| Restatement of Previously Issued Consolidated Financial Statements | Restatement of Previously Issued Consolidated Financial Statements In connection with the preparation, review and audit of the Company's consolidated financial statements required to be included in the Annual Report on Form 10-K for the year ended December 31, 2016, management identified certain errors in the Company's historical financial statements. As a result, the Company concluded that its previously issued consolidated financial statements for fiscal years 2015 and 2014, along with each of the four quarters included in fiscal year 2015, as well as the first three quarters of fiscal year 2016, needed to be restated. The Company's restated consolidated financial statements as of and for the years ended December 31, 2015 and 2014 were included in its Annual Report on Form 10-K for the year ended December 31, 2016. Within this report, the Company has included restated unaudited interim consolidated financial statements as of and for the three and six months ended June 30, 2016 and 2015, respectively. This Note 2 to the unaudited interim consolidated financial statements discloses the nature of the restatement matters and adjustments and shows the impact of the restatement for the three and six months ended June 30, 2016 and 2015, respectively. The restatement corrects errors primarily related to: (1) upfront recognition of the portion of warranty contract revenue associated with administration services, instead of recognizing the revenue over the life of the contract; and (2) bonuses that were expensed in the year paid but that should have been accrued as earned based on ASC 270, Interim Reporting , and ASC 450, Contingencies . The Company has also identified other adjustments described below in items (3) – (9) that have been corrected as part of this restatement. Adjustments needed to correct errors (1) Warranty fee revenue – During the preparation of its financial statements for the year ended December 31, 2016, management became aware of a misapplication of the revenue recognition guidance in relation to its accounting for warranty contract revenue associated with promotion, marketing and administration services (collectively, "administration services") provided as part of extended service plans (“ESPs”). The Company had historically recognized the majority of revenue related to administration services at the time of the sale of ESP. However, the Company revised its application of the revenue recognition guidance to record revenue related to administration services on a straight-line basis over the term of the ESP contracts. This correction of an error created an overstatement of service and fee income and an overstatement of other expenses that were also recognized upfront at the time of the sale. (2) Accrual of bonuses – In prior years, the Company had expensed discretionary bonuses paid to its employees in the year the bonuses were paid because the Company did not consider the discretionary bonuses to be “probable,” which is the standard required for accrual. Upon review of ASC 270, Interim Reporting , and ASC 450, Contingencies , management determined that its application was incorrect because, even though the bonuses were discretionary, the bonuses should have been estimated and expenses assigned to interim periods so that the interim periods bear a reasonable portion of the anticipated annual amount. This created an error resulting in an overstatement of acquisition costs and other underwriting expenses. (3) Deferred policy acquisition costs – The Company corrected errors in its calculation of deferred policy acquisition costs related to (a) the over-amortization of certain deferred acquisition costs in 2015, resulting in an overstatement of expenses in 2015, (b) the deferral of certain non-eligible salaries and consulting fees, resulting in an understatement of expenses, (c) the treatment of certain costs as both underwriting expenses and salary and benefit expenses, resulting in the duplication of the amount originally deferred, and (d) the inclusion of deferred warranty administration fees and obligor liabilities associated with the administration services provided to our ESPs, which resulted in an increase to policy acquisition expense. (4) Foreign exchange gain/(loss) – The Company corrected errors related to the re-measurement of monetary balances denominated in foreign currencies into their functional currencies that were originally recorded as a component of other comprehensive income. Given the monetary nature of some of these balances, the re-measurement impact should have been recorded as foreign currency transaction gain/(loss) in the Company's statements of income. (5) Capitalized software – The Company capitalized certain internally developed software costs that did not meet criteria for capitalization under ASC 350, Intangibles - Goodwill and Other . This error resulted overall in an over-capitalization of certain software expenses, which resulted in an understatement of expenses for the three and six months ended June 30, 2016 and an overstatement of expenses for the three and six months ended June 30, 2015. (6) Imputed interest – The Company corrected an error related to imputed interest on contingent consideration owed as a result of certain business acquisitions, which resulted in an overstatement of interest expense during the three months and six months ended June 30, 2016 and an understatement of interest expense during the three and six months ended June 30 2015. (7) Intercompany eliminations – The Company corrected an error related to internal brokerage commissions paid from one of its subsidiaries to another subsidiary, which should have been eliminated in consolidation, thereby causing an overstatement of commission income in the three and six months ended June 30, 2015. (8) Other items – The Company corrected other errors that impacted the three and six months ended June 30, 2016 and 2015 interim consolidated financial statements, including unaccrued liabilities, uncollectible other receivables, accrued commissions, unrecognized amortization expense, unrealized losses on investments and proper quarter end cut-off related to premiums and claims. (9) Balance sheet items – The Company historically recorded certain receivables (premium and other) net of commissions. The error was corrected and the Company now records the receivables on a gross basis, with the associated commission payable in other accrued expenses and liabilities. In addition, the Company corrected a classification error involving short term investments and cash and cash equivalents as of June 30, 2016 and 2015. The following summarizes the impact of the Restatement on our previously reported unaudited interim Consolidated Balance Sheets, Consolidated Statements of Income, Consolidated Statements of Comprehensive Income, Consolidated Statements of Stockholders' Equity and Consolidated Statements of Cash Flows for the three and six months ended June 30, 2016 and 2015: Consolidated Balance Sheet June 30, 2016 ASSETS As previously reported Adjustments As restated Reference (in thousands) Investments: Fixed maturities, available-for-sale, at fair value (amortized cost $6,617,396) $ 6,838,968 $ — $ 6,838,968 Equity securities, available-for-sale, at fair value (cost $154,536) 161,880 — 161,880 Equity securities, trading, at fair value (cost $26,232) 26,847 — 26,847 Short-term investments 127,880 (118,012 ) 9,868 9 Equity investment in unconsolidated subsidiaries – related parties 149,573 — 149,573 Other investments (related party $68,186; recorded at fair value $38,039) 129,414 — 129,414 Total investments 7,434,562 (118,012 ) 7,316,550 Cash and cash equivalents 1,009,534 118,012 1,127,546 8, 9 Restricted cash and cash equivalents 591,984 — 591,984 Accrued interest and dividends 55,940 — 55,940 Premiums receivable, net 2,562,165 146,146 2,708,311 8, 9 Reinsurance recoverable (related party $2,236,292) 3,856,087 — 3,856,087 Prepaid reinsurance premiums (related party $1,194,588) 1,924,747 — 1,924,747 Other assets (related party $205,320; recorded at fair value $304,434) 1,371,771 55,833 1,427,604 1 – 9 Deferred policy acquisition costs 873,641 (31,343 ) 842,298 3 Property and equipment, net 327,311 (10,795 ) 316,516 5, 8,9 Goodwill 603,662 — 603,662 Intangible assets 395,589 — 395,589 $ 21,006,993 $ 159,841 $ 21,166,834 LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities: Loss and loss adjustment expense reserves $ 9,097,408 $ — $ 9,097,408 Unearned premiums 4,819,255 — 4,819,255 Ceded reinsurance premiums payable (related party $679,083) 843,473 — 843,473 Accrued expenses and other liabilities (related party $167,975; recorded at fair value $473,492) 1,604,413 363,892 1,968,305 1, 2, 6, 8, 9 Debt (net of debt issuance cost of $16,542) 1,229,599 — 1,229,599 Total liabilities 17,594,148 363,892 17,958,040 Commitments and contingencies Redeemable non-controlling interest 941 — 941 Stockholders’ equity: Common stock, $0.01 par value; 500,000 shares authorized, 196,455 issued; 172,432 outstanding 1,965 — 1,965 Preferred stock, $0.01 par value; 10,000 shares authorized, 5,112 issued and outstanding; aggregated liquidation preference $626,250 626,250 — 626,250 Additional paid-in capital 1,380,153 — 1,380,153 Treasury stock at cost; 24,023 shares (262,984 ) — (262,984 ) Accumulated other comprehensive loss, net of tax (31,791 ) 1,985 (29,806 ) 4 Retained earnings 1,517,092 (206,036 ) 1,311,056 1 – 8 Total AmTrust Financial Services, Inc. equity 3,230,685 (204,051 ) 3,026,634 Non-controlling interest 181,219 — 181,219 Total stockholders’ equity 3,411,904 (204,051 ) 3,207,853 $ 21,006,993 $ 159,841 $ 21,166,834 Consolidated Statements of Income Three Months Ended June 30, 2016 Six Months Ended June 30, 2016 As previously reported Adjustments As restated As previously reported Adjustments As restated Reference (in thousands, except per share) Revenues: Premium income: Net written premium $ 1,268,436 $ — $ 1,268,436 $ 2,489,115 $ — $ 2,489,115 Change in unearned premium (86,684 ) — (86,684 ) (233,081 ) — (233,081 ) Net earned premium 1,181,752 — 1,181,752 2,256,034 — 2,256,034 Service and fee income (related parties - three months $21,608 and six months $41,771) 138,270 (13,964 ) 124,306 282,471 (29,360 ) 253,111 1, 8 Net investment income 50,745 — 50,745 100,160 — 100,160 Net realized gain on investments 15,099 — 15,099 23,074 — 23,074 Total revenues 1,385,866 (13,964 ) 1,371,902 2,661,739 (29,360 ) 2,632,379 Expenses: Loss and loss adjustment expense 784,393 — 784,393 1,499,466 — 1,499,466 Acquisition costs and other underwriting expenses (net of ceding commission - related party - three months $145,610 and six months $284,001) 298,803 (4,326 ) 294,477 563,437 3,508 566,945 2, 3, 5, 8 Other 132,970 1,374 134,344 261,156 2,455 263,611 1, 5, 7, 8 Total expenses 1,216,166 (2,952 ) 1,213,214 2,324,059 5,963 2,330,022 Income before other income (loss), provision for income taxes, equity in earnings of unconsolidated subsidiaries and non-controlling interest 169,700 (11,012 ) 158,688 337,680 (35,323 ) 302,357 Other (expenses) income: Interest expense (net of interest income - related party - three months $2,187 and six months $4,375) (19,738 ) 1,826 (17,912 ) (37,438 ) 3,652 (33,786 ) 6 Gain on investment in life settlement contracts net of profit commission 12,676 — 12,676 23,406 — 23,406 Foreign currency loss (26,435 ) (2,560 ) (28,995 ) (62,108 ) (5,120 ) (67,228 ) 4, 8 Gain on acquisition 39,097 — 39,097 48,775 — 48,775 Total other income (loss) 5,600 (734 ) 4,866 (27,365 ) (1,468 ) (28,833 ) Income before provision for income taxes, equity in earnings of unconsolidated subsidiaries and non-controlling interest 175,300 (11,746 ) 163,554 310,315 (36,791 ) 273,524 Provision for income taxes 27,918 (4,111 ) 23,807 55,644 (12,877 ) 42,767 1 – 8 Income before equity in earnings of unconsolidated subsidiaries 147,382 (7,635 ) 139,747 254,671 (23,914 ) 230,757 Equity in earnings of unconsolidated subsidiary – related parties 4,802 — 4,802 10,578 — 10,578 Net income $ 152,184 $ (7,635 ) $ 144,549 $ 265,249 $ (23,914 ) $ 241,335 Net income attributable to non-controlling interests and redeemable non-controlling interests of subsidiaries (5,817 ) — (5,817 ) (9,834 ) — (9,834 ) Net income attributable to AmTrust Financial Services, Inc. $ 146,367 $ (7,635 ) $ 138,732 $ 255,415 $ (23,914 ) $ 231,501 Dividends on preferred stock (11,576 ) — (11,576 ) (20,367 ) — (20,367 ) Net income attributable to AmTrust common stockholders $ 134,791 $ (7,635 ) $ 127,156 $ 235,048 $ (23,914 ) $ 211,134 Earnings per common share: Basic earnings per share $ 0.79 $ (0.06 ) $ 0.73 $ 1.36 $ (0.15 ) $ 1.21 Diluted earnings per share $ 0.78 $ (0.05 ) $ 0.73 $ 1.34 $ (0.14 ) $ 1.20 Dividends declared per common share $ 0.15 $ — $ 0.15 $ 0.30 $ — $ 0.30 Consolidated Statements of Comprehensive Income Three Months Ended June 30, 2016 Six Months Ended June 30, 2016 As previously reported Adjustments As restated As previously reported Adjustments As restated Reference (in thousands, except per share) Net income $ 152,184 $ (7,635 ) $ 144,549 $ 265,249 $ (23,914 ) $ 241,335 Other comprehensive (loss) income, net of tax: Foreign currency translation adjustments (36,820 ) 4,011 (32,809 ) (84,665 ) 4,662 (80,003 ) 4 Change in fair value of interest rate swap 168 — 168 287 — 287 Unrealized gain on securities: Gross unrealized holding (loss) gain 168,963 1,503 170,466 293,683 4,436 298,119 8 Less tax expense 59,137 2,956 62,093 102,789 3,983 106,772 8 Net unrealized holding gain 109,826 (1,453 ) 108,373 190,894 453 191,347 Reclassification adjustment for investment loss included in net income, net of tax: Other-than-temporary impairment loss (10,537 ) — (10,537 ) (10,537 ) — (10,537 ) Other net realized loss on investments 2,920 — 2,920 2,492 — 2,492 Reclassification adjustment for investment loss included in net income (7,617 ) — (7,617 ) (8,045 ) — (8,045 ) Other comprehensive income, net of tax $ 65,557 $ 2,558 $ 68,115 $ 98,471 $ 5,115 $ 103,586 Comprehensive income 217,741 (5,077 ) 212,664 363,720 (18,799 ) 344,921 Less: Comprehensive income attributable to non-controlling and redeemable non-controlling interest 5,817 — 5,817 9,834 — 9,834 Comprehensive income attributable to AmTrust Financial Services, Inc. $ 211,924 $ (5,077 ) $ 206,847 $ 353,886 $ (18,799 ) $ 335,087 Consolidated Statement of Stockholders' Equity As of June 30, 2016 As previously reported Adjustments As restated Reference (in thousands) Common stock $ 1,965 $ — $ 1,965 Preferred stock 626,250 — 626,250 Additional paid-in capital 1,380,153 — 1,380,153 Treasury stock (262,984 ) — (262,984 ) Accumulated other comprehensive income (loss) (31,791 ) 1,986 (29,805 ) 4, 8 Retained earnings 1,517,092 (206,037 ) 1,311,055 1 – 8 $ 3,230,685 $ (204,051 ) $ 3,026,634 Consolidated Statements of Cash Flows Six Months Ended June 30, 2016 As previously reported Adjustments As restated Reference (in thousands) Cash flows from operating activities: Net income $ 265,249 $ (23,914 ) $ 241,335 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 54,842 5,023 59,865 5 Net amortization of bond premium or discount 9,707 — 9,707 Equity earnings on investment in unconsolidated subsidiaries (10,578 ) — (10,578 ) Gain on investment in life settlement contracts, net (23,406 ) — (23,406 ) Net realized gain on investments (40,030 ) — (40,030 ) Non-cash write-down of investments 16,956 — 16,956 Discount on notes payable 2,910 — 2,910 Stock based compensation 11,542 — 11,542 Bad debt expense 8,241 — 8,241 Foreign currency loss 62,108 5,120 67,228 4, 8 Gain on acquisition (48,775 ) — (48,775 ) Changes in assets – (increase) decrease: Premiums receivable (350,748 ) (25,846 ) (376,594 ) 8, 9 Reinsurance recoverable (172,948 ) (1,293 ) (174,241 ) 8 Deferred policy acquisition costs (125,499 ) 20,740 (104,759 ) 3 Prepaid reinsurance premiums (392,881 ) (392,881 ) Other assets 186,005 19,426 205,431 1 – 9 Changes in liabilities – increase (decrease): Ceded reinsurance premium payable 185,275 — 185,275 Loss and loss expense adjustment reserves 780,599 — 780,599 Unearned premiums 382,794 341 383,135 8 Funds held under reinsurance treaties (28,041 ) — (28,041 ) Accrued expenses and other liabilities (154,560 ) 30,390 (124,170 ) 1, 2, 6, 8, 9 Net cash provided by operating activities 618,762 29,987 648,749 Cash flows from investing activities: Purchases of fixed maturities, available-for-sale (1,299,160 ) 198,406 (1,100,754 ) 4 Purchases of equity securities, available-for-sale (111,284 ) 90,860 (20,424 ) 4 Purchases of equity securities, trading (100,101 ) 14 (100,087 ) 4 Purchases of other investments (18,509 ) 7,164 (11,345 ) 8 Sales, maturities, paydowns of fixed maturities, available-for-sale 910,939 (211,635 ) 699,304 4 Sales of equity securities, available-for-sale 89,348 (77,651 ) 11,697 4 Sales of equity securities, trading 102,261 6 102,267 4 Sales of other investments 1,242 — 1,242 Net (purchases) of short term investments (43,614 ) 50,917 7,303 9 Net (purchases) of securities sold but not purchased (17,448 ) — (17,448 ) Receipt of life settlement contract proceeds 8,058 — 8,058 Acquisition of subsidiaries, net of cash obtained (118,607 ) — (118,607 ) Decrease in restricted cash and cash equivalents, net (211,285 ) — (211,285 ) Purchase of property and equipment (65,538 ) (18,556 ) (84,094 ) 5 Net cash used in investing activities (873,698 ) 39,525 (834,173 ) Consolidated Statements of Cash Flows Six Months Ended June 30, 2016 As previously reported Adjustments As restated Reference (in thousands) Cash flows from financing activities: Repurchase agreements, net 366,860 — 366,860 Secured loan agreement borrowings 39,361 — 39,361 Secured loan agreement payments (3,569 ) — (3,569 ) Common stock issuance 276 — 276 Common stock repurchase (103,509 ) — (103,509 ) Preferred stock issuance 139,070 — 139,070 Contingent consideration payments — (23,446 ) (23,446 ) 6 Non-controlling interest capital contributions to (5,301 ) — (5,301 ) Stock option exercise and other (7,084 ) — (7,084 ) Dividends distributed on common stock (52,624 ) — (52,624 ) Dividends distributed on preferred stock (20,367 ) — (20,367 ) Net cash provided by financing activities 353,113 (23,446 ) 329,667 Effect of exchange rate changes on cash (20,613 ) — (20,613 ) Net increase in cash and cash equivalents 77,564 46,066 123,630 Cash and cash equivalents, beginning of year 931,970 71,946 1,003,916 1, 2, 4 – 9 Cash and cash equivalents, end of period $ 1,009,534 $ 118,012 $ 1,127,546 Supplemental Cash Flow Information Interest payments on debt $ 28,902 — $ 28,902 Income tax payments 22,575 — 22,575 Declared dividends on common stock 52,189 — 52,189 Consolidated Balance Sheet June 30, 2015 ASSETS As previously reported Adjustments As restated Reference (in thousands) Investments: Fixed maturities, available-for-sale, at fair value (amortized cost $4,814,001) $ 4,842,644 $ — $ 4,842,644 Equity securities, available-for-sale, at fair value (cost $99,595) 103,093 — 103,093 Equity securities, trading, at fair value (cost $29,668) 30,652 — 30,652 Short-term investments 41,707 (23,997 ) 17,710 9 Equity investment in unconsolidated subsidiaries – related parties 126,919 — 126,919 Other investments (related party $9,923; recorded at fair value $14,759) 45,572 — 45,572 Securities pledged, at fair value (amortized cost of $51,862) 50,801 — 50,801 Total investments 5,241,388 (23,997 ) 5,217,391 Cash and cash equivalents 845,972 23,997 869,969 8, 9 Restricted cash and cash equivalents 248,940 — 248,940 Accrued interest and dividends 38,167 — 38,167 Premiums receivable, net 2,376,818 108,421 2,485,239 8, 9 Reinsurance recoverable (related party $1,824,707) 2,799,007 — 2,799,007 Prepaid reinsurance premium (related party $1,136,562) 1,583,560 — 1,583,560 Other assets (related party $169,615; recorded at fair value $267,393) 1,190,777 (3,618 ) 1,187,159 1,5,8,9 Deferred policy acquisition costs 695,150 (5,301 ) 689,849 3 Property and equipment, net 180,822 (8,684 ) 172,138 5, 8 Goodwill 422,357 — 422,357 Intangible assets 330,871 — 330,871 $ 15,953,829 $ 90,818 $ 16,044,647 LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities: Loss and loss adjustment expense reserves $ 6,380,845 $ — $ 6,380,845 Unearned premiums 3,868,747 — 3,868,747 Ceded reinsurance premiums payable (related party $535,843) 831,665 — 831,665 Accrued expenses and other liabilities (related party $167,975; recorded at fair value $127,684) 1,289,511 237,080 1,526,591 1, 2, 6, 8, 9 Deferred income taxes 35,257 — 35,257 Debt (net of debt issuance cost of $13,122) 914,482 — 914,482 Total liabilities 13,320,507 237,080 13,557,587 Commitments and contingencies Redeemable non-controlling interest 977 — 977 Stockholders’ equity: Common stock, $0.01 par value; 300,000 shares authorized, 196,442 issued; 165,274 outstanding 1,964 — 1,964 Preferred stock, $0.01 par value; 10,000 shares authorized, 4,968 issued and outstanding; aggregated liquidation preference $482,500 482,500 — 482,500 Additional paid-in capital 1,117,249 — 1,117,249 Treasury stock at cost; 15,584 shares (222,240 ) — (222,240 ) Accumulated other comprehensive loss (48,545 ) 29,139 (19,406 ) 4 Retained earnings 1,138,929 (175,401 ) 963,528 1, 2, 4, 5, 8 Total AmTrust Financial Services, Inc. equity 2,469,857 (146,262 ) 2,323,595 Non-controlling interest 162,488 — 162,488 Total stockholders’ equity 2,632,345 (146,262 ) 2,486,083 $ 15,953,829 $ 90,818 $ 16,044,647 Consolidated Statements of Income Three Months Ended June 30, 2015 Six Months Ended June 30, 2015 As previously reported Adjustments As restated As previously reported Adjustments As restated Reference (in thousands, except share data) Revenues: Premium income: Net written premium $ 1,008,721 $ — $ 1,008,721 $ 2,051,910 $ — $ 2,051,910 Change in unearned premium (39,751 ) — (39,751 ) (133,563 ) — (133,563 ) Net earned premium 968,970 968,970 1,918,347 — 1,918,347 Service and fee income (related parties - three months $21,281 and six months $38,685) 107,737 (11,577 ) 96,160 220,623 (22,344 ) 198,279 1 Net investment income 36,283 — 36,283 70,856 — 70,856 Net realized gain on investments (2,642 ) — (2,642 ) 13,011 — 13,011 Total revenues 1,110,348 (11,577 ) 1,098,771 2,222,837 (22,344 ) 2,200,493 Expenses: Loss and loss adjustment expense 638,475 — 638,475 1,251,758 — 1,251,758 Acquisition costs and other underwriting expenses (net of ceding commission - related party - three months $129,222 and six months $247,909) 238,710 7,462 246,172 470,386 8,567 478,953 2, 3, 5, 8 Other 98,130 3,006 101,136 196,587 5,509 202,096 1, 5, 7, 8 Total expenses 975,315 10,468 985,783 1,918,731 14,076 1,932,807 Income before other (expense) income, provision for income taxes, equity in earnings of unconsolidated subsidiaries and non-controlling interest 135,033 (22,045 ) 112,988 304,106 (36,420 ) 267,686 Other (expenses) income: Interest expense (net of interest income - related party - three months $2,211 and six months $$4,399) (9,646 ) (1,826 ) (11,472 ) (19,901 ) (3,652 ) (23,553 ) 6 Loss on extinguishment of debt — — — (4,714 ) — (4,714 ) Gain on investment in life settlement contracts net of profit commission 3,096 — 3,096 14,469 — 14,469 Foreign currency loss (47,320 ) (14,532 ) (61,852 ) (7,366 ) (29,829 ) (37,195 ) 4, 8 Total other (expenses) income (53,870 ) (16,358 ) (70,228 ) (17,512 ) (33,481 ) (50,993 ) Income before provision for income taxes, equity in earnings of unconsolidated subsidiaries and non-controlling interest 81,163 (38,403 ) 42,760 286,594 (69,901 ) 216,693 Provision for income taxes 4,472 (13,441 ) (8,969 ) 51,284 (23,760 ) 27,524 1, 2, 3, 4, 5, 6, 8 Income before equity in earnings of unconsolidated subsidiaries 76,691 (24,962 ) 51,729 235,310 (46,141 ) 189,169 Equity in earnings of unconsolidated subsidiary – related parties 4,042 — 4,042 9,571 — 9,571 Net income $ 80,733 $ (24,962 ) $ 55,771 $ 244,881 $ (46,141 ) $ 198,740 Net income attributable to non-controlling interests and redeemable non-controlling interests of subsidiaries (1,346 ) — (1,346 ) (5,429 ) — (5,429 ) Net income attributable to AmTrust Financial Services, Inc. $ 79,387 $ (24,962 ) $ 54,425 $ 239,452 $ (46,141 ) $ 193,311 Dividends on preferred stock (8,639 ) — (8,639 ) (14,008 ) — (14,008 ) Net income attributable to AmTrust common stockholders $ 70,748 $ (24,962 ) $ 45,786 $ 225,444 $ (46,141 ) $ 179,303 Earnings per common share: Basic earnings per share $ 0.43 $ (0.15 ) $ 0.28 $ 1.38 $ (0.29 ) $ 1.09 Diluted earnings per share $ 0.42 $ (0.15 ) $ 0.27 $ 1.35 $ (0.28 ) $ 1.07 Dividends declared per common share $ 0.125 $ — $ 0.125 $ 0.25 $ — $ 0.25 Consolidated Statements of Comprehensive Income Three Months Ended June 30, 2015 Six Months Ended June 30, 2015 As previously reported Adjustments As Restated As previously reported Adjustments As Restated Reference (in thousands, except per share) Net income $ 80,733 $ (24,962 ) $ 55,771 $ 244,881 $ (46,141 ) $ 198,740 Other comprehensive loss, net of tax: 0 0 Foreign currency translation adjustments 14,021 16,644 30,665 (51,332 ) 24,470 (26,862 ) 4 Change in fair value of interest rate swap 163 — 163 190 — 190 Unrealized loss on securities: Gross unrealized holding loss (91,679 ) (1,087 ) (92,766 ) (80,494 ) 331 (80,163 ) 8 Less: tax benefit (32,088 ) (380 ) (32,468 ) (28,173 ) 116 (28,057 ) 8 Net unrealized holding loss (59,591 ) (707 ) (60,298 ) (52,321 ) 215 (52,106 ) Reclassification adjustment for investment loss included in net income, net of tax: Other-than-temporary impairment loss — — — — — — Other net realized loss on investments (790 ) — (790 ) (1,205 ) — (1,205 ) Reclassification adjustment for investment loss included in net income (790 ) — (790 ) (1,205 ) — (1,205 ) Other comprehensive loss, net of tax $ (46,197 ) $ 15,937 $ (30,260 ) $ (104,668 ) $ 24,685 $ (79,983 ) Comprehensive income 34,536 (9,025 ) 25,511 140,213 (21,456 ) 118,757 Less: Comprehensive income attributable to non-controlling and redeemable non-controlling interest 1,346 — 1,346 5,429 — 5,429 Comprehensive income attributable to AmTrust Financial Services, Inc. $ 33,190 $ (9,025 ) $ 24,165 $ 134,784 $ (21,456 ) $ 113,328 Consolidated Statement of Stockholders' Equity As of June 30, 2015 As previously reported Adjustments As Restated Reference (in thousands) Common stock $ 1,964 $ — $ 1,964 Preferred stock 482,500 — 482,500 Additional paid-in capital 1,117,249 — 1,117,249 Treasury stock (222,240 ) — (222,240 ) Accumulated other comprehensive loss (48,545 ) 29,139 (19,406 ) 4, 8 Retained earnings 1,138,929 (175,401 ) 963,528 1, 2, 4, 5, 8 $ 2,469,857 $ (146,262 ) $ 2,323,595 Consolidated Statement of Cash Flows Six Months Ended June 30, 2015 As previously reported Adjustments As restated Reference (in thousands) Cash flows from operating activities: Net income $ 244,881 $ (46,141 ) $ 198,740 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 38,519 1,791 40,310 5 Net amortization of bond premium or discount 6,537 — 6,537 Equity earnings on investment in unconsolidated subsidiaries (9,571 ) — (9,571 ) Gain on investment in life settlement contracts, net (14,469 ) — (14,469 ) Net realized gain on investments (15,493 ) — (15,493 ) Non-cash write-down of investments 2,482 — 2,482 Discount on notes payable 2,769 — 2,769 Stock based compensation 10,436 — 10,436 Loss on extinguishment of debt 4,714 — 4,714 Bad debt expense 7,724 — 7,724 Foreign currency loss 7,366 29,829 37,195 4 Changes in assets – (increase) decrease: Premiums receivable (536,715 ) (68,097 ) (604,812 ) 8, 9 Reinsurance recoverable (355,989 ) 95 (355,894 ) 8 Deferred policy acquisition costs (66,026 ) 6,180 (59,846 ) 3 Prepaid reinsurance premiums (280,712 ) — (280,712 ) Other assets (124,061 ) 11,751 (112,310 ) 1, 8, 9 Changes in liabilities – increase (decrease): Ceded reinsurance premium payable 155,340 — 155,340 Loss and loss adjustment expense reserves 664,495 — 664,495 Unearned premiums 394,994 (2,332 ) 392,662 8 Funds held under reinsurance treaties 13,525 — 13,525 Accrued expenses and other current liabilities 15,883 95,732 111,615 1, 2, 6, 8, 9 Net cash provided by operating activities 166,629 28,808 195,437 Cash flows from investing activities: Purchases of fixed maturities, available-for-sale (1,168,051 ) — (1,168,051 ) Purchases of equity securities, available-for-sale (14,923 ) — (14,923 ) Purchases of equity securities, trading (109,555 ) — (109,555 ) Purchases of other investments (27,234 ) 8,366 (18,868 ) 8 Sales, maturities, paydowns of fixed maturities, available-for-sale 560,386 (3,275 ) 557,111 9 Sales of equity securities, available-for-sale 12,184 — 12,184 Sales of equity securities, trading 108,325 — 108,325 Sales of other investments 13,337 — 13,337 Net sales of short term investments 42,501 23,997 66,498 9 Net sale of securities sold but not purchased 15,456 — 15,456 Receipt of life settlement contract proceeds 81,014 — 81,014 Acquisition of subsidiaries, net of cash obtained (121,401 ) — (121,401 ) Increase in restricted cash and cash equivalents, net (62,715 ) — (62,715 ) Purchase of property and equipment (44,386 ) (2,174 ) (46,560 ) 5 Net cash used in investing activities (715,062 ) 26,914 (688,148 ) Cash flows from financing activities: Revolving credit facility borrowings 430,000 — 430,000 Revolving credit facility payments (365,000 ) — (365,000 ) Repurchase agreements, net 48,819 — 48,819 Secured loan agreement payments (3,478 ) — (3,478 ) 2055 Subordinated notes proceeds 150,000 — 150,000 Consolidated Statement of Cash Flows Six Months Ended June 30, 2015 As previously reported Adjustments As restated Reference (in thousands) Convertible senior notes payments (53,606 ) — (53,606 ) Financing fees (4,990 ) — (4,990 ) Common stock issuance 171,672 — 171,672 Preferred stock issuance 176,529 — 176,529 Contingent consideration payments — (9,874 ) (9,874 ) 6 Non-controlling interest capital contributions to consolidated subsidiaries, net (41 ) — (41 ) Stock option exercise and other (1,982 ) — (1,982 ) Dividends distributed on common stock (39,901 ) — (39,901 ) Dividends distributed on preferred stock (14,008 ) — (14,008 ) Net cash provided by financing activities 494,014 (9,874 ) 484,140 Effect of exchange rate changes on cash (2,359 ) — (2,359 ) Net increase in cash and cash equivalents (56,778 ) 45,848 (10,930 ) Cash and cash equivalents, beginning year 902,750 (21,851 ) 880,899 1, 2, 4 – 9 Cash and cash equivalents, end of period $ 845,972 $ 23,997 $ 869,969 Supplemental Cash Flow Information Income tax payments $ 226,278 $ — $ 226,278 Interest payments on debt 18,245 — 18,245 Declared dividends on common stock 41,187 — 41,187 |
