting for the tax effects when the 2017 U.S. corporate income tax return is filed in October 2018. For the year ended December 31, 2017, the Company recognized a provisional $1,400 tax benefit related to net deferred tax liabilities due to the lower future corporate income tax rates enacted by the 2017 Tax Act in the Company’s consolidated statement of income.

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 used for income tax purposes.

 

Significant components of the Company’s net deferred income tax assets are as follows:

 

     December 31,  
     2017      2016  

Deferred tax assets:

     

Unearned premiums

   $ 5,753      $ 9,331  

Other-than-temporary impairment losses

     386        1,246  

Losses and loss adjustment expenses

     3,154        986  

Organizational costs

     90        61  

Stock-based compensation

     2,455        3,388  

Accrued expenses

     —          35  

Unearned revenue

     339        489  

State net operating losses

     333        —    

State capital loss carryforwards

     175        65  

Bad debt reserve

     2        3  
  

 

 

    

 

 

 

Total deferred tax assets

     12,687        15,604  
  

 

 

    

 

 

 

Deferred tax liabilities:

     

Property and equipment

     (1,517      (1,857

Intangible assets

     (1,541      (1,890

Deferred policy acquisition costs

     (4,365      (6,601

Unrealized net gain on available-for-sale securities

     (1,907      (1,659

Basis difference related to partnership investments

     (599      (5

Basis difference related to convertible senior notes

     (4,099      (2,519

Prepaid expenses

     (312      (412

Accrued expenses

     (37      —    

Other

     (200      (411
  

 

 

    

 

 

 

Total deferred tax liabilities

     (14,577      (15,354
  

 

 

    

 

 

 

Net deferred tax (liabilities) assets

   $ (1,890    $ 250  
  

 

 

    

 

 

 

The Company has a state net operating loss carryforward of $7,665 for the 2017 tax year which will expire on December 31, 2037. In addition, the Company has state capital loss carryforwards of $1,926 and $1,826 for the 2016 and 2015 tax years, respectively. The 2015 capital loss carryforward is available for tax years up to and including the 2020 tax year. The 2016 capital loss carryforward is available for tax years up to and including the 2021 tax year.

A valuation allowance is established if, based upon the relevant facts and circumstances, management believes any portion of the deferred tax assets will not be realized. Although realization of deferred income tax assets is not certain, management believes it is more likely than not that deferred tax assets will be realized. Thus, the Company did not have a valuation allowance established as of December 31, 2017 or 2016.

The 2017 Tax Act implemented a mandatory one-time tax of eight percent on illiquid assets and 15.5% percent on cash and cash equivalents attributable to the accumulated earnings of controlled foreign companies and other specified foreign corporations on U.S. shareholders owning ten percent or greater of the foreign company. The Company has included this one-time federal income tax and the corresponding state taxes attributable to this deemed repatriation amount in the net income tax benefit for the year ended December 31, 2017. In addition to this mandatory one-time deemed repatriation, the 2017 Tax Act also implemented a territorial system which exempts U.S. corporations from U.S. taxes on most future foreign profits. Since all accumulated earnings of the Company’s foreign subsidiary at December 31, 2017 will be subjected to federal and state income taxes as a result of the one-timemandatory deemed repatriation and all earnings of its foreign subsidiaries after December 31, 2017 will not be subject to U.S. income taxes, the Company will no longer be required to consider the establishment of a deferred tax liability related to the undistributed earnings of its foreign subsidiary.