Business Combination Disclosure [Text Block]

6 Months Ended

Jun. 30, 2017

Notes

Business Combination Disclosure

Note 7.   Acquisition of PetPartners, Inc. 

On March 24, 2017 (the "Acquisition Date"), the Company acquired 85% of the stock of PetPartners, Inc. (“PetPartners”), a pet insurance marketing and administration company, for a purchase price of $12,713,000, subject to certain post-closing adjustments. The Company acquired PetPartners for the purpose of owning additional distribution and administration sources for its pet insurance. Any time after March 24, 2019, shares owned by the noncontrolling interest are putable to the Company at fair value and are therefore presented on the balance sheet as a redeemable noncontrolling interest.

Upon the acquisition, the Company consolidated the assets and liabilities of PetPartners. The following table presents the identifiable assets acquired and liabilities assumed in the acquisition of PetPartners on the Acquisition Date based on their respective fair values (in thousands):

Cash	$	390
Intangible assets		5,880
Other assets		567
Total identifiable assets		6,837
Other liabilities		174
Deferred tax liability		1,069
Total liabilities		1,243
Net identifiable assets acquired	$	5,594
Redeemable noncontrolling interest	$	2,005

In connection with the acquisition, the Company recorded $9,124,000 of goodwill and $5,880,000 of intangible assets (see Note 8). Goodwill reflects the synergies between PetPartners and Independence American as PetPartners will provide Independence American with increased distribution sources for its pet insurance business through its marketing relationship with the American Kennel Club. Goodwill was calculated as the excess of the sum of: (i) the acquisition date fair value of total cash consideration transferred of $12,713,000; and (ii) the fair value of the redeemable noncontrolling interest in PetPartners of $2,005,000 on the acquisition date; over (iii) the net identifiable assets of $5,594,000 that were acquired. The enterprise value of PetPartners was determined by an independent appraisal using a discounted cash flow model based upon the projected future earnings of PetPartners including a control premium.  The fair value of the redeemable noncontrolling interest was determined based upon their percentage of the PetPartners enterprise value discounted for a lack of control. The fair value of the acquired identifiable intangible assets and deferred taxes are provisional pending receipt of the final valuations for those assets and liabilities.  The

Company expects to finalize the preliminary estimates of the fair value of the intangible assets and deferred taxes by the end of this year. Acquisition-related costs, primarily legal and consulting fees, were expensed and are included in selling, general and administrative expenses in the Condensed Consolidated Statement of Income.

For the period from the Acquisition Date to June 30, 2017, the Company’s Condensed Consolidated Statement of Income includes revenues of $1,339,000 and $1,453,000, respectively, for the three months and six months ended June 30, 2017, and net income of $72,000 and $87,000, respectively, for the three months and six months ended June 30, 2017 from PetPartners.

Pro forma adjustments to present the Company’s consolidated revenues and net income as if the acquisition date was January 1, 2016 are not material and accordingly are omitted.