10-Q 1 tfi10-q6302015.htm 10-Q TFI 10-Q 6302015



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q
(Mark One)
 
x
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly period ended June 30, 2015
OR
o
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from            to            
Commission File Number: 001-33549
Tiptree Financial Inc.
(Exact name of Registrant as Specified in Its Charter)
Maryland
 
38-3754322
(State or Other Jurisdiction of
 
(IRS Employer
Incorporation of Organization)
 
Identification No.)
 
 
 
 
 
 
780 Third Avenue, 21st Floor, New York, New York
 
10017
(Address of Principal Executive Offices)
 
(Zip Code)
(212) 446-1400
(Registrant’s Telephone Number, Including Area Code)
Not applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨                    Accelerated filer ¨
Non-accelerated filer ¨                    Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)    Yes  ¨    No  x

As of August 10, 2015, there were 33,397,554 shares, par value $0.001, of the registrant’s Class A common stock outstanding and 9,766,537 shares, par value $0.001, of the registrant’s Class B common stock outstanding.







Tiptree Financial Inc.
Quarterly Report on Form 10-Q
June 30, 2015
Table of Contents

ITEM
 
Page Number
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





PART I. FINANCIAL INFORMATION


Item 1. Financial Statements (Unaudited)




TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except shares and per share data)

 
As of

June 30, 2015
 
December 31, 2014
Assets
(Unaudited)
 
As adjusted
Cash and cash equivalents – unrestricted
$
170,100

 
$
52,987

Cash and cash equivalents – restricted
30,085

 
28,045

Trading assets, at fair value
31,824

 
30,163

Investments in available for sale securities, at fair value (amortized cost: $180,683 at June 30, 2015 and $171,679 at December 31, 2014)
179,772

 
171,128

Mortgage loans held for sale, at fair value (pledged as collateral: $55,498 at June 30, 2015 and $28,049 at December 31, 2014)
56,417

 
28,661

Investments in loans, at fair value
63,718

 
2,601

Loans owned, at amortized cost – net of allowance
51,439

 
36,095

Notes receivable, net
21,647

 
21,916

Accounts and premiums receivable, net
56,947

 
39,666

Reinsurance receivables
300,065

 
264,776

Investments in partially-owned entities
113

 
2,451

Real estate
208,565

 
131,308

Intangible assets
103,607

 
120,394

Other receivables
46,565

 
36,068

Goodwill
92,118

 
92,118

Other assets
76,131

 
36,875

Assets of consolidated CLOs
1,883,030

 
1,978,094

Assets held for sale

 
5,129,745

Total assets
$
3,372,143

 
$
8,203,091

Liabilities and Stockholders’ Equity
 
 
 
Liabilities:
 
 
 
Trading liabilities, at fair value
$
22,371

 
$
22,573

Debt
464,372

 
363,199

Unearned premiums
333,560

 
299,826

Policy liabilities
69,638

 
63,365

Deferred revenue
65,594

 
45,393

Deferred tax liabilities
32,473

 
45,925

Commissions payable
6,904

 
12,983

Other liabilities and accrued expenses
135,876

 
63,928

Liabilities of consolidated CLOs
1,835,238

 
1,877,377

Liabilities held for sale and discontinued operations
771

 
5,006,901

Total liabilities
$
2,966,797

 
$
7,801,470

Commitments and contingencies (Note 16)

 

 
 
 
 
Stockholders’ Equity:
 
 
 
Preferred stock: $0.001 par value, 100,000,000 shares authorized, none issued or outstanding
$

 
$

Common stock - Class A: $0.001 par value, 200,000,000 shares authorized, 31,764,200 and 31,830,174 shares issued and outstanding respectively
32

 
32

Common stock - Class B: $0.001 par value, 50,000,000 shares authorized, 9,766,537 and 9,770,367 shares issued and outstanding respectively
10

 
10

Additional paid-in capital
271,189

 
271,090

Accumulated other comprehensive income
(265
)
 
(49
)
Retained earnings
25,758

 
13,379

Total stockholders’ equity of Tiptree Financial Inc.
296,724

 
284,462

Non-controlling interests (including $92,968 and $90,144 attributable to Tiptree Financial Partners, L.P., respectively)
108,622

 
117,159

Total stockholders’ equity
405,346

 
401,621

Total liabilities and stockholders’ equity
$
3,372,143

 
$
8,203,091

See accompanying notes to consolidated financial statements.

Page F-2

TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
(in thousands, except shares and per share data)



Three months ended June 30,
 
Six months ended June 30,

2015
 
2014
 
2015

2014
Revenues:
 
 
As adjusted
 
 
 
As adjusted
Net realized and unrealized gains (losses) on investments
$
443

 
$
(29
)
 
$
222

 
$
875

Net realized and unrealized gains on mortgage pipeline and associated hedging instruments
368

 
105

 
719

 
190

Interest income
2,867

 
3,184

 
5,163

 
7,176

Net credit derivative losses
(444
)
 
(1,257
)
 
(534
)
 
(1,521
)
Service and administrative fees
25,545

 

 
47,472

 

Ceding commissions
10,148

 

 
20,085

 

Earned premiums, net
39,707

 

 
77,060

 

Gain on sale of loans held for sale, net
4,005

 
1,759

 
6,598

 
2,734

Loan fee income
1,882

 
980

 
3,281

 
1,409

Rental revenue
11,191

 
4,383

 
20,560

 
8,839

Other income
3,467

 
515

 
6,563

 
804

Total revenue
99,179

 
9,640

 
187,189

 
20,506

 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
Interest expense
6,194

 
2,643

 
11,323

 
5,457

Payroll and employee commissions
23,429

 
7,297

 
43,770

 
13,012

Commission expense
23,927

 

 
40,455

 

Member benefit claims
8,240

 

 
15,819

 

Net losses and loss adjustment expenses
12,926

 

 
25,376

 

Professional fees
3,671

 
1,916

 
8,299

 
2,990

Depreciation and amortization expenses
11,359

 
1,662

 
26,823

 
3,330

Acquisition costs

 

 
1,349

 

Other expenses
12,929

 
2,437

 
24,073

 
5,015

Total expense
102,675

 
15,955

 
197,287

 
29,804

 
 
 
 
 
 
 
 
Results of consolidated CLOs:
 
 
 
 
 
 
 
Income attributable to consolidated CLOs
19,033

 
18,083

 
34,696

 
32,698

Expenses attributable to consolidated CLOs
17,117

 
11,012

 
32,038

 
20,984

Net Income attributable to consolidated CLOs
1,916

 
7,071

 
2,658

 
11,714

(Loss) income before taxes from continuing operations
(1,580
)
 
756

 
(7,440
)
 
2,416

Less: Provision (benefit) for income taxes
(371
)
 
(1,080
)
 
(1,867
)
 
(1,732
)
 (Loss) income from continuing operations
(1,209
)
 
1,836

 
(5,573
)
 
4,148

 
 
 
 
 
 
 
 
Discontinued operations:
 
 
 
 
 
 
 
Income from discontinued operations, net
4,654

 
2,186

 
6,999

 
3,476

Gain on sale of discontinued operations, net
16,349

 

 
16,349

 

Discontinued operations, net
21,003

 
2,186

 
23,348

 
3,476

Net income before non-controlling interests
19,794

 
4,022

 
17,775

 
7,624

Less: net income attributable to noncontrolling interests - Tiptree Financial Partners, L.P.
4,735

 
2,245

 
3,875

 
4,551

Less: net income (loss) attributable to noncontrolling interests - Other
97

 
(262
)
 
(83
)
 
(592
)
Net income available to common stockholders
$
14,962

 
$
2,039

 
$
13,983

 
$
3,665

 
 
 
 
 
 
 
 
Net income (loss) per Class A common share:
 
 
 
 
 
 
 
Basic, continuing operations, net
$
(0.03
)
 
$
0.14

 
$
(0.11
)
 
$
0.27

Basic, discontinued operations, net
0.50

 
0.05

 
0.55

 
0.08

Net income basic
0.47

 
0.19

 
0.44

 
0.35

 
 
 
 
 
 
 
 
Diluted, continuing operations, net
(0.03
)
 
0.14

 
(0.11
)
 
0.27

Diluted, discontinued operations, net
0.50

 
0.05

 
0.55

 
0.08

Net income dilutive
$
0.47

 
$
0.19

 
$
0.44

 
$
0.35

 
 
 
 
 
 
 
 
Weighted average number of Class A common shares:
 
 
 
 
 
 
 
Basic
31,881,904

 
10,617,863

 
31,962,065

 
10,602,311

Diluted
31,881,904

 
10,617,863

 
31,962,065

 
10,602,311

See accompanying notes to consolidated financial statements.

Page F-3


TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Unaudited)
(in thousands)



 
Three months ended June 30,
 
Six months ended June 30,
 
2015
 
2014
 
2015
 
2014
 
 
 
As adjusted
 
 
 
As adjusted
Net income before non-controlling interests
$
19,794

 
$
4,022

 
$
17,775

 
$
7,624

 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Unrealized gains (losses) on available-for-sale securities:
 
 
 
 
 
 
 
Unrealized holding (losses) gains arising during the period
(2,292
)
 
112

 
(645
)
 
200

Related tax benefit (expense)
808

 
(39
)
 
223

 
(70
)
Reclassification of losses (gains) included in net income
56

 
19

 
41

 
14

Related tax expense (benefit)
(19
)
 
(7
)
 
(14
)
 
(5
)
Unrealized (losses) gains on available-for-sale securities, net of tax
(1,447
)
 
85

 
(395
)
 
139

 
 
 
 
 
 
 
 
Interest rate swap:
 
 
 
 
 
 
 
Unrealized (loss) on interest rate swap
(55
)
 

 
(289
)
 

Related tax benefit
19

 

 
101

 

Reclassification of losses included in net income
283

 

 
564

 

Related tax (benefit)
(99
)
 

 
(197
)
 

Unrealized gain on interest rate swap, net of tax
148

 

 
179

 

 
 
 
 
 
 
 
 
Other comprehensive (loss) income, net of tax
(1,299
)
 
85

 
(216
)
 
139

Comprehensive income
18,495

 
4,107

 
17,559

 
7,763

Less: net income attributable to noncontrolling interests - Tiptree Financial Partners, L.P.
4,735

 
2,245

 
3,875

 
4,551

Less: net income (loss) attributable to noncontrolling interests - Other
97

 
(262
)
 
(83
)
 
(592
)
Total comprehensive income available to common stockholders
$
13,663

 
$
2,124

 
$
13,767

 
$
3,804














See accompanying notes to consolidated financial statements

Page F-4


TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
(in thousands, except shares)


 
Number of Shares
 
Par Value
 
 
 
 
 
 
 
 
 
 
 
 
 
Class A
 
Class B
 
Class A
 
Class B
 
Additional paid in capital
 
Accumulated
other
comprehensive
income (loss)
 
Retained
earnings
 
Non-controlling
interests - Tiptree Financial Partners, L.P.
 
Non-controlling
interests - Other
 
Total
 
 
 
 
 
 
 
 
 
As adjusted
 
 
 
As adjusted
 
 
 
As adjusted
 
As adjusted
Balance at December 31, 2014
31,830,174

 
9,770,367

 
$
32

 
$
10

 
$
271,090

 
$
(49
)
 
$
13,379

 
$
90,144

 
$
27,015

 
$
401,621

Stock-based compensation to directors, employees and other persons for services rendered
270,025

 

 

 

 
2,097

 

 

 

 

 
2,097

Class A shares issued and Class B shares redeemed due to TFP unit redemptions
3,830

 
(3,830
)
 

 

 

 

 

 

 

 

Other comprehensive loss, net of tax

 

 

 

 

 
(216
)
 

 

 

 
(216
)
Non-controlling interest contributions to Care subsidiary

 

 

 

 

 

 

 

 
2,229

 
2,229

Non-controlling interest distributions from Care subsidiary

 

 

 

 

 

 

 

 
(227
)
 
(227
)
Shares purchased under stock purchase plan
(339,829
)
 

 

 

 
(2,393
)
 

 

 

 

 
(2,393
)
Reduction in non-controlling interest due to PFG Disposition

 

 

 

 

 

 

 

 
(7,771
)
 
(7,771
)
Net changes in non-controlling interest

 

 

 

 
395

 

 

 
(563
)
 
(5,509
)
 
(5,677
)
Dividends declared

 

 

 

 

 

 
(1,604
)
 
(488
)
 

 
(2,092
)
Net (loss) income

 

 

 

 

 

 
13,983

 
3,875

 
(83
)
 
17,775

Balance at June 30, 2015
31,764,200

 
9,766,537

 
$
32

 
$
10

 
$
271,189

 
$
(265
)
 
$
25,758

 
$
92,968

 
$
15,654

 
$
405,346










See accompanying notes to consolidated financial statement

Page F-5

TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)



 
Six months ended June 30,
 
2015
 
2014
 
 
 
As adjusted
Cash flows from operating activities:
 
 
 
Net income available to common stockholders
$
13,983

 
$
3,665

Net income attributable to noncontrolling interests - Tiptree Financial Partners, L.P.
3,875

 
4,551

Net (loss) attributable to noncontrolling interests - Other
(83
)
 
(592
)
Net income
17,775

 
7,624

Discontinued operations, net
(23,348
)
 
(3,476
)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Net realized and unrealized (gain) loss
(7,106
)
 
(2,178
)
Non cash compensation expense

 
547

Increase in non cash interest from investments in loans

 
(198
)
Amortization/accretion of premiums and discounts
1,315

 
(141
)
Depreciation and amortization expense
26,823

 
3,410

Provision for loan losses
140

 

Amortization and write off of deferred financing costs
457

 
91

Increase in unearned premiums from acquisitions
33,735

 

Increase in other liabilities and accrued expenses
50,225

 
64,779

Loss/(income) from investments in partially-owned entities, net
63

 
(680
)
Loans originated for sale
(379,583
)
 
(165,730
)
Proceeds from sale of loans
358,729

 
164,962

Increase in reinsurance receivables
(35,289
)
 

Deferred tax expense
(11,156
)
 
(3,209
)
(Increase) in other assets
(57,452
)
 
(4,067
)
Increase in unpaid claims
7,541

 

(Decrease) in policy holder accounts
(1,268
)
 

Operating activities from CLOs
17,004

 
(625
)
Cash (used in) provided by operating activities - continuing operations
(1,395
)
 
61,109

Cash provided by (used in) operating activities - discontinued operations
(6,198
)
 
(3,633
)
Net cash (used in) provided by operating activities
(7,593
)
 
57,476

Cash flows from investing activities:
 
 
 
Purchases of trading securities and loans carried at fair value
(64,159
)
 
(203,313
)
Proceeds from sales of trading securities and loans carried at fair value
3,240

 
248,603

Purchases of available for sale securities
(28,373
)
 

Proceeds from maturities, calls, and prepayments of available for sale securities
16,405

 

Proceeds from sales of available for sale securities
1,733

 

Purchases of derivatives

 
(986
)
Purchases of real estate
(83,698
)
 
(96
)
Purchases of fixed assets
(2,211
)
 
(17
)
Net proceeds from the sale of subsidiaries
113,807

 

Proceeds from loan repayments/disposal of loans
1,069

 
648

(Decrease) increase in restricted cash
(2,040
)
 
3,601

Acquisitions, net cash
(3,000
)
 
6,689

Change in noncontrolling interest
2,003

 

Proceeds from distributions paid by partially owned entities
2,275

 
210

Change due to consolidation of trusts

 
(69
)
Investing activities from CLOs
57,991

 
(298,199
)
Cash provided by (used in) investing activities - continuing operations
15,042

 
(242,929
)
Cash provided by investing activities from discontinued operations
11,866

 
8,423

Net cash provided by (used in) investing activities
26,908

 
(234,506
)

Page F-6

TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)



 
Six months ended June 30,
 
2015
 
2014
 
 
 
As adjusted
Cash flows from financing activities:
 
 
 
Dividends paid
(2,094
)
 

Payment of debt issuance costs
(1,839
)
 
(264
)
Proceeds from loans and mortgage notes payable
499,921

 
219,856

Principal paydowns of loans and mortgage notes payable
(398,835
)
 
(318,072
)
Proceeds from issuance of common units of subsidiaries
1,772

 

Repurchase of common stock
(2,393
)
 

Financing activities from CLOs
(22,095
)
 
280,003

Cash provided by financing activities - continuing operations
74,437

 
181,523

Cash (used in) financing activities - discontinued operations
(5,000
)
 
(3,000
)
Net cash provided by financing activities
69,437

 
178,523

Net increase in cash
88,752

 
1,493

Cash and cash equivalents – unrestricted – beginning of period
81,348

 
120,557

Cash and cash equivalents – unrestricted – end of period
170,100

 
122,050

Less: Reclassification of cash to assets held for sale

 
24,702

Cash and cash equivalents of continuing operations – unrestricted – end of period
$
170,100

 
$
97,348

 
 
 
 
Noncash investing and financing activities:
 
 
 
Capital change due to equity compensation
$
2,097

 
$
578

     Net assets related to acquisitions
$

 
$
(3,275
)






























See accompanying notes to consolidated financial statements.

Page F-7

TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2015
(in thousands, except shares and per share data)


Basis of Presentation
The accompanying unaudited consolidated financial statements of Tiptree Financial Inc. (Tiptree and, together with its consolidated subsidiaries, collectively, the Company) have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP). The consolidated financial statements are presented in U.S. dollars, the main operating currency of the Company. The unaudited consolidated financial statements presented herein should be read in conjunction with the annual audited financial statements included in the Company’s Form 10-K for the fiscal year ended December 31, 2014. In the opinion of management, the accompanying unaudited interim financial information reflects all adjustments, including normal recurring adjustments necessary to present fairly the Company’s financial position, results of operations, comprehensive income and cash flows for each of the interim periods presented. The results of operations for the three and six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the full year ending on December 31, 2015.

(1) Organization

Tiptree is a Maryland Corporation that was incorporated on March 19, 2007. Until July 1, 2013, Tiptree operated under the name Care Investment Trust Inc. (which, for the period prior to July 1, 2013, we refer to as Care Inc.). Tiptree is a diversified holding company which conducts its operations through Tiptree Operating Company, LLC (the Operating Company). Tiptree’s primary focus is on five reporting segments: insurance and insurance services, specialty finance, real estate, asset management, and corporate and other.

As of June 30, 2015, Tiptree owns, directly or indirectly, approximately 77% of the assets of Operating Company with the remaining 23% held by non-controlling shareholders through their interests in Tiptree Financial Partners, L.P. (TFP). The limited partners of TFP (other than Tiptree itself) have the ability to exchange TFP partnership units for Tiptree Class A common stock at a rate of 2.798 shares of Class A common stock per partnership unit. The percentage of TFP (and therefore Operating Company) owned by Tiptree may increase in the future to the extent TFP’s limited partners choose to exchange their limited partnership units of TFP for Class A common stock of Tiptree.
Tiptree’s Class A Common Stock is traded on the NASDAQ Capital Market under the symbol “TIPT”.

2015 Transactions

On January 1, 2015, Fortegra exercised an option to purchase the remaining 37.6% ownership interest in ProtectCELL it did not own and now owns 100% of ProtectCELL. Fortegra made an initial payment of $3,000 to exercise the option, with the remaining amount payable upon final determination of the option purchase price.

On January 26, 2015, Tiptree entered into a first amendment to its existing credit agreement with Fortress Credit Corp. (Fortress) (the Amendment), providing for additional term loans in an aggregate principal amount of $25,000 to Tiptree. Tiptree repaid $25,000 of all aggregate outstanding loans under the Fortress credit agreement upon the closing of the sale of Philadelphia Financial Group Inc. (PFG) on June 30, 2015.

On February 9, 2015, affiliates of Care entered into a joint venture to own and operate five seniors housing communities with affiliates of Royal Senior Care Management LLC (Royal). The joint venture acquired the communities for $30,052. Affiliates of Care own an 80% interest in the joint venture, while affiliates of Royal own the remaining 20% interest and provide management services to the communities under management contracts. In connection with the acquisition, Care and Royal secured a $22,500 five year loan (subject to a holdback), which includes 36 months of interest only payments and an additional $2,000 commitment that will be available between February 9, 2016 and February 9, 2019, subject to certain conditions.

On March 30, 2015, affiliates of Care acquired six seniors housing communities for $54,788. The properties are leased to affiliates of Greenfield Holdings, LLC that will operate the properties. In connection with the acquisition, Care secured a $39,500, 10 year loan (subject to a holdback), which includes 18 months of interest only payments. As of June 30, 2015, the loan had an aggregate balance of $38,700.

On May 5, 2015, Tiptree invested $25,000 in Telos Credit Opportunities Fund, L.P., a leveraged loan fund managed by Tiptree’s Telos Asset Management LLC subsidiary.


Page F-8

TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2015
(in thousands, except shares and per share data)

On May 5, 2015, Tiptree, through a Delaware statutory trust, invested approximately $9,726 in a pool of non-performing residential real estate mortgages and entered into an agreement with an asset management firm to service the portfolio. As of June 30, 2015, the Company’s investments included $60 of foreclosed residential real estate property and $9,351 of loans collateralized by real estate in the process of foreclosure.

On June 30, 2015, Tiptree completed the sale of all of the issued and outstanding capital stock of PFG Holdings Acquisition Corp. (PHAC) and Philadelphia Financial Group, Inc. (PFG) to PFG Acquisition Corp. (Buyer), an entity affiliated with The Blackstone Group L.P. Tiptree received cash consideration of $142,837 for its equity interests in PHAC and PFG. Under the Purchase Agreement, Buyer will pay to Tiptree an additional amount of approximately $7,341, one-third of which will be made on the first anniversary of the closing and two-thirds of which will be made on the second anniversary of the closing.

2014 Transactions
In December 2014, the Company completed the acquisition of Fortegra Financial Corporation (Fortegra), and paid $211,740 for 100% ownership. Fortegra is consolidated within the Company’s insurance and insurance services segment. The assets acquired were valued at $771,559, which includes $115,000 of intangible assets and $90,213 of goodwill.

In December 2014, affiliates of Care entered into a joint venture to own and operate an additional seniors housing community with affiliates of Heritage. Affiliates of Care own an 80% interest in the joint venture, while affiliates of Heritage own the remaining 20% interest and continue to provide management services to the communities under a management contract.

In October 2014, affiliates of Care entered into a joint venture to own and operate three seniors housing communities with affiliates of Greenfield. Care owns an 80% interest in the joint venture, while affiliates of Greenfield own the remaining 20% interest and provide management services to the communities under a management contract.

The Company completed the acquisition of 67.5% of Luxury Mortgage Corp. (Luxury) in January 2014. Luxury is consolidated within the Company’s financial statements and is reported within Tiptree’s specialty finance segment.

(2) Summary of Significant Accounting Policies

Basis of Presentation
The unaudited interim consolidated financial statements of the Company have been prepared using the accounting policies set forth in Note 2 of the Notes to Consolidated Financial Statements included in the Company’s 2014 Annual Report on Form 10-K.

Reclassifications
Certain prior period amounts have been reclassified to conform to the current year presentation.

Principles of Consolidation
The consolidated financial statements reflect the consolidated accounts of Tiptree and (i) its wholly-owned subsidiaries, (ii) subsidiaries in which it has a controlling interest, and (iii) certain other entities known as variable interest entities (VIEs) in which Tiptree, through its subsidiaries, is deemed to be the primary beneficiary. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements. This consolidation, particularly with respect to the VIEs, significantly impacts these consolidated financial statements.

Certain changes to the consolidated balance sheet amounts for December 31, 2014 have been made in accordance with accounting for business combinations, to reflect the retrospective adjustments made during the measurement period, to the preliminary amounts recorded for the estimated fair value of acquired net assets. Please see Note 4—Business Acquisitions, for more information on the measurement period adjustments.

Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Company’s consolidated financial statements and accompanying notes. The estimates and assumptions most susceptible to change are the valuation of securities, loans, derivative positions, deferred income taxes and acquired assets and liabilities. Although these and other estimates and assumptions are based on the best available estimates, actual results could differ materially from management’s estimates.


Page F-9

TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2015
(in thousands, except shares and per share data)

Discontinued Operations
As a result of recent accounting guidance (see ASU 2014-08 below), for periods beginning on or after December 15, 2014, the results of operations of a business of the Company that have either been disposed of or are classified as held-for-sale are reported in discontinued operations if the disposal of the business represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. For such businesses that have been disposed of prior to December 15, 2014, the Company presents the operations of the business as discontinued operations, and retrospectively reclassifies operating results for all prior periods presented. The Company carries assets and liabilities held for sale at the lower of carrying value on the date the asset is initially classified as held for sale or fair value less costs to sell. At the time of reclassification to held for sale, the Company ceased recording depreciation on assets transferred.

Comprehensive Income (Loss)
Comprehensive income (loss) includes net income (loss) and other items of comprehensive income (loss). These other items are generally comprised of unrealized gains and losses on investment securities classified as available-for-sale and unrealized gains and losses on interest rate swaps, net of the related tax effects.

Recent Accounting Standards

Recently Adopted Accounting Pronouncements

In January 2014, the Financial Accounting Standards Board (FASB) issued ASU 2014-04, Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40), Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans Upon Foreclosure. This amendment clarifies when an in substance repossession or foreclosure has occurred. Additionally, this amendment requires disclosure of the amount of foreclosed residential real estate property held and the recorded investment in consumer mortgage loans collateralized by residential real estate that are in the process of foreclosure. The adoption of ASU 2014-04 did not have an impact on the Company's consolidated financial position, results of operations and cash flows.
In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. These amendments change the criteria for reporting discontinued operations while enhancing disclosures in this area. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. In addition, ASU 2014-08 requires expanded disclosures about discontinued operations that will provide financial statement users with more information. ASU 2014-08 is effective for the first quarter of 2015 for the Company. The effects of applying the revised guidance will vary based upon the nature and size of future disposal transactions. It is expected that fewer disposal transactions will meet the new criteria to be reported as discontinued operations.

In August 2014, the FASB issued ASU 2014-13, Consolidation (Topic 810): Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity. This pronouncement is effective for annual and interim periods beginning after December 15, 2015, with early adoption permitted. ASU 2014-13 provides for a measurement alternative whereby a company can measure both the financial assets and financial liabilities of its CLOs using the more observable of the fair value of the financial assets and the fair value of the financial liabilities. The Company elected to early adopt ASU 2014-13 for the year ended December 31, 2014 as it pertains to the CLOs it consolidates and elected to apply it retrospectively to all relevant prior periods. The application of this new guidance resulted in adjustments to certain balances in the previously issued consolidated balance sheets, consolidated statements of operations, and consolidated statements of cash flows for the year ended December 31, 2014, as well as for the interim periods ending March 31, 2014, June 30, 2014, and September 30, 2014. Please see Note 3—Out of Period Adjustments, Changes in Accounting Principles and Reclassifications, for more information on the ASU 2014-13 adoption.

In May 2015, the FASB issued ASU 2015-08, Business Combinations (Topic 805): Pushdown Accounting—Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 115  (SEC Update). ASU 2015-08 removes references to the SEC’s SAB Topic 5.J on pushdown accounting from ASC 805-50. The Commission’s Staff Accounting Bulletin, "SAB" 115 had superseded the guidance in SAB Topic 5.J in connection with the FASB’s November 2014 release of ASU 2014-17. The amendments in ASU 2015-08 therefore conform to the FASB’s guidance on pushdown accounting with the SEC’s. The amendments are effective upon issuance (May 12, 2015). The adoption of this standard did not have a material impact on the Company's consolidated financial position, results of operations and cash flows.


Page F-10

TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2015
(in thousands, except shares and per share data)

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The amendments in this standard affects any entity that either enters into contracts with customers to transfer goods and services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. This standard was originally effective for the Company on January 1, 2017. On July 9, 2015, the FASB decided to delay the effective date of ASU 2014-09 by one year. Reporting entities may choose to adopt the standard as of the original effective date. The deferral results in ASU 2014-09 being effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company is currently reviewing ASU 2014-09 and is assessing the potential effects on its consolidated financial position, results of operations and cash flows.

In June 2014, the FASB issued ASU 2014-12 Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments when the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period shall be treated as a performance condition. ASU 2014-12 will be effective for the Company on January 1, 2016. The Company is currently evaluating the effect upon its financial statements.

In January 2015, the FASB issued ASU 2015-01, Income Statement – Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. The pronouncement eliminates the concept of extraordinary items from GAAP. However, the presentation and disclosure guidance for items that are unusual in nature or occur infrequently will be retained and will be expanded to include items that are both unusual in nature and infrequently occurring. ASU 2015-01 will be effective for the annual and interim periods beginning after December 15, 2015 with early adoption permitted. The Company is currently evaluating the effect upon its financial statements.

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which amends the consolidation requirements in the FASB Accounting Standards Codification 810, Consolidation. ASU 2015-02 makes targeted amendments to the current consolidation guidance for VIEs, which could change consolidation conclusions. ASU 2015-02 will be effective for the Company on January 1, 2016 and early adoption is permitted. The Company is currently evaluating the effect upon its financial statements.

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability and consistent with debt discounts. ASU 2015-03 requires retrospective adoption and will be effective for the Company on January 1, 2016 and early adoption is permitted. The Company is currently evaluating the effect upon its financial statements.

In May 2015, the FASB issued ASU 2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent), which eliminates the requirement for entities to categorize within the fair value hierarchy investments for which fair values are measured at net asset value (NAV) per share (FASB ASC Subtopic 820-10).  ASU 2015-07 also removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the NAV per share practical expedient, instead limiting disclosures to investments for which the entity has elected the expedient.  ASU 2015-07 is effective for the Company on January 1, 2016 and early adoption is permitted and retrospective adoption is required.  The Company is currently evaluating the effect upon its financial statements.

In May 2015, the FASB issued ASU 2015-09, Financial Services—Insurance (Topic 944): Disclosures about Short-Duration Contracts, which expands the disclosure requirements for insurance companies that issue short-duration contracts (typically one year or less) to provide users with additional disclosures about the liability for unpaid claims and claim adjustment expenses and to increase the transparency of the significant estimates management makes in measuring those liabilities. In addition, the disclosures will serve to increase insight into an insurance entity’s ability to underwrite and anticipate costs associated with claims as well as provide users of the financial statements a better understanding of the amount and uncertainty of cash flows arising from insurance liabilities, the nature and extent of risks on short-duration contracts and the timing of cash flows arising from insurance liabilities. ASU 2015-09 will be effective for the Company for the annual period beginning after December 15, 2015, and for interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted. The Company is currently evaluating the effect upon its financial statements.


Page F-11

TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2015
(in thousands, except shares and per share data)

In June 2015, the FASB issued ASU 2015-10, Technical Corrections and Improvements, which covers a wide range of Topics in the Codification. The amendments in ASU 2015-10 represent changes to clarify the Codification, correct unintended application of guidance, or make minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost on most entities. Amendments with transition guidance are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. All other amendments are effective upon the ASU’s issuance (June 12, 2015). The Company does not anticipate that the adoption of this standard will have a material impact on its consolidated financial position, results of operations and cash flows.

(3) Out of Period Adjustments, Changes in Accounting Principles and Reclassifications

Management is presenting these tables to provide a clear understanding of out of period adjustments, the adoption of accounting principles and reclassifications to the Company’s historical results for the three and six months ended June 30, 2014.

As it relates to the statement of income for the year ended June 30, 2015, the Company has revised its prior year financial statements for an immaterial uncorrected misstatement. The revision, related to the Company’s real estate segment, increased depreciation and amortization expense by $1,704, and decreased net (loss) income attributable to noncontrolling interests - Tiptree Financial Partners, L.P. by $1,016 and decreased net (loss) income attributable to noncontrolling interests - Other by $340. The effects of these adjustments are presented below.

As it relates to the Statements of Cash Flows, the Company has revised its prior year presentation for an immaterial uncorrected misstatement. This revision, related to the presentation of its activities from CLOs, reduced operating activities from CLOs by $43,162 and increased investing activities from CLOs by $43,162.
As mentioned in Note 2, in the Annual Report on Form 10-K for 2014, the Company elected to early adopt ASU 2014-13, Consolidation (Topic 810): Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity. The effects of these adjustments are presented below.

The sale of PFG is a transaction that qualifies to be treated as discontinued operations. This reclassification is reflected below (see Note 5—Dispositions, Assets Held for Sale and Discontinued Operations).

Certain prior period amounts have been reclassified to conform to the current year presentation. These amounts are identified under the reclassification heading in the tables below.
For the three months ended June 30, 2014
 
 
As previously filed
 
Out of period adjustments
 
ASU 2014-13 adoption
 
Discontinued operations
 
Reclassifications(1)
 
As adjusted
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
Net realized (loss) gain on investments
 
$
(1,044
)
 
$

 
$

 
$
5

 
$
1,039

 
$

Change in unrealized appreciation on investments
 
(227
)
 

 

 
(14
)
 
241

 

Income from investments in partially owned entities
 
336

 

 

 

 
(336
)
 

Net realized and unrealized gains
 
(935
)
 

 

 
(9
)
 
944

 

 
 
 
 
 
 
 
 
 
 
 
 
 
Net realized and unrealized gains from investments
 

 

 

 

 
(29
)
 
(29
)
Net realized and unrealized gains on mortgage pipeline and associated hedging instruments
 

 

 

 

 
105

 
105

Interest income
 
4,938

 

 

 
(1,145
)
 
(609
)
 
3,184

Gain on sale of loans held for sale, net
 
1,782

 

 

 

 
(23
)
 
1,759

Net Credit derivative losses
 

 

 

 

 
(1,257
)
 
(1,257
)
Separate account fees
 
5,525

 

 

 
(5,525
)
 

 

Administrative service fees
 
12,589

 

 

 
(12,589
)
 

 

Loan fee income
 

 

 

 

 
980

 
980

Rental revenue
 
4,393

 

 

 

 
(10
)
 
4,383

Other income
 
1,137

 

 

 


 
(622
)
 
515


Page F-12

TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2015
(in thousands, except shares and per share data)

For the three months ended June 30, 2014
 
 
As previously filed
 
Out of period adjustments
 
ASU 2014-13 adoption
 
Discontinued operations
 
Reclassifications(1)
 
As adjusted
Total revenue
 
29,429






(19,268
)

(521
)

9,640

Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
 
6,259

 

 

 
(2,896
)
 
(720
)
 
2,643

Payroll expense
 
12,513

 

 

 
(4,788
)
 
(428
)
 
7,297

Professional fees
 
2,824

 

 

 
(734
)
 
(174
)
 
1,916

Change in future policy benefits
 
1,072

 

 

 
(1,072
)
 

 

Mortality expenses
 
2,583

 

 

 
(2,583
)
 

 

Commission expense
 
174

 

 

 
(584
)
 
410

 

Depreciation and amortization expenses
 
1,803

 
852

 

 
(937
)
 
(56
)
 
1,662

Other expenses
 
3,901

 

 

 
(1,911
)
 
447

 
2,437

Total expenses
 
31,129

 
852

 

 
(15,505
)
 
(521
)
 
15,955

Results of consolidated CLOs:
 
 
 
 
 
 
 
 
 
 
 
 
Income attributable to consolidated CLOs
 
12,849

 

 
5,234

 

 

 
18,083

Expenses attributable to consolidated CLOs
 
14,997

 

 
(3,985
)
 

 

 
11,012

Net (loss) income attributable to consolidated CLOs
 
(2,148
)
 

 
9,219

 

 

 
7,071

(Loss) income before taxes from continuing operations
 
(3,848
)
 
(852
)
 
9,219

 
(3,763
)
 

 
756

Provision (benefit) for income taxes
 
497

 

 

 
(1,577
)
 

 
(1,080
)
(Loss) income from continuing operations
 
(4,345
)
 
(852
)
 
9,219

 
(2,186
)
 

 
1,836

Discontinued operations:
 
 
 
 
 
 
 
 
 
 
 
 
Income from discontinued operations, net
 

 

 

 
2,186

 

 
2,186

Discontinued operations, net
 

 

 

 
2,186

 

 
2,186

Net (loss) income before noncontrolling interest
 
(4,345
)
 
(852
)
 
9,219

 

 

 
4,022

Less: net (loss) income attributable to noncontrolling interests
 
(747
)
 

 
449

 

 
298

 

Less net (loss) income attributable to VIE subordinated noteholders
 
(4,669
)
 

 
4,669

 

 

 

Less: net (loss) income attributable to noncontrolling interests - Tiptree Financial Partners, L.P.
 

 
(508
)
 
2,753

 

 

 
2,245

Less: net (loss) income attributable to noncontrolling interests - Other
 

 
(170
)
 
206

 

 
(298
)
 
(262
)
Net income available to common stockholders
 
$
1,071

 
$
(174
)
 
$
1,142

 
$

 
$

 
$
2,039

 
 
 
 


 
 
 
 
 
 
 
 
Basic, continuing operations, net
 
$
0.10

 
$
(0.02
)
 
$
0.11

 
$
(0.05
)
 
$

 
$
0.14

Basic, discontinued operations, net
 

 

 

 
0.05

 

 
0.05

Net income basic
 
$
0.10

 
$
(0.02
)
 
$
0.11

 
$

 
$

 
$
0.19

 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted, continuing operations, net
 
$
0.10

 
$
(0.02
)
 
$
0.11

 
$
(0.05
)
 
$

 
$
0.14

Diluted, discontinued operations, net
 

 

 

 
0.05

 

 
0.05

Net income, diluted
 
$
0.10

 
$
(0.02
)
 
$
0.11

 
$

 
$

 
$
0.19


For the six months ended June 30, 2014
 
 
As previously filed
 
Out of period adjustments
 
ASU 2014-13 adoption
 
Discontinued operations
 
Reclassifications (1)
 
As adjusted
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 

Page F-13

TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2015
(in thousands, except shares and per share data)

For the six months ended June 30, 2014
 
 
As previously filed
 
Out of period adjustments
 
ASU 2014-13 adoption
 
Discontinued operations
 
Reclassifications (1)
 
As adjusted
Net realized (loss) gain on investments
 
$
(902
)
 
$

 
$

 
$

 
$
902

 
$

Change in unrealized appreciation on investments
 
289

 

 

 
(14
)
 
(275
)
 

Income from investments in partially owned entities
 
680

 

 

 

 
(680
)
 

Net realized and unrealized gains
 
67

 

 

 
(14
)
 
(53
)
 

 
 
 
 
 
 
 
 
 
 
 
 
 
Net realized and unrealized gains from investments
 

 

 

 

 
875

 
875

Net realized and unrealized gains on mortgage pipeline and associated hedging instruments
 

 

 

 

 
190

 
190

Interest income
 
10,301

 

 

 
(2,333
)
 
(792
)
 
7,176

Gain on sale of loans held for sale, net
 
2,734

 

 

 

 

 
2,734

Net Credit derivative losses
 

 

 

 

 
(1,521
)
 
(1,521
)
Separate account fees
 
11,012

 

 

 
(11,012
)
 

 

Administrative service fees
 
24,941

 

 

 
(24,941
)
 

 

Loan fee income
 

 

 

 

 
1,409

 
1,409

Rental revenue
 
8,839

 

 

 

 

 
8,839

Other income
 
1,867

 

 

 
(1
)
 
(1,062
)
 
804

Total revenue
 
59,761






(38,301
)

(954
)

20,506

Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
 
12,221

 

 

 
(5,810
)
 
(954
)
 
5,457

Payroll expense
 
23,083

 

 

 
(10,071
)
 

 
13,012

Professional fees
 
3,914

 

 

 
(924
)
 

 
2,990

Change in future policy benefits
 
2,197

 

 

 
(2,197
)
 

 

Mortality expenses
 
5,225

 

 

 
(5,225
)
 

 

Commission expense
 
1,158

 

 

 
(1,158
)
 

 

Depreciation and amortization expenses
 
3,366

 
1,704

 

 
(1,740
)
 

 
3,330

Other expenses
 
10,057

 

 

 
(5,042
)
 

 
5,015

Total expenses
 
61,221

 
1,704

 

 
(32,167
)
 
(954
)
 
29,804

Results of consolidated CLOs:
 
 
 
 
 
 
 
 
 
 
 
 
Income attributable to consolidated CLOs
 
24,835

 

 
7,863

 

 

 
32,698

Expenses attributable to consolidated CLOs
 
28,989

 

 
(8,005
)
 

 

 
20,984

Net (loss) income attributable to consolidated CLOs
 
(4,154
)
 

 
15,868

 

 

 
11,714

(Loss) income before taxes from continuing operations
 
(5,614
)

(1,704
)

15,868


(6,134
)



2,416

Provision (benefit) for income taxes
 
926

 

 

 
(2,658
)
 

 
(1,732
)
(Loss) income from continuing operations
 
(6,540
)
 
(1,704
)
 
15,868

 
(3,476
)
 

 
4,148

Discontinued operations:
 
 
 
 
 
 
 
 
 
 
 
 
Income from discontinued operations, net
 

 

 

 
3,476

 

 
3,476

Discontinued operations, net
 

 

 

 
3,476

 

 
3,476

Net (loss) income before noncontrolling interest
 
(6,540
)
 
(1,704
)
 
15,868



 

 
7,624

Less: net (loss) income attributable to noncontrolling interests
 
(449
)
 


 
449

 

 

 

Less net (loss) income attributable to VIE subordinated noteholders
 
(8,187
)
 

 
8,187

 

 

 


Page F-14

TIPTREE FINANCIAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2015
(in thousands, except shares and per share data)

For the six months ended June 30, 2014
 
 
As previously filed
 
Out of period adjustments
 
ASU 2014-13 adoption
 
Discontinued operations
 
Reclassifications (1)
 
As adjusted
Less: net (loss) income attributable to noncontrolling interests - Tiptree Financial Partners, L.P.
 

 
(1,016
)
 
5,567

 

 

 
4,551

Less: net (loss) income attributable to noncontrolling interests - Other
 

 
(340
)
 
(252
)
 

 

 
(592
)
Net income available to common stockholders
 
$
2,096


$
(348
)

$
1,917


$


$


$
3,665

 
 
 
 
 
 
 
 
 
 
 
 
 
Basic, continuing operations, net
 
$
0.20

 
$
(0.03
)
 
$
0.18

 
$
(0.08
)
 
$

 
$
0.27

Basic, discontinued operations, net
 

 

 

 
0.08

 

 
0.08

Net income basic
 
$
0.20

 
$
(0.03
)
 
$
0.18

 
$

 
$

 
$
0.35

 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted, continuing operations, net
 
$
0.20

 
$
(0.03
)
 
$
0.18

 
$
(0.08
)
 
$

 
$
0.27

Diluted, discontinued operations, net
 

 

 

 
0.08

 

 
0.08

Net income, diluted
 
$
0.20

 
$
(0.03
)
 
$
0.18

 
$

 
$

 
$
0.35


Notes:
(1)    Prior period information reclassified to conform to the current year presentation.
 
 
 
 
 
 
 
 
 
 
 
 
 
 

(4) Business Acquisitions

In accordance with ASC Topic 805, Business Combinations, the Company accounts for acquisitions by applying the acquisition method of accounting. The acquisition method requires, among other things, that the assets acquired and liabilities assumed in a business combination be measured at fair value as of the closing date of the acquisition.
In December 2014, the Company completed the acquisition of Fortegra, and paid $211,740 for 100% ownership. Fortegra’s products include payment protection products, motor club memberships, service contracts, device and warranty services, as well as administration services to business partners, including insurance companies, retailers, dealers, insurance brokers and agents and financial services companies. The primary reason for the Company’s acquisition of Fortegra is to expand its insurance and insurance services operations.

Fortegra’s results are included in the Company’s insurance and insurance services segment. The Company did not issue shares of its common stock in connection with the acquisition of Fortegra.

Recording of the Preliminary Value of Assets Acquired and Liabilities Assumed

The consideration for the acquisition of Fortegra was funded through the Company’s cash on hand of $91,740 and borrowings of $120,000. The purchase price of Fortegra was largely determined on the basis of management’s expectations of future earnings and cash flows, resulting in the recognition of goodwill. The preliminary purchase price allocation below has been developed based on preliminary estimates of and subsequent adjustments to fair value using the historical financial statements of Fortegra as of the acquisition date. In addition, the allocation of the purchase price to intangible assets is based on preliminary fair value estimates and subject to the completion of management’s final analysis.

Management’s preliminary allocation of the purchase price to the net assets acquired resulted in the recording of intangible assets. Because valuations of acquired assets and liabilities are still in process, information may become available within the measurement period, which may or may not change these valuations and, accordingly, the purchase price allocation is subject to adjustment. The residual amount of the purchase price after preliminary allocation to net assets acquired and identifiable intangibles has been allocated to goodwill. This goodwill is included in the insurance and insurance services segment.

During 2015, the Company received the preliminary valuation study prepared by an external valuation expert for identifiable intangible assets and goodwill for the 2014 acquisition of Fortegra. Accordingly, the consolidated balance sheet at December 31, 2014, has been retrospectively adjusted to include the effect of the measurement period adjustments as required under ASC Topic 805 for the Fortegra purchase. Adjustments were recorded to the values of intangible assets and goodwill based upon

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