AmTrust Financial Services, Inc. - Corporate Solutions
AmTrust Financial Services, Inc. - Corporate Solutions
AmTrust Financial Services, Inc. - Corporate Solutions
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<strong>AmTrust</strong> <strong>Financial</strong> <strong>Services</strong>,<br />
<strong>Inc</strong>.<br />
(AFSI-NASDAQ)<br />
Investor Presentation<br />
Third Quarter 2013
Forward Looking Statements<br />
This presentation contains certain forward-looking statements that are intended to be<br />
covered by the safe harbors created by The Private Securities Litigation Reform Act of<br />
1995. All statements other than statements of historical fact included in this presentation<br />
are forward-looking statements, including statements accompanied by words such as<br />
“believe,” “expect,” “anticipate,” “intend,” “estimate,” “plan,” “project” and “continue” or<br />
future or conditional verbs such as “will,” “would,” “should,” “could” or “may.” These<br />
statements include the plans and objectives of management for future operations,<br />
including those relating to future growth of the Company’s business activities and<br />
availability of funds, and are based on current expectations that involve assumptions<br />
that are difficult or impossible to predict accurately, many of which are beyond the<br />
control of the Company. There can be no assurance that actual developments will be<br />
consistent with the Company’s assumptions. Actual results may differ materially from<br />
those expressed or implied in these statements as a result of significant risks and<br />
uncertainties, including the factors set forth in the Company’s filings with the Securities<br />
and Exchange Commission, including its Annual Report on Form 10-K and its quarterly<br />
reports on Form 10-Q. The projections and statements in this presentation speak only<br />
as of the date of this presentation and the Company undertakes no obligation to update<br />
or revise any forward-looking statement, whether as a result of new information, future<br />
developments or otherwise, except as may be required by law.<br />
2
History of <strong>AmTrust</strong><br />
• Founded in 1998 by Chairman Michael Karfunkel, Director George<br />
Karfunkel and CEO and President Barry Zyskind<br />
• 1998, acquired Wang Laboratory <strong>Inc</strong>.’s computer warranty<br />
business, writing $10 million in premiums the first year<br />
• 2000, the workers’ compensation insurance market experiences<br />
significant market dislocations providing an opportunity for <strong>AmTrust</strong><br />
to enter the market<br />
• 2013, a combination of organic growth and acquisitions lead to<br />
$3.8 billion in gross written premiums for the past 12 months<br />
ending 9/30/13<br />
3
<strong>AmTrust</strong> Overview<br />
4<br />
$3.8 billion* multinational, specialty property<br />
and casualty insurance company<br />
• Low hazard and predictable, non-catastrophic policyholder base<br />
– Strong risk management and pricing discipline<br />
– Target underserved, niche markets<br />
• Highly efficient operating platform<br />
– Vertically-integrated proprietary technology drives costs lower and<br />
service levels higher<br />
– Effective economies of scale<br />
• Record of intelligent growth<br />
– Disciplined organic expansion<br />
– Low-risk, high-return acquisitions, renewal rights transactions, strategic<br />
agreements and key hires<br />
• Strong balance sheet/efficient capital structure<br />
– <strong>AmTrust</strong> Group rated “A” with a stable outlook and a <strong>Financial</strong> Size of X by<br />
A.M. Best<br />
– Conservative investment philosophy<br />
* LTM Gross Written Premiums
Strong Premiums & Earnings Growth<br />
$ in millions<br />
Gross Written Premiums<br />
Net Operating Earnings¹<br />
$3,059<br />
$2,749<br />
$179<br />
$192<br />
$183<br />
$2,150<br />
$1,976<br />
$126 $127<br />
$138<br />
$138<br />
$1,111 $1,199 $1,561<br />
2008 2009 2010 2011 2012 YTD12 YTD13<br />
2008 2009 2010 2011 2012 YTD12 YTD13<br />
¹ Net <strong>Inc</strong>ome less after-tax realized investment gain (loss), non-cash amortization of certain intangible assets, non-cash interest on<br />
convertible senior notes net of tax, foreign currency transaction gain (loss), sale of equity investment, gain resulting from a decrease in the<br />
ownership percentage of an equity investment in an unconsolidated subsidiary (related party) net of tax and acquisition gain, net of tax.<br />
Please see the Non-GAAP Reconciliations at the end of this presentation for important information on this Non-GAAP measure.<br />
5
Shareholders’ Equity<br />
Producing investor value is a core focus that drives every<br />
aspect of the business<br />
$ in millions<br />
$1,388<br />
$1,144<br />
$1,074<br />
$891<br />
$717<br />
$569<br />
$393<br />
2008 2009 2010 2011 2012 YTD12 YTD13<br />
6
Growth in Operating Revenues*<br />
Rising insurance premiums, and service and fee income contribute to<br />
strong revenue growth<br />
$ in millions<br />
$1,856<br />
$2,060<br />
$1,355<br />
$1,344<br />
$641<br />
$773<br />
$997<br />
2008 2009 2010 2011 2012 YTD12 YTD13<br />
*Excludes net realized gain or loss<br />
7
Technology is Core<br />
• A software development company that happens to do insurance<br />
• Employ a large team of experienced in-house programmers, providing<br />
customized software solutions<br />
• Allows quick processing of heavy volume of transactions. Support 55 million<br />
active warranty policies and manage 250,000 insurance quotes per month<br />
• Technology serves as our competitive advantage by driving down the expense<br />
ratio (22.7% in 3Q13) while still providing high quality customer service through<br />
efficient claim processing, policy administration and servicing<br />
• Information systems are streamlined and an integral part of the acquisitions<br />
process, providing easy scalability to new products and acquisitions<br />
• IT costs well below industry average<br />
8
Segment Overview<br />
Small Commercial<br />
Business<br />
Specialty Risk and<br />
Extended Warranty<br />
Specialty<br />
Program<br />
Largest<br />
Markets*<br />
California, New York,<br />
Florida, Pennsylvania<br />
United States, Italy, UK,<br />
France, Norway<br />
California, New York,<br />
New Jersey, Florida<br />
Primary<br />
Products<br />
• Workers’ comp insurance in<br />
low and medium hazard<br />
classes, 87% of Division’s<br />
GWP.<br />
• Commercial package and<br />
other low hazard P&C<br />
products, 13% of Division’s<br />
GWP<br />
• Low hazard and noncatastrophic<br />
accidental<br />
damage and mechanical<br />
breakdown coverage for<br />
consumer and commercial<br />
goods in U.S. and E.U.<br />
• Specialty commercial and<br />
consumer coverage in E.U.<br />
• 77* programs in Worker’s<br />
compensation, GL,<br />
commercial auto and<br />
property coverage to<br />
specialized niche sectors or<br />
geographic regions through<br />
risk sharing agreements<br />
with over 44 MGAs<br />
Gross<br />
Written<br />
Premium<br />
($s in millions)<br />
Combined<br />
Ratio<br />
YTD13: $1,189 YTD13: $1,129 YTD13: $674<br />
YTD12: $690 YTD12: $767 YTD12: $429<br />
% Chg: 72.3% % Chg: 47.2% % Chg: 57.1%<br />
YTD13: 90.8% YTD13: 85.3% YTD13: 95.2%<br />
YTD12: 91.8% YTD12: 81.1% YTD12: 97.1%<br />
YTD11: 89.8% YTD11: 84.9% YTD11: 94.1%<br />
*year end 2012 data<br />
9
Product Mix<br />
Operates in Diverse, Lower Volatility Businesses<br />
Balanced mix of higher frequency,<br />
low hazard business lines<br />
• More predictable loss experience<br />
• Lower pricing pressures<br />
• Higher retention rates<br />
• Differentiated workers’ comp. franchise<br />
in small business market<br />
• Attractive warranty insurance franchise<br />
Auto<br />
Commercial<br />
Auto<br />
Other<br />
Liability<br />
Product Mix YTD13<br />
3%<br />
5%<br />
20%<br />
Warranty<br />
Other<br />
12%<br />
21%<br />
39%<br />
$3.1 billion GWP YTD13<br />
Workers’<br />
Comp.<br />
10
Geographically Diverse<br />
Geographically diversified business protects against country specific volatility<br />
and enables efficient allocation of capital<br />
Global geographic diversity<br />
with a focus on U.S. markets<br />
• Positioned for improving<br />
prices in key products in U.S.<br />
• Growth opportunities in<br />
Europe following dislocation<br />
in local markets<br />
United<br />
Kingdom<br />
Italy<br />
Geographic Mix 2012<br />
France<br />
10%<br />
2%<br />
11%<br />
Other<br />
6%<br />
71%<br />
United<br />
States<br />
2012 Gross Written Premium $2.7 billion<br />
11
Consistent & Strong Underwriting Performance<br />
95.3%<br />
74.4%<br />
20.1%<br />
93.1% 93.5%<br />
85.3%<br />
79.8%<br />
22.1%<br />
22.7%<br />
97.7%<br />
99%<br />
93.1%<br />
89.0% 89.5% 90.2%<br />
23.6% 24.4% 23.0%<br />
54.3% 57.1%<br />
63.2% 65.4% 65.0% 67.2%<br />
20081<br />
2009 2010 2011 2012 YTD13<br />
<strong>AmTrust</strong> Expense Ratio <strong>AmTrust</strong> Loss Ratio P&C Peers<br />
2<br />
Note: P&C Peers include CNA <strong>Financial</strong>, The Hanover Group, Markel Corp, Meadowbrook<br />
Insurance Group, RLI Corp, Selective Insurance, W.R. Berkley, and HCC Insurance Holdings.<br />
¹ 2008 Loss Ratio excludes effect of $15.0 million pre-tax loss reserve release.<br />
² Average GAAP combined ratio of P&C peers.<br />
12
Stable Pricing<br />
Disciplined, consistent pricing is valued by customers and distributors<br />
1.50<br />
<strong>AmTrust</strong> Workers’ Compensation Average LCM*<br />
2001 - 2012<br />
1.40<br />
1.30<br />
1.20<br />
1.10<br />
1.00<br />
0.90<br />
0.80<br />
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012<br />
<strong>AmTrust</strong> ex. California<br />
*(LCM) Loss Cost Multiplier : price over state approved rate<br />
13
Workers’ Compensation Experience<br />
Focus on small business and advantageous pricing has assured<br />
excellent claims experience.<br />
• Small business focus aids underwriting profitability Workers’ comp customers have an<br />
average of eight employees, providing a greater incentive to assure the claimant returns to<br />
work<br />
• Stable loss ratio Driven by disciplined pricing throughout the underwriting cycle. Low<br />
hazard risks limits severity risk<br />
• High rate of closed claims More than 95% of all workers’ compensation insurance<br />
indemnity claims from 2008 are closed, 91% from 2009 and 87% from 2010<br />
• Low hazard risks are a key differentiator Our focus on low hazard risks results in a<br />
significantly lower claims severity experience than the industry average.<br />
• Small, low hazard, employer market offers manageable claims mix 76%<br />
of all workers’ compensation claims are medical-only<br />
14
Growing Service and Fee Revenue<br />
Attractive margins, unencumbered cash flow and requires limited capital<br />
• Warranty and Consumer <strong>Services</strong><br />
• Assigned Risk<br />
$ in millions<br />
Service and Fee Revenue<br />
• Policy Issuance Fees<br />
• Workers’ Compensation Fund<br />
Management<br />
• Insurance Brokerage Fees<br />
• Unemployment Insurance <strong>Services</strong><br />
• IT Systems Management and<br />
Support<br />
$239<br />
$172<br />
$108<br />
$118<br />
$62<br />
$29 $31<br />
2008 2009 2010 2011 2012 YTD12 YTD13<br />
• Asset Management<br />
15
Components of Service and Fee Revenue<br />
$ in millions<br />
Third Quarter<br />
2012 2013<br />
AMT Warranty $17.7 $21.7<br />
NCCI Assigned Risk 5.5 8.8<br />
CNH 4.4 7.6<br />
NGHC Technology 3.9 7.1<br />
Other Service and Fees 13.1 12.0<br />
<strong>AmTrust</strong> Consumer <strong>Services</strong> - 17.0<br />
Car Care - 9.9<br />
First Nonprofit - 5.9<br />
Total Fee and Service $44.6 $90.0<br />
16
Value Creation Through Acquisitions<br />
• M&A a core competency<br />
- Strong expertise in consolidating books of business and operating companies<br />
- Executive management and segment leaders active participants<br />
• Entrepreneurial approach to strategic opportunities<br />
− Invest time and effort into creating a sale<br />
− Internally source most transactions<br />
Target assets with size and scope to be easily absorbed<br />
− Focus on transactions that are low-risk to the balance sheet<br />
− Buy healthy balance sheets with upside<br />
• Capitalize on factors that may deter others<br />
− Provide <strong>AmTrust</strong>’s strength in technology, claims and expense management to<br />
companies challenged in those aspects of the business<br />
17
Recent Significant Transactions<br />
1<br />
2<br />
1<br />
Transaction expected to be completed by 4Q13<br />
2 Transaction expected to be completed by 1Q14<br />
18
Insco Dico Group<br />
• September 18, 2013, <strong>AmTrust</strong> announces its intent to<br />
acquire The Insco Dico Group<br />
• Purchase price is approximately $85 million, or<br />
approximately $7 million above the tangible book value<br />
• The Insco Dico Group is headquartered in California with<br />
licenses in all 50 states.<br />
• The Insco Dico Group provides surety and general<br />
liability insurance to building contractors and is licensed<br />
in 50 states<br />
• In 2012 Insco Dico produced $50 million in premium<br />
• Expected to close in the first quarter of 2014<br />
19
Conservative Investment Portfolio<br />
• $3.1 billion fixed income<br />
• 98% investment grade or better<br />
• 73% of fixed maturities A- rated<br />
or better<br />
• 13% of fixed maturities AAA- rated<br />
or U.S. Treasuries<br />
• Average fixed maturities portfolio<br />
duration of 5.8 years<br />
• Tax adjusted average fixed<br />
maturities portfolio yield of 3.3<br />
• Equity securities includes an<br />
investment in National General<br />
Holdings Corp. of $89 million (fair<br />
value of approximately $130 million)<br />
$3.8 Billion Invested Assets 9/30/13<br />
US<br />
Treasuries<br />
3%<br />
RMBS<br />
18%<br />
Municipal<br />
Bonds<br />
12%<br />
Foreign<br />
Govt<br />
1%<br />
Equities &<br />
Other<br />
4%<br />
Cash & ST<br />
16%<br />
<strong>Corporate</strong><br />
Bonds<br />
46%<br />
20
Strengthened Capital and Dividends<br />
• January 2012 completed issuance<br />
of $200 million 5.5% convertible<br />
note<br />
• August 2012 increased revolving<br />
credit facility to $200 million<br />
• September 2012 paid 10% stock<br />
dividend<br />
• April 2013 40% increase in<br />
stockholder cash dividend<br />
• June 2013 priced $115 million<br />
6.75% non-cumulative preferred<br />
stock offering<br />
• August 2013 priced $250 million<br />
6.125% private placement of senior<br />
notes<br />
• September 2013 paid a 10% stock<br />
dividend<br />
Capital Position As of 9/30/13<br />
Trust Preferred Securities $123,714<br />
Convertible Senior Notes 163,444<br />
Senior Notes 250,000<br />
Other Debt 22,504<br />
Total Debt $559,662<br />
Preferred Shares 115,000<br />
Shareholder's Equity 1,273,439<br />
Total Equity $1,388,439<br />
Total Capital $1,948,101<br />
Debt to Capital Ratio 28.7%<br />
21
22<br />
Appendix A: Segment Information
$in millions<br />
Small Commercial Business<br />
Lower hazard, small business, workers’ compensation and packaged products<br />
• Target lower risk, underserved businesses,<br />
such as restaurants, retailers and<br />
professional offices<br />
– Average WC policy premium of $9,1050<br />
– 8 to 10 employees<br />
• Less price sensitive than traditional<br />
products<br />
– Strong client retention with renewal rates<br />
consistently 83%<br />
• Proprietary technology provides ease-ofuse<br />
and strong operating efficiencies<br />
• Distributed through over 8,000 active retail<br />
and wholesale agents<br />
– Geographically diversified primarily in Mid-<br />
Atlantic, Southeast, Midwest and California<br />
Combined<br />
Ratio<br />
Gross Written Premium<br />
$1,189<br />
$934<br />
$610<br />
$690<br />
$459 $470 $466<br />
2008 2009 2010 2011 2012 YTD12 YTD13<br />
Earned Premium<br />
$517<br />
$417<br />
$320 $310<br />
$239 $252<br />
$173<br />
2008 2009 2010 2011 2012 YTD12 YTD13<br />
74.5% 82.8% 85.7% 89.9% 91.6% 91.8% 90.8%<br />
23
$ in millions<br />
Specialty Program<br />
Partner with MGAs to provide lower risk workers’ compensation, general<br />
liability, commercial auto and property coverage in specialized sectors<br />
• Target lower risk/specialty businesses<br />
– Multi-family housing operations<br />
– Artisan contractors<br />
– Restaurants<br />
– Public entity<br />
• Proprietary technology provides ease-ofuse<br />
to agents and paperless 24-hour<br />
underwriting response<br />
– Customized coverage, loss control and<br />
claims<br />
• Distributed through wholesalers with<br />
sector or geographic expertise in 50 states<br />
– MGAs generally share in risk with<br />
conservative underwriting guidelines<br />
Combined<br />
Ratio<br />
Gross Written Premium<br />
$579<br />
$674<br />
$382<br />
$429<br />
$236 $268 $264<br />
2008 2009 2010 2011 2012 YTD12 YTD13<br />
Earned Premium<br />
$349 $361<br />
$250<br />
$171<br />
$145 $145<br />
$112<br />
2008 2009 2010 2011 2012 YTD12 YTD13<br />
87.6% 91.1% 93.0% 94.6% 96.6% 97.1% 95.2%<br />
25
Appendix B: <strong>Financial</strong> Information<br />
and Non-GAAP Reconciliation<br />
26
Summary <strong>Inc</strong>ome Statement<br />
Nine Months<br />
%<br />
$ in millions 2008 2009 2010 2011 2012 2012 2013 Change<br />
Gross Written Premium $1,110.6 $1,198.9 $1,560.8 $2,150.5 $2,749.3 $1,975.7 $3,058.7 54.8%<br />
Net Written Premium 554.9 643.4 827.2 1,276.6 1,648.0 1,235.0 1,900.9 53.9%<br />
Net Earned Premium 439.1 573.9 745.7 1,036.9 1,418.9 1,035.5 1,558.4 50.5%<br />
Ceding Commission 115.5 113.9 138.3 154.0 197.0 140.7 199.3 41.6%<br />
Service and Fee <strong>Inc</strong>ome 28.0 30.7 62.1 108.7 172.2 118.1 238.6 102.1%<br />
Net Investment <strong>Inc</strong>ome & Realized Gains (4.1) 21.7 56.5 58.3 77.1 53.1 84.5 59.1%<br />
Loss and LAE Expense 238.3 327.8 471.5 678.3 922.7 667.4 1,046.9 56.9%<br />
Acquisition Cost and Other<br />
Underwriting Expense 203.7 244.3 302.8 398.4 543.7 397.5 557.2 40.2%<br />
<strong>Inc</strong>ome before Other <strong>Inc</strong>ome (Expense),<br />
Equity Earnings, interest expense & tax 117.2 145.9 171.8 194.4 237.4 172.2 264.6 53.7%<br />
<strong>Inc</strong>ome gains from Life Settlements - - 11.9 46.9 13.8 5.3 0.10 N/M<br />
Equity In Earnings (Loss) of<br />
Unconsolidated Subsidiary (1.0) (0.8) 23.2 4.9 9.3 8.7 10.5 20.7%<br />
Non-Controlling Interest (loss) 2.9 - (5.1) (20.7) (6.9) (3.1) 1.5 N/M<br />
Foreign Currency Gain (Loss) 2.7 2.5 0.7 (2.4) (0.2) (3.0) 2.4 N/M<br />
Acquisition Gain on Purchase - - - 5.9 - - 55.8 N/M<br />
Net <strong>Inc</strong>ome attributable to AFSI 82.9 103.2 142.5 170.4 178.0 122.7 220.9 80.0%<br />
Operating Earnings (1,2) 126.3 126.6 138.3 179.5 191.6 138.2 182.7 32.2%<br />
Operating EPS (2) N/A N/A $1.89 $2.41 $2.52 $1.82 $2.35 29.1%<br />
Annualized Operating ROE (2) 32.3% 26.3% 21.5% 22.3% 18.9% 18.8% 20.2%<br />
Net Loss Ratio 54.3% 57.1% 63.2% 65.4% 65.0% 64.5% 67.2%<br />
Net Expense Ratio 20.1% 22.7% 22.1% 23.6% 24.4% 24.8% 23.0%<br />
Net Combined Ratio 74.1% 79.8% 85.3% 89.0% 89.5% 89.2% 90.2%<br />
1<br />
Net operating earnings reflects net income as adjusted by the items detailed in footnote (1) to the Non-GAAP<br />
Reconciliation on Slide 29<br />
² Please see the Non-GAAP reconciliation slide at the end of this presentation for important information about<br />
these Non-GAAP measures.<br />
27
Balance Statement Highlights<br />
$s in millions 2008 2009 2010 2011 2012 9/30/13<br />
Cash and Investments $1,361.4 $1,414.8 $1,559.1 $2,086.6 $2,696.4 $3,817.4<br />
Reinsurance Recoverable 584.8 643.3 775.4 1,098.6 1,318.4 1,857.6<br />
Premiums Receivable, Net 419.6 495.9 727.6 933.0 1,251.3 1,431.3<br />
Prepaid Reinsurance Premium 372.0 410.6 485.0 584.9 754.8 957.1<br />
Deferred Policy Acquisition Costs and<br />
Other Assets 406.1 435.8 627.4 1,029.4 1,396.3 1,835.7<br />
Total Assets $3,143.9 $3,400.4 $4,182.5 $5,732.5 $7,417.2 $9,899.1<br />
Loss and LAE Reserve 1,014.1 1,091.9 1,263.5 1,879.2 2,426.4 3,615.5<br />
Unearned Premiums 759.9 871.8 1,025.0 1,366.2 1,773.6 2,537.4<br />
Debt 157.0 143.7 144.8 279.6 302.0 559.7<br />
Reinsurance Payables, Accrued<br />
Expenses and Other Liabilities 820.4 723.6 1,008.2 1,247.3 1,667.2 1,679.5<br />
Total Liabilities $2,751.4 $2,831.0 $3,441.5 $4,772.3 $6,169.2 $8,392.1<br />
Redeemable Non-Controlling Interest 0.0 - 0.6 0.6 0.6 0.6<br />
<strong>AmTrust</strong> <strong>Financial</strong> Shareholders' Equity 392.5 569.4 716.5 890.6 1,144.1 1,388.4<br />
Non-Controlling Interest - - 24.5 69.6 103.3 118.0<br />
Total Shareholders' Equity 392.5 569.4 741.0* 960.2 1,248.0 1,506.4<br />
Total Liabilities and Shareholder's Equity $3,143.9 $3,400.4 $4,182.5 $5,732.5 $7,417.2 $9,899.1<br />
Book Value Per Share $5.39 $7.89 $9.90 $12.21 $15.48 $17.08<br />
28
Non-GAAP Reconciliation<br />
Nine Months<br />
$s in millions 2011 2012 2012 2013<br />
Net income $170.4 $178.0 $122.7 $220.9<br />
Less:<br />
Net after-tax realized securities gains/(losses) 1.8 13.7 2.5 13.3<br />
Net after-tax gain on investment in unconsolidated sub (2.3) - - -<br />
Foreign currency transaction gains/(loss) (2.4) (0.2) (3.0) 2.4<br />
Non-cash interest on convertible senior notes net of tax - (2.1) (3.2) (1.4)<br />
Non-cash amortization of certain intangible assets (9.9) (17.2) (11.8) (20.8)<br />
Gain resulting from decrease in ownership percentage<br />
of equity investment in unconsolidated subsidiary<br />
(related party) net of tax - - - 5.6<br />
Acqusition gain net of tax 3.5 - - 39.1<br />
Net operating earnings (1) $179.4 $183.8 $138.2 $182.7<br />
Operating earnings per diluted common share (1) $2.41 $2.34 $1.82 $2.35<br />
Average equity $803.5 $1,017.3 $982.4 $1,209.8<br />
Operating ROE (1) 22.3% 18.8% 18.8% 20.2%<br />
1) Operating earnings is a non-GAAP financial measure defined by the Company as net income less after-tax realized investment gain (loss), non-cash<br />
amortization of certain intangible assets, non-cash interest on convertible senior notes net of tax, foreign currency transaction gain (loss), gain resulting<br />
from a decrease in the ownership percentage of an equity investment in an unconsolidated subsidiary (related party) net of tax and acquisition gain, net<br />
of tax and should not be considered an alternative to net income. The Company believes operating earnings are a more relevant measure of the<br />
Company's profitability because operating earnings contain the components of net income upon which the Company's management has the most<br />
influence and excludes factors outside management's direct control and non-recurring items. The Company's measure of operating earnings may not be<br />
comparable to similarly titled measures used by other companies.<br />
2) In September 2013, the Company paid a ten percent stock dividend. As a result, prior year's weighted average common shares outstanding, diluted<br />
shares outstanding, earnings per share, diluted earnings per share and operating diluted earnings per share have been adjusted.<br />
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