Acquisition

In January 2012, a subsidiary of the Company, ITIC, entered into a membership interest purchase and sale agreement under which it agreed to acquire a majority ownership interest of United Title Agency Co., LLC (“United”). United, a Michigan limited liability company, is an insurance agency doing business in the State of Michigan. On April 2, 2012, ITIC purchased a 70% ownership interest in United, with both ITIC and the seller having the option to require ITIC to purchase the remaining 30% interest at a later date.

The contingent payment arrangement required that the purchase price for the 70% majority interest was to be paid over a two year period and was determined by multiplying United’s actual GAAP net income for the first full 24 calendar months subsequent to closing by an agreed upon factor. In no event was the purchase price for the majority interest to exceed $1,041,250. The acquisition date fair value of the total consideration to be transferred was $1,041,250. This fair value total was equal to $350,000 ITIC had already paid toward the purchase price, as well as $691,250 in estimated contingent payments. During the second quarter of 2013, ITIC paid an additional $350,000 toward the purchase price. During the second quarter of 2014, ITIC paid the remaining $341,250 of the purchase price. The resulting contingent payments of $0 and $341,250 are categorized in the Consolidated Balance Sheets as accounts payable and accrued liabilities as of December 31, 2014 and 2013, respectively.

On May 21, 2014, ITIC purchased the remaining 30% ownership interest in United, making United a wholly owned subsidiary of ITIC. The purchase price of the redeemable noncontrolling interest was calculated by multiplying United’s GAAP net income for the full 24 calendar months immediately preceding the written notice of the option exercise by an agreed upon factor. The calculated purchase price of $515,275 was paid during the second quarter of 2014.

The following table provides the effects of changes in ITIC's ownership interest in United, and the resulting impact on the Company's equity:



	December 31, 2014			December 31, 2013
Net income attributable to the Company	$	9,648,975		$	14,708,210
Transfers from the redeemable controlling interest:
Decrease in paid-in capital for purchase of redeemable noncontrolling interest	(114,320		)	—
Net transfers from noncontrolling interest	(114,320		)	—
Change from net income attributable to the Company and transfers from redeemable noncontrolling interest	$	9,534,655		$	14,708,210

As certain provisions of the membership interest purchase and sale agreement placed the acquisition of the remaining 30% by ITIC out of ITIC’s control, the noncontrolling interest in United was deemed redeemable. The redeemable noncontrolling interest was presented outside of permanent equity, as redeemable equity in the Consolidated Balance Sheets. On the acquisition date, the fair value of the redeemable noncontrolling interest was $446,250. The fair value of the redeemable noncontrolling interest was based on the noncontrolling interest’s share of the value of net assets.

The following table provides a reconciliation of total redeemable equity for the periods ended December 31, 2014, 2013 and 2012:



Changes in carrying value during the period ended:	2014			2013			2012
Beginning balance at January 1	$	545,489		$	493,861		$	—
Net income attributable to redeemable noncontrolling interest	23,523			88,528			88,411
Distributions to noncontrolling interest	(168,057		)	(36,900		)	(40,800		)
Redeemable noncontrolling interest resulting from subsidiary purchase	(515,275		)	—			446,250
Adjustment to retained earnings for purchase of noncontrolling interest	114,320			—			—
Balance, net	$	—		$	545,489		$	493,861

Fair valuation methods used for the identifiable tangible net assets acquired in the acquisition make use of discounted cash flows using current interest rates. The fair value of identifiable net tangible assets at the acquisition date was $5,600. Identifiable assets acquired included cash and fixed assets. Liabilities assumed consisted of notes payable.

The transaction was accounted for using the acquisition method required by ASC 805, Business Combinations. Accordingly, the Company recognized the required identifiable intangible assets of United. There was no goodwill recorded as a result of the acquisition. The fair values of intangible assets, all Level 3 inputs, are principally based on values obtained from a third party valuation service. At acquisition, intangible assets included $645,685 relating to a non-compete contract resulting from the acquisition and $836,215 from referral relationships. The non-compete contract is being amortized over a 10-year period using the straight-line method, starting at a future date when the related employment agreement is terminated. The referral relationships are being amortized over a 12-year period using the straight-line method. At December 31, 2014 and 2013, accumulated amortization of intangible assets was $191,631 and $121,947, respectively. Net intangible assets of $1,290,269 and $1,359,953 are categorized as prepaid expenses and other assets in the Consolidated Balance Sheets as of December 31, 2014 and 2013. In accordance with ASC 350, Intangibles – Goodwill and Other, the Company completed interim impairment testing and determined that the intangible assets assigned to United were not impaired at December 31, 2014.

The amortization of the non-compete contract will start at a future date when the related employment agreement is terminated. There are currently no plans to terminate the employment agreement, and the Company does not believe it is probable that termination of the employment agreement will occur within the calendar year. Assuming that the amortization of the non-complete agreement begins on the first day of 2016, estimated aggregate amortization expense for each of the five succeeding fiscal years are as follows:



Year Ended:
2015	$	69,685
2016	134,253
2017	134,253
2018	134,253
2019	134,253
Thereafter	683,572
Total	$	1,290,269

In the Consolidated Statements of Income, revenues and expenses include the operations of United since April 2, 2012, which is the acquisition date. United was formed as a result of the Company’s acquisition, and had no net income prior to the acquisition date.

The Company has not provided historical or pro forma financial information related to the United acquisition because none of the purchase price paid, assets acquired or income of United were significant to the Company under the SEC’s Regulation S-X.