Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Periods Ended March 31, 2022 and 2021
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements (Unaudited), related notes and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K, filed on March 10, 2022 with the U. S. Securities and Exchange Commission.
Forward-Looking Statements
Certain statements contained in this Quarterly Report on Form 10-Q, which are not statements of historical fact, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, as Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements give current expectations or forecasts of future events or our future financial or operating performance. Words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “seek” and similar terms and phrases, or the negative thereof, may be used to identify forward-looking statements.
The forward-looking statements contained in this report are based on management’s good-faith belief and reasonable judgment based on current information. The forward-looking statements are qualified by important factors, risks and uncertainties, many of which are beyond our control, that could cause our actual results to differ materially from those in the forward-looking statements, including those described in our Form 10-K (“Item 1A Risk Factors”) filed with the SEC on March 10, 2022 and subsequent reports filed with or furnished to the SEC. Any forward-looking statement made by us in this report speaks only as of the date hereof or as of the date specified herein. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by any applicable laws or regulations.
Recent Developments
COVID-19
COVID-19 (the “Pandemic”) caused significant disruption to public health, the global economy, financial markets, and commercial, social and community activity in general. As there has been a significant reduction in reported cases and correspondingly a reduction in government restrictions, we see reduced risk to our business. We continue to monitor potential risks the Pandemic may present including a potential resurgence. Our exposure to the Pandemic is manifold. The majority of our employees continue to work remotely however strict “shelter-in-place” or “stay-at-home” orders have been lifted. A significant portion of our revenues are generated from the hospitality sector within the U.S. which remains under stress due to the threats of resurgence and resource shortages that resulted from the Pandemic.
We have continued to provide customer service, process new and renewal business, handle claims and otherwise manage all operations even though the vast majority of the staff is working remotely. To date, we have not seen a major disruption in our business as a result of the Pandemic and currently do not expect to see a material negative impact to our financial position or results of operations as a result of the Pandemic.
Sale of Certain Agency Business
On June 30, 2021, our agency (Sycamore Insurance Agency) sold to Venture Agency Holdings, Inc., a related party, the customer accounts and other related assets of some of its personal and commercial lines of business (the “Venture Transaction”). Sycamore will continue to produce various personal and commercial lines that it did not sell which is substantially all produced for, and underwritten by, our Insurance Company Subsidiaries. We recognized an $8.9 million gain on the sale which is reflected in Other Gains in the Consolidated Statement of Operations. In order to determine the value of the portion of the business sold, the Company obtained a third party valuation based on a weighting of discounted cash flows and earnings before interest, taxes, depreciation and amortization (EBITDA) multiple valuation methods. The valuation included significant estimates and assumptions related to (i) forecasted revenue and EBITDA and (ii) the selection of the EBITDA multiple and discount rate.
The purchase price was $10.0 million of which $1.0 million was paid in cash on June 30, 2021, and $9.0 million was in the form of two promissory notes (one for $6.0 million and one for $3.0 million). Both notes require interest-only quarterly payments at a per annum rate of 7.0%, with a five-year maturity. There are no prepayment penalties. On December 14, 2021, Venture paid off the $3.0 million note.
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The assets sold included the customer accounts (mainly agency-related new and renewal rights) of substantially all of the personal lines business and a small subset of the commercial lines business underwritten by our Insurance Company Subsidiaries, and all of the customer accounts Sycamore produced for third-party insurers. The Venture Transaction included the transition of 21 employees from Conifer to Venture as well as necessary systems and office functions to operate the business. Venture did not assume any in-force business or liabilities. The business will transition to Venture as it produces new or renewal business effective July 1, 2021. We expect our Insurance Company Subsidiaries will continue to underwrite substantially all of the business we sold to Venture that we underwrote prior to the transaction. We expect Venture to be able to grow both the business we underwrite as well as the third-party business more effectively as a separate entity outside of Conifer. As of March 31, 2022 , the Company had a non-controlling 50% interest in Venture.
On April 21, 2022, A.M. Best downgraded the Company’s Long-Term Issuer Credit Rating (Long-Term ICR) from “bb” (Fair) to “bb-” (Fair), and downgraded the Company’s insurance subsidiaries Financial Strength Rating from “B++” (Good) to “B+” (Good) and the Long-Term ICR from “bbb” (Good) to “bbb-” (Good). The outlook assigned to all these ratings by A.M. Best was Stable. We do not believe the rating changes will have a material effect on our business.
Business Overview
We are an insurance holding company that markets and services our product offerings through specialty commercial and specialty personal insurance business lines. Our growth has been significant since our founding in 2009. Currently, we are authorized to write insurance as an excess and surplus lines carrier in 45 states, including the District of Columbia. We are also licensed to write insurance as an admitted carrier in 42 states, including the District of Columbia, and we offer our insurance products in all 50 states.
Our revenues are primarily derived from premiums earned from our insurance operations. We also generate other revenues through investment income and other income which mainly consists of installment fees and policy issuance fees generally related to the policies we write.
Our expenses consist primarily of losses and loss adjustment expenses, agents’ commissions, and other underwriting and administrative expenses. We organize our operations into three insurance businesses: commercial insurance lines, personal insurance lines, and wholesale agency business. Together, the commercial and personal lines refer to "underwriting" operations that take insurance risk, and the wholesale agency business refers to non-risk insurance business.
Through our commercial insurance product lines, we offer coverage for both commercial property and commercial liability. We also offer coverage for commercial automobiles and workers’ compensation. Our insurance policies are sold to targeted small and mid-sized businesses on a single or multiple-coverage basis.
Through our personal insurance product lines, we offer homeowners insurance and dwelling fire insurance policies to individuals in several states. Our specialty homeowners insurance product line is primarily comprised of low-value dwelling insurance tailored for owners of lower valued homes, which we offer in Illinois, Indiana and Texas. Due to recent Florida-based industry events, we have been de-emphasizing our Florida homeowners' business and reducing our exposures in that state, as well as other wind-exposed states like Texas and Hawaii.
Through our wholesale agency business segment, we offer commercial and personal lines insurance products for our Insurance Company Subsidiaries as well as third-party insurers. We have expanded the wholesale agency business to develop more non-risk revenue streams, and provide our agents with more insurance product options. However, as a result of the sale of certain agency business on June 30, 2021, going forward, our agency segment will not be producing any significant amounts of business for third-party insurers and will produce approximately 50% less business for the Insurance Company Subsidiaries.
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Critical Accounting Policies and Estimates
In certain circumstances, we are required to make estimates and assumptions that affect amounts reported in our consolidated financial statements and related footnotes. We evaluate these estimates and assumptions periodically on an on-going basis based on a variety of factors. There can be no assurance, however, that actual results will not be materially different than our estimates and assumptions, and that reported results of operations will not be affected by accounting adjustments needed to reflect changes in these estimates and assumptions. During the three months ended March 31, 2022, there were no material changes to our critical accounting policies and estimating methodologies, which are disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Annual Report on Form 10-K filed with the SEC on March 10, 2022.
Executive Overview
The Company reported $33.0 million of gross written premiums in the first quarter of 2022, representing an 8.5% increase as compared to the same period in 2021. Our commercial lines gross written premiums increased by $1.4 million, or 5.0%, to $28.6 million in the first quarter of 2022, compared to $27.2 million for the same period in 2021. Personal lines gross written premiums increased by $1.2 million, or 38.9%, to $4.4 million in the first quarter of 2022, compared to $3.1 million for the same period in 2021.
The Company reported a net loss of $2.9 million, or $0.30 per share, for the three months ended March 31, 2022. The Company reported a net loss of $4.6 million, or $0.48 per share, for the three months ended March 31, 2021.
Adjusted operating loss, a non-GAAP measure, was $3.1 million, or $0.32 per share for the three months ended March 31, 2022, compared to an adjusting operating loss of $7.0 million, or $0.72 per share for the same period in 2021.
Our underwriting combined ratio was 112.5% for the three months ended March 31, 2022, compared to 129.0% for the same period in 2021. The expense ratio decreased 7.1% to 37.5% for the three months ended March 31, 2022, compared to 44.6% for the same period in 2021.
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Results of Operations For The Three Months Ended March 31 , 20 2 2 and 20 2 1
The following table summarizes our operating results for the periods indicated (dollars in thousands):
Summary of Operating Results
Three Months Ended
March 31,
2022
2021
$ Change
% Change
Gross written premiums
$
32,964
$
30,373
$
2,591
8.5
%
Net written premiums
$
18,021
$
24,483
$
(6,462
)
(26.4
%)
Net earned premiums
$
23,955
$
22,835
$
1,120
4.9
%
Other income
698
556
142
25.5
%
Losses and loss adjustment expenses, net
18,018
19,362
(1,344
)
(6.9
)%
Policy acquisition costs
5,464
6,750
(1,286
)
(19.1
)%
Operating expenses
4,160
4,349
(189
)
(4.3
)%
Underwriting gain (loss)
(2,989
)
(7,070
)
4,081
*
Net investment income
507
532
(25
)
(4.7
)%
Net realized investment gains (losses)
(69
)
2,924
(2,993
)
*
Change in fair value of equity securities
280
(540
)
820
*
Other gains (losses)
(5
)
—
(5
)
*
Interest expense
711
721
(10
)
(1.4
)%
Income (loss) before equity earnings in Affiliate, net of tax
(2,987
)
(4,875
)
1,888
*
Equity earnings in Affiliate, net of tax
76
248
(172
)
*
Income tax expense
(41
)
9
(50
)
*
Net income (loss)
$
(2,870
)
$
(4,636
)
$
1,766
*
Book value per common share outstanding
$
3.13
$
3.82
Underwriting Ratios:
Loss ratio (1)
75.0
%
84.4
%
Expense ratio (2)
37.5
%
44.6
%
Combined ratio (3)
112.5
%
129.0
%
(1)
The loss ratio is the ratio, expressed as a percentage, of net losses and loss adjustment expenses to net earned premiums and other income from underwriting operations.
(2)
The expense ratio is the ratio, expressed as a percentage, of policy acquisition costs and other underwriting expenses to net earned premiums and other income from underwriting operations.
(3)
The combined ratio is the sum of the loss ratio and the expense ratio. A combined ratio under 100% indicates an underwriting profit. A combined ratio over 100% indicates an underwriting loss.
*
Percentage change is not meaningful.
Premiums
Premiums are earned ratably over the term of the policy, whereas written premiums are reflected on the effective date of the policy. Almost all commercial lines and homeowners products have annual policies, under which premiums are earned evenly over one year. The resulting net earned premiums are impacted by the gross and ceded written premiums, earned ratably over the terms of the policies.
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Our premiums are presented below for the three months ended March 3 1 , 20 2 2 and 20 2 1 (dollars in thousands):
Summary of Premium Revenue
Three Months Ended
March 31,
2022
2021
$ Change
% Change
Gross written premiums
Commercial lines
$
28,586
$
27,221
$
1,365
5.0
%
Personal lines
4,378
3,152
1,226
38.9
%
Total
$
32,964
$
30,373
$
2,591
8.5
%
Net written premiums
Commercial lines
$
14,340
$
21,557
$
(7,217
)
(33.5
)%
Personal lines
3,681
2,926
755
25.8
%
Total
$
18,021
$
24,483
$
(6,462
)
(26.4
)%
Net earned premiums
Commercial lines
$
20,524
$
20,706
$
(182
)
(0.9
)%
Personal lines
3,431
2,129
1,302
61.2
%
Total
$
23,955
$
22,835
$
1,120
4.9
%
Gross written premiums increased $2.6 million, or 8.5%, to $33.0 million for the three months ended March 31, 2022, as compared to $30.4 million for the same period in 2021.
Commercial lines gross written premiums increased $1.4 million, or 5.0%, to $28.6 million in the first quarter of 2022, as compared to $27.2 million for the first quarter of 2021. The increase was due to $2.2 million of premium growth in the small business programs, partially offset by a $861,000 reduction of gross written premium in the Company’s hospitality programs.
Personal lines gross written premiums increased $1.2 million, or 38.9%, to $4.4 million in the first quarter of 2022, as compared to $3.1 million for the same period in 2021. The increased gross written premiums were due to $1.0 million of premium growth in the Company’s low-value dwelling book of business.
Net written premiums decreased $6.5 million, or 26.4%, to $18.0 million for the three months ended March 31, 2022, as compared to $24.5 million for the same period in 2021. The Company entered into new specific loss reinsurance treaties on December 31, 2021 and January 1, 2022, which included a 40% ceding commission. This increased ceded written premiums by approximately $4.5 million in the first quarter of 2022. There was no ceding commission on excess of loss treaties during 2021. Ceded earned premiums also increased due to the new treaties by $2.1 million. The increase in ceded earned premiums was offset by the same increase in ceding commissions, which reduced acquisition costs. Ceded earned premiums also increased by $1.1 million in the first quarter of 2022 as compared to 2021 due to growth in umbrella insurance premiums which are 94.0% ceded under existing quota share reinsurance agreements.
Other Income
Other income consists primarily of fees charged to policyholders by the Company for services outside of the premium charge, such as installment billings and policy issuance costs. Other income also includes the interest income from the $6.0 million promissory note receivable from Venture relating to the Venture Transaction. Commission income is also received by the Company’s insurance agency for writing policies for third-party insurance companies. All of the third-party business was sold to Venture at June 30, 2021. Accordingly, other income from that business will diminish over the next few quarters as it transitions over to Venture, and will ultimately no longer occur. Other income for the three months ended March 31, 2022, increased by $142,000, or 25.5%, to $698,000 as compared to $556,000 for the same period in 2021. Other income relating to installment billings and policy issuance costs was lower in the first quarter of 2022, as the business that was sold to Venture at June 30, 2021, no longer produces other income for the Company. This was more than offset by an increase in the interest income from the notes payable of $105,000 in the first quarter of 2022.
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Losses and Loss Adjustment Expenses
The tables below detail our losses and loss adjustment expenses and loss ratios in our underwriting business for the three months ended March 31, 2022 and 2021 (dollars in thousands).
Three months ended March 31, 2022
Commercial
Lines
Personal
Lines
Total
Accident year net losses and LAE
$
10,870
$
1,627
$
12,497
Net (favorable) adverse development
5,740
(219
)
5,521
Calendar year net losses and LAE
$
16,610
$
1,408
$
18,018
Accident year loss ratio
52.8
%
47.3
%
52.0
%
Net (favorable) adverse development
27.9
%
(6.3
)%
23.0
%
Calendar year loss ratio
80.7
%
41.0
%
75.0
%
Three months ended March 31, 2021
Commercial
Lines
Personal
Lines
Total
Accident year net losses and LAE
$
11,789
$
1,795
$
13,584
Net (favorable) adverse development
5,166
612
5,778
Calendar year net losses and LAE
$
16,955
$
2,407
$
19,362
Accident year loss ratio
56.8
%
82.8
%
59.2
%
Net (favorable) adverse development
24.9
%
28.2
%
25.2
%
Calendar year loss ratio
81.7
%
111.0
%
84.4
%
Net losses and LAE decreased by $1.3 million, or 6.9%, to $18.0 million during the first quarter of 2022, compared to $19.4 million for the same period in 2021. The decrease in losses was driven by current accident year losses decreasing by $1.1 million to $12.5 million for the three months ended March 31, 2022, compared to $13.6 million for the same period in 2021.
The Company experienced $5.5 million of adverse development for the three months ended March 31, 2022, of which $1.5 million was related to 2017 and prior accident years, $1.3 million was related to the 2018 accident year, $1.3 million was related to the 2019 accident year, and $1.5 million was related to the 2020 accident year. Of the $5.5 million of adverse development, $5.7 million was related to the Company’s commercial lines of business, while the Company’s personal lines of business experienced $219,000 of favorable development in the first quarter of 2022.
Net losses and LAE increased were $19.4 million for the first three months in 2021. The Company experienced $2.0 million of catastrophe losses, net of reinsurance recoverables, during the first quarter of 2021 from Winter Storm Uri. In addition to these losses, the Company experienced $5.8 million of adverse development for the three months ended March 31, 2021. Of the $5.8 million in adverse development, $5.2 million was related to commercial lines, and $612,000 was related to personal lines.
Expense Ratio
Our expense ratio is a measure of the efficiency and performance of the commercial and personal lines of business (our risk-bearing underwriting operations). It is calculated by dividing the sum of policy acquisition costs and other underwriting expenses by the sum of net earned premiums and other income of the underwriting business. Costs that cannot be readily identifiable as a direct cost of a segment or product line remain in Corporate for segment reporting purposes. The expense ratio excludes wholesale agency and Corporate expenses.
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The table below provides the expense ratio by major component.
Three Months Ended
March 31,
2022
2021
Commercial Lines
Policy acquisition costs
21.2
%
30.4
%
Operating expenses
15.3
%
14.2
%
Total
36.5
%
44.6
%
Personal Lines
Policy acquisition costs
31.8
%
27.7
%
Operating expenses
11.7
%
16.1
%
Total
43.5
%
43.8
%
Total Underwriting
Policy acquisition costs
22.7
%
30.2
%
Operating expenses
14.8
%
14.4
%
Total
37.5
%
44.6
%
Our expense ratio decreased by 7.1 percentage points in the first quarter of 2022 as compared to the same period in 2021. The decrease was largely due to a reduction in policy acquisition costs attributable to $2.2 million of ceding commission from new excess of loss reinsurance treaties. There were no commissions on excess of loss treaties in 2021. The expense ratio also decreased as a result of a $1.3 million increase in underwriting revenue in the first quarter of 2022 as compared to a first quarter in 2021, while operating expenses were slightly lower in 2022.
Policy acquisition costs are costs we incur to issue policies, which include commissions, premium taxes, underwriting reports and underwriter compensation costs. The Company offsets direct commissions with ceded commissions from reinsurers. The percentage of policy acquisition costs to net earned premiums and other income decreased by 7.5%, from 30.2% in the first three months of 2021, to 22.7% for the same period in 2022, mostly due to the new ceding commission mentioned above.
Operating expenses consist primarily of employee compensation, information technology and occupancy costs, such as rent and utilities. Operating expenses as a percent of net earned premiums and other underwriting income were 14.8% and 14.4% for the three months ended March 31, 2022 and 2021, respectively. While overall operating expenses were lower in 2022, the new excess of loss reinsurance treaties with the ceding commission drove net earned premiums lower, resulting in a slightly higher operating expense ratio.
The personal lines operating expense ratio was lower in 2022 due to significant growth in premium volume on substantially the same operating expense base.
Segment Results
We measure the performance of our consolidated results, in part, based on our underwriting gain or loss. The following table provides the underwriting gain or loss for the three months ended March 31, 2022 and 2021 (dollars in thousands):
Segment Gain (Loss)
Three Months Ended
March 31,
2022
2021
$ Change
Commercial Lines
$
(3,533
)
$
(5,466
)
$
1,933
Personal Lines
534
(1,187
)
1,721
Total Underwriting
(2,999
)
(6,653
)
3,654
Wholesale Agency
62
(145
)
207
Corporate
(158
)
(258
)
100
Eliminations
106
(14
)
120
Total segment gain (loss)
$
(2,989
)
$
(7,070
)
$
4,081
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Liquidity and Capital Resources
Sources and Uses of Funds
At March 31, 2022, we had $26.0 million in cash, cash equivalents and short-term investments. Our principal sources of funds are insurance premiums, investment income, proceeds from maturities and sales of invested assets and installment fees. These funds are primarily used to pay claims, commissions, employee compensation, taxes and other operating expenses, and service debt.
We believe that our existing cash, cash equivalents, short-term investments and investment securities balances will be adequate to meet our capital and liquidity needs and the needs of our subsidiaries on a short-term and long-term basis.
We conduct our business operations primarily through our Insurance Company Subsidiaries. Our ability to service debt, and pay administrative expenses is primarily reliant upon our intercompany service fees paid by the Insurance Company Subsidiaries to the Parent Company for management, administrative, and information technology services provided to the Insurance Company Subsidiaries by the Parent Company. Secondarily, the Parent Company may receive dividends from the Insurance Company Subsidiaries; however, this is not the primary means in which the Parent Company supports its funding as state insurance laws restrict the ability of our Insurance Company Subsidiaries to declare dividends to the Parent Company. There were no dividends paid from our Insurance Company Subsidiaries during the three months ended March 31, 2022 and 2021.
Cash Flows
Operating Activities . Cash used in operating activities for the three months ended March 31, 2022 was $8.5 million, compared to $3.5 million for the same period in 2021. The $5.0 million increase was primarily due to a $9.2 million increase in ceded premiums paid during the first quarter of 2022, compared to the same period in 2021. This was due to the new specific commercial liability treaty the Company entered into as of December 31, 2021, which includes a 40% ceding commission. The increase in ceded premiums paid was offset by a $4.0 million decrease in acquisition costs paid in the first quarter of 2022, compared to the same period in 2021. This decrease was also related to the new specific commercial liability treaty the Company entered into on December 31, 2021.
Investing Activities. Cash provided by investing activities for the three months ended March 31, 2022 was $1.5 million, compared to $1.7 million in the same period in 2021. The $278,000 decrease of cash provided by investing activities was driven by a $6.7 million increase in purchases of investments during the first quarter of 2022, compared to the same period in 2021. This was offset by an increase of $5.3 million in proceeds from sales of investments and a $1.2 million increase in proceeds from maturities and redemptions of investments during the first quarter of 2022, compared to the same period in 2021.
Financing Activities. Cash provided by financing activities for the three months ended March 31, 2022 was $5.0 million, compared to $2.0 million of cash used in the same period in 2021. The $7.0 million increase was primarily driven by the Company borrowing $5.0 million on its line of credit during the first quarter of 2022, while the Company paid down a net amount of $2.0 million on its outstanding balance on its line of credit during the first quarter of 2021.
Statutory Capital and Surplus
Our Insurance Company Subsidiaries are required to file quarterly and annual financial reports with state insurance regulators. These financial reports are prepared using statutory accounting practices promulgated by the Insurance Company Subsidiaries’ state of domiciliary, rather than GAAP. The Insurance Company Subsidiaries’ aggregate statutory capital and surplus (which is a statutory measure of equity) was $62.4 million and $63.9 million at March 31, 2022 and December 31, 2021, respectively.
Non-GAAP Financial Measures
Adjusted Operating Income and Adjusted Operating Income Per Share
Adjusted operating income and adjusted operating income per share are non-GAAP measures that represent net income allocable to common shareholders excluding net realized investment gains or losses, other gains or losses, and changes in fair value of equity securities; all net of tax. The most directly comparable financial GAAP measures to adjusted operating income and adjusted operating income per share are net income and net income per share, respectively. Adjusted operating income and adjusted operating income per share are intended as supplemental information and are not meant to replace net income or net income per share. Adjusted operating income and adjusted operating income per share should be read in conjunction with the GAAP financial results. Our definition of adjusted operating income may be different from that used by other companies. The
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following is a reconciliation of net income (loss) to adjusted operating income (loss) (dollars in thousands), as well as net income (loss) per share to adjusted operating income (loss) per share:
Three Months Ended
March 31,
2022
2021
Net income (loss)
$
(2,870
)
$
(4,636
)
Exclude:
Net realized investment gains (losses), net of tax
(69
)
2,924
Other gains (losses), net of tax
(5
)
—
Change in fair value of equity securities, net of tax
280
(540
)
Adjusted operating income (loss)
$
(3,076
)
$
(7,020
)
Weighted average common shares diluted
9,707,817
9,681,728
Diluted income (loss) per common share:
Net income (loss)
$
(0.30
)
$
(0.48
)
Exclude:
Net realized investment gains (losses), net of tax
(0.01
)
0.30
Other gains (losses), net of tax
—
—
Change in fair value of equity securities, net of tax
0.03
(0.06
)
Adjusted operating income (loss) per share
$
(0.32
)
$
(0.72
)
We use adjusted operating income and adjusted operating income per share to assess our performance and to evaluate the results of our overall business. We believe these measures provide investors with valuable information relating to our ongoing performance that may be obscured by the net effect of realized gains and losses as a result of our market risk sensitive instruments, which primarily relate to debt securities that are available for sale and not held for trading purposes. The change in fair value of equity securities and realized gains and losses may vary significantly between periods and are generally driven by external economic developments, such as capital market conditions. Accordingly, adjusted operating income excludes the effect of items that tend to be highly variable from period to period and highlights the results from our ongoing business operations and the underlying results of our business. We believe that it is useful for investors to evaluate adjusted operating income and adjusted operating income per share, along with net income and net income per share, when reviewing and evaluating our performance.
Recently Issued Accounting Pronouncements
Refer to Note 1 ~ Summary of Significant Accounting Policies – Recently Issued Accounting Guidance of the Notes to the Consolidated Financial Statements for detailed information regarding recently issued accounting pronouncements.
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