| 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 nine months ended September 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 nine months ended September 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 nine months ended September 30, 2016 and an overstatement of expenses for the three and nine months ended September 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 and nine months ended September 30, 2016 and an understatement of interest expense during the three and nine months ended September 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 nine months ended September 30, 2015. (8) Other items – The Company corrected other errors that impacted the three and nine months ended September 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 September 30, 2016 and 2015, respectively. 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 nine months ended September 30, 2016 and 2015: Consolidated Balance Sheet September 30, 2016 ASSETS As previously reported Adjustments As restated Reference (in thousands) Investments: Fixed maturities, available-for-sale, at fair value (amortized cost $6,800,294) $ 7,043,815 $ — $ 7,043,815 Equity securities, available-for-sale, at fair value (cost $160,011) 165,743 — 165,743 Equity securities, trading, at fair value (cost $34,091) 34,439 — 34,439 Short-term investments 49,008 (40,508 ) 8,500 8, 9 Equity investment in unconsolidated subsidiaries – related parties 153,040 — 153,040 Other investments (related party $67,077) 125,201 — 125,201 8 Total investments 7,571,246 (40,508 ) 7,530,738 Cash and cash equivalents 1,092,837 40,508 1,133,345 8, 9 Restricted cash and cash equivalents 557,159 — 557,159 Accrued interest and dividends 52,569 — 52,569 Premiums receivable, net 2,405,638 154,601 2,560,239 8, 9 Reinsurance recoverable (related party $2,376,739) 4,040,073 — 4,040,073 8 Prepaid reinsurance premiums (related party $1,196,420) 2,018,372 — 2,018,372 Other assets (related party $177,352; recorded at fair value $332,085) 1,393,379 (54,695 ) 1,338,684 1 – 9 Deferred policy acquisition costs 964,642 (41,713 ) 922,929 3 Property and equipment, net 339,063 (13,942 ) 325,121 5, 8, 9 Goodwill 654,861 — 654,861 Intangible assets 429,700 — 429,700 $ 21,519,539 $ 44,251 $ 21,563,790 LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities: Loss and loss adjustment expense reserves $ 9,427,770 $ — $ 9,427,770 Unearned premiums 4,900,926 — 4,900,926 Ceded reinsurance premiums payable (related party $734,103) 932,199 — 932,199 Accrued expenses and other liabilities (related party $167,975; recorded at fair value $101,095) 1,317,387 268,642 1,586,029 1, 2, 6, 8, 9 Debt (net of debt issuance cost of $16,252) 1,235,316 — 1,235,316 Total liabilities 17,813,598 268,642 18,082,240 Commitments and contingencies Redeemable non-controlling interest 1,187 — 1,187 Stockholders’ equity: Common stock, $0.01 par value; 500,000 shares authorized, 196,455 issued; 170,427 outstanding 1,965 — 1,965 Preferred stock, $0.01 par value; 10,000 shares authorized, 5,399 issued and outstanding; aggregated liquidation preference $913,750 913,750 — 913,750 Additional paid-in capital 1,376,463 — 1,376,463 Treasury stock at cost; 26,028 shares (311,328 ) — (311,328 ) Accumulated other comprehensive loss, net of tax (51,024 ) 4,546 (46,478 ) 4 Retained earnings 1,591,664 (228,937 ) 1,362,727 1 – 8 Total AmTrust Financial Services, Inc. equity 3,521,490 (224,391 ) 3,297,099 Non-controlling interest 183,264 — 183,264 Total stockholders’ equity 3,704,754 (224,391 ) 3,480,363 $ 21,519,539 $ 44,251 $ 21,563,790 Consolidated Statements of Income Three Months Ended September 30, 2016 Nine Months Ended September 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 $ 1,216,050 $ — $ 1,216,050 $ 3,705,165 $ — $ 3,705,165 Change in unearned premium (19,814 ) — (19,814 ) (252,895 ) — (252,895 ) Net earned premium 1,196,236 — 1,196,236 3,452,270 — 3,452,270 Service and fee income (related parties - three months $19,367; and nine months $61,137) 146,611 (12,754 ) 133,857 429,082 (42,114 ) 386,968 1, 8 Net investment income 59,919 — 59,919 160,079 — 160,079 Net realized gain on investments 8,230 — 8,230 31,304 — 31,304 Total revenues 1,410,996 (12,754 ) 1,398,242 4,072,735 (42,114 ) 4,030,621 Expenses: Loss and loss adjustment expense 811,048 — 811,048 2,310,514 — 2,310,514 Acquisition costs and other underwriting expenses (net of ceding commission - related party - three months $158,216; and nine months $440,561) 283,958 20,034 303,992 847,395 23,542 870,937 2, 3, 5, 8 Other 137,542 1,709 139,251 398,698 4,164 402,862 1, 5, 7, 8 Total expenses 1,232,548 21,743 1,254,291 3,556,607 27,706 3,584,313 Income before other (expense) income, provision for income taxes, equity in earnings of unconsolidated subsidiaries and non-controlling interest 178,448 (34,497 ) 143,951 516,128 (69,820 ) 446,308 Other (expenses) income: Interest expense (net of interest income - related party - three months $2,061 and nine months $6,436) (23,950 ) 1,826 (22,124 ) (61,388 ) 5,478 (55,910 ) 6 Gain on investment in life settlement contracts net of profit commission 5,485 — 5,485 28,891 — 28,891 Foreign currency loss (8,320 ) (2,560 ) (10,880 ) (70,428 ) (7,680 ) (78,108 ) 4, 8 Gain on acquisition — — — 48,775 — 48,775 Total other expenses (26,785 ) (734 ) (27,519 ) (54,150 ) (2,202 ) (56,352 ) Income before provision for income taxes, equity in earnings of unconsolidated subsidiaries and non-controlling interest 151,663 (35,231 ) 116,432 461,978 (72,022 ) 389,956 Provision for income taxes 35,516 (12,331 ) 23,185 91,160 (25,208 ) 65,952 1 – 8 Income before equity in earnings of unconsolidated subsidiaries 116,147 (22,900 ) 93,247 370,818 (46,815 ) 324,004 Equity in earnings of unconsolidated subsidiary – related parties 1,954 — 1,954 12,533 — 12,532 Net income $ 118,101 $ (22,900 ) $ 95,201 $ 383,351 $ (46,815 ) $ 336,536 Net income attributable to non-controlling interests and redeemable non-controlling interests of subsidiaries (2,975 ) — (2,975 ) (12,809 ) — (12,809 ) Net income attributable to AmTrust Financial Services, Inc. $ 115,126 $ (22,900 ) $ 92,226 $ 370,542 $ (46,815 ) $ 323,727 Dividends on preferred stock (11,576 ) — (11,576 ) (31,943 ) — (31,943 ) Net income attributable to AmTrust common stockholders $ 103,550 $ (22,900 ) $ 80,650 $ 338,599 $ (46,815 ) $ 291,784 Earnings per common share: Basic earnings per share $ 0.61 $ (0.14 ) $ 0.47 $ 1.96 $ (0.28 ) $ 1.68 Diluted earnings per share $ 0.60 $ (0.13 ) $ 0.47 $ 1.93 $ (0.26 ) $ 1.67 Dividends declared per common share $ 0.17 $ — $ 0.17 $ 0.47 $ — $ 0.47 Consolidated Statements of Comprehensive Income Three Months Ended September 30, 2016 Nine Months Ended September 30, 2016 As previously reported Adjustments As Restated As previously reported Adjustments As Restated Reference (in thousands, except per share) Net income $ 118,101 $ (22,900 ) $ 95,201 $ 383,351 $ (46,815 ) $ 336,536 Other comprehensive (loss) income, net of tax: Foreign currency translation adjustments (89,218 ) 59,073 (30,145 ) (173,883 ) 63,735 (110,148 ) 4 Change in fair value of interest rate swap 253 — 253 540 — 540 Unrealized gain on securities: Gross unrealized holding gain 31,529 (7,788 ) 23,741 331,761 (3,352 ) 328,409 8 Less: tax (benefit) expense (41,602 ) 48,720 7,118 61,187 52,703 113,890 8 Net unrealized holding gain 73,131 (56,508 ) 16,623 270,574 (56,055 ) 214,519 Reclassification adjustment for investment loss included in net income, net of tax: Other-than-temporary impairment loss 5,989 — 5,989 16,526 — 16,526 Other net realized loss on investments (9,388 ) — (9,388 ) (34,519 ) — (34,519 ) Reclassification adjustment for investment loss included in net income (3,399 ) — (3,399 ) (17,993 ) — (17,993 ) Other comprehensive (loss) income, net of tax $ (19,233 ) $ 2,565 $ (16,668 ) $ 79,238 $ 7,680 $ 86,918 Comprehensive income 98,868 (20,335 ) 78,533 462,589 (39,135 ) 423,454 Less: Comprehensive income attributable to non-controlling and redeemable non-controlling interest 2,975 — 2,975 12,809 — 12,809 Comprehensive income attributable to AmTrust Financial Services, Inc. $ 95,893 $ (20,335 ) $ 75,558 $ 449,780 $ (39,135 ) $ 410,645 Consolidated Statement of Stockholders' Equity As of September 30, 2016 As previously reported Adjustments As Restated Reference (in thousands) Common stock $ 1,965 $ — $ 1,965 Preferred stock 913,750 — 913,750 Additional paid-in capital 1,376,463 — 1,376,463 Treasury stock (311,328 ) — (311,328 ) Accumulated other comprehensive loss (51,024 ) 4,546 (46,478 ) 4 Retained earnings 1,591,664 (228,937 ) 1,362,727 1 – 8 $ 3,521,490 $ (224,391 ) $ 3,297,099 Consolidated Statements of Cash Flows Nine Months Ended September 30, 2016 As previously reported Adjustments As restated Reference (in thousands) Cash flows from operating activities: Net income $ 383,351 $ (46,815 ) $ 336,536 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 89,779 7,535 97,314 5 Net amortization of bond premium or discount 21,983 — 21,983 Equity earnings on investment in unconsolidated subsidiaries (12,532 ) — (12,532 ) Gain on investment in life settlement contracts, net (28,891 ) — (28,891 ) Net realized gain on investments (57,721 ) — (57,721 ) Non-cash write-down of investments 26,417 — 26,417 Discount on notes payable 4,420 — 4,420 Stock based compensation 17,433 — 17,433 Bad debt expense 15,199 — 15,199 Foreign currency loss 70,428 7,680 78,108 4 Gain on acquisition (48,775 ) — (48,775 ) Changes in assets – (increase) decrease: Premiums receivable (265,477 ) (34,301 ) (299,778 ) 8, 9 Reinsurance recoverable (361,794 ) (1,293 ) (363,087 ) 8 Deferred policy acquisition costs (260,399 ) 31,110 (229,289 ) 3 Prepaid reinsurance premiums (486,506 ) — (486,506 ) Other assets 177,545 129,954 307,499 1 – 9 Changes in liabilities – increase (decrease): Ceded reinsurance premium payable 316,497 — 316,497 Loss and loss expense adjustment reserves 1,189,411 — 1,189,411 Unearned premiums 513,141 341 513,482 8 Funds held under reinsurance treaties (7,487 ) — (7,487 ) Accrued expenses and other liabilities (456,107 ) (53,466 ) (509,573 ) 1, 2, 6, 8, 9 Net cash provided by operating activities 839,915 40,745 880,660 Cash flows from investing activities: Purchases of fixed maturities, available-for-sale (1,839,005 ) — (1,839,005 ) Purchases of equity securities, available-for-sale (129,716 ) — (129,716 ) Purchases of equity securities, trading (150,654 ) — (150,654 ) Purchases of other investments (22,555 ) 7,164 (15,391 ) 8 Sales, maturities, paydowns of fixed maturities, available-for-sale 1,537,296 — 1,537,296 Sales of equity securities, available-for-sale 110,895 — 110,895 Sales of equity securities, trading 155,502 — 155,502 Sales of other investments 3,371 — 3,371 Net (purchases) of short term investments (99,320 ) (26,587 ) (125,907 ) 1, 2, 6, 8, 9 Net (purchases) of securities sold but not purchased (14,848 ) — (14,848 ) Acquisition of life settlement contracts (15,880 ) — (15,880 ) Receipt of life settlement contract proceeds 38,247 — 38,247 Acquisition of subsidiaries, net of cash obtained (139,038 ) — (139,038 ) Decrease in restricted cash and cash equivalents, net (176,428 ) — (176,428 ) Purchase of property and equipment (93,787 ) (17,921 ) (111,708 ) 5 Net cash used in investing activities (835,920 ) (37,344 ) (873,264 ) Consolidated Statements of Cash Flows Nine Months Ended September 30, 2016 As previously reported Adjustments As restated Reference (in thousands) Cash flows from financing activities: Secured loan agreement borrowings 45,809 — 45,809 Secured loan agreement payments (5,372 ) — (5,372 ) Convertible senior notes payments (10 ) — (10 ) Common stock issuance 276 — 276 Common stock repurchase (152,395 ) — (152,395 ) Preferred stock issuance 417,264 — 417,264 Contingent consideration payments — (34,839 ) (34,839 ) 6 Non-controlling interest capital contributions to (5,984 ) — (5,984 ) Stock option exercise and other (6,819 ) — (6,819 ) Dividends distributed on common stock (78,501 ) — (78,501 ) Dividends distributed on preferred stock (31,943 ) — (31,943 ) Net cash provided by financing activities 182,325 (34,839 ) 147,486 Effect of exchange rate changes on cash (25,453 ) — (25,453 ) Net increase in cash and cash equivalents 160,867 (31,438 ) 129,429 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 $ 1,092,837 $ 40,508 $ 1,133,345 Supplemental Cash Flow Information Interest payments on debt $ 46,133 $ — $ 46,133 Income tax payments $ 24,565 $ — $ 24,565 Declared dividends on common stock $ 81,167 $ — $ 81,167 Consolidated Balance Sheet September 30, 2015 ASSETS As previously reported Adjustments As restated Reference (in thousands) Investments: Fixed maturities, available-for-sale, at fair value (amortized cost $5,112,504) $ 5,125,808 $ — $ 5,125,808 Equity securities, available-for-sale, at fair value (cost $110,990) 106,118 — 106,118 Equity securities, trading, at fair value (cost $20,745) 19,860 — 19,860 Short-term investments 36,043 (8,938 ) 27,105 9 Equity investment in unconsolidated subsidiaries – related parties 138,867 — 138,867 Other investments (related party $10,242; recorded at fair value $21,826) 97,184 — 97,184 Total investments 5,523,880 (8,938 ) 5,514,942 Cash and cash equivalents 910,653 8,938 919,591 8, 9 Restricted cash and cash equivalents 257,050 — 257,050 Accrued interest and dividends 49,814 — 49,814 Premiums receivable, net 2,322,442 120,695 2,443,137 8, 9 Reinsurance recoverable (related party $1,982,243) 2,951,764 — 2,951,764 Prepaid reinsurance premium (related party $1,123,040) 1,684,986 — 1,684,986 Other assets (related party $179,625; recorded at fair value $271,249) 1,431,476 76,190 1,507,666 1,5,8,9 Deferred policy acquisition costs 714,226 (7,952 ) 706,274 3 Property and equipment, net 225,826 (8,493 ) 217,333 5, 8 Goodwill 501,025 — 501,025 Intangible assets 362,108 — 362,108 $ 16,935,250 $ 180,440 $ 17,115,690 LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities: Loss and loss adjustment expense reserves $ 6,694,036 $ — $ 6,694,036 Unearned premiums 4,134,048 — 4,134,048 Ceded reinsurance premiums payable (related party $483,120) 806,353 — 806,353 Accrued expenses and other liabilities (related party $167,975; recorded at fair value $176,558) 1,507,048 349,418 1,856,466 1, 2, 6, 8, 9 Debt (net of debt issuance cost of $12,295) 993,145 — 993,145 Total liabilities 14,134,630 349,418 14,484,048 Commitments and contingencies Redeemable non-controlling interest 1,140 — 1,140 Stockholders’ equity: Common stock, $0.01 par value; 300,000 shares authorized, 196,454 issued; 165,816 outstanding 1,964 — 1,964 Preferred stock, $0.01 par value; 10,000 shares authorized, 4,968 issued and outstanding 482,500 — 482,500 Additional paid-in capital 1,121,522 — 1,121,522 Treasury stock at cost; 30,638 shares (218,927 ) — (218,927 ) Accumulated other comprehensive loss (61,118 ) 3,073 (58,045 ) 4 Retained earnings 1,296,765 (172,051 ) 1,124,714 1,2,4,5,8 Total AmTrust Financial Services, Inc. equity 2,622,706 (168,978 ) 2,453,728 Non-controlling interest 176,774 — 176,774 Total stockholders’ equity 2,799,480 (168,978 ) 2,630,502 $ 16,935,250 $ 180,440 $ 17,115,690 Consolidated Statement of Income Three Months Ended September 30, 2015 Nine Months Ended September 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 $ 1,142,983 $ — $ 1,142,983 $ 3,194,893 $ — $ 3,194,893 Change in unearned premium (97,575 ) — (97,575 ) (231,138 ) — (231,138 ) Net earned premium 1,045,408 — 1,045,408 2,963,755 — 2,963,755 Service and fee income (related parties - three months $19,250 and nine months $57,935) 126,143 (13,220 ) 112,923 346,766 (35,564 ) 311,202 1 Net investment income 40,425 — 40,425 111,281 — 111,281 Net realized gain on investments 17,682 — 17,682 30,693 — 30,693 Total revenues 1,229,658 (13,220 ) 1,216,438 3,452,495 (35,564 ) 3,416,931 Expenses: Loss and loss adjustment expense 709,604 — 709,604 1,961,362 — 1,961,362 Acquisition costs and other underwriting expenses (net of ceding commission - related party - three months $138,036 and nine months $385,945) 258,016 2,706 260,722 728,402 11,273 739,675 2, 3, 5, 8 Other 116,900 3,374 120,274 313,487 8,883 322,370 1, 5, 7, 8 Total expenses 1,084,520 6,080 1,090,600 3,003,251 20,156 3,023,407 Income before other (expense) income, provision for income taxes, equity in earnings of unconsolidated subsidiaries and non-controlling interest 145,138 (19,300 ) 125,838 449,244 (55,720 ) 393,524 Other (expenses) income: Interest expense (net of interest income - related party - three months $2,115 and nine months $6,514) (12,862 ) (1,826 ) (14,688 ) (32,763 ) (5,478 ) (38,241 ) 6 Loss on extinguishment of debt (557 ) — (557 ) (5,271 ) — (5,271 ) Gain on investment in life settlement contracts net of profit commission 4,616 — 4,616 19,085 — 19,085 Foreign currency gain 24,721 26,279 51,000 17,355 (3,550 ) 13,805 4, 8 Gain on acquisition 5,826 — 5,826 5,826 — 5,826 Total other income (expenses) 21,744 24,453 46,197 4,232 (9,028 ) (4,796 ) Income before provision for income taxes, equity in earnings of unconsolidated subsidiaries and non-controlling interest 166,882 5,153 172,035 453,476 (64,748 ) 388,728 Provision for income taxes (12,651 ) 1,804 (10,847 ) 38,635 (21,957 ) 16,678 1,2,3,4,5,6,8 Income before equity in earnings of unconsolidated subsidiaries 179,533 3,349 182,882 414,841 (42,791 ) 372,050 Equity in earnings of unconsolidated subsidiary – related parties 13,477 — 13,477 23,048 — 23,048 Net income 193,010 3,349 196,359 437,889 (42,791 ) 395,098 Net (income) loss attributable to non-controlling interests and redeemable non-controlling interests of subsidiaries (1,511 ) — (1,511 ) (6,940 ) — (6,940 ) Net income attributable to AmTrust Financial Services, Inc. $ 191,499 $ 3,349 $ 194,848 $ 430,949 $ (42,791 ) $ 388,158 Dividends on preferred stock (8,789 ) — (8,789 ) (22,797 ) — (22,797 ) Net income attributable to AmTrust common stockholders $ 182,710 $ 3,349 $ 186,059 $ 408,152 $ (42,791 ) $ 365,361 Earnings per common share: Basic earnings per share $ 1.11 $ 0.01 $ 1.12 $ 2.49 $ (0.27 ) $ 2.22 Diluted earnings per share $ 1.09 $ 0.01 $ 1.10 $ 2.44 $ (0.26 ) $ 2.18 Dividends declared per common share $ 0.15 — $ 0.15 $ 0.40 — $ 0.40 Consolidated Statements of Comprehensive Income Three Months Ended September 30, 2015 Nine Months Ended September 30, 2015 As previously reported Adjustments As Restated As previously reported Adjustments As Restated Reference (in thousands, except per share) Net income $ 193,010 $ 3,349 $ 196,359 $ 437,889 $ (42,791 ) $ 395,098 Other comprehensive loss, net of tax: Foreign currency translation adjustments 2,128 (26,150 ) (24,022 ) (49,204 ) (1,680 ) (50,884 ) 4 Change in fair value of interest rate swap 107 — 107 297 — 297 Unrealized gain on securities: Gross unrealized holding loss (25,611 ) 130 (25,481 ) (106,105 ) 461 (105,644 ) 8 Less: tax expense (8,964 ) 46 (8,918 ) (37,137 ) 162 (36,975 ) 8 Net unrealized holding gain (16,647 ) 84 (16,563 ) (68,968 ) 299 (68,669 ) Reclassification adjustment for investment gain (loss) included in net income, net of tax: Other-than-temporary impairment loss 1,088 — 1,088 1,088 — 1,088 Other net realized loss on investments 751 — 751 (454 ) — (454 ) Reclassification adjustment for investment loss included in net income 1,839 — 1,839 634 — 634 Other comprehensive loss, net of tax $ (12,573 ) $ (26,066 ) $ (38,639 ) $ (117,241 ) $ (1,381 ) $ (118,622 ) Comprehensive income 180,437 (22,717 ) 157,720 320,648 (44,172 ) 276,476 Less: Comprehensive income attributable to non-controlling and redeemable non-controlling interest 1,511 — 1,511 6,940 — 6,940 Comprehensive income attributable to AmTrust Financial Services, Inc. $ 178,926 $ (22,717 ) $ 156,209 $ 313,708 $ (44,172 ) $ 269,536 Consolidated Statement of Stockholders' Equity As of September 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 1,121,522 — 1,121,522 Treasury Stock (218,927 ) — (218,927 ) Accumulated other comprehensive loss (61,118 ) 3,073 (58,045 ) 4 Retained earnings 1,296,765 (172,051 ) 1,124,714 1,2,4,5,8 $ 2,622,706 $ (168,978 ) $ 2,453,728 Consolidated Statement of Cash Flows Nine Months Ended September 30, 2015 As previously reported Adjustments As restated Reference (in thousands) Cash flows from operating activities: Net income $ 437,889 $ (42,791 ) $ 395,098 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 61,602 2,687 64,289 5 Net amortization of bond premium or discount 11,845 — 11,845 Equity earnings on investment in unconsolidated subsidiaries (23,048 ) — (23,048 ) Gain on investment in life settlement contracts, net (19,085 ) — (19,085 ) Net realized gain on investments (40,811 ) — (40,811 ) Non-cash write-down of investments 10,118 — 10,118 Discount on notes payable 4,226 — 4,226 Stock based compensation 16,678 — 16,678 Loss on extinguishment of debt 5,271 — 5,271 Bad debt expense 13,943 — 13,943 Foreign currency gain (17,355 ) 3,550 (13,805 ) 4 Gain on sale of subsidiary (5,826 ) — (5,826 ) Changes in assets – (increase) decrease: Premiums receivable (492,354 ) (80,371 ) (572,725 ) 8, 9 Reinsurance recoverable (510,397 ) 95 (510,302 ) 8 Deferred policy acquisition costs (87,597 ) 8,831 (78,766 ) 3 Prepaid reinsurance premiums (304,361 ) — (304,361 ) Other assets (352,931 ) (80,934 ) (433,865 ) 1, 8, 9 Changes in liabilities – increase (decrease): Ceded reinsurance premium payable 138,192 — 138,192 Loss and loss adjustment expense reserves 999,371 — 999,371 Unearned premiums 495,499 (2,332 ) 493,167 8 Funds held under reinsurance treaties 20,685 — 20,685 Accrued expenses and other current liabilities 182,127 232,421 414,548 1, 2, 6, 8, 9 Net cash provided by operating activities 543,681 41,156 584,837 Cash flows from investing activities: Purchases of fixed maturities, available-for-sale (1,671,330 ) — (1,671,330 ) Purchases of equity securities, available-for-sale (32,898 ) — (32,898 ) Purchases of equity securities, trading (154,524 ) — (154,524 ) Purchases of other investments (74,562 ) 8,366 (66,196 ) 8 Sales, maturities, paydowns of fixed maturities, available-for-sale 971,448 (3,275 ) 968,173 9 Sales of equity securities, available-for-sale 18,639 — 18,639 Sales of equity securities, trading 161,723 — 161,723 Sales of other investments 2,960 — 2,960 Net sales of short term investments 48,165 8,938 57,103 9 Acquisition of life settlement contracts 86,033 — 86,033 Acquisition of subsidiaries, net of cash obtained (219,568 ) — (219,568 ) Increase in restricted cash and cash equivalents, net (70,846 ) — (70,846 ) Purchase of property and equipment (100,421 ) (3,261 ) (103,682 ) 5 Net cash used in investing activities (1,035,181 ) 10,768 (1,024,413 ) Cash flows from financing activities: Revolving credit facility borrowings 430,000 — 430,000 Revolving credit facility payments (420,000 ) — (420,000 ) Secured loan agreement borrowings 10,250 — 10,250 Secured loan agreement payments (5,234 ) — (5,234 ) Consolidated Statement of Cash Flows Nine Months Ended September 30, 2015 As previously reported Adjustments As restated Reference (in thousands) 2055 Subordinated notes proceeds 285,000 — 285,000 Convertible senior notes payments (62,079 ) — (62,079 ) Financing fees (9,451 ) — (9,451 ) Common stock issuance 171,672 — 171,672 Preferred stock issuance 176,529 — 176,529 Contingent consideration payments — (21,135 ) (21,135 ) 6 Non-controlling interest capital contributions to consolidated subsidiaries, net 14,451 — 14,451 Stock option exercise and other (219 ) — (219 ) Dividends distributed on common stock (60,498 ) — (60,498 ) Dividends distributed on preferred stock (22,797 ) — (22,797 ) Net cash provided by financing activities 507,624 (21,135 ) 486,489 Effect of exchange rate changes on cash (8,221 ) — (8,221 ) Net increase in cash and cash equivalents 7,903 30,789 38,692 Cash and cash equivalents, beginning year 902,750 (21,851 ) 880,899 1, 2, 4 – 9 Cash and cash equivalents, end of period $ 910,653 $ 8,938 $ 919,591 Supplemental Cash Flow Information Interest payments on debt $ 31,573 $ — $ 31,573 Income tax payments $ 231,684 $ — $ 231,684 Declared dividends on common stock $ 66,121 $ — $ 66,121 |
