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Note 5 - Disposal and Discontinued Operations | 12 Months Ended
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Dec. 31, 2023
Notes to Financial Statements |
Business Combination, Disposal and Discontinued Operations Disclosure [Text Block] | NOTE 5 DISPOSAL AND DISCONTINUED OPERATIONS
(a) | Disposal
Professional Warranty Service Corporation On July 29, 2022, Professional Warranty Services LLC ("PWS LLC"), a subsidiary of the Company entered into an Equity Purchase Agreement (the "Agreement") with Professional Warranty Service Corporation ("PWSC"), an 80% majority-owned, indirect subsidiary of the Company, Tyler Gordy, the president of PWSC and a 20% owner of PWSC ("Gordy") and PCF Insurance Services of the West, LLC ("Buyer"), pursuant to which PWS LLC and Gordy sold PWSC to Buyer. The purchase price paid by Buyer to PWS LLC and Gordy consisted of $51.2 million in base purchase price, subject to customary adjustments for net working capital, and non-compensation related transaction expenses of approximately $1.7 million. As a result of the sale, the Company incurred compensation expenses of $5.4 million, primarily related to previously-granted awards to PWSC employees that are accounted for on a fair value basis, which are included in disposal of subsidiary transaction expenses in the consolidated statement of operations for the year ended December 31, 2022. To the extent the EBITDA of PWSC (as defined in the Agreement) for the one-year period following the sale transaction exceeds 103% of the EBITDA at the closing of the sale transaction (the "Closing EBITDA"), PWS LLC and Gordy will also be entitled to receive an earnout payment in an amount equal to five times the EBITDA in excess of 103% of Closing EBITDA. The Company has estimated the potential earnout payment to be zero as of December 31, 2023. As a result of the sale, the Company recognized a net gain on disposal of $37.9 million, net of direct selling costs of $1.7 million, during the year ended December 31, 2022. The sale of PWSC did not represent a strategic shift that would have a major effect on the Company's operations or financial results; therefore, PWSC is not presented as a discontinued operation. The earnings of PWSC, which was included in the Extended Warranty segment, are included in the consolidated statements of operations through the July 29, 2022 disposal date. The assets, liabilities and equity (including the non-controlling interest) of PWSC were deconsolidated effective July 29, 2022. The sale of PWSC represents the disposal of a significant subsidiary of the Company, that had contributions to Extended Warranty service fee and commission revenue of $4.9 million for the year ended December 31, 2022. Additionally, PWSC had a pre-tax loss of $5.5 million for the year ended December 31, 2022, of which $4.4 million was attributable to the controlling interest. At the July 29, 2022 disposal date, PWSC had service fee receivables totaling $0.7 million, intangible assets, net of $2.3 million, deferred service fees of $7.6 million and a non-controlling interest of ($2.2) million. During the year ended December 31, 2023, the Company recorded an additional gain on disposal of PWSC of $0.3 million related to working capital adjustments and release of escrowed amounts withheld for purposes of indemnification claims.
(b) | Discontinued Operations
Leased Real Estate Segment The Company’s subsidiaries, VA Lafayette and CMC Industries Inc. ("CMC"), which includes CMC’s subsidiaries Texas Rail Terminal LLC and TRT Leaseco, LLC ("TRT"), comprised the Company's entire Leased Real Estate segment. Each of CMC, through indirect wholly owned subsidiary, TRT, and VA Lafayette own a single asset, which is real estate property. As further described below, on December 29, 2022, TRT sold its assets and at December 31, 2022, VA Lafayette was classified as held for sale. In accordance with ASU No. 2014-08, Reporting of Discontinued Operations and Disclosures of Disposals of Components of an Entity, a disposal is categorized as a discontinued operation if the disposal group is a component of an entity or group of components that meets the held for sale criteria, is disposed of by sale, or is disposed of other than by sale, and represents a strategic shift that has or will have a major effect on an entity’s operations and financial results. Leased Real Estate is a component of Kingsway since its operations and cash flows can be clearly distinguished, both operationally and for financial reporting purposes, from the rest of the reporting entity. A component of an entity may consist of multiple disposal groups and does not need to be disposed of in a single transaction. The disposal of the Leased Real Estate segment represents a strategic shift that will have a major effect on the Company's operations and financial results, as the disposal of the Leased Real Estate assets is in excess of 20% of the entity's total assets. As a result, the assets, liabilities, operating results and cash flows related to Leased Real Estate have been classified as discontinued operations in the consolidated financial statements for all periods presented. Sale of CMC Real Property CMC owned, through its indirect wholly owned subsidiary, TRT, a parcel of real property consisting of approximately 192 acres located in the State of Texas (the "Real Property"), which was subject to a long-term triple net lease agreement. The Real Property was also subject to two mortgages (the "Mortgages"). On December 22, 2022, TRT entered into a Purchase and Sale Agreement (the "CMC Agreement") with BNSF Dayton LLC ("Purchaser"), pursuant to which TRT agreed to sell to the Purchaser the Real Property. TRT was also the landlord and an affiliate of the Purchaser was the current tenant under the long-term triple net lease over the Real Property. Under the terms of the CMC Agreement, at the closing on December 29, 2022, TRT assigned, and the Purchaser assumed, the rights and obligations of the landlord under the existing long-term triple net lease. The purchase price paid by the Purchaser at the closing consisted of $44.5 million in cash plus the assumption of the unpaid principal balance as of the closing of the Mortgages of approximately $170.7 million, netting cash proceeds of $21.4 million to Kingsway after taxes, fees and distribution to the minority shareholder. The Company recognized a gain on disposal of CMC of $0.2 million which is included in loss on disposal of discontinued operations, net of taxes in the consolidated statement of operations for the year ended December 31, 2022. As discussed above, CMC and TRT are part of the Leased Real Estate disposal group. The sale of the Leased Real Estate's assets represents a strategic shift that will have a major effect on the Company's operations and financial results. As a result, CMC and its subsidiaries, have been classified as a discontinued operation and the results of their operations are reported separately for all periods presented. VA Lafayette During the fourth quarter of 2022, the Company began executing a plan to sell its subsidiary, VA Lafayette. VA Lafayette owns the LA Real Property, that is subject to a long-term lease and the LA Mortgage. During the first quarter of 2024, the Company entered into a letter of intent for the sale of VA Lafayette. As part of recognizing the business as held for sale, the Company is required to measure VA Lafayette at the lower of its carrying amount or fair value less cost to sell. As a result of this analysis, during the fourth quarter of 2023, the Company recognized an estimated non-cash, loss on disposal of $2.0 million, which is included in loss on disposal of discontinued operations, net of taxes in the consolidated statements of operations. The loss is a result of adjusting the net carrying value of VA Lafayette to be equal to the estimated selling price and was determined by comparing the expected cash consideration received for the sale of VA Lafayette with the net assets of VA Lafayette. As discussed above, VA Lafayette is part of the Leased Real Estate disposal group. In conjunction with the sale of the CMC Real Property, the sale of the Leased Real Estate's assets represents a strategic shift that will have a major effect on the Company's operations and financial results. As a result, VA Lafayette has been classified as a discontinued operation and the results of its operations are reported separately for all periods presented. The assets and liabilities of VA Lafayette are presented as held for sale in the consolidated balance sheets at December 31, 2023 and December 31, 2022. Summary financial information for Leased Real Estate included in income (loss) from discontinued operations, net of taxes in the statements of operations for the years ended December 31, 2023 and December 31, 2022 is presented below:
(in thousands) |  | Years ended December 31, |
|  | 2023 |  |  | 2022 |
(Loss) income from discontinued operations, net of taxes: |  |  |  |  |  |  |  |
Revenues: |  |  |  |  |  |  |  |
Rental revenue |  | $ | 1,251 |  |  | $ | 14,567 |
Total revenues |  |  | 1,251 |  |  |  | 14,567 |
Expenses: |  |  |  |  |  |  |  |
Cost of services sold |  |  | 199 |  |  |  | 204 |
General and administrative expenses |  |  | 254 |  |  |  | 20,778 |
Leased real estate segment interest expense |  |  | 361 |  |  |  | 6,387 |
Non-operating other (revenue) expense |  |  | (13 | ) |  |  | 154 |
Amortization of intangible assets |  |  | — |  |  |  | 206 |
Total expenses |  |  | 801 |  |  |  | 27,729 |
Income (loss) from discontinued operations before income tax benefit |  |  | 450 |  |  |  | (13,162 | )
Income tax benefit |  |  | — |  |  |  | (357 | )
Income (loss) from discontinued operations, net of taxes |  | $ | 450 |  |  | $ | (12,805 | )
For the years ended December 31, 2023 and December 31, 2022, pre-tax income from discontinued operations of $0.5 million and pre-tax loss of $10.7 million was attributable to the controlling interest, respectively. The carrying amounts of the major classes of assets and liabilities of Leased Real Estate presented as held for sale at December 31, 2023 and December 31, 2022 are as follows:
(in thousands) |  | December 31, 2023 |  |  | December 31, 2022 |
Assets |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 612 |  |  | $ | 570 |
Property and equipment, net |  |  | 16,171 |  |  |  | 16,160 |
Intangible assets, net |  |  | 2,748 |  |  |  | 2,748 |
Loss on write-down of disposal group |  |  | (1,779 | ) |  |  | — |
Assets held for sale |  | $ | 17,752 |  |  | $ | 19,478 |
Liabilities |  |  |  |  |  |  |  |
Accrued expenses and other liabilities |  | $ | 885 |  |  | $ | 473 |
Notes payable |  |  | 15,229 |  |  |  | 16,112 |
Liabilities held for sale |  | $ | 16,114 |  |  | $ | 16,585 |
Mendota Insurance Company, Mendakota Insurance Company and Mendakota Casualty Company As part of the October 18, 2018 transaction to sell Mendota Insurance Company, Mendakota Insurance Company and Mendakota Casualty Company (collectively "Mendota"), the Company will indemnify the buyer for any loss and loss adjustment expenses with respect to open claims in excess of Mendota's carried unpaid loss and loss adjustment expenses at June 30, 2018 related to the open claims. The maximum obligation to the Company with respect to the open claims is $2.5 million. During the third quarter of 2022, the buyer provided to the Company an analysis of the claims development that indicated that the Company's potential exposure with respect to the open claims was at the maximum obligation amount. Previous communications from the buyer noted no such development and the buyer was not obligated to provide development information to the Company until the first quarter of 2023. As a result of the newly provided information, the Company recorded a liability of $2.5 million, which is included in accrued expenses and other liabilities in the consolidated balance sheet at December 31, 2022 and loss on disposal of discontinued operations, net of taxes in the consolidated statement of operations for the year ended December 31, 2022. There were no payments made by the Company related to the open claims during the year ended December 31, 2022. During the first quarter of 2023, the $2.0 million that had been previously deposited into an escrow account was released and remitted to the buyer to satisfy the Company's payment with respect to the open claims. The Company has no remaining exposure with respect to the open claims. Summary Loss on disposal of discontinued operations, net of taxes, related to Leased Real Estate and Mendota, in the statements of operations for the years ended December 31, 2023 and December 31, 2022 is comprised of the following:
(in thousands) |  | Years ended December 31, |
|  | 2023 |  |  | 2022 |
Loss on disposal of discontinued operations before income tax benefit |  |  | (1,988 | ) |  |  | (26,751 | )
Income tax benefit |  |  | — |  |  |  | (24,489 | )
Loss on disposal of discontinued operations, net of taxes |  | $ | (1,988 | ) |  | $ | (2,262 | )

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