The book value of the Company’s stockholders’ equity increased to $11.36 per share at December 31, 2011 compared to $10.82 per share at December 31, 2010.
Income Taxes. The provision for income taxes increased $216,000 to $1,307,000, an effective rate of 34.4%, for 2011, compared to $1,091,000, an effective rate of 34.2%, for 2010. Net income for 2011 and 2010 includes a non-cash provision for federal income taxes of $1,258,000 and $1,023,000, respectively. The state tax effective rate increased to 1.3% for 2011, compared to 1.0% for 2010. For as long as AMIC utilizes its NOL
Management uses a significant amount of judgment in estimating the fair value of the Company. The key assumptions underlying the fair value process are subject to uncertainty and change. The following represent some of the potential risks that could impact these assumptions and the related expected future cash flows: (i) increased competition; (ii) an adverse change in the insurance industry and overall business climate; (iii) changes in state and federal regulations; (iv) rating agency downgrades of our insurance companies; and (v) a sustained and significant decrease in our share price and market capitalization. At December 31, 2011, the Company’s market capitalization was less than its book value indicating a potential impairment of goodwill. As a result, the Company assessed the factors contributing to the performance of AMIC stock in 2011, and concluded that the market capitalization does not represent the fair value of the Company. The Company noted several factors that have led to a difference between the market capitalization and the fair value of the Company, including (i) the Company’s stock is thinly traded and a sale of even a small number of shares can have a large percentage impact on the price of the stock, (ii) IHC and insiders own over 78% of the outstanding shares, which has had a significant adverse impact on the number of shares available for sale and therefore the trading potential of AMIC stock, and (iii) lack of analyst coverage of the Company. The Company will continue to monitor AMIC’s book value against market capitalization to determine whether an interim test of goodwill is warranted. If we experience a sustained decline in our results of operations and cash flows, or other indicators of impairment exist, we may incur a material non-cash charge to earnings relating to impairment of our goodwill, which could have a material adverse effect on our results.
In May 2011, the FASB issued guidance to achieve common fair value measurement and disclosure requirements in U.S. GAAP and IFRS. Some of the amendments in this update clarify the FASB’s intent about the application of certain existing fair value measurement requirements
Based on management’s review of the portfolio, which considered the various factors described in Note 2 (H) (vi), the Company recorded the following losses for other-than-temporary impairments in the Consolidated Statements of Operations for years 2011, 2010 and 2009 (in thousands):
connection with that business. Risk Solutions performs certain functions for Majestic and Alliance Underwriters (“AU”) (a subsidiary of IHC). Accordingly, Risk Solutions allocates proportionate fees and expenses to Majestic and AU. Such related party information is disclosed on the Consolidated Balance Sheets and Consolidated Statements of Operations. The Company also contracts for several types of insurance coverage (e.g. directors and officers and professional liability coverage) jointly with IHC. The cost of this coverage is split proportionally between the Company and IHC according to the type of risk and the Company’s portion is recorded in Selling, General and Administrative Expenses.
At December 31, 2011, the Company had federal NOL carryforwards of approximately $274,718,000 which expire as follows (in thousands):
The components of other comprehensive income include (i) net income or loss reported in the Consolidated Statements of Operations, (ii) certain amounts reported directly in stockholders’ equity, principally the after-tax net unrealized gains and losses on investment securities available for sale including the subsequent increases and decreases in fair value of available-for-sale securities previously impaired, and (iii) the non-credit related component of other-than-temporary impairments of fixed maturities and equity securities.