Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Dec. 31, 2014

The Company files a consolidated federal income tax return and certain combined state and local income tax returns with its subsidiaries.

Income taxes consist of the following:



	Federal			State and Local			Total
2014:
Current	$	947		$	1,160		$	2,107
Deferred	(21,012		)	(4,509		)	(25,521		)
Benefit applied to reduce goodwill	—			68			68
	$	(20,065	)	$	(3,281	)	$	(23,346	)
2013:
Current	$	403		$	1,492		$	1,895
Deferred	731			223			954
Benefit applied to reduce goodwill	—			77			77
	$	1,134		$	1,792		$	2,926
2012:
Current	$	—		$	514		$	514
Deferred	527			350			877
Benefit applied to reduce goodwill	—			71			71
	$	527		$	935		$	1,462

The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate (35%) in 2014 and (34%) in 2013 and 2012 to income (loss) before income taxes as a result of the following differences:



	2014			2013			2012
Income (loss) before income taxes	$	10,006		$	2,404		$	(14,892	)
Expense (benefit) under statutory U.S. tax rates	3,502			817			(5,063		)
Increase (decrease) in taxes resulting from:
(Decrease) increase in valuation allowance	(28,590		)	(272		)	8,500
Change in fair value of contingent consideration, not taxable	—			41			(2,844		)
Other nondeductible items	818			1,085			346
State taxes, net of federal benefit	689			1,183			340
Other, net	235			72			183
Income tax expense (benefit)	$	(23,346	)	$	2,926		$	1,462

The Company accounts for income taxes under the asset and liability method, which requires the recognition of tax benefits or expense on the temporary differences between the tax basis and financial statement basis of its assets and liabilities as well as tax loss carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those differences are expected to be recovered or settled.

Deferred tax amounts are comprised of the following at December 31:



	2014			2013			*
Deferred tax assets (liabilities):
Net operating loss carryforwards	$	19,593		$	25,353
AMT credit carryforward	1,045			706
Accrued expenses	2,111			3,104
Compensation and benefits	16,592			13,666
Deferred compensation liability	6,421			6,937
Securities owned	867			701
Total deferred tax assets	46,629			50,467
Valuation allowance	—			(28,590		)
Net deferred tax assets	46,629			21,877
Fixed assets	(4,422		)	(2,781		)
Intangibles	(37,859		)	(20,206		)
Goodwill	(7,564		)	(6,389		)
Total deferred liabilities	(49,845		)	(29,376		)
Net deferred tax liability	$	(3,216	)	$	(7,499	)

*Deferred tax assets net of deferred tax liabilities were decreased $7,801 with a corresponding decrease in the valuation allowance previously recorded.

Realization of deferred tax assets is dependent on the existence of sufficient taxable income within the carryforward period, including future reversals of taxable temporary differences. The taxable temporary difference related to goodwill, which is amortized for tax purposes, will reverse when goodwill is disposed of or impaired. Because such period is not determinable and, based on available evidence, management was unable to determine that realization of the deferred tax assets was more likely than not, management provided a valuation allowance to fully offset deferred tax assets net of deferred tax liabilities other than that related to goodwill at December 31, 2013.

As HCHC Acquisition and KMS will be included in the Company’s consolidated federal and certain combined state and local income tax returns, deferred federal and a substantial portion of deferred state and local tax liabilities assumed in the acquisition (see Note 3) are able to offset the reversal of the Company’s pre-existing deferred tax assets. Accordingly, the Company’s deferred tax valuation allowance at December 31, 2013 has been reduced to the extent of $21,238 of the deferred tax liability recorded in the acquisitions and recorded as a deferred tax benefit in the 2014 consolidated statement of operations.

In the fourth quarter of 2014, after utilizition of a portion of the Company's net operating loss carryforward to offset taxable income for 2014 and a corresponding reversal of $5,760 of the valuation allowance, the remaining valuation allowance of $1,592 was reversed and recorded as a deferred tax benefit in the 2014 consolidated statement of operations. Management's decision for such reversal was based on income from operations in 2014 as well as reductions in interest expense due to the repayment of debt from proceeds of preferred stock and expectation of future taxable income, including future reversals of existing taxable temporary differences. Based on such available evidence, management concluded that it is more likely than not that the Company's deferred tax assets at December 31, 2014 would be realized and no valuation allowance was required.

At December 31, 2014, the Company and its subsidiaries had a consolidated net operating loss carryforward of approximately $62,000 for federal income tax purposes expiring in various years from 2021 through 2032. The annual utilization of the net operating loss carryforwards may be limited in future years due to the change in ownership provisions prescribed by Section 382 of the U.S. Internal Revenue Code. Goodwill for tax purposes recognized in connection with the acquisition of Triad by the Company, all of which is tax deductible, exceeded the amount of goodwill recognized in the financial statements. Authoritative accounting guidance in effect when the acquisition was consummated requires the tax benefit for the excess goodwill to be recognized when realized and applied first to reduce goodwill and thereafter reduce non-current intangible assets with the remaining benefit recognized as a reduction of income tax expense.

The federal net operating loss carryforward at December 31, 2014 includes $2,033 applicable to amortization of excess tax goodwill. Upon utilization of the carryforward the related tax benefit will be applied to reduce goodwill.

The Company applied the “more-likely-than-not” recognition threshold to all tax positions taken or expected to be taken in a tax return, which resulted in no unrecognized tax benefits as of December 31, 2014. The Company has elected to classify interest and penalties that would accrue with respect to unrecognized tax benefits as interest and other expense, respectively.

The Company's tax years 2011 through 2014 remain open to examination by most taxing authorities. Tax years in which the Company generated net operating loss carryforwards are subject to examination only with respect to such net operating loss carryforwards upon utilization in future years.

Prior to being acquired by the Company in November 2011, Securities America was included in consolidated federal and state income tax returns filed by its parent Ameriprise Financial, Inc. ("Ameriprise"). Accordingly, Securities America is jointly, with other members of the consolidated group, and severally liable for any additional taxes that may be assessed against the group. In connection with the acquisition, Ameriprise has agreed to indemnify the Company for any such assessments imposed on any members of the group other than Securities America.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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