Operating income is defined as income (loss) from continuing operations adjusted for net realized and unrealized (losses) gains – investments, net realized and unrealized (losses) gains – other, net foreign exchange (gains) losses, and non-recurring items.

While we believe that these non-GAAP financial measures provide useful supplemental information to investors, there are limitations associated with the use of these non-GAAP financial measures. Basic book value per common share does not reflect the number of common shares that may be issued upon vesting or exercise of dilutive securities. On the other hand, by giving effect to dilutive securities, diluted book value per common share takes into account common share equivalents and not just the number of common shares actually outstanding. These non-GAAP financial measures are not prepared in accordance with GAAP, are not based on any comprehensive set of accounting rules or principles, are not reported by all of our competitors and may not be directly comparable to similarly titled measures of our competitors due to potential differences in the exact method of calculation. In light of these limitations, we use these non-GAAP financial measures only as supplements to GAAP financial measures and provide a reconciliation of the non-GAAP financial measures to their most comparable GAAP financial measures.
Book Value Per Common Share (unaudited)
As at June 30, 2012 and December 31, 2011

(Expressed in thousands of U.S. dollars, except share and per share data)
 
As at
June 30, 2012     December 31, 2011
 
 
 
Flagstone shareholders' equity $ 836,660 $ 789,048
Potential net proceeds from assumed:
Exercise of PSU (1) - -
Exercise of RSU (1) - -
Conversion of warrant (2)   -   -
Diluted Flagstone shareholders' equity $ 836,660 $ 789,048
 
 
Cumulative distributions paid per outstanding common share $ 0.80 $ 0.72
 
Common shares outstanding - end of period 71,058,922 70,167,142
Vested RSUs   293,565   233,709
Total common shares outstanding - end of period 71,352,487 70,400,851
 
Potential shares to be issued:
PSUs expected to vest 1,010,800 1,676,125
RSUs outstanding 250,950 290,470
Conversion of warrant (2)   -   -
Common shares outstanding - diluted   72,614,237   72,367,446
 
 
Basic book value per common share $ 11.73 $ 11.21
 
Diluted book value per common share $ 11.52 $ 10.90
 
Basic book value per common share plus accumulated distributions $ 12.53 $ 11.93
 
Diluted book value per common share plus accumulated distributions $ 12.32 $ 11.62
 
 
Distributions per common share paid during the period $ 0.08 $ 0.16
 
(1)No proceeds due when exercised
(2)Below strike price - not dilutive
 
 
Operating Income (Loss) (unaudited)
For the three and six months ended June 30, 2012 and 2011

(Expressed in thousands of U.S. dollars, except percentages)
   
For the three months ended June 30, For the six months ended June 30,
2012   2011 2012   2011
 
Income (loss) from continuing operations $ 12,342 $ (32,973 ) $ 40,190 $ (181,146 )
 
Adjustments for:
Net realized and unrealized (gains) losses - investments (5,365 ) 7,905 (23,468 ) (2,866 )
Net realized and unrealized losses (gains) - other 4,990 (13,986 ) (1,393 ) (13,296 )
Net foreign exchange (gains) losses   (3,354 )     27,445       877       37,048    
 
 
Net operating income (loss) $ 8,613     $ (11,609 )   $ 16,206     $ (160,260 )  
 
 
Average Flagstone shareholders' equity $ 832,988     $ 957,849     $ 812,854     $ 1,040,819    
 
 
Annualized net operating return on average Flagstone shareholders' equity   4.1   %   (4.8 ) %   4.0   %   (30.8 ) %

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