Mercury Insurance 2007 Annual Report Download - page 78

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76 MERCURYNOW 2007
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007 and 2006, respectively, and has been recorded in other assets in the consolidated balance sheets with a corresponding increase
to notes payable. The interest rate swap was determined to be highly effective and no amount of ineffectiveness was recorded in earnings during
2007 and 2006.
In October 2007, the Company completed the acquisition of a 4.25 acre parcel of land in Brea, California. In conjunction with the purchase,
the Company entered into an 18-month lease agreement with the seller allowing the seller to use the property during the lease term. Also, as part
of the acquisition, the Company issued a secured promissory note in the amount of $4,500,000 without interest. The note is payable three business
days after the Company receives a written notice from the seller that the property has been vacated in accordance with the lease.
The aggregated maturities for notes payable are as follows:
Yea r Maturity
2008 $ 0
2009 $ 4,500,000
2010 $ 0
2011 $ 125,000,000
Note 6. Income Taxes
INCOME TAX PROVISION
The Company and its subsidiaries file a consolidated Federal income tax return. The provision for income tax expense (benefit) consists of the
following components:
Year ended December 31,
Amounts in thousands 2007 2006 2005
Federal
Current $ 82,016 $ 80,069 $ 82,509
Deferred (7,844) (7,169) 13,520
$ 74,172 $ 72,900 $ 96,029
State
Current $ 1,994 $ 23,039 $ 2,463
Deferred 1,038 1,653 888
$ 3,032 $ 24,692 $ 3,351
Total
Current $ 84,010 $ 103,108 $ 84,972
Deferred (6,806) (5,516) 14,408
Total $ 77,204 $ 97,592 $ 99,380
The income tax provision reflected in the consolidated statements of income is less than the expected federal income tax on income before
income taxes as shown in the table below:
Year ended December 31,
Amounts in thousands 2007 2006 2005
Computed tax expense at 35% $ 110,263 $ 109,343 $ 123,424
Tax-exempt interest income (38,254) (33,325) (28,187)
Dividends received deduction (2,087) (1,902) (2,333)
Reduction of losses incurred deduction for 15% of income
on securities purchased after August 7, 1986 6,014 5,245 4,474
Other, net 1,268 18,231 2,002
Income tax expense $ 77,204 $ 97,592 $ 99,380